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The Fed’s Cowardice is Rewarded with Financial Asset Price Mark Downs!
by: David Barker, Head Trader, LOM
Good Morning!
Yesterday, in response to the Federal Reserve’s decision to nothing with rates, Wall Street tumbled by 360 points and the USD lost further ground against foreign currencies world wide. The reaction to an abominable posturing by policy setters was somewhat predictable.
This morning the bloodletting continues with commodities prices once again soaring to new highs in the form of crude oil closing in on $142 per barrel. Gold, the traditional store of wealth in uncertain times, rose more than $30 per troy ounce and continues an underlying bid this morning, trading at $927.5.
We have argued in recent days for the wisdom of tackling the inflationary problem head on by US officials. They have deferred their action, either through a lack of understanding or through outright cowardice, and the whole world is now paying the price.
The Fed’s supposed dilemma of balancing growth against price stability is in our opinion a non-question. Business cycles and hence economic growth are exactly that; they are cycles. Growth will accelerate and falter over the course of time as will the seasons of the year. It is a natural process that cannot be changed. To attempt to artificially sustain growth through low interest rates is a recipe for disaster. While it may work for periods of time, eventually the “chickens will come home to roost”. Far better to focus on the price stability/inflation side of the equation, ala ECB, and allow the growth cycle to take its natural course of Summers, Autumns, Winters and Springs.
Yesterday, in response to the Federal Reserve’s decision to nothing with rates, Wall Street tumbled by 360 points and the USD lost further ground against foreign currencies world wide. The reaction to an abominable posturing by policy setters was somewhat predictable.
This morning the bloodletting continues with commodities prices once again soaring to new highs in the form of crude oil closing in on $142 per barrel. Gold, the traditional store of wealth in uncertain times, rose more than $30 per troy ounce and continues an underlying bid this morning, trading at $927.5.
We have argued in recent days for the wisdom of tackling the inflationary problem head on by US officials. They have deferred their action, either through a lack of understanding or through outright cowardice, and the whole world is now paying the price.
The Fed’s supposed dilemma of balancing growth against price stability is in our opinion a non-question. Business cycles and hence economic growth are exactly that; they are cycles. Growth will accelerate and falter over the course of time as will the seasons of the year. It is a natural process that cannot be changed. To attempt to artificially sustain growth through low interest rates is a recipe for disaster. While it may work for periods of time, eventually the “chickens will come home to roost”. Far better to focus on the price stability/inflation side of the equation, ala ECB, and allow the growth cycle to take its natural course of Summers, Autumns, Winters and Springs.
