The Fed Hiked Rates, But What’s Next?

Chuck Butler’s: A Pfennig For Your Thoughts

December 18, 2017

* Was Yellen holding something back?
* Kiwi begins to rally
* A possible volatile week?

Good Day… And a Marvelous Monday to you! Well, a lot has happened since I last talked to you (last Wednesday)… I had a return of the pain this past weekend, which was a wake up call to me, to slow down… It’s been 4 weeks on the antibiotics and I would have thought by now, they would have wiped out the infection, but I guess not! Christmas is in the single digits of days away now. The month sure has flown by, which is a good thing, given that it gets me closer to my winter vacation, and… my annual trek to S. Florida for the winter… The great Dionne Warwick greets me this morning with her song: Walk On By…

Well, the Fed did hike rates last Wednesday… The Fed Funds rate is now a whopping 1.5%! I had a dear reader send me a note the other day, asking me if the Fed was just hiking rates so they had rates to cut when the recession hits… This is a thought that my longtime friend John Mauldin first talked about when the Fed began hiking rates two years ago… This whole idea of having arrows in one’s quiver for a rainy day, is just weird to me, and reminds me that the Fed Funds rate is just a rate that is arrived at because the Fed Clique says so.. It’s a willy nilly rate, that would be far better arrived at if this rate setting ability was stripped from the Fed and given to the markets…

Janet Yellen’s press conference following the rate announcement last week, was a non-event… She did indicate that 3 more rate hikes are on the docket for 2018, but failed to mention that she will not be at the helm in 2018 past February, and therefore there are questions about those 3 rate hikes in 2018…The Fed could very well ignore another inflation shortfall in 2018 and keep the projection of three rate hikes. As long as they can continue to explain inflation weakness as temporary and continue the rhetoric that they see an inflation “down the road”.
I really don’t think that will end up being the Fed’s concern in 2018, the lack of inflation, that is… Wage inflation is about to go hog wild in my humble opinion, which could be wrong of course, but it’s what I’m seeing and hearing…
So, the dollar should have taken off for higher ground on Wednesday after the rate hike, right? Well, not if you were paying attention in class last Wednesday when I said that the rate hike had all been priced in, and the only thing that would give the dollar some love is a hawkish press conference, and that really didn’t happen, as Janet Yellen sounded as if she was “holding back” her thoughts…

The dollar, got sold on Wednesday afternoon and into Thursday, but by Friday the selling had dissipated, and we were back to range trading in the currencies. The euro found its way to the 1.18 handle again, only to lose in profit taking on Friday, and a negative reaction to the European Central Bank’s (ECB) meeting on Thursday morning, when ECB President, Mario Draghi, told the markets that while the ECB may be unwinding its balance sheet, it reserves the right to stop the unwinding and begin adding to the balance sheet again, should the economy stumble.

That gave mixed messages to the markets and euro traders, and traders don’t like mixed messages, and brought the euro back below 1.18, where it trades this morning. I guess Draghi had to say what he had to say, to be fair and balanced, but there comes a time that one has to make a stand… When will that come for Draghi? I don’t know the answer to that, but when it does happen, that’s when the euro will once again establish its ability to gain VS the dollar. Again, that’s my opinion, and I could be wrong

The New Zealand dollar / kiwi is the star performer of the past couple of trading sessions, as the currency has risen above the 70-cents handle. The Aussie dollar (A$) couldn’t gain any traction from the Reserve Bank of Australia’s (RBA) meeting last week, but kiwi sure has found some terra firma… As we close in on 2018, traders are reminded that this is the year that the Reserve Bank of New Zealand (RBNZ) targeted for their first rate hikes in a few years…

Gold’s two-day rally came to a halt on Friday, as the shiny metal lost a whopping $2 and change… Gold is up over $4 in early trading this morning, but the “boys in the band” haven’t arrived at their desks yet today… Historically (since I’ve followed the currencies and metals) this week before Christmas can prove to be quite volatile, as the senior traders have all headed to their homes in Tennessee for some homemade pumpkin pie! HA! So, be aware of that…

The U.S. Data Cupboard was busy last week, with PPI, the stupid CPI, Industrial Production and so on… The indication I got from the data last week was that the economy is still muddling through… For instance, Industrial Production last month was only 0.2%, when it was projected to be 0.4%… Capacity Utilization showed no gains and PPI (wholesale inflation) was much stronger at 0.4% for the month… Wholesale Inflation feeds into consumer inflation folks… So, it’s coming… can you feel it?

This week’s Data Cupboard will also be busy, with the first part of the week printing Housing data, and the end of the week, when no one will be around in the markets, and I’ll be on my winter vacation, we’ll see a piece of real economic data when Nov. Durable Goods and Capital Goods orders print…

To recap… The Fed did hike rates last week, but the dollar received no love for the move, as the rate hike was already priced in. Janet Yellen’s press conference was a non-event, which Chuck thought was strange, and that she appeared to be holding back her thoughts… Gold’s two-day rally ended on Friday, but it has picked it back up in the early morning trading today, and kiwi is the star performer of the past few trading sessions…

For What It’s Worth… I’ve talked about this consumer indebtedness until I’m blue in the face and that’s not a good look for me! But when CBS News picks up on it, then the mainstream media is beginning to take notice… So, this article can be found here:

Or, here’s your snippet:”By many measures, the American economy is booming. Yet that’s not always translating into stronger financial health for a large share of US consumers.

One-third of Americans are weighed down by overdue debt, meaning their outstanding payments are in arrears and have been handed off to debt collectors, according to new research from The Urban Institute. That’s not a healthy situation for households because overdue debt can lower one’s credit score, making it harder to finance purchases such as a home or car while also making it more expensive to borrow money.
The problem is worse in some regions of the country, especially those where health insurance coverage is sparser, incomes are lower and the share of nonwhite households is higher, according to the Urban Institute’s data. Almost one in five households have medical debt in collections, a sign of how many Americans struggle with the cost of health care, including those insurance.

That’s not only a personal challenge but a community issue because those indebted households may struggle to pay their property taxes or rent on time.”

Chuck again… Yes, as I’ve been saying, for months now, the U.S. consumer is in debt up to their eyeballs, and they just keep taking on more… Ugh!

Currencies today 12/18/17… American Style: A$ .7662, kiwi .7006, C$ .7767, euro 1.1791, sterling 1.3360, Swiss $ 1.0120, … European Style: rand 12.8495, krone 8.3557, SEK 8.4522, forint 265.93, zloty 3.5685, koruna 21.79, RUB 58.80, yen 112.53, sing 1.3483, HKD 7.8168, INR 64.12, China 6.6097, peso 19.06, BRL 3.2934, Dollar Index 93.69, Oil $57.53, 10yr 2.38%, Silver $16.14, Platinum $900.60, Palladium $1,016.94, and Gold… $1,261.70

That’s it for today… Yesterday was a former colleague and good friend’s birthday… Happy Birthday Jen! And Ty Keough also celebrated a birthday this past weekend! Thursday night, good friend Mike Kettler brought me my dinner (gumbo, that was yummy!) and Saturday, oldest son, Andrew brought me lunch… I ventured out for a short trip yesterday.. Very adventurous! HA! Alrighty then… Tradition holds that I start my winter vacation on the 17th.. But since I’ve missed so much time recently, I decided to cut back on that time away, by starting my vacation on Thursday this week… So, you get me for two more days! HA! Alrighty then I’ve got things to do this morning before the visiting nurse shows up… Ambrosia takes us to the finish line today with their song: How Much I Feel… ( this song was popular when we lived in Des Moines, Iowa) I hope you have a Marvelous Monday, and Be Good To Yourself!

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts


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