Janet Yellen continues to demonstrate that she is either profoundly ignorant or dishonest. Neither of those are positive qualities for a Fed Chair.
Having maintained interest rates at essentially ZERO for seven years during the Obama years, Yellen suddenly believes it would be “unwise” to wait too long to raise rates now.
It’s a bizarre claim, particularly when you consider:
- The US economy is limping along at best and entering a recession at worse (2016 GDP growth was a measly 1.9% and a the latest spate of data has all suggested a contraction is underway).
- The Fed owns some $2.4 trillion Treasuries, which would be negatively impacted by the Fed raising rates.
- There are over $555 TRILLION in interest-rate based derivatives floating around… which similarly would be negatively impacted by raising rates.
For the Fed to embark on an aggressive tightening cycle in the context of just one of these would be foolish… but when all three are in play? Either Janet Yellen is actively trying to sabotage the US economy for whatever reason or she has no remote understanding of economics (or possibly both).
Indeed, the whole notion of the US raising rates is particularly ridiculous when you compare the US’s economic data to that of Europe.
Europe is currently experiencing faster GDP growth and a more rapid acceleration of inflation and is engaging in a massive QE program.
Meanwhile, the US economy is barely growing and we’re supposed to be raising rates?
Again, this is nonsense. If Yellen persists in her folly and pushes for three rates hikes this year, she’ll unleash a stock market collapse at best and burst the US bond bubble at worst.
Chief Market Strategist
Phoenix Capital Research