Wry & Dry

US Fed: as predictable as this morning's sunrise

After 12 months of faffing around, of waffling and flop-flipping, the US Federal Reserve decided to raise US interest rates.  On the back of, it seems, a steadily growing economy.  Hang on, the Fed now believes that the US economy will grow at a long-run rate of just 2% p.a.  This is 25% lower than that which they forecast four years ago.  They also have predicted symmetry, with inflation also at 2%.

So why raise rates?  A cynic might say they are raising rates not because the economy has/ will improve, but because it has not/ will not improve.  That is, the Fed needs to have tools in the toolkit when the economy really turns down.  The theory is: increase rates incrementally now, and then be seen to lower rates when the fit hits the Shan.

In other words, the Fed should have raised rates many moons ago.  But feared the market's reaction.  W&D's view is that the Fed, like the RBA, has roles that do not include keeping the share-market rising.

It seems like Wall Street has the Fed in its pocket.