Is The FED's Assessment Of The Economy Correct?
Yesterday Janet Yellen gave her press conference after releasing the decision to hold rates. In this press conference (see video below) Janet mentioned "due to the recent pickup in economic growth' and "continued progress in the labour market, have strengthened the case for an increase in the federal funds rate."
Janet also mentions that " our decision does not reflect lack of confidence in the economy".
If Janet Yellen and her committee within the FED believe the comments about the economy to be correct and timely, why are there are a number of US economic indicators that show that economic growth is in fact not picking up, but rather its heading in the opposite direction towards a new recession for the US economy.
Motor vehicles sales had until recently been booming for several years since the 2008 crisis lows. Consumers have been flooded with easy access to cheap loan rates up to 7 years in some cases, to purchase new cars. This has allowed the car industry to record consecutive years of sales growth in the US. This trend has now ended and has reversed with a drop in units sold falling now since 2015. (See chart below)
Industrial Production is another indicator that is giving a strong warning signal that the economy is in trouble. After topping out to close to 9% growth back in 2011, industrial production growth has been slowing down for several years and has been recording negative growth since 2015. (See chart below)
The Chicago Fed National activity index also points to a weakening economy, with the index in negative territory since the end of 2014, which happens to be the longest period without recording an official recession in 49 years.
There are many other economic indicators I could of showed you that highlight the economy is actually in contraction like retail sales, ISM Non manufacturing, corporate earnings and durable goods. However I think you get the idea what I'm saying.
Whats Going To Happen Next?
So if the real economy is declining and heading for a recession if its not already in a recession, whats the next course of action for the FED?
Bill Fleckenstein who is a professional money manager with over 30 years of experience said on CNBC yesterday, that when the train wreck shows up, the FED will be introducing QE 4.
As he believes the FED will introduce QE 4, he see's limited opportunity to short the market initially. Because the FED will rescue the market as things get worse. Rather Fleckenstein suggests waiting until the FED steps in again and the markets jump higher, to determine what to short next.
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I am a private trader and equities investor that loves the trading and investing world, following the markets and everything in between.