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b'Markets Rallied on Fed Minutes Interpreted as Dovish
\\nEarlier today we got the release of the latest Federal Open Market Committee minutes and before the minutes came out (they come out at 2pm Eastern Time). Prior to the release, all the stock markets were down; the Dow was down maybe about 150 points or so, and when the minutes came out, we got a rally, and the Dow closed up about 50 points.\\xa0 So, a 200-point rally on the minutes, and the reason the minutes acted as a catalyst for the rally is that they were interpreted to be a bit more dovish than expected.
\\nThe Fed\'s Symmetrical Inflation Target
\\nTo me, the minutes were as expected; I had already been talking about the Fed\'s view that inflation can go above 2%. That they were willing to allow for some kind of "symmetrical" inflation.\\xa0 The symmetry in this case meaning, we were below 2% for a long time and so now we can be above 2%. I guess for some reason the markets focused in on that.
\\nSpecifically, the minutes read that
\\n"A temporary period of inflation modestly above 2 percent would be consistent with the Committee\'s symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations at a level consistent with that objective."
\\nWhat does "Modest" Mean?
\\nNow, I don\'t know why allowing inflation to be higher than 2% is somehow helpful toward achieving their 2% objective. To me, It would be more helpful if they just kept it at 2%, if indeed that was their real objective.\\xa0 But, even if you look at the language that they use, they don\'t really define what symmetrical could mean.\\xa0 They talk about inflation being "modestly" above 2%: What is "modestly"? Is is 2.1%? What about 2.5%? Is .5% "modest"? They don\'t really define what "modest" is.\\xa0 I have a feeling, again, that there\'s never going to be a definition, that it is going to be an ever-moving goal post.\\xa0 Even 3% could be "modest".\\xa0 "Hey, it\'s only 1%, right that\'s "modest", right?
\\nFed Is Impotent When It Comes to Inflation
\\nBut on a percentage basis, you wouldn\'t consider 3% modest.\\xa0 You\'re above 2% by 50%.\\xa0 50% is not a modest percentage, but they could say 1% is a modest percentage. Who knows?\\xa0 I think the Fed is going to be looking for every excuse not to raise interest rates aggressively, no matter how high inflation gets.\\xa0 Of course, they\'re not going to be that transparent. The last thing they would want to do is to let the markets know that they are that impotent when it comes to inflation.\\n\\nOur Sponsors:\\n* Check out Rosetta Stone and use my code TODAY for a great deal: https://www.rosettastone.com/ \\n\\nPrivacy & Opt-Out: https://redcircle.com/privacy'