The yes, no, maybe so game continues. Fed chair Yellen seems to have learned her lesson on tipping the Fed’s hand to the direction they are leaning for hiking rates. After stating the economy was not in the position to warrant a rate increase after the last vote, causing a tail spin in the markets based on her comments. Yellen has now offered direction, but basically that it could be in any direction. Starting last week by stating that the markets indicated a strong possibility for the first rate hike in years to take place in December, to opening up all possibilities including the option of more QE (Quantitative Easing) or even negative interest rates are possible if conditions dictate. With over $12 trillion of QE being pushed into global markets since 2008 most government bonds are trading at less than 1% with over $6 trillion currently yielding less than 0%. Again with the low rate environment the markets have no idea how to react.
We are again seeing the positive economic reports having a negative reaction with stock markets as they are deathly afraid of a tightening monetary policy. After a decent summer of retail sales the past 3 months have seen disappointing numbers. Realizing this is about 70% of all economic activity the numbers are not motivating. Decent employment numbers continue to offset the lack of positives in other areas but it is hard for one to grow without the other sustainably. Tuesday the CPI will give some indication as to the pressure of inflation and Wednesday we will see the Fed minutes from the October 28 meeting and shed some insight into the mentality of the Fed officials.