In just under an hour the United States Federal Reserve will give their Monetary Policy statement and provide the updated interest rate. The current rate is currently 0.5% and it is widely expected that the rate will remain unchanged until December. Regardless of what they announce today, the key question is does it really matter at this point?
As can be seen in our interviews and other blog posts we are not the biggest fan of the Federal Reserve at DrinkForex. Overall, the Federal Reserve claims that their purpose for existence is to curb volatility in the economy and financial markets. It can be argued that they never have provided any sort of stability, but rather actually caused more volatility in the markets. Since 2008 the Federal Reserve has done an unprecedented amount of Quantitative Easing, POMO, and other methods to "stabilize" the economy. However, all they have really done is simply print money out of thin air. This has caused the financial markets, especially the US Indices, to not stabilize to real market rates, but rather make historic movements to the upside.
While these movements might appear all well and good, in the long run they are detrimental for investors and US citizens alike. Instead of letting the market find its true price through price discovery, anytime the market has hinted at a correction the Federal Reserve steps in. Now, they are talking about flat out purchasing common stocks! Basically, they have ran out of legal options to prop up the market so they are resorting to getting laws changed to continue this practice.
Janet Yellen- "The idea of expanding into areas like equities might be good to think about, yet is not something we need now. The Fed is more restricted in which assets it can purchase than other central banks....it could be useful to be able to intervene directly in assets where the prices have more direct link to spending decisions."
If Yellen gets her wish, the Fed would then have the ability to purchase stocks like other countries, to further help prop up the markets.
Any economist will tell you, that when the United States Federal Reserve eventually raises rates the market will enter into a correction. How much of a correction, well that is debatable. But, the market will most certainly go down (we believe very far) after rates are hiked. This of course is pending that the Federal Reserve doesn't influence the market, and lets the real market participants dictate the price. But, that is wishful thinking as what is more likely to happen is the Federal Reserve raises rates, the market starts to correct, the Federal Reserve then goes directly into purchasing common stocks and bonds, thus preventing it from having a real correction.
So, it goes back to our initial question, does it even matter what the Federal Reserve does at this point? Our belief is no, it has 0 impact on which direction the market will head as the Federal Reserve has made it clear that they are willing to Captain the sinking ship all the way to the bottom of the ocean. If the market even hints at reversing Yellen will be quick to act. And by that we mean print more money. Until one day she can't and then at that point look our Americans, you are in for one hell of a ride off the edge of the world!