US GDP Shocker Another Blow to Fed Credibility
The Federal Reserve wants you to believe that the US economy is strong enough for it to normalize its interest rate policy. And the stock market wants to believe that it has tripled since the bottom in March, 2009 because the US economy is strengthening and will soon achieve 'escape velocity'.
US GDP Shocker Another Blow to Fed Credibility
The Federal Reserve wants you to believe that the US economy is strong enough for it to normalize its interest rate policy. And the stock market wants to believe that it has tripled since the bottom in March, 2009 because the US economy is strengthening and will soon achieve 'escape velocity'. This is the illusion that has depressed gold ownership in the west and driven its price lower. After all, who needs the safety of gold when all is right with the world?
We now have enough history to expose this fairy tale. Since the end of QE in October, 2014, major stock indices such as the New York Composite have failed to make new highs, markets have become much more volatile, the decline in commodity prices has accelerated and the yield curve has flattened. That's because it was Fed stimulus that drove the market and created the illusion of economic recovery.
In an incredible interview on CNBC on January 5, 2016, former Dallas Fed President Richard Fisher admitted that the Fed knowingly "front-loaded" a market rally after the financial crisis with its QE stimulus program and now "when the tide recedes, we're going to see who's wearing a bathing suit and who's not. We are beginning to see that."
The US stock market is not falling because of China. It is falling because its basic underlying premise is false. The US economy is weak, not strong, and it is getting weaker, as we have been saying for nearly two years. Yet the Fed raised interest rates for the first time in nine years on December 16, 2015 based on a strong domestic economy.
On January 15, we got the latest GDPNow forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015...0.6 percent. This forecast, produced by the Atlanta Fed, has consistently been the most accurate. The new report reflects abysmal retail sales in December (what happened to Christmas?) and falling industrial production, among many disappointing economic measures. How exactly can Janet Yellen have it so wrong? Is this a case of slavishly following outmoded models or outright deception designed to talk up the economy and the stock market?
