The Dovish Pause

"However, inflation pressures seem likely to moderate over time, reflecting
contained inflation expectations and the cumulative effects of monetary policy
actions and other factors restraining aggregate demand"


I got this totally wrong. As the money quote above shows — not only did we not get a 1/4 point hike, we didn’t even get Hawkish comments.

After the initial market pop, we quickly rolled over. Nasdaq flipped negative, as did the SPX a few moments later. The Dow gave up all 45 points it rallied after the announcement, and then turned negative.

Does this mean the market does not believe the Fed?

As we noted on Monday: Careful What You Wish For — perhaps the Fed should have raised after all . . .


Here’s the full policy statement:

The Federal Open Market Committee decided today to keep its target for the
federal funds rate at 5-1/4 percent.

Economic growth has moderated from its quite strong pace earlier this year,
partly reflecting a gradual cooling of the housing market and the lagged effects
of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months, and the high
levels of resource utilization and of the prices of energy and other commodities
have the potential to sustain inflation pressures. However, inflation pressures
seem likely to moderate over time, reflecting contained inflation expectations
and the cumulative effects of monetary policy actions and other factors
restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The
extent and timing of any additional firming that may be needed to address these
risks will depend on the evolution of the outlook for both inflation and
economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman;
Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn;
Randall S. Kroszner; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.
Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis
points in the federal funds rate target at this meeting.

2006 Monetary policy

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What's been said:

Discussions found on the web:
  1. ss commented on Aug 8

    GREAT job FOMC.

    The market will digest this well….it’s the 3rd equity move that you trust.

    UP….down….then UP!

  2. Richard commented on Aug 8

    the fed has once again shown itself to be using kid gloves when it comes to inflation. they better hope the tea leaves are correct or we could be looking at 50bps hikes in the near future.

  3. Craig H commented on Aug 8

    “partly reflecting a gradual cooling of the housing market”

    Bernanke to housing market, “Quit your whining, you’re the sacrificial lamb.”

  4. Sherman McCoy commented on Aug 8

    Wimps. 9-1 voting on the pause too. Could we please get some adults to manage the Fed? Please?

  5. Jack commented on Aug 8

    I took the bounce as an opportunity to short HAL, given what I remember you saying about markets tend to perform poorly after the Fed halts its increases.

  6. albiegf13 commented on Aug 8

    Ummmm…. I wonder how the dollar is doing….

  7. M.Z. Forrest commented on Aug 8

    The dollar briefly got drummed, bounced, and is getting drummed again. Kind of the inverse of the Dow: bounced, drummed, bounce.

  8. foo commented on Aug 8

    At this time the Fed can’t do anything about inflation.
    Inflation is baked in the cake by commodity prices of the past few quarters and profligate fiscal policy of the past five years.

    Option 1) Raise rates and then have everyone raving about armageddon when inflation happens.

    Option 2) Pause and then stoically stand back and take the flak for the inflation while maintaining the market’s faith that they could do something about it going forward.

    The Fed chose option 2. By pausing the rate hikes they set themselves up to at least maintain the illusion that they could have done something. From the point of view of preserving their institutional cred, this was the only viable option.

  9. wcw commented on Aug 8

    I think the market said, in order:
    – Pause! (brief pop)
    – he used the word ‘inflation’! (brief dip)
    – omg he’s totally kidding! (rebound)

    I think participants will be confused for a while. Except for the dollar — that’s dropping and should drop more.

  10. RW commented on Aug 8

    From the standpoint of cred the “pause but not necessarily done” phrasing is suggestive of a Fed that may no longer see much benefit in Greenspan’s gradualism. Raises the distinct possibility the next FOMC move is NOT going to be a quarter point.

  11. Trend Watcher commented on Aug 8

    The money sentence is hard for me to reconcile with the data you have been posting here at The Big Picture.

    “However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand”

    Barry: Are you seeing any currently visible indicators or trends that would support inflation pressures moderating over time”?

    I liked the plausible deniability of the language “reflecting contained inflation expectations” where the person holding these expecations is not mentioned – maybe it’s the tooth fairy.

  12. jw commented on Aug 8


    I don’t think you were that far off the mark:

    “The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.”

    really, just good politics: they left a door open for future hikes that you could drive a mack truck through.

    the fact that Bernanke’s guessing a slowdown is coming– which SHOULD dampen inflation expectations- is no different than a half dozen incorrect predictions I can think of, off top of head, that Alan Greenspan made over the past few years (ie, commodity prices will subside).

    Regardless, the Fed takes its cue from the bond market. The bond market said pause, so they paused.

  13. HT commented on Aug 8

    Would have expected a gold rally with this decision. Perplexed.

    1. Mr Market thinks the fed got it right and inflation is in the rear view mirror

    2. The adults haven’t placed their bids yet.

    Given dollar weakness, and rising real inflation [in my view], i vote for #2.

  14. babycondor commented on Aug 8

    Perhaps the market is reacting to this ominous phrase:

    “factors restraining aggregate demand”

  15. Craig H commented on Aug 8

    No rally in the 10 year bond. It sold off. That’s interesting.

  16. Brian A commented on Aug 8

    You could interpret this latest move as the best of several bad options, if you believe that we’re headed for a recession later this year, early next year.

    Yes, I know that the Fed is chartered to manage inflation and employment, but does anyone really think that the spectre of a recession during an election year does not factor into their thinking?

  17. Royce commented on Aug 8

    Guess the pause was baked into the market, with maybe a little expectation of a permanent pause.

  18. Mark commented on Aug 8

    Yep. They didn’t get their “We are stopping” language AND the 9-1 vote means it was a bit “spirited” around the table in the discussion. You can bet a quarter point got a good hard look (Sorry, Fed Funds futures) and that others went along with the vote just for protocol even though they argued for the raise.

  19. M.Z. Forrest commented on Aug 8

    The big question: Do we get volume tomorrow and a trendline?

    Even with the gyrations, the volume is still weak.

  20. Mark commented on Aug 8

    “GREAT job FOMC.

    The market will digest this well….it’s the 3rd equity move that you trust.

    UP….down….then UP!”

    What about the FOURTH move?

  21. Craig H commented on Aug 8

    100 point descending triangle on the $INDU 1 minute chart.

  22. j d ess commented on Aug 8

    inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand

    by putting the “contained inflation expectations” first, “cumulative effects of monetary policy” is de-emphasized. then the allusion to “other factors” nicely confuses matters (which other factors?).

    the real point, nicely obfuscated, seems to be “as we guide the economy through this recession, prices (i.e. your wage, your home, whatever else you need) will stabilize. don’t buy anything ya don’t need, k!”

  23. tjofpa commented on Aug 8

    There goes the TRANNIES… under 4300.
    Look out beloooowwww…

  24. PeterB commented on Aug 8

    LOL, I had copied that money quote myself and was ready to post it here in my comment. “Likely” to moderate? Good grief, it’s just getting rolling.

    With regard to precious metals, does anyone think that bankers are out in force this week keeping a lid on gold and propping the dollar? I expect they carbed up pretty good last night.

  25. Stan commented on Aug 8

    You have a great blog here. I am a newbie to the blogging universe and thought I would mention that pointing out your blog was my first post. Hope you don’t mind.

  26. qw commented on Aug 8

    SS says:

    “GREAT job FOMC.

    The market will digest this well….it’s the 3rd equity move that you trust.

    UP….down….then UP!”

    I like dissent as much as the next guy and I am really just trying to figure out which way things are going here. Granted SS is one of the few bullish voices on this board. But recently and most obviously by the post above he is being shown to be a pure cheerleader. One who has bets and clients that depend on the market going up and therefore just makes arguments for it going up purely to satisfy his wishes for it to do so.

    It appears the 4th move was the one to trust here SS.

    And to use the reverse of your biased capitalization scheme.

    up …. DOWN …. up …. then DOWN!

    Notice the power of the down moves versus up moves too. The power so far today has clearly been in the DOWNs not the ups so why capitalize the up. Sorry I forgot, thats what cheerleaders do. Screem for their team. Scream away.

  27. Craig H commented on Aug 8

    Head and Shoulders top on $SPX 60 minute chart. It measures down to 1255, but there should be some support at 1265.

    I’m so glad I didn’t fall for the bullpucky and kept my puts.

  28. Craig H commented on Aug 8

    Watch the trannies. Low on 8/1 was 4265.51, but the closing low on the move down from May was 4295.23.

    We could be getting a new closing low there.

  29. JDamon commented on Aug 8

    OK, foo mentioned above that there is already inflationary pressures baked into the system. This is absolutely true as I work in the manufacturing sector where commodity and trans. costs have skyrocketed. We are getting price increases (food sector) to offset some of these costs.

    Now, if oil/commodities stabalize and do not rise much further than where they are now, we will not need to push for higher increases. Raising rates would do NOTHING for the inflation already in the system. If raising rates impacted Oil and Commodity prices, than I would be all for raising rates, but they don’t so I was for a pause.

    That being said, the level of pessimisim in America, the Market and the world in general is so high that nothing will get this market to move up right now. I do think we SHOULD be moving up, but since we are not all bets are off until either oil falls or the middle east problem sorts itself out. I still see Q3 profits as absolutely booming, but the Market doesn’t seem to care about them anymore. It is setting itself up for Aarmagedon.

  30. laffingstock commented on Aug 8

    I think McTeer had it right, the Fed “can’t bring down crude prices by raising rates.”
    Their intent is to curb inflation by taking the speculative bent out of the housing market.
    Well, they have that going on a down hill run.
    Most realist would agree the Fed probably will not be able to fix the inflation/stagflation
    conditions developing in the U.S. with a tweak here and there.
    The stock, bond and gold markets are trading these talking points, and waiting for a bit more
    air to come out, when their tweaks and bs will have no merit.

  31. Craig H commented on Aug 8

    Of course the Fed can bring down crude prices by raising rates.

    If they slow the economy down, energy demand falls, as does our appetite for Chinese imports, slowing their economy down and reducing their energy demand.

    I don’t think inflation gets under control until oil breaks down, and we’re a long way from there, especially with a Fed that’s trying to delay the recession until after the elections.

  32. ss commented on Aug 8

    “It appears the 4th move was the one to trust here SS.”

    Lol…a torrets market is tough to time.

    Ask yourself this…what is LEAST expected market move…and will hurt the most traders? That’s where the market’s going.

    My bet is higher. (and that’s no cheer)

  33. JDamon commented on Aug 8

    Craig, how does raising interest rates in the US impact oil demand in China, India and the rest of the developing world? I’m really interested in hearing the answer.

    Also, just because there is a slowdown here in the States doesn’t mean people won’t still need to drive, heat their homes, take business flights, etc. McTeer had it dead right.

    The Market is down due to extreme pessimism, 6 year of presidential cycle and the fact that most Hedgies (who are driving the market right now) profit by stealing the retirement savings of hard working Americans by shorting the markets. Those are the facts.

  34. Alaskan Pete commented on Aug 8

    We sure as hell ain’t getting there with half of Prudhoe offline.

  35. Craig H commented on Aug 8


    Because we import more than we export and a lot of what we buy (goods and services) come from China and India etc… When we buy less, their factories produce less, and they have less money to buy energy.

    So the evil shorts are stealing people’s retirement funds? Funny, but you never hear people complain about when hedge funds run stocks up.

  36. Leisa commented on Aug 8

    Ben does not get his mail in inflation fighter card and certainly no “IF” tee shirt. Dovish language was a surpise, not the pause. Nevertheless, he does get a complimentary gift: moc-croc “IF” cosmetic bag. Lots of neat stuff inside–gas and food receipts, but what will really be coveted is with a nifty mirror to spot inflation in those hard to see spaces.

  37. Josh commented on Aug 8

    Barry, this is what’s come from smart money and it appears to go against what you have found.

    “Bank of America recently analyzed 20 tightening cycles over the past 50 years and found that the S&P 500 rose consistently during the 12 months after the Fed stopped tightening. For the period 1989-2006, the large-cap index rose an average of 17.4%, as opposed to 8.9% during the 12 months before the Fed stopped. ”

    From this url:

    Anyone care to comment?

  38. Bynocerus commented on Aug 8

    Glad to know I’m “stealing the retirement savings of hard working Americans by shorting the markets.” I never realized that the < $10 B worth of short sellers, representing less than 10% of the assets in Total Return, Growth Fund of America or Magellan, individually, could take down the > $10 T in hard working Americans retirement acounts. It’s not David V Goliath, it’s Squirrel V Goliath armed with an M2HB.

    It’s also quite intriguing to learn that the, given the amount of long only money out there, the market going up would hurt the most people. JDamon and SS’s comments seem to contradict each other, so settle up boys.

    –Still dumb for shorting the opening move Friday AM

  39. T commented on Aug 8

    There’s nothing fundamentally “wrong” with shorting and I’ll never understand people who say it’s “unamerican” or “stealing” etc, unless they just don’t understand the market. Having the ability to short is key to liquidity, and in particular to preventing long-only speculation bubbles (see: tulips). Markets that lack an effective way of shorting are far more subject to a bubble/burst cycle (see: real estate) because they just keep rising based on the marginal bid until all bids are exhausted.

  40. Mark commented on Aug 8


    You are just jealous cuz you don’t know things like “a torrets market is tough to time” and “it’s the 3rd equity move that you trust” and why going long AAPL when it’s involved in an options scandal is a great contrarian play (down another 3.6% today).

  41. albiegf13 commented on Aug 8

    Craig H:

    i agree with you on a very moderate scale. overall demand in energy will rise as supplies diminish… both nigeria and mexico are begining to look strained in this area… hikes in rates may buy us some time, but the structure remains the same.. more demand, diminishing supplies…. there is no way that the Fed can avoid politics in today’s environment. they made the correct political move. the question is, will the markets spank them. it could get very ugly… i guess that greenspan bailed just at the right time. paulson has really got his job cut out for him and i wish him the best of luck because he is going to need it…

  42. qw commented on Aug 8


    “Ask yourself this…what is LEAST expected market move…and will hurt the most traders? That’s where the market’s going.”

    You think the market going higher is the least expected move? You must think this blog represents the collective opinion.

    “My bet is higher. (and that’s no cheer)”

    This is clear and follows the typical pattern. Place your bets and then extol their virtues.

    I don’t know which way its going and enjoy when I find the rare post here that is not full of confirmation bias. Most of the post saying how inflation is out of control and housing will crash and the market is going to tank are nothing more than cheerleading often based in hatred of many things about our current economy and government. Unfortunatley I have not found your posts to be anything but the kissing cousin on the upside.

  43. tjofpa commented on Aug 8

    Yep Craig, new low, 4288. I’m making an ovr/und on upgrades of transport stocks tomorrow morning of 3 1/2. Which side u want?

  44. Bynocerus commented on Aug 8


    Glad to know that four tightening cycles in 17 years makes a data set. Those three degrees of freedom really narrow those tails down, huh (sarcasm alert)?

  45. Mark commented on Aug 8

    “We’ve examined 50 years of data. Let us tell you about the last 17…”

  46. Bynocerus commented on Aug 8


    I’m still waiting for Barry to hook me up with an appearance on CNBC. Every time they came to me to give my opinion on interest rates, oil price, inflation, etc, I could just respond with “I’m short/long, so anything I say will simply be a justification of the way my money is positioned. With that in mind…”

    Still waiting on GLD to do something of interest.

  47. ss commented on Aug 8

    Individual investors are predominately on the sidelines….Sitting safely at 5%. They would chase higher (when it breaks out).

    Hedgefunds are BEARISH (look at any sentment indicator)

    Do YOU think most investors/traders believe the market now rallies? This is a direct question qw.

  48. qw commented on Aug 8


    I don’t know how to analyze the returns after a fed pause. Barry has posted data that contradict those findings entirely but I can’t confirm them.

    What I can do is confirm interest rate moves. The article made the following claim:

    “The Fed has never paused in a campaign to raise rates. Sometimes it has held rates constant for several meetings, but the next move has always been a cut.”

    This statement since that every fed rate raising campaign results in a raise at every meeting and as soon as they don’t raise at a meeting the next move has always been to eventually cut.

    This is just patently false. In both of the last 2 prior rate raising campaigns there were multiple pauses on the way up.

    In 1994 the federal reserve raised rates 50 bps on May 17 and then did nothing at the next meeting (meetings occur approximately every 6 weeks), i.e. pause, and waited 91 days and then raised another 50 bps on August 16th. Then they paused again at the next meeting and raised a final 75 bps after another 91 days on November 15th

    In 1999 The fed raised 25 bps on August 24 and then paused at the next meeting waiting 84 days to raise anothe 25 bps on November 16th. They then paused again at the next meeting waiting 78 days to raise another 25 bps on february 2nd. This was followed by 2 more 25 bps raises at both of the next 2 meetings before they halted.

    So while I can’t analyze his statement about the return of the markets after the fed pause I can say definitively that he could not possibly be more wrong about saying the fed never pauses on the way up especially since both of the 2 most recent cycles have 2 pauses each on the way up. If he can’t get that right how can we trust anything he says about the market.

    Also notice that he says they analyzed data from 50 years but then only gives data from 1986 until now. That includes only 2 tightenting cycles (the ones I just cited) and this during the greatest boom since the 1920s so even if it did go up it wouldn’t be that telling. Notice that the 2nd of these tightening cycles ended on 5/16 2000. This was 2 months after the nasdaq started melting down. It doesn’t take a genius to know that the S&P was not 17% higher on 5/16/2001 than it was on 5/16/2000. You can pull up any stock chart of the S&P and see that the market was considerably lower not higher 1 year later.

    The guy appears to lack any credibility.

  49. Mark commented on Aug 8


    Serious question. How would YOU look in The Sweater?
    Could be the key. Just sayin”

  50. Bynocerus commented on Aug 8


    You’re the President of The Sweater Group, so it’s an executive decision. You tell me to wear the sweater, I’ll wear the sweater. You tell me to wear a tie, it’s a tie. You tell me to wear pink pajamas, and I’ll respectfully submit my resignation. Keep in mind that Barry is a burlier guy than me (I’m 6’2″, 185), so I’m not sure that a sweater wouldn’t make me look like a poindexter (even more?).

    Speaking of which, I caught two seconds of K&C last night, and there was a woman hosting the show. One of her guests was described as an independent trader, so you gotta wonder what the deal there is. Will they let just anyone on the show when Larry isn’t there, provided that person knows the right people? I’m not dissing the guy – he could be a fantastic trader – it was just odd that I’d never heard of him and he didn’t work for anybody.

  51. Laffingstock commented on Aug 8


    The one thing the Fed can do for sure ‘at this time’ is keep a lid on the price of gold, they’ve got a lot to
    play with, and they know when they lose control of that all cred is gone. Nothing lasts for ever, even the
    sun goes down, even heros must die.

  52. qw commented on Aug 8


    I do not know what most investors think.

    I do know that the lingo in the financial press is always don’t fight the fed.

    I do know I have heard many traders/investors talk about how the P/E’s are now very reasonable. I have even heard the word cheap used because its 15 and not 30.

    Having gone 6.5 years and still not able to surpase previous highs I do not know of many people who are calling for a big down move here (except on this site). Barry stands almost alone on calling for a big down move. The site has gotten cautious after this big period of churn and downward bias so perhaps you could label them as neutral/cautious, but I would not call them bearish. No calls to short.

    If by an up move you mean that enough people could be cautious for it to go up a few hundred points over the next few weeks. That could be. If you think there is enough bearishness to hurt the most people by a new extended bull move that lasts 12+ months and takes us considerably higher, I certainly don’t think investors are betting down enough to mean hurting the most people results in that.

  53. Bynocerus commented on Aug 8

    Even the sun goes down
    Heroes eventually die
    Horoscopes often lie
    That is sometimes why
    Nothing is for sure
    Nothing is for certain
    Nothing last forever
    But until they close the curtain…


  54. qw commented on Aug 8


    This is too funny. Then there is this statement in the article:

    “Pauses aren’t unheard of — they occurred three times, in 1999, 1994 and 1988. But these all happened in periods of declining rates.”

    which comes right after the previously quoted statement.

    The funny thing is those are the exact pauses I referred to in my post. But those were the rising rate cycles, not the declining rate cycles.

    This guy doesn’t even know when rates were going up and when they were going down.

    Perhaps he analyzed what happend when the fed quits lowering not when they quit raising. He seems to have all his cycles up side down.

    Credibility gap is widening.

  55. ss commented on Aug 8

    Peel yourselves away from this “rigorous” discussion and read Cisco’s (John Chambers) view on the world, just out. He takes the pulse of productivity in the economy. Productivity is kryptonite to inflation.

    “In terms of revenue guidance for the upcoming fiscal 2007, including our usual caveats discussed in prior calls, we project year-over-year revenue growth of approximately 15 to 20 percent and Cisco stand-alone revenue growth of 10 to 15 percent, which is consistent with our prior long-term guidance,” he said.
    “Our (first quarter, financial year) ’07 year-over-year
    revenue guidance is for revenue growth of approximately 19 to 21 percent and Cisco’s stand-alone year-over-year revenue growth of 11 to 13 percent.”

  56. M.Z. Forrest commented on Aug 8


    Cisco is not a barometer of productivity. They sell a largely commoditized product. The last big thing was VOIP and that has largely run its course until packet prioritization enters the Internet space. That is not likely to happen due to political factors. (This is the underlying technology of the fight over Net Neutrality.) Not matter which side you play in that fight, productivity isn’t going to increase. Either it won’t happen, or the ISPs will charge for it. Over than that, routers will continue to see declining margins. Like everyone else in the telco equipment space (which at this point routers have become) Cisco will revert to the mean.

  57. j d ess commented on Aug 8

    he also says nothing about seeing increased capex from customers. he also says nothing about where the growth will be occurring. he also says nothing about selling more. he also says nothing about guiding up. he also says nothing about any effects of a weaker dollar on revenues. lastly, he certainly says nothing about moving his cheap chinese production plants to the US.

    btw, what’s the status of that aapl position?

  58. traderboy commented on Aug 8

    hey whiners.

    it couldn’t be clearer what is going to happen, both in the economy and the market.

    1) the FED is done, the economy is rolling over, and the FED will be cutting rates with 6 months of the last hike (see plenty of Barry’s previoius comments for evidence of this). So Jan or Feb ’07, the rate cuts begin.

    2) the FED is not hiking because the economy is not doing so well. So be short equities. 15-20% down move is normal, so S&P 1000 is what you should be tartgeting.

    3) as the economic slowdown continues, the FED will cut rates to 4% or less, so you should be buying those late ’07/early ’08 Eurodollar futures which are totally mis-priced.

    4) The dollar has already priced this in, the EURO is a currency with no discipline behind it (hence excessive deficits from Italy and other countries), so although the dollar SHOULD fall, it won’t. Don’t fall into the popular trade of being short.

    5) Economic slowdown = lower commodities. Sell CRUDE OIL, sell Copper, sell your house, sell any hard commodity you have left.

    The market has never been clearer, making money has never been easier. You just have to know what you are looking for…

  59. RW commented on Aug 8

    Josh, agree with the other posters WRT the (incredible) quality of the article itself so I’ll just add that Bank of America basically appears to be ‘talking their book’ when they use a 12-month data window. They want to sell you financial assets, starting immediately, so assuming the author of the article got at least that part right then by choice of window BoA is failing to include the fact that there is usually an average of 6 months between the last rate hike and the first rate cut and that during that period equities usually fall in price, about 7% on average; i.e., the first 6 months of that 12 month period are not likely to be a pleasant experience for BoA brokerage customers even if they do come out ahead 12 months later.

    IOW jumping right in as soon as the Fed stops raising rates — and who knows if they are really done here now, they’ve paused and then continued raising in the past — does not appear to be a winning strategy. IIRC our host was referring to this pattern of lower prices immediately after a Fed halt in his previous discussions.

  60. anonymous commented on Aug 8

    RE: After The Pause (awful SmartMoney article)

    Love the fact checking provided!! Way to go! Since the fed fundsrate link only showed to 1990, I found this to add (from
    “In February 1988, the Fed, having briefly reduced the federal funds rate to 6.5 percent after the October 1987 stock market crash, began increasing the rate in the face of strong employment trends that were followed by strong inflation trends. By February 1989, the fed funds rate had risen by 300 basis points to 9.5 percent while inflation rose steadily, reaching a year-over-year CPI rate of over 6.0 percent during 1990.”

    In other words, the Fed raised rates throughout all of 1988 starting in February, the other year cited as having a pause during a rate reduction cycle. The entire article is premised on a complete lie, total fabrication, utter nonsense.

    Sorry James B. Stewart and Smart Money editors—you are wrong again!

    Yes, it is true, we live in a world of pathetic lying shills.

  61. muckdog commented on Aug 8

    Janet Yellen was recently interviewed and said she thought it was 50-50 for a rate hike. She must’ve brought a coin with her to the vote…

  62. Craig H commented on Aug 8

    “I do know that the lingo in the financial press is always don’t fight the fed.”

    That’s the name of the game. It’s so simple, yet because a majority of investors have a strong bias to hitting a home run on the long side they just don’t know how to play defense (go short, go to cash, go to bonds, hide in consumer staples and utilities) during periods like this. They still try to seek out the few growth stocks that might perform well in a weakening economy, praying that they don’t get blown up as they tip-toe through the minefield of contracting multiples.


    Q: What does the Fed want now?

    Q: What happens when the economy weakens?

    Q: What happens to stocks before earnings fall, because the market discounts the future?

    So don’t fight the Fed. They’re bigger than you are and they always get what they want in the end. It may take them awhile, but eventually they always get it.

  63. Sal commented on Aug 8


    I too was looking for a pause with hawkish comments but, in retrospect, this was unlikely as the Fed probably recognized such a move as an effective hike.

    I imagine they view a “dovish pause” as the only true pause.

    It’s a risky move as it has the potential to add explosive volatility to the market if inflation surprises big – up or down.

  64. whipsaw commented on Aug 8

    per ss:
    “Ask yourself this…what is LEAST expected market move…and will hurt the most traders? That’s where the market’s going.

    My bet is higher. (and that’s no cheer)”

    Priceless as always, ss. But I hardly think that the general direction of the market during a recession/stagflationary period is up.

    In fact, I would imagine that by the end of this week, the whiners will have replaced Pause! with Cut! as their new chant as it sinks in that they are upside down and going to get further in the red.

    But the Good News! is that you are going to have plenty more opportunities to find interesting double bottoms and buy when everybody else is selling. How’s that AAPL trade of yours from last Friday looking anyway, ready to load up some more? heheheh

  65. James commented on Aug 8

    I agree with j d ess. I think the message is very clear. If you are long assets and levered get out now. Asset prices around the world should have a year or so of rocky going. Think about what has happened the last 4 years. Everything on the planet outside of cash has gone through the roof and now its going to come down. Probably more than most think. The fed sees something in the data that is going to cause growth to slow. We want a fed who is hiking rates because the economy can handle it.

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