The Federal Reserve Open Market Committee will decidedly raise the upper bound of its Fed Funds limit to 1.75% today. At least this is what is predicted via The CME Group Fed Watch tool which puts the odds at 94.4%:
So let’s get to it, what did we learn over the past week? We were informed by Intel that its computer chips were affected by a bug that makes them vulnerable to hacking. All computers with Intel chips from the past 10 years are affected. Considering that computer chips are basically the backbone and brain behind everything electronic including the entirety of the internet itself, this should be very alarming news. We can’t say that we are surprised, we have said in many past writings that the internet itself will have to adapt to these internal threats. Not to mention the internet security threats that future quantum computing presents. To say that this news out of Intel is alarming, is quite an understatement and it’s why the future of technology will need to be completely and openly discussed by all major stakeholders. This will take a collaborative effort, one by which profits will need to be set aside for the greater good. Whether or not this can be achieved is another thing, but the viability of the internet, the Internet of Things and Artificial Intelligence comes completely into question now. Intel’s stock price barely fell 5% and why should it, if these things need to be replaced, that means more sales and of course no rebates.
Also out this week the AP reported that the FED projects $80.2 billion in remittance back to the Treasury Dept. Here is a chart of the last decade in remittance. As you can see the FED has paid back billions to its enabler, is it safe to say this is like a drug kingpin and his pushers…maybe that’s too harsh…Anyway the charts show 3 years in a row of declining remittance and one thinks we can just continue to raise rates, can you imagine this levered behemoth and its Dv01 crushing leverage if equities turn and interest rates rise?
Last week saw the final Fed meeting of 2017 and the final meeting with Janet Yellen as chair. The FED raised rates another 25bp to put the top end of the Fed Funds range up to 1.5%. This move was widely expected and priced into the markets. Here are the headlines:
- FED SEES FASTER 2018 GROWTH
- LABOR MARKET STAYING STRONG
- MONTHLY BAL. SHEET RUNOFF TO RISE TO $20B IN JAN.
- Median dot plot for 2020 rose to just over 3% for Fed Funds level
(What policy makers think is coming in the future)
Yellen doesn’t feel that the equity markets are flashing any warning signs and doesn’t feel that the markets exhibit levels one would deem “frothy.” Even though she didn’t use specific fundamentals or none at least that we can understand, it seems as if the FED simply views the upward move in the markets as “Job well done! Job well done alright, it only takes roughly $2 Trillion a year of increased global debt to keep this linear pig going, but who cares about debt, right?