With the understanding that fed funds rate changes may cause some future gyrations; in particular, I smiled as I read the numbers in the bold text below.
---A few words from the first link below: "If you take away one thing from the Federal Reserve's statement Wednesday, it's this: Interest rates are going to be low for a long time yet, but not quite as low as Wall Street expected.
The Fed raised its prediction for the key fed funds rate slightly, to 1% by the end of 2015 and 2.25% by the end of 2016. "Those are very modest rate increases. The Fed's policy objective still very, very accommodative," says Krishna Memani, Chief Investment Officer of Oppenheimer Funds."
Slightly---modest rates increases !!! Now here is where you have to check my math; as I have had a too long and busy work day, today.
My math indicates a change from .25% to a 1.00% rate is a 300% increase and to 2.25% by the end of 2016 is a 800% increase.
Would these percentage increase numbers also indicate "slightly" if this were an equity index forecast???
I must be too tired to read properly or I have entered the "Twilight Zone" or I have a math problem.
Fed funds rate increase articleCurrrent Fed funds rate = .25%Take care,
Catch
Comments
In any case, the impact of a rate increase is related to the increase in basis points regardless of whether it is at near zero or at 6 percent and the speed with which it increases. 75 basis points in 7 quarters isn't that great an increase and allows the market and economy to adjust with less distortions than the current almost zero rate.
The 125 basis points move in 2016 seems a bit too fast unless they are expecting an accelerating economy with significant inflation pressures. The Fed doing this in an election year seems a bit of a stretch to be credible. My guess is that this is just to set up higher expectations so that the minimal increase to end of 2015 is taken seriously rather than as a very tentative one with the increase having no effect.
I tried to listen to her press conference but it sounded like Fed version of the teacher from "Peanuts". "blah blah blah want inflation blah blah weather at fault for everything blah blah blah Winter is cold who could have known blah blah Oprah making tea for Starbucks blah blah blah okay that Oprah part may not have been in there blah blah blah."
I never thought I'd say this but I'd rather listen to Bernanke. Or maybe have Stanley Fischer do the press conferences instead.
A perfect quote from Greenspan that fits Yellen too: “Since I’ve become a central banker, I’ve learned to mumble with great incoherence,” Mr. Greenspan once boasted. “If I seem unduly clear to you, you must have misunderstood what I said.”