The Economy: The Fed ended its 2-day meeting yesterday. It was a non-event and the door has been left open to liftoff in September. This morning GDP was released and again confirmed the slow but steady growth that we’ve all come to love. As we look at the future of interest rates, The Asian crisis of 1997/98 might be instructive. During the Asian crisis, the Fed continually talked about raising rates but never did. They “talked the talk but didn’t walk the walk.” In fact, the next Fed move was to cut rates. We don’t see a rate cut this time around, simply because there’s nowhere lower to go. However, we might see a postponement to lift-off into 2016. As we’ve mentioned before, it’s not a matter of if, only when. Plan accordingly.
Food for Thought: Financial markets are sometimes disconnected from the larger economy. We’ve recently seen this in China. Chinese stocks raced ahead while their economy slowed. When the selloff came, the unprecedented intervention by the Chinese government prevented normal market activity. 25% of existing shares are still suspended from trading. Yet, talking heads are now touting Chinese stocks. Beware Chinese markets. Transparency and free markets don’t exist there.
