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Is the Fed Losing Credibility?

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The Federal Reserve pushed back plans to raise its benchmark short-term interest rate, which was widely expected following the Jobs Report. Yet, this was not a credible day for the Fed in the least as they are starting to appear confused and schizophrenic. Fed credibility is beginning to create a crisis behind the scenes that is generating doubts about monetary policy moving forward. The Fed’s monetary policy appears to be aimlessly wondering and trying to figure out what to do with conflicting problems on both sides of the dividing line. It’s not clear if the Fed has a grip on any theory and this is revealing that those at the top, who are perceived with so much power, are helplessly a drift in a ship without sails, rigging, a rudder, or an engine.

Fed Velocity of Money May 1 2016

Fed Excess ReservesConsequently, after a two-day policy meeting, the Federal Open Market Committee emerged unanimously, voting to hold the federal funds rate between 0.25% and 0.50%, and they are paying banks to hoard cash in excessive reserves. They are in bed with the bankers who tell them they need a place to park money without risk.

The entire idea of quantitative easing was to inject cash to “stimulate” the economy, but that policy never achieved its goal and the US economy bounced back, but it was a dead-cat bounce. This has been the worst recovery in post-Depression history because they have paid bankers not to lend money. Paying bankers .50% to hoard money has caused the velocity of money to collapse altogether. European banks are shipping cash to the States and parking it at the Fed to achieve that same riskless trade.

The Fed cannot break free of the bankers to see that what they are actually doing is not stimulating the economy, but causing it to contract.

Here we have the Dow electing our Daily Bearish Reversal and gold electing a Daily Bullish Reversal all because they FAILED to show the world that they have this under control. Yet, this reaction from the markets is terribly interesting. The Dow declined because the Fed did not raise rates, and gold rallied for the same reason. This is counter-trend to the general “fundamental” expectations. The Dow was doing well with the prospect of a rate hike until the Jobs Report, and it rallied but stopped dead with the Weekly Bullish Reversal at 17800. Gold crashed but held our critical Bearish Reversal at 1206 and bounced. While the gold crowd thinks a rally is good because the market will crash, at the same time we have the Dow declining with lower rates instead of higher rates. These trends are showing extreme stress in the financial markets overall.