Federal Reserve Raises Interest rate .25 %. Breaking News. Newsflash- Feb 18, 2010

Marc's Notes:

 

BLOOMBERG STORY: Federal Reserve Hikes Interest Rates .25 %

http://www.marketwatch.com/story/fed-raises-discount-rate-to-075-from-05-2010-02-18?dist=news

What a surprise. The FEDS jack the overnight rate .25 %. I thought this would be long in coming, but the .25 % is no surprise as far as how much. The question now becomes WHY DID THEY DO IT?
There are only 2 reasons why they would do this so SOON in the recovery (which it aint), and that is CHINA is no longer buying our debt (treasury sales) meaning the US dollar is losing steam AND inflation is appearing more then would like. It is an interesting move. It really is all fluff and little substance. Its more like a foot stamp by an angry elephant. The economy cant take any rate increases of substance and I said you might see a quarter of a point, but I doubt you will see much more. They want to see if their "threat" and minor jolt will calm the US dollar and the CHINESE. It is also testing the waters to see what happens. Its an interesting move but one that leads me to believe they see something and don't like what they see. Otherwise they would not chance putting out the glowing embers of the dinky recovery and risk blowing up the housing market relative calm. I think the markets will digest this move with the help of the FED. They are at the ready and you can be sure an ARMY of traders with DEEP POCKETS are standing ready to do whatever is necessary to make sure the markets response to this is kept under control.

For now, the US DOLLAR is strengthening and gold is falling. These are both to be expected in a rate increase. It will be interesting tomorrow. Usually stock markets do NOT like rate increases, but such a small one might not move them much. It may also signal the US is serious about the US dollar and addressing inflation. This is most likely as I said a bluff with a foot stamp. I highly doubt they will be able to raise rates more then a few quarters IF THAT.

I do NOT expect another increase any time soon, but if we do see one, it will mean they DO SEE SOMETHING they do NOT like and that will be alarming. You will NOT see what they see until it hits us with a thud, but trust me, there is SOMETHING they see and "it" is coming towards us.

Great show today on if you should stop paying your home mortgage. If this has crossed your mind, this show will be available next week on the website.

 

US COMPTROLLER DAVID WALKER'S interview show # 65 will be available FREE on the site in about 2 weeks, replacing show # 2 which is FREE now. Download #2 while you still can otherwise it will no longer be up there in a week or 2.

 

All for now, expect these newsletters to increase if the markets start to react.

Marc

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