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Outlook after the breathtaking interest rate rise
It would seem that 0.25% increase is the panic response of someone backed into a corner and threatened.
It will get us nowhere.
That first jump in the stock market, which is all we have to judge effect at this time, was countered by today's red numbered day worldwide. Quarterly futures due March 15 or thereabouts have not yet been posted; but when they are, it should show slightly more than a single digit decrease as is reflected on the Bloomberg site this morning. The dollar is down on the indexq site in twenty out of 27 national exchanges just past 8 AM EST. Oddly enough, down in some instances exactly the amount of the interest rate rise! In one case it was down slightly over 1/2 of one percent. That is a steep hit even if only for one incomplete day!
What will one quarter of one percent buy us in the way of consumer confidence and demand? Not much. It will lead us to more suspicion of "select figures" applied to lead popular response into the confidence index surveys. The expectation here is that it will move sentiment in the opposite direction, unveiling the disrust habored toward the keepers of the data.
There can be no major movement toward recovery until we see more international trade; last report had an unbelievable figure of MINUS 43.0%! Whatever time frame - even year over year - that covers still makes recovery unbelievable. Interntional trade falling off is a direct indication of the trade V_L reports in local retail commerce.
It is a sorry state when we find outrselves distrusting the data published by the "scorekeepers", but that distrust has shown through in the latest move toward a definitve statement of the causes of the crisis by the group of economists calling for a consensus agreement. It was they who mentioned the "selected figures". Our statisticians have earned the distrust. A quarter of one percent increase will only strengthen that distust. It is clearly the Fed's desire to "monetize" the US debt more openly by holding the increase to the lowest possible level.
The forex response is one of the effects of a extended period of ZLB and its attempt to manipulate the cost of debt through the bond market. It will get worse and we will find our debt mounting as a result. Recall that IMF was interested in including China's currency in the basket of reserve currency, which means that China's currency will fluctuate until the markts decide how confident they are that China is willing to accept the liabiity of the "honor" - specifically carrying a current account deficit and building a larger fiscal debt. They'll discover a benefit in funding the increased debt through bonds at sligtly more favorable rates, But, also discover that they'll need to release more currency into the trade economy and it will bounce back into their domestic economy with more inflation - much in the same manner as the U$D will suffer today as the market sorts out their confidence in the dollar's strength.
If the orient believes being selected is an honor, they'll find it will take a few years before eveything is sorted out and the real effects are felt.
There are still surprises awaiting us in the reaction to the rise. It is always a longer climb back than the fall from glory.