Brexit, Schmexit! The Fed Sees a Stronger Economy.

 

150302-Impact-Brexit-BarometerFederal Reserve meetings come in two flavors: with and without a press conference, with the former coming about once per quarter. In recent years Ben Bernanke and now Chair Janet Yellen have practiced a policy not to change interest rates without a press conference.  So given that today was the non-presser variety of FOMC meeting, it surprised nobody that the Fed didn’t change interest rates today.

But much like a meeting of the Politburo or the College of Cardinals, you look for clues for what monetary policy will do in the smallest of signals. So today’s statement of the end of this week’s two-day meeting was interesting to many in that it said the economy was doing pretty darn well.

 “[L]abor market conditions have improved further even as growth in economic activity appears to have slowed. Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high.”

Interesting that the Atlanta Federal Reserve sees GDP growth for Q1 to be only 0.6% as of today, while the New York Fed sees 0.8% for Q1 and 1.2% for Q2. That Q1 report comes out tomorrow. The employment report a week from Friday is currently expected to show job growth of 215,000. That seems to be what the Fed is betting on, and it will have two jobs reports to digest before its next meeting.

Many have worried about Brexit, the vote of Britain to leave the EU, and what turmoil it will have on markets. A poll of economists in Europe warn of dire consequences of market volatility. The President has weighed in. Yet the Fed barely could mention it: “The Committee continues to closely monitor inflation indicators and global economic and financial developments.” (The underlined parts are new to the April statement from March.) No big thing.

The betting in the UK is for staying, though the betting markets make staying far more likely than polling does. That would be the calming thing. But it is possible that, with the next Fed meeting (of the press-conference type) happening nine days before the referendum, the Fed may have to change its tune before it comes to the conference room.

Or will it? I still see two possibilities:

  1. The Greek option: The British vote for exit, but Cameron negotiates only a slight separation. The pound is already separate of the euro. Britain can pull back from some of Brussels while still maintaining trade ties. Indeed, the country might well like that, if the rest of Europe will go along. Markets cheer the news.
  2. Brexit loses. Cameron wins, and markets go along as they were. The loss of uncertainty makes everyone feel better and markets rise.

The only way this goes wrong is for Brexit to be voted and for Cameron to actually move all the way out of the EU. Does anyone really believe that will happen? It would appear the Fed does not.

There are 7 comments.

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  1. BrentB67 Inactive
    BrentB67
    @BrentB67

    King, welcome back. Have you been in the witness protection program or something.

    I didn’t read the FOMC comments quite as bullish as you did and noted the absence of some previous language.

    Initial market reaction says no increase in June, but as you note a lot can happen between now and then.

    • #1
  2. King Banaian Contributor
    King Banaian
    @KingBanaian

    BrentB67:King, welcome back. Have you been in the witness protection program or something.

    Good to be back.  No, just administration work at the university.  The dean gig is eating a gigantic hole in my Internet time.

    I didn’t read the FOMC comments quite as bullish as you did and noted the absence of some previous language.

    Initial market reaction says no increase in June, but as you note a lot can happen between now and then.

    They get some immediate feedback tomorrow with the GDP report.  1/2% is baked in the cake.  I read them as being pretty strong on Q2, particularly Lockhart in Atlanta and George in KC.  She dissented again on this one.

    • #2
  3. BrentB67 Inactive
    BrentB67
    @BrentB67

    King Banaian:

    BrentB67:King, welcome back. Have you been in the witness protection program or something.

    Good to be back. No, just administration work at the university. The dean gig is eating a gigantic hole in my Internet time.

    Is “Dean” a new title or promotion? If so Congratulations.

    I didn’t read the FOMC comments quite as bullish as you did and noted the absence of some previous language.

    Initial market reaction says no increase in June, but as you note a lot can happen between now and then.

    They get some immediate feedback tomorrow with the GDP report. 1/2% is baked in the cake. I read them as being pretty strong on Q2, particularly Lockhart in Atlanta and George in KC. She dissented again on this one.

    Mrs. George appears to be stepping in to Richard Fisher’s shoes as the perma-hawk. Had to love his comments today.

    • #3
  4. James Gawron Thatcher
    James Gawron
    @JamesGawron

    King,

    It’s amazing what constantly manipulating the data can do for employment figures. I’m not really all that sure what Brexit will do long term. However, now with all the liars & parasites starting from Obama on down chirping for Brexit’s defeat I think I’d just like to see it happen for the hell of it.

    Brexit Baby. I want a divorce from left wing parasite big government. The Market will take a hit and recover in a week.

    Regards,

    Jim

    • #4
  5. David Knights Member
    David Knights
    @DavidKnights

    I pray Brexit wins, if only to save what is left of Great Britain. As for its economic effect, I doubt there will be any.

    I’ve given up long ago believing jobs numbers or GDP numbers.  They keep saying one thing while I and everyone I know keep experiencing the opposite.  Who am I going to believe, the numbers or my lying eyes?

    • #5
  6. Brian Clendinen Member
    Brian Clendinen
    @BrianClendinen

    Sorry I just think it is silly to state that the brits leaving the EU might cause market instability. The existing trade deals stay in place until June 2018 if they vote to leave. They are not going to pull out of all trade deals in the EU unless the E.U. master decide to punish them and hurt the rest of Europe’s economy by giving them a bad trade deal.

    Secondly it has been well documented in academic research but anyone stating one reason why the market is volatile up or down is probable wrong if not way over simplifying it( this is only a small minority of the time). Something that is so complex there is no way anyone can know what is happening. Explaining why the intl. market is doing what it is doing it like reading tea leafs.

    Secondly, I really don’t care what the fed says. I am in summers camp. Interest rates only can effect overall market rates over the short term a few months maybe over a year if they are major. Over the long term the market does not care what the fed interest rates are only what the supply of money is.

    • #6
  7. RufusRJones Member
    RufusRJones
    @RufusRJones

    The Fed is a bunch of commies that can’t GUESS an interest rate to actually HELP people. They are goosing everything under the aegis of stupid Ruing Class congressmen.   Tune into #kbrs on Saturday morning for my further brilliant insights. All will be revealed.

    • #7

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