Did corruption save the day? During the FOMC meeting this morning it was announced that there would be no press conference. And in all honesty, not much has been particularly worth even noting from the Federal Reserve recently. They’ve been cutting back on asset purchases with no real, credible exit plan as to how they’re going to sell them back into the market, and they’ve been toying with the idea of raising interest rates for some time now.
The conventional theory, we are told, is that the economy is solid and recovering, even though almost every macroeconomic indicator says otherwise. In a healthy economy, the rates should be raised, but there is no way that the Fed can do such a thing with the economy still not ready to take it’s cast off, let alone get out of the hospital bed. Some economist are placing the blame on corruption; are they right?
The illusion that rates will be raised remains on the table, speculated by every trader on Wall Street and banks abroad.
If rates were to be raised from their historic lows, nearly everything would collapse upon itself. Debt would skyrocket. Bonds would crash and the housing meltdown would make 2005-2007 look like a simple bruised ankle.
Yet this morning, Janet Yellen made a very interesting comment away from the public’s, to “a room full of democrats” that the rates would not be raised. Whether she meant immediately or at all is unclear.
This was reported by Senator Schumer, whose main campaign contributors include Goldman Sachs and JPMorgan Chase. This leaked comment, perhaps corrupt, to “a room full of democrats” sparked an equity frenzy that sent stocks green and back above QE3 levels.
The Dow closed at 17,417 for a 1.3% change and the S&P rose .91%. Even gold and oil seemed to like this news going up to $1,2261 and $44.57 respectively, even though commodities were lower for the week.
Looking at all the factors, it’s unlikely to see a rate hike for quite some time considering the Swiss National Bank’s (SNB) currency devaluation, geopolitical risks in Ukraine and a brand new Greek government that seems determined to pick a fight with Germany and bite that hand that feeds it.
Whether this comment can be construed as insider trading, unscrupulous, or corrupt, is debatable, but it would not be unthinkable. Frequently in the past the Federal Reserve and their favorite Wall Street Journal reporter Jon Hilsenrath have given comments to influence the daily equity markets to go green when it’s been down and investors have been considering pulling out.
There’s even a theory floating around that the Fed minutes have been leaked early to private individuals and firms before being released to the public. Why do this, to give reporters extra time to get an article published quickly after the release or to let “friends” of the Fed capitalize on the statements early, which wouldn’t exactly be a surprise. It’s almost common knowledge that gold is fixed and manipulated every morning during the London Fix. High Frequency Traders have been accused of manipulating markets and causing flash-crashes for the profit of their firms. If this is true, corruption might be too benign.
So whatever happened today almost proved that there will be no rate hikes anytime soon, and that corruption is brewing in the markets, being very doubtful that the SEC will do anything to fix it.
But one wonders what she told the “Republicans”? Did she say that rates were going to be increased tomorrow?
Written by Garrett Williams