{"id":39806,"date":"2016-08-23T08:00:45","date_gmt":"2016-08-23T12:00:45","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=39806"},"modified":"2016-08-22T13:22:56","modified_gmt":"2016-08-22T17:22:56","slug":"same-old-same-old-from-the-fed","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2016\/08\/same-old-same-old-from-the-fed\/","title":{"rendered":"Same Old, Same Old From The Fed"},"content":{"rendered":"<p style=\"margin: 0 0;\"><img loading=\"lazy\" decoding=\"async\" src=\"\/\/www.ino.com\/blog\/wp-content\/uploads\/2014\/12\/GeorgeYacik_Contributor_ImageBadge350.png\" alt=\"George Yacik - INO.com Contributor - Fed &amp; Interest Rates\" width=\"350\" height=\"131\" class=\"alignleft size-full wp-image-30496\" style=\"padding-top: 10px;\" srcset=\"https:\/\/www.ino.com\/blog\/wp-content\/uploads\/2014\/12\/GeorgeYacik_Contributor_ImageBadge350.png 350w, https:\/\/www.ino.com\/blog\/wp-content\/uploads\/2014\/12\/GeorgeYacik_Contributor_ImageBadge350-300x112.png 300w, https:\/\/www.ino.com\/blog\/wp-content\/uploads\/2014\/12\/GeorgeYacik_Contributor_ImageBadge350-270x100.png 270w\" sizes=\"(max-width: 350px) 100vw, 350px\" \/><\/p>\n<p style=\"margin: 0 0;\"><br style=\"clear:both;\"><\/p>\n<p>If we\u2019re to believe the financial press, there is at least a 50-50 chance the Federal Reserve will raise interest rates at its next meeting on September 20-21. I\u2019ll believe it when it actually happens \u2013 but not a minute before then.<\/p>\n<p>The Wall Street Journal story on the release of the minutes of the Fed\u2019s July 26-27 meeting last week, written by its senior Fed watcher Jon Hilsenrath, said the Fed announcement \u201csuggested a rate increase is a possibility as early as September, but that the Fed won\u2019t commit to moving until a stronger consensus can be reached about the outlook for growth, hiring and inflation.\u201d<\/p>\n<p>But haven\u2019t we heard that before? All the Fed did was provide more of the same \u201clet\u2019s wait and see what happens before we do anything\u201d prevarications.<\/p>\n<p>\u201cMembers generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labor market and economic activity,\u201d the Fed minutes actually said. \u201cMembers judged it appropriate to continue to leave their policy options open and maintain the flexibility to adjust the stance of policy based on incoming information.\u201d <\/p>\n<p>Sound familiar?<!--more--> The Fed has been saying basically the same thing for most of the past year, if not longer, to justify delaying a return to \u201cnormalizing\u201d interest rates.<\/p>\n<p>As Curt Long, the chief economist of the National Association of Federal Credit Unions, said, \u201cThe constant refrain of 'data dependency' from Fed officials loses its meaning when there is no consensus on what the data means, much less which policy course is warranted.\u201d<\/p>\n<p>About the only thing new in last week\u2019s Fed statement was that two of its most recent excuses for not moving forward had been \u201calleviated.\u201d<\/p>\n<p>\u201cParticipants generally agreed that the prompt recovery of financial markets following the Brexit vote and the pickup in job gains in June had alleviated two key uncertainties about the outlook,\u201d the minutes said. That\u2019s good to know, but there\u2019s no guarantee that the U.K.\u2019s exit from the European Union will run smoothly\u2014it probably won\u2019t\u2014or that job growth will remain relatively strong and steady\u2014it rarely has. So there\u2019s no reason to believe the Fed won\u2019t change its mind yet again.<\/p>\n<p>The release of the July minutes slightly undercut comments from William Dudley, president of the  Federal Reserve Bank of New York, who got everyone excited that the Fed might indeed raise rates as early as September. Just a day earlier, Dudley told Fox Business Network that \u201cwe\u2019re edging closer towards the point in time where it will be appropriate I think to raise interest rates further,\u201d adding that a rate hike in September \u201cis possible.\u201d <\/p>\n<p>But on further reflection, did Dudley say anything different than the Fed said in the July minutes? A little more hawkish, maybe, but again carefully hedged. <\/p>\n<p>Dudley also reiterated comments he made back in May that the presidential election won\u2019t affect the timing of a Fed move. \u201cI don\u2019t think the election would weigh on us one way or the other,\u201d he said last week. Three months ago, he intoned, \u201cWe\u2019ve proven over and over again that we can act in presidential election years, taking controversial policy decisions. We\u2019ve done that before; we\u2019ll do that again. We\u2019re about as apolitical as you can imagine, just focused on our goals.\u201d<\/p>\n<p>I\u2019m not sure I believe that one. First of all, the Yellen Fed seems deathly afraid of making any decisions, controversial or not. Second, it\u2019s hard to believe political considerations don\u2019t enter into their policy decisions. Of course, they do. If influencing the direction of the economy, the mandate of the Fed, isn\u2019t a political decision, what is?<\/p>\n<p>Meanwhile, months of Fed indecision continue to take their toll on the financial markets.<\/p>\n<p>The Wall Street Journal also reported last week that, according to statistics from FactSet, the companies in the S&P 500 paid out nearly 38% of their net income in dividend payments in the past year, the highest percentage since February 2009. The annual dividend at 44 of those firms exceeded their latest 12 months of net income, meaning they either borrowed money or tapped their treasuries to make the payments. <\/p>\n<p>While all of us holders of dividend stocks would like that happy state of affairs to continue, we have to admit that it can\u2019t.<\/p>\n<p>Is the Fed responsible for this? Indirectly, yes. By keeping interest rates so low for so long, investors have few choices than to buy dividend stocks if they want some semblance of a yield. And companies are happy to oblige, since the sputtering economy and increased regulation disincent them from investing in their own growth, plus super low-interest rates encourage them to borrow, even if only to pay dividends. <\/p>\n<p>The dividend yield on the S&P 500, now about 2.2%, stands well above the yield on the benchmark 10-year Treasury note, which last Friday was yielding less than 1.60% at current prices.<\/p>\n<p>David Rosenberg, chief economist at Gluskin Sheff & Associates, told the Journal: \u201cWhen I started in this business back in the \u201980s, you bought bonds for the coupons and stocks for the capital gains. That\u2019s been flipped around.\u201d<\/p>\n<p>If this isn\u2019t more evidence of a bubble, I\u2019m not sure what qualifies. And if we don\u2019t prick it soon, it could leave an awful mess. Hopefully, that\u2019s one of the data points the Fed is looking at. But then again, the Fed rarely sees a bubble, especially one it\u2019s created.<\/p>\n<p>Visit back to read my next article! <\/p>\n<p><a href=\"http:\/\/www.ino.com\/blog\/meet-george-yacik\/\" target=\"_blank\">George Yacik<\/a><br \/>\nINO.com Contributor - Fed & Interest Rates<\/p>\n<p><span style=\"font-size: 12px; font-style: italic;\">Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>If we\u2019re to believe the financial press, there is at least a 50-50 chance the Federal Reserve will raise interest rates at its next meeting on September 20-21. I\u2019ll believe it when it actually happens \u2013 but not a minute before then. The Wall Street Journal story on the release of the minutes of the [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[8524,8520,8521,6938,7460,230,3939,5383,5442,8522],"class_list":["post-39806","post","type-post","status-publish","format-standard","hentry","category-ino-com-contributors","tag-fed-monetary-policy","tag-federal-reserve-act","tag-federal-reserve-system","tag-george-yacik","tag-interest-rate-increase","tag-interest-rates","tag-market-stability","tag-quantitative-easing-qe","tag-the-federal-reserve","tag-u-s-central-bank"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v23.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Same Old, Same Old From The Fed - INO.com Trader&#039;s Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2016\/08\/same-old-same-old-from-the-fed\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Same Old, Same Old From The Fed - INO.com Trader&#039;s Blog\" \/>\n<meta property=\"og:description\" content=\"If we\u2019re to believe the financial press, there is at least a 50-50 chance the Federal Reserve will raise interest rates at its next meeting on September 20-21. 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