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Mike Larson is off today. His column will return tomorrow. Mike Burnick is filling in with this look at the Fed’s two-day meeting.
By Mike Burnick
No, this isn’t a review of Malcom Gladwell’s book of the same name, which is a great read by the way. But Gladwell’s story about how using instinctive judgment based on experience can lead us to better decisions rather than over-thinking things, could certainly apply to the Fed’s latest move.
Today, the Fed blinked, according to most Wall Street pundits, who widely expected the Fed to remain on track to raise interest rates sooner rather than later. Going into the two-day meeting that ended this afternoon, some speculated the Fed would remove its pledge to keep interest rates low for “a considerable period.”
|The Fed boss still patiently looking at some ‘considerable time.’|
Instead, Fed chief Janet Yellen and the FOMC moved to a more dovish stance, indicating they would be patient about raising interest rates. The Fed readily admits our economy is improving, reflected by an unemployment rate that has declined to just 5.8 percent today. That’s lower than the level Yellen’s predecessor Ben Bernanke stated as a threshold to begin “normalizing interest rates.”
Here we are, but now Yellen says she’s prepared to let the unemployment rate decline even further to help “facilitate (the) return of inflation” which remains below the Fed’s 2 percent target.
She should be careful what she wishes for.
|Click chart for larger version.|
The Fed’s dovish comments ignited a rebound rally in stocks, with the Dow up nearly 300 points today. The U.S. dollar also surged higher on the news continuing a sizeable rally. Part of the dollar’s strength is a reflection of capital flowing into the U.S. from weaker global economies. Perhaps ironically, the strong dollar could eventually cut into U.S. corporate profits, undermining our growth, as the rest of the world exports its deflation to the U.S. economy.
|“Perhaps the strong dollar could undermine our growth.”|
But I’d like to hear from YOU.
Is the Fed hopelessly behind the curve with monetary policy?
Will they stay too easy for too long until inflation replaces deflation as the biggest threat?
What’s your view? Go to the website and let us know.
|Our Readers Respond|
Mike Larson is out today. He will respond to your comments in his regular column tomorrow. Click here to comment on today’s column or on any other issues.
|Other Developments of the Day|
For a change, Russia isn’t the focus of geopolitical news today — one of its long-time allies, Cuba, takes the spotlight. The U.S. announced a major change in its policy to the nearby Communist-run island nation, saying it would restore full diplomatic relations and open an embassy in Havana for the first time in more than 50 years.
It took 18 months of secret negotiations to reach the breakthrough — talks that were hosted by Canada and conducted with the blessing and encouragement of Pope Francis. President Obama and Cuban leader Raul Castro agreed in a telephone call to end decades of hostility and to develop a new relationship, affecting cultural, personal and business matters.
The U.S. will ease travel and banking restrictions and Cuba will release 53 Cuban prisoners identified by the U.S. government as political prisoners. The Cubans will release an American contractor, Alan Gross, who had been held in prison for five years. They will also release a U.S. intelligence agent who had been in a Cuban prison for nearly 20 years. The U.S. will return to Cuba three people it had convicted of espionage.
The move, of course, ignited debates from Florida to Washington, DC, and many places in between. Proponents of the move said that 50 years of the policy had not led to any changes in Cuban policy and that a new approach was needed. They say that more contacts with Americans will lead to an increase in information received by average Cubans and give the U.S. a chance to better influence changes on the island. Opponents say that the U.S. gave in too easily and that the Cubans gave up very little to gain the benefits of increased business connections with U.S. businesses.
The issues on both sides are too numerous to list here, but readers of Money and Markets will certainly have something to say on the matter. What’s your view? Did the U.S. do right by opening relations with Cuba? Or is it still too soon? Will it help/hurt hopes for democracy there? Do have you any personal/business interests? Have you visited the island? Click here to add your viewpoint.
Meanwhile, yes, Russia was also in the news. Well, at least Vladimir Putin was. The Russian president is battling collapsing oil prices and a crumbling currency, along with an economic crisis helped by Western sanctions. But that hasn’t seemed to dim his citizens’ admiration for him. Putin was named Russia’s “Man of the Year” — for the 15th year in a row!
Putin received 68 percent of the public vote in a poll of 1,500 Russians from throughout the country. Any bets on next year’s winner?
Remember, you can comment on these or any other matters by clicking here.
The Money and Markets team