The FED Apathy and Its Dire Consequences

The High Drama

The high drama and suspense around the possible outcome of the two day
FOMC meet boiled down to Janet Yellens obvious apathy to outline the
specifics of the event itself. The Fed fell way short of the conviction required
to convince world markets that the US economy was back at its best and could
perform even in the face of global headwinds. After headlines beamed on
television screens across the world that the FED had decided to leave rates
unchanged,
Janus
Capital Fund Manager
Bill Gross was quoted
saying Im choked
with emotion and
hardly able to speak.

U TURN
A little over a fortnight
back, Chair Yellen was
at her Hawkish best at the Jacksonhole Symposium where she went all out and
declared that there could be two possible rate hikes in 2016. Even more
surprising is the fact that the FED lowered its forward guidance yesterday to
0.6% by the end of 2016 from 0.9% which it had laid out in the month of June.
A quick look at the US economic data reveals that the Countrys
unemployment rate stands at an impressive 4.9% while CPI figures stand at
1.1%. In its last report the US Labor department declared that 151 thousand
new jobs were added which was well above the average of 135 thousand since
July 2015. The countrys core CPI numbers excluding Food and Energy is
hovering around the 2.3% mark which is a screaming indication that the
Federal Reserve is relying heavily on the Energy Sector to deliver, before it

can actually raise the rates. It is not surprising thus that American investor
Wilbur Ross, also known as Economic Advisor to Donald Trump is betting big
on Crude Oil and the Energy Sector.
Housing Stats
A recent survey conducted by the National Association of Home Builders
revealed that builders are growing in confidence about single-family homes.
Data also suggests that the US Housing Market has grown at a fair pace this
year backed by steady job growth, wage gains and lower rates on mortgages.
The Federal Reserve thus has no reason to hold its fire, if at all they are data
dependant. Analysts are convinced and so are Global Markets that the Fed is
more Market dependant and they clearly look like standing on sticky ground
with US elections round the corner.
Consequences
For the United States and a major part of the emerging world, the Feds apathy
could end up in Economic Disaster all over again. Near zero interest rates over
a prolonged period of time could end up in asset bubbles. Even as the Global
energy market is struggling with steep demand constraints, the US energy
market is quickly restructuring the way it operates its energy sector. Lower
cost of production would call for lower wages among other things. Lower
wages lead to lower consumer spending which in turn would impact other
sectors as well. The easiest solution thus is keeping interest rates low until the
Economy shows real signs of recovery with inflation hitting the 2% target.
That sounds like an interesting loop for yet another asset bubble to kick start
a fresh round of monetary easing.

Disclaimer
The investment advice or guidance provided by way of recommendations, reports or other ways are solely the personal
views of the research team. Users are advised to use the data for the purpose of information and rely on their own
judgment while making investment decision.
Dynamic Equities Pvt. Ltd - SEBI Investment Advisory Reg. No.: INA300002022

Disclosure
Dynamic Equities Pvt. Ltd. is a member of NSE, BSE, MCX SX and a DP with NSDL & CDSL. It is also engaged in Investment
Advisory Services and Portfolio Management Services. Dynamic Commodities Pvt. Ltd., associate company, is a member of
MCX & NCDEX. We declare that our activities were neither suspended nor we have defaulted with any stock exchange
authority with whom we are registered. SEBI, Exchanges and Depositories have conducted the routine inspection and
based on their observations have issued advise letters or levied minor penalty on for certain operational deviations.
Answers to the Best of our knowledge and belief of Dynamic/ its Associates/ Research Analyst: DYNAMIC/its Associates/
Research Analyst/ his Relative:
Do not have any financial interest / any actual/beneficial ownership in the subject company.
Do not have any other material conflict of interest at the time of publication of the research report
Have not received any compensation from the subject company in the past twelve months
Have not managed or co-managed public offering of securities for the subject company.
Have not received any compensation for brokerage services or any products / services or any compensation or
other benefits from the subject company, nor engaged in market making activity for the subject company
Have not served as an officer, director or employee of the subject company

Article Written by
Shivaji Ghata