Janet Yellen’s tourist dollars are driving up the Sensex

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Central bankers drive stock markets. At least, that is the way things have been since the current financial crisis started in September 2008, when Lehman Brothers, the fourth largest investment bank on Wall Street went bust.

On March 30, 2016, the BSE Sensex rallied by 438 points or 1.8% to close at 25,338.6 points. What or rather “who” was responsible for this rally? Janet Yellen, the chairperson of the Federal Reserve of the United States, the American central bank.

Yellen gave a speech on March 29. In this speech she said: “I consider it appropriate for the committee to proceed cautiously in adjusting policy.” The committee Yellen was referring to is the Federal Open Market Committee or the FOMC.

The FOMC decides on the federal funds rate. The federal funds rate is the interest rate at which one bank lends funds maintained at the Federal Reserve to another bank on an overnight basis. It acts as a sort of a benchmark for the interest rates that banks charge on their short and medium term loans.

In December 2015, the FOMC had raised the federal funds rate for the first time since 2006. The FOMC raised the federal funds rate by 25 basis points (one basis point is one hundredth of a percentage) to be in the range of 0.25-0.5%. Earlier, the federal funds rate had moved in the range of 0-0.25%, for close to a decade. FOMC is a committee within the Federal Reserve which runs the monetary policy of the United States.

The question that everybody in the global financial markets is asking is when will the FOMC raise the federal funds rate, again? It did not do so when it met on March 15-16, earlier this month. The next meeting of the FOMC is scheduled for April 26-27, next month.

By saying what Yellen did in her speech she has essentially ruled out any chances of the FOMC hiking the federal funds rate in April 2016. This is the closest a central bank head can come to saying that she will not raise interest rates any time soon.

This was cheered by the stock markets all over the world. Yellen basically announced that the era of “easy money” was likely to continue, at least for some time more.

This means that financial institutions can continue to borrow money in dollars at low interest rates and invest this money in stock markets and financial markets all around the world, in the hope of earning a higher return.

This means that the “tourist dollars” are likely to continue to be invested into the Indian stock market. Mohamed A El-Erian defines the term tourist dollar in his new book The Only Game in Town. As he writes: “During periods of large capital flows induced by a combination of sluggish advances economies, robust risk appetites, and highly stimulative central bank policies, emerging markets serve as destination for a huge pool of crossover funds, or what I refer to as tourist dollars.

As Erian further writes: “Rather than “pulled” by a relatively deep understanding of country fundamentals, this type of capital is typically “pushed” there by prospects of low returns in their more traditional habitats in the advanced world.”

The federal funds rate in the United States is in the range of 0.25-0.5%. In large parts of Europe as well as in Japan, interest rates are in negative territory. In this scenario, the returns available in these countries are very low. At the same time, it makes tremendous sense for financial institutions to borrow money at low interest rates from large parts of the developed world and invest it in stock markets, where they expect to make some money.

And India is one such market, where these “tourist dollars” are coming in and will continue to come in, if the central banks of the developed world continue running an easy money policy.

What got the stock market wallahs all over the world further excited was something else that Yellen said during the course of her speech. As she said: “Even if the federal funds rate were to return to near zero, the FOMC would still have considerable scope to provide additional accommodation. In particular, we could use the approaches that we and other central banks successfully employed in the wake of the financial crisis to put additional downward pressure on long term interest rates and so support the economy.”

What does this mean? This basically means that, if required, the Federal Reserve will print money and pump it into the financial system to drive down long-term interest rates in the United States, so that people will borrow and spend more. This was the strategy that the Federal Reserve used when the financial crisis started in September 2008. This basically means that the era of easy money unleashed by the Federal Reserve is likely to continue in the days to come.

Now only if the Modi government could get its act right on the economic front., the tourist dollars would just flood in.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on March 30, 2016

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Janet Yellen raises interest rates. What happens next?

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In the column dated December 16, 2015, I had said that the Federal Reserve of the United States would raise the federal funds rate, at the end of its meeting which was scheduled on December 15-16, 2015. That was the easy bit given that Janet Yellen, chairperson of the Federal Reserve of the United States, had more or less made this clear in a speech she made on December 3, 2015.

The Federal Open Market Committee(FOMC) of the Federal Reserve of the United States raised the federal funds rate by 25 basis points (one basis point is one hundredth of a percentage) to be in the range of 0.25-0.5%. Earlier, the federal funds rate moved in the range of 0-0.25%. FOMC is a committee within the Federal Reserve which runs the monetary policy of the United States

The federal funds rate is the interest rate at which one bank lends funds maintained at the Federal Reserve to another bank on an overnight basis. It acts as a sort of a benchmark for the interest rates that banks charge on their short and medium term loans. This is the first time that the FOMC has raised the federal funds rate since mid-2006.

I had also said that the Yellen led FOMC would make it very clear that the increase in the federal funds rate would happen at a very gradual pace. The statement released by the FOMC said that it expects the “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

As Yellen put it in central banking parlance in the press conference that followed the Federal Reserve meeting: “The monetary policy will continue to remain accomodative”. In fact, the members of the FOMC expect the federal funds rate to be at 1.4% in a year, 2.4% in two years and 3.3% in three years.

If the federal funds rate has to be at 1.4% one year down the line, then it means that the FOMC will have to raise the federal funds rate by around 25 basis points each (one basis point is one hundredth of a percentage) four times next year. This seems to be a little difficult given that the presidential elections are scheduled in the United States next year. Also, there are other problems that this could create.

The low interest rate policy was unleashed by the Federal Reserve in the aftermath of the financial crisis which started in September 2008, when Lehman Brothers, the fourth largest investment bank on Wall Street went bust. The hope was that both households and corporations would borrow and spend more and in the process, economic growth would return.

What has happened? The household debt to gross domestic product(GDP) ratio has been falling since the beginning of 2009 as can be seen from the accompanying chart.

 

The household debt to GDP ratio has fallen from around 98% of the GDP at the beginning of 2009, around the time the financial crisis had just started to around 79.8% of the GDP now. What this tells us is that the household debt as a proportion of the total economy has come down. This despite low interest rates being prevalent when at least theoretically people should have borrowed and spent more money.

Take a look at the following chart. It shows that the proportion of the disposable income that Americans are paying to service their debts has also improved. In end 2007, Americans were spending 13.1% of their disposable income to service debt. It has since fallen to 10.1%, though it has jumped a little in the recent past. But the broader trend is clearly down.

What these two graphs tell us clearly is that the household debt in the United States has come down in the aftermath of the financial crisis. So if households have not been borrowing who has? The answer is corporates.

As Albert Edwards of Societe Generale wrote in a research note in November: “The primary driver for the rapid rise in bank lending…has been borrowing by US corporates and we all know they have been using the Fed’s free money not to invest in capacity expanding expenditures, but rather to buy back mountains of their own shares…Corporate debt borrowing at an $674bn annual rate [is] closing in rapidly on the all-time borrowing splurge of 2007!

In another note released after the FOMC decision to raise the federal funds rate Edwards writes that “the real rate of corporate borrowing is even greater than was seen during the late 1990s tech bubble.”

American corporates have borrowed at rock bottom interest rates not to expand their capacities by building more factories among other things, but to buy back their shares. When a corporate buys back and extinguishes its own shares, fewer number of shares remain in the open market. This pushes up the earnings per share of the company. This in turn pushes up the share price. A higher earnings per share leads to a higher market price.

As a result of all this borrowing, the US corporate debt has reached 70% of the GDP, around the level it was at the time the financial crisis started. A Goldman Sachs research note points out that between 2007 and now, the total borrowing of the US corporates has doubled.

Nevertheless, all this money needs to be repaid. And this will become increasingly difficult with sales of US corporates falling. As Edwards writes in his latest research note: “It doesn’t help that both corporate profits and revenues are now falling…Nominal business sales have been contracting all year. Originally, it was put down to unseasonably cold weather – but the chilly data has just not gone away, as a combination of unit labour costs and weak pricing power have led to a typical late cycle decline in profit margins.”

If the Federal Reserve keeps increasing the federal funds rate, the interest rate that American corporates need to pay on their debt will keep going up as well.

The interest rate that the American corporates have been paying on their debt has fallen from 6% in 2009 to around 4% in 2015. A higher interest rate would mean a further fall in the profit made by American companies. Lower earnings would lead to lower stock prices and lower broader index levels.

And this is not something that the Federal Reserve would want. A falling stock market because of higher interest rates would jeopardise the American economic recovery.

As Yellen said in her speech earlier this month: “Household spending growth has been particularly solid in 2015, with purchases of new motor vehicles especially strong….Increases in home values and stock market prices in recent years, along with reductions in debt, have pushed up the net worth of households, which also supports consumer spending. Finally, interest rates for borrowers remain low, due in part to the FOMC’s accommodative monetary policy, and these low rates appear to have been especially relevant for consumers considering the purchase of durable good.”

Once we factor in all this, it is safe to say that the Federal Reserve will go really slow at increasing interest rates. In fact, I don’t see it increasing the federal funds rate to 1.4% by the end of next year. This means good news for Indian stock and bond markets, at least for the time being.
The column originally appeared on The Daily Reckoning on December 18, 2015

Janet Yellen’s excuses for not raising interest rates will keep coming

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The Federal Open Market Committee(FOMC) of the Federal Reserve of the United States, which is mandated to decide on the federal funds rate, met on March 17-18, 2015.
The federal funds rate is the interest rate at which one bank lends funds maintained at the Federal Reserve to another bank on an overnight basis. It acts as a sort of a benchmark for the interest rates that banks charge on their short and medium term loans.
In the meeting the FOMC decided to keep the federal funds rate in the range of 0-0.25%, as has been in the case in the aftermath of the financial crisis which broke out in September 2008. Janet Yellen, the chairperson of the Federal Reserve also clarified that “an increase in the target range for the federal funds rate remains unlikely at our next meeting in April.” The next meeting of the FOMC is scheduled on April 27-28, 2015.
The question is when will the Federal Reserve start raising the federal funds rate? As the FOMC statement released on March 18 points out: “In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 % inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”
Other than a clear inflation target of 2%, this is as vague as it can get. The inflation number in January 2015 came in at 1.3%, well below the Fed’s 2% target. The Fed’s forecast for inflation for 2015 is between 0.6% to 0.8%. At such low inflation levels, the interest rates cannot be raised.
But the Federal Reserve wasn’t as vague in the past as it is now. In December 2012, the Federal Reserve decided to follow the Evans rule (named after Charles Evans, who is the President of the Federal Reserve Bank of Chicago and also a part of the FOMC). As per the Evans rule, the Federal Reserve would keep interest rates low till the rate of unemployment fell below 6.5 % or the rate of inflation went above 2.5 %.
As the FOMC statement released on December 12, 2012 said: “ the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 % and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2% longer-run goal, and longer-term inflation expectations continue to be well anchored.”
This is how things continued until March 2014, when the Federal Reserve dropped the Evans rule. In a statement released on March 19, 2014, one year back, the FOMC said: “In determining how long to maintain the current 0 to 1/4 % target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 % inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.” In fact, this is exactly the wording the FOMC has used in the statement released on March 18, 2015.
What the FOMC meant in the March 2014 statement was that instead of just looking at the rate of unemployment and the rate of inflation, the Federal Reserve would also take into account other factors before deciding to raise the federal funds rate. So what made the Federal Reserve junk the Evans rule?
In February 2014, the rate of unemployment was at 6.7% and was closing in on the Evans rule target of 6.5%. In April 2014, the rate of unemployment had fallen to 6.2%.
If the Fed would have still been following the Evans rule, it would have to start raising the Federal Funds rate. This would have meant jeopardising the stock market rally which has been on in the United States. In the aftermath of the financial crisis, the Federal Reserve had cut the federal funds rate to 0-0.25%, in the hope of encouraging people to borrow and spend more, to get their moribund economies going again.
While people did borrow and spend to some extent, a lot of money was borrowed at low interest rates in the United States and other developed countries where central banks had cut rates, and it found its way into stock markets and other financial markets all over the world. This led to a massive rallies in prices of financial assets. In an era of close to zero interest rates the stock market in the United States has seen the longest bull market after the Second World War.
Any increase in the federal funds rate would jeopardise the stock market rally. And that is something that the American economy can ill-afford to. So, it is in the interest of the Federal Reserve to just let the stock market rally on.
Interestingly, the Federal Reserve has been changing the so-called “forward guidance” on raising the federal funds rate for a while now. In March 2009, it had said that short-term interest rates will stay low for an “extended period.” In August 2011, it said that short-term interest rates would stay low till “mid-2013.” In January 2012, the Fed said that short-term interest rates would remain low till “late 2014.” And by September 2012, this had gone up to “mid-2015.”
In March 2014, it junked the Evans rule. So, what this means is that the Federal Reserve will ensure that interest rates in the United States continue to stay low. Peter Schiff, the Chief Executive of Euro Pacific Capital, summarized the situation best when he said that the Federal Reserve would “keep manufacturing excuses as to why rates cannot be raised” and this was simply because it had “built an economy completely dependent on zero % interest rates.”
Given this, be prepared for Janet Yellen offering more excuses for not raising the federal funds rate in the days to come.

The column originally appeared on The Daily Reckoning on Mar 20, 2015

Janet Yellen is not going to takeaway the punchbowl any time soon

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Central banks are primarily in the business of sending out messages to the financial markets. In a statement released on January 28, 2015, the Federal Reserve of the United States had said: “
Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.”
In simple English what this means is that the Fed would be patient when it comes to increasing the federal funds rate, which in the aftermath of the financial crisis which started in September 2008, has been in the range of 0-0.25%.
The federal funds rate is the interest rate at which one bank lends funds maintained at the Federal Reserve to another bank on an overnight basis. It acts as a sort of a benchmark for the interest rates that banks charge on their short and medium term loans. This is the longest period for which the rate has remained at such low levels, in over fifty years.
In the aftermath of the financial crisis, the Federal Reserve and other central banks around the world had cut interest rates to very low levels in the hope of encouraging people to borrow and spend more, to get their moribund economies going again.
While people did borrow and spend to some extent, a lot of money was borrowed at low interest rates in the United States and other developed countries where central banks had cut rates, and it found its way into stock markets and other financial markets all over the world. This led to a massive rallies in prices of financial assets. In an era of close to zero interest rates the stock market in the United States has seen the longest bull market after the Second World War.
Given this, the stock markets in the United States and in other parts of the world have been doing well primarily because of this low interest rate scenario that prevails. With the return available from fixed income investments(like bonds and bank deposits) down to very low levels, money has found its way into the stock market.
The January 28 statement was released after a meeting of the Federal Open Market Committee(FOMC) which is mandated to decide on the federal funds rate. These meetings of the FOMC are followed very closely all over the world simply because if the Federal Reserve does decide to start raising the federal funds rate or even give a hint of it, stock markets all over the world will fall.
After the January meeting, the FOMC met again on March 17-18, 2015. In a statement that the Federal Reserve released yesterday (i.e. March 18) after the FOMC meeting, it had dropped the word “patient”. So does this mean that the Federal Reserve will start to be “impatient” when it comes to the federal funds rate?
The Federal Reserve chairperson Janet Yellen held a press conference yesterday after the two day meeting of the FOMC, in which she clarified that: “M
odification of our guidance should not be interpreted to mean that we have decided on the timing of that increase. In other words, just because we removed the word “patient” from the statement doesn’t mean we are going to be impatient.”
So what Yellen was essentially saying is that even though the Fed had removed the word “patient” from its statement released yesterday, it was not going to be “impatient,” when it comes to increasing the federal funds rate in particular and interest rates in general. Welcome to the world of central bank speak.
In fact, Yellen also clarified that the FOMC won’t increase the federal funds rate when it meets next towards the end of April, next month. At the same time she said there was a chance that the FOMC might raise the federal funds rate in the meetings after April.
This statement of Yellen has led to the conclusion in certain sections of the media that the Federal Reserve will start raising interest rates June onwards, when it meets next after the April meeting. Only if things were as simple as that. Chances of the FOMC raising interest rates this year are remote. There are multiple reasons for the same.
First and foremost is the fact that inflation in the United States is well below the Federal Reserve’s preferred target of 2%. In fact, for the month of January 2015, this number was at 1.3% much below the Fed’s target of 2%. The Fed’s forecast for inflation for 2015 is between 0.6% to 0.8%. At such low inflation levels, the interest rates cannot be raised.
Inflation is down primarily because of low oil prices as well as the fact that the dollar has rallied (i.e. appreciated) against other major currencies of the world, in the process making imports cheaper for the people of United States. Lower import prices have a significant impact on inflation. The dollar has gone up in value against the yen and the euro primarily because of the money being printed by the Bank of Japan and the European Central bank. This money printing is not going to stop any time soon. As more money is printed and pumped into the financial system, interest rates are likely to remain low. At low interest rates the hope is that people will borrow and spend more and this will benefit businesses and the overall economy.
Getting back to the dollar, an appreciating currency has the same impact on the economy as higher interest rates. Higher interest rates are supposed to slowdown demand and in the process economic growth. Along similar lines when a currency appreciates, the exports of the country become expensive and this leads to a fall in exports. This slows down economic growth. Hence, in a way an appreciating dollar has already done a part of what the Fed would have done by raising interest rates.
With a lot of money printing happening in other parts of the world, chances are the dollar will continue to appreciate. Also, oil prices are likely to remain low during the course of this year, meaning low inflation in the US.
Further in December 2014, the Fed had forecast that economic growth in the US in 2015 will range between 2.6% to 3%. This has been slashed to 2.3% to 2.7%. In this scenario , it doesn’t seem likely that the Federal Reserve will raise the federal funds rate any time soon (may be not during the course of 2015).
William McChesney Martin, the longest serving Federal Reserve Chairman, once said that the job of the Fed
is “to take away the punch bowl just as the party gets going.” Yellen as of now doesn’t want to spoil the party. What this means is that the stock market rallies in large parts of the world are likely to continue in the days to come.
The only thing one can say at this point of time is—Stay tuned!

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The article originally appeared on www.firstpost.com on Mar 19,2015

What are the financial markets making out of Janet Yellen’s mumbo jumbo

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Vivek Kaul

People who head central banks are not the kind who talk in a language that is easily understood. As Alan Greenspan, the Chairman of the Federal Reserve of the United States, the American central bank, from 1988 to 2006, once said “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”
Nevertheless, things have changed in the aftermath of the financial crisis which broke out in September 2008. Central banks and individuals who head them now tend to communicate a little more clearly than they used to in the past.
Take the case of the Federal Reserve which has been saying for a while now that it will maintain low short term interest rates of between zero to ¼ percent “
for a considerable time”. The financial markets around the world have taken this phrase as good news. It has allowed them to borrow money at low interest rates and invest them in financial markets all over the world.
There is an entire army of people who make a living out of analysing what the Federal Reserve is saying. After the Federal Reserve chose to stop printing money in October 2014, there has been considerable debate among these army of analysts who track the Fed, about what does the phrase “for a considerable time” really mean. They have also asked if the Federal Reserve would remove the phrase when it met in December. And if it did that what would that mean?
The Federal Open Market Committee (FOMC) in the latest monetary policy statement released yesterday said: “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” It seemed that the Fed had dropped the phrase “for a considerable time,” which had kept the Fed watchers interested for a considerable period of time.
Interestingly, the statement then went to clarify that the new words did not mean anything different from the earlier phrase. “The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program,” the latest statement said.
Federal funds rate is the interest rate
at which one bank lends funds maintained at the Federal Reserve to another bank, on an overnight basis. Until October 2014, the Federal Reserve had been printing money and pumping money into the financial system by buying government bonds and mortgaged backed securities. This it referred to as the asset purchase program.
So, the Federal Reserve seems to have removed the phrase “for a considerable time” and reintroduced it as well. As the economist Tim Duy put it:
If you thought they would drop “considerable time,” they did. If you thought they would retain “considerable time,” they did. Everyone’s a winner with this statement.” Nevertheless, this briefly sent Fed watchers into a tizzy after the statement was released. What did the Fed really mean?
Janet Yellen, the Chairperson of the Federal Reserve, clarified this in the press conference that followed the Federal Reserve’s two day meeting.
The statement that the committee can be patient should be interpreted that it is unlikely to begin the normalization process for at least the next couple of meetings,” Yellen said.
What this possibly means is that the Federal Reserve won’t raise the federal funds rate, which acts as a benchmark for short term interest rates at least till April. The Federal Reserve’s first two monetary policy meetings are scheduled in January and March next year.
Interestingly, later on in the press conference Yellen in a way took back this earlier statement when she said: “
The Fed will feel free to make news at meetings even when there isn’t a scheduled press conference.” She also said that “no meeting is completely off the table” for raising interest rates.
All FOMC meetings do not have a press conference scheduled after the meeting ends. The Federal Reserve doesn’t have another press conference scheduled until March 2015. So, at the end of the day Yellen wasn’t really clear in communicating about when the Federal Reserve is likely to start raising the federal funds rate.
In the FOMC statement it was said that the Federal Reserve would be “patient” when it came to raising the federal funds rate. In the press conference Yellen said that the Fed wasn’t likely to raise the federal funds rate in the first two meetings scheduled next year. Then she also said that no meeting is completely off the table when it comes to the question of raising the federal funds rate.
Also, in the meeting Yellen dismissed all the reasons against not increasing the federal funds rate.
So where does all this leave us? Confused? Bloomberg View has a possible answer:
The Fed doesn’t know when it will start to raise interest rates, nor should it have to know, nor should it indulge analysts’ misconceived determination to find out. Interest-rate changes are not, and should not be, on a schedule. They depend entirely on what happens in the economy, and the Fed — like every last one of those analysts — doesn’t know what will happen.”
So why did the Federal Reserve and Janet Yellen indulge in all the mumbo jumbo? As
Bernard Baumohl, The Economic Outlook Group, told The Wall Street Journal: “For a Fed that seeks to introduce more clarity and transparency of its views, they have in fact done the opposite. The tortuous, semantic-conscious language of the statement is really an exercise in obfuscation, one that harkens back to the days of Alan Greenspan.” So “Janet Yellen” managed to do an “Alan Greenspan” yesterday.
Further, like the analysts who track the Federal Reserve, the Fed Chairperson is also not in a position to say: “I don’t know”. Even though Yellen clarified time and again that everything was “data dependent”.
The statement issued by the Fed was vague enough. But in the press conference Yellen said that the Fed would not raise the federal funds rate for the first couple of meetings next year, and then she had to quickly go into damage control mode, to try and make things vague enough again. My theory is that Yellen is trying to get the markets used to the idea of higher interest rates in the days to come, without saying so loud and clear, so that she does end up spooking the markets.
The all important question is how is the market taking it? The financial markets all over the world were worried that the Federal Reserve might increase the federal reserve rate for the first time in eight years since 2006. Now that has not happened. Also, it is likely that the Federal Reserve might not raise rates before April (that was one of the things that Yellen said after all).
Further, the consumer price inflation in the United States for the month of November 2014 came in at 1.3%. The number had stood at 1.7% in October 2014. This is the largest month on month decline in inflation since December 2008. This fall in inflation has largely been due to a massive decline in oil prices over the last six months.
The point here being that a rate of inflation of 1.3% is well below Fed’s inflation target of 2%. As the Federal Reserve’s statement yesterday pointed out: “the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation”. If the inflation number continues to be well below 2%, then there is not much chance of the Federal Reserve raising interest rates immediately.
This is the message that the financial markets seem to have taken from the Federal Reserve. The S&P 500, one of the premier stock market indices in the United States, rallied by 2% to close at 2012.89 points yesterday. The Nikkei 225 in Japan is up 2.3% to 17,232 points today. Stocks in Australia were up 1%. The BSE Sensex is currently up around 1% and is quoting at levels of around 27,000 points.
Long story short: The financial markets seem to remain convinced that the easy money will continue at least in the short-term. Yellen, on the other hand is trying to get the markets ready for an interest rate hike next year.

The article appeared originally on www.FirstBiz.com on Dec 18, 2014

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)