Critics are roundly denouncing the Fed’s latest failure to launch as gutless, feeble-minded insanity. And, they’re right. There will come a time when the folly of not doing more to stave off the inflation part of stagflation is obvious.
But, for now, the only data they’re dependent upon is the “market.” And, all the major futures and currency pairs we watch are responding exactly as expected. The weakness in equities over the past several weeks was all about holding the Fed’s feet to the fire. With SPX perched on the precipice of critical support, a rate increase was most unlikely.
As I wrote several days ago in What to Expect:
By keeping stocks at or near support, they’ve made the Fed think. And, if they’ve played their cards right, they’ll make the Fed flinch. At a few points above last year’s highs, there is no room for a decline. Any decline. They sacrificed a few months of rising stock prices for a few more months of ZIRP.
Congrats to those of you who hung in there for the payoff. To those who didn’t, repeat after me: “USDJPY is only a tool. USDJPY is only a tool…”
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