It is being said today’s FOMC announcement is “the most important of Yellen’s tenure”, I could not disagree more. In the past I have written pieces regarding the potential announcements by the FOMC and come to the conclusion “what can they possibly say?”. This is more true now, Janet Yellen et al cannot “say” anything of substance because they cannot “do” anything of substance. The Fed backed themselves into a corner of their own making several years ago, I believe it is only a matter of time before the markets “test” them.
What options does the Fed have? Can they raise interest rates at all? Can they tighten credit at all? Can they really go the other way and institute truly negative interest rates? The answers are all NO, they are “frozen” of their own making and have only one option (really two in tandem). The Fed can only remain in place with interest rates nonexistent and must continually create (fund) debt and grow money supply while a Treasury arm, the PPT must guide, massage and dampen volatility of markets …ALL markets. The only thing currently being discussed is “when” will the Fed tighten? I would ask, when will QE 4 be instituted? The answer of course is when the markets seriously begin to implode again which may not even be more than a calendar month or two away.
I am sure a part of their statement will include oil and energy prices. This is a market they cannot heal with monetary policy. The volatility has already occurred and the dead bodies already exist though we don’t yet know who they are. The dilemma the Fed has is they have no tools left other than outright support once markets begin to collapse. Their QE policies have already been seen as ineffective at supporting the real economy other than stabilizing decline. My question is this, when QE 4 becomes a necessity, will the markets “buy it” or will the phrase “three strikes and your out” come into play? What once worked to turn the real economy from contraction to recovery to an actual growth phase now has no power. The Fed only has an accelerator so to speak, the brake pedal is off limits. I have written many times on “velocity” and why it continues to decline. This is the sticking point, the money they create is being hoarded by the banks and not reaching Main St.