Time for less conversation, more action from the Fed

• Posted by Greg Harmon
• on December 16th, 2015

Elvis said it best

A little less conversation, a little more action please
All this aggravation ain’t satisfactioning me
A little more bite and a little less bark
A little less fight and a little more spark
Close your mouth and open up your heart and baby satisfy me
Satisfy me baby

After 15 months of jawboning about an impending rate hike the FOMC is expected to deliver today.  Fed Chairman Janet Yellen  all but said last week that it was going to happen.  So what does this mean for the markets if they deliver?

First, the cloud of uncertainty will be lifted.  That can be a big anchor on the market.  I do not know which way the equity market will move in the short run.  But I take it as a positive sign for the market that after the news filled week last week that the market did not go into free fall.

Treasury prices will go lower.  At least on the very short end.  As for Bonds, they look set up for higher prices.  How can this happen?  The Fed controls short term rates.  Long term rates are thought to be based on a combination of inflation expectations and a risk free premium.  If the market expects a strangle on inflation it is easy to see how a minimal rate hike could lead to higher prices.

The dollar will look like a much better place for foreigners, especially in Europe, Japan and China where their economies are struggling, to place their money.  This could easily lead to another leg higher for the US Dollar Index.

How certain am I about an of this?  Not very in the short run.    Sentiment and long placed theses may take some time to adjust.  The only thing you can do to prepare is have a plan on how to react to what you think may happen.  If it does happen then you are set to execute.  If it does not then you should be ready for that too.

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