Risks of ‘destabilizing’ markets –  has been one major perennial excuse foreseen by the opponents of ‘normalizing’ rates. Never have so many fretted over such a little shift, perhaps in monetary history; including members of the Federal Reserve itself. 

Everything has factored into the arguments; from forestalling until after Elections, to a suspicion this has been so delayed that it endangers hiking right into a recession. Of course with this past week’s downward revision of final Q2 GDP, evidence of sloppy economic reporting (such as housing and autos, spun to suggest stronger activity in some areas), is evident within what at best remains a mixed business environment.

This weekend we have a stock market that clearly responded ideally to Jackson Hole comments by Chair Yellen and Vice Chair Fischer (by dipping initially; rebounding for a perfect amount of time to allow us to short a full new guideline as we indicated we’d do Thursday based on a suspicion that even if they took it down it would rebound just a good bit before working lower). (Simply put: we anticipated the market’s behavior on Thursday evening’s report; and thus a rebound in the morning allowed a good short.)

The only point that needs to be made (as I did in videos all day Friday for traders) is that Fisher did not express ‘his’ view differently. Listen to the words he actually said; not the interpretations by reporters or analysts. He said there was nothing the Chair said that wasn’t inline with conditions supportive of hiking rates. That’s also my view of her remarks; and that’s why reporters jumped at the chance to focus on her hedge later in her comments; and not the initially ‘sort of’ hawkish tone. 

All of this went as we had ideally expected; ever since NY Fed President Dudley, at a gathering the prior Friday, also spoke to the prospects for snugging-up rates. What I’d said during the whole week was that it wasn’t ‘would she or wouldn’t she’, but rather noticing how Dudley voted against a rate hike at the July FOMC Meeting; and changed his perspective just last Friday. Hence a hint of the core elements of the Fed leaning towards firming. We also repeatedly noted that 8 of 12 voting members of the FOMC had voted to hike at the July Meeting. So at the time Yellen and Dudley basically just overruled the 2/3 majority vote in-favor of a hike.