Better Late Than EarlyBy Bob Andres | Apr 08, 2015
‘If the Fed is data dependent no conclusion on when rates will be normalized can accurately be forecasted. The market wants guidance from a Fed that is not in a position to provide guidance or clarity. They simple don’t know’. What we do know for sure is that the Fed has a strong desire to normalize interest rates under the right conditions. What we also know for sure is that they had no forward guidance on last weeks surprising weakness in the labor market. If you buy my last comment you need to understand my emphasis that they are “data dependent” and its impact on the timing of a rate hike. Despite this, the talking heads are busy debating the rationale for June, September or December. Why would any investor listen to Wall Street forecasters knowing their proclivity for lousy prognostication? The Fed itself has been “patient” and cautious for good reason – current GDP trends (Q4 +2.2% – Q1 estimate +1.2%) are not favorable and when you add labor market uncertainty the prospects for an early rate hike are decreased substantially in my view. The Fed knows that a policy of “better late than early serves their economic and political interest the best. I believe the emphasis on the first move is overplayed and investors would be better served by focusing on the broader economy to assess whether a true inflection point regarding interest rates is at hand. The bond market continues to tell us that it is not. The one caveat to all of the above is that the Fed will be required to manage the process of an initial rate increase with finesse and transparency so as not to spook the markets and dramatically increase volatility. Can they pull it off? Maybe they should have raised rates during March Madness when no one was looking. Just remember it’s a committee decision.