by Dave Kranzler, Investment Research Dynamics:
Last week I suggested that if the Fed nudged up the Fed funds rate, it would likely trigger a pop in stocks and precious metals. The reason is twofold. First, the markets would be relieved that lunacy surrounding the event was over – a “relief” rally, if you will. Second, it’s obvious to everyone, the Fed inclusive, that the economy is tanking. The stock/precious metals rally after the hike reflects the view that the next policy move by the Fed would be a reversal of today’s decision plus more money printing.
Paul Craig Roberts and I spent a few moments discussing the mechanics of Wednesday’s decision by the FOMC to raise rates. The product of our discussion was his insightful commentary about the ramifications of the FOMC’s decision to hike:
What Does Today’s “Rate Hike” Mean?
Paul Craig Roberts – The link to his article here: What Does Today’s “Rate Hike” Mean?
The Federal Reserve raised the interbank borrowing rate today by one quarter of one percent or 25 basis points. Readers are asking, “what does that mean?”
It means that the Fed has had time to figure out that the effect of the small “rate hike” would essentially be zero. In other words, the small increase in the target rate from a range of 0 to 0.25% to 0.25 to 0.50% is insufficient to set off problems in the interest-rate derivatives market or to send stock and bond prices into decline.
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