” “Did The Fed Just Tighten?”
This is the hot new question more and more people are asking.
The reason people are asking that is this: Last week, the Fed announced that it was getting rid of its guidance that it would hold rates low until 2015, and that it would instead aim for low rates until unemployment was around 6.5% or inflation expectations were around 2.5%.
The growing chatter is that we could start seeing these thresholds before 2015, particularly if the economy gets out of the liquidity trap, and returns to trend or above-trend growth, as today’s GDP report suggests is beginning to happen.
That specific question ‘Did the Fed just tighten?’ is asked by BofA/ML’s Chief Investment Strategist Michael Hartnett, in his new note on “Contrarian thoughts” for the year 2012.
He notes:
We find the change in the Fed’s “exit strategy” from its zero interest rate policy from late-2015 to an economic threshold of unemployment below 6.5% (and manageable inflation) to be very interesting. In our view, this brings into question the expectation that high liquidity is here to stay, and is perhaps a reason why gold prices have struggled this year….”
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