There's more to the move in the S&P 500 than meets the eye

A topic fuelling flowing lately surrounds the event that saw the conclusion of a habitual lag the S&P 500 had found itself in by struggling to secure a daily movement of 1% or higher, a occurrence that's subsequently arrested volatility over an extended period of time.

Many would believe that President Trump had played the biggest part in calming markets fears and perhaps seen as a catalyst to accelerating stock market valuations to fresh highs.

Although some of it may be true, the Trump factor is quickly losing credence as the world settles in on the possibility of a global political shake up and various other players begin to overshadows Trump's often outlandish comments on solving world issues.

One of the participants who've stolen the limelight is Fed chair Janet Yellen whose hurriedly accelerated the central bank's ambitions of seeing interest rates at loftier levels.  

Small Caps have now given back most their post-election outperformance. $IWM $SPY pic.twitter.com/9AcxZMWb5I

— Charlie Bilello (@charliebilello) March 22, 2017 

As normalisation grips the US economy, the ease with which US equities made a spirited sprint to the top of valuations will no longer be seen as safer alternatives emerge for investors to de-risk their portfolios.

In the chart posted above on Twitter by Charlie Bilello, indicates evidence of shifts in capital have subtly shown up but only through measures of relative performance. In this insistence the weakening sector is Small Caps, the last segment of the equity market to receive optimism from bullish enthusiasm yet a great indicator of investors attitude to flirting with risk.

The discrete actions of the so called "smart money" points to a highly significant turning point in world markets, let alone the United States.

From here onwards the convictions behind setting up a fresh bull run will grow dimmer with every new challenge presented to the world economy, a consequence that isn't difficult to envision given the brazenness of the Trump administration, especially in a vulnerable environment.  

Why the Fed is unlikely to reduce its assets on the balance sheet?

The evolution of the US Federal Reserve's monetary policy is once again being speculated on as some sections of market participants are becoming presumptuously inclined to the comments made by regional members of the Fed in terms of different approaches that are still available to the central bank in tightening the monetary environment.

A commonly referred to figure that forms the basis of argument for some critics is found in the form of the Fed's balance sheet, all the assets purchased or sold in the process of controlling money supply.

Before the start of the Financial Crisis in 2008, the Federal Reserve had an accumulated $1 trillion worth of assets. From this point onwards it expanded this figure to well over $4.5 trillion through three separate bond purchasing programs, otherwise known as Quantitative Easing, which is often cited as unsuccessfully rebooting the US economy and triggering similar programs in other developed nations.  

Top Fed officials are in no hurry to reduce their $4.5 trillion portfolio of securities and other assets https://t.co/W1JPw9lBWi

— Real Time Economics (@WSJecon) February 27, 2017

Assessing the current tempo of the FOMC's interest rate hikes, the US has only seen two such event from an expectant six forecasted at the beginning of the policy shift in December 2015.

This leaves interest rates at 0.75%, a miniscule reflection to the heights of its tyranny of yesteryear.

Yet the impact of a 50 basis points rise in interest rates on the global financial system holds more gravitas than its counteraction and thus been implemented with more awareness to any negative influence it may impose of the system.

Will the Fed be liberal in it's approach to reduce its assets?

Highly unlikely as its conservative stance in hiking would be in direct conflict with this type of action which it believes could have adverse impacts on the stability of the financial system as a whole.

It isn't surprising that we haven't seen much activity coming from the Fed as factors placing a strain on the world economy has caused politicians to become distracted from the primary objective of returning the globe to signs of encouraging economic activity.

US President Donald Trump could play a pivotal role for the Fed though if his economic policy ignites the engines of growth and spurs inflation to exceed through its current ceiling. If we were to see a quickening of inflation, the real value of debt levels in the US could be dramatically reduced.

However judging by the hostility between Trump and his nation, there are no certainties of this happening.

The Fed will be hoping for a better response to Trump's proposed budget measures which he campaigned as "Less Taxes, More Spending" in an effort to use it as a platform from which it can execute interest rate hikes with certitude that the US economy will be able to absorb hikes with a measure of sustainability.

Yellen in the firing line as Trump's comments draw relevance

With just under a year left in her first tenure as Chair of the Federal Reserve, Janet Yellen has been forced to defend the central bank's actions subsequent to the onset of the Financial Crisis as well as field questions about a possible imbalance in over utilising monetary policy in an effort to substitute the shortcomings of the Obama administration's lack of an appropriate economic strategy that failed to produce the necessary growth needed.

Testimony given during Yellen's appearance before the Senate's Banking Committee reveal an intolerable tone setting in as indications begin to emerge on how Republicans are expected to deal with newly incumbent US president's views that the Dodd-Frank Act on financial reforms are stunting the growth of the economy by shutting out small to medium enterprises from raising loans.

Besides this, President Trump has also been noted as saying that the appointment of Janet Yellen was "highly political" and the Federal Reserve was being used to mask the failings of the previous administration. He went on to stress the importance of political independence in the monetary body.

These comments were made while Trump was the Republican presidential nominee.  

Fed’s Yellen spars with legislators on regulation, economy https://t.co/7eD0Rznz6h pic.twitter.com/3lH6Ih1n4O

— Business Day (@BDliveSA) February 16, 2017

Yellen isn't going to find much refuge in the year ahead and will ultimately be pressured to defend the actions of the Fed in the attempt to save its credibility amongst the financial sector.

However there is an argument that's been growing with intensity with every passing year over the sedative response central banks across the globe have taken in normalising the interest rate cycle.

In some cases central banks, like the ECB and BOJ, have taken the decision to continue using easing measures without much success while causing concern with investors over the length of continuity with such programs and it's ability to deliver on it's promises of prospects.

The Fed doesn't have too much pressure in this respect as it's the only major economy to have begun the process of interest rate normalisation, however with that being said, it might very well press Yellen to aggressively lift rates if she's to have any chance of keeping her job ... a fate that still hangs in the balance.  

Is the Fed's action a catalyst to monetary policy normalisation?

This week see's both the Bank of Japan and US Federal Reserve divulging the progress of their respective monetary policies with the market leaning on expectations of a steady advancement of a dovish undertone in the months ahead as many of the developed nations central banks battle to flex it's economic muscle in moving activity forward.

But with the Fed's policymakers insistence of a interest rate hike occurring within the last two meetings of the year, the market is growing skeptical of any such actions as its counterparts remain committed to immersing their economies with "free money" in a bid to shield them from deflation placing the Fed in a predicament where it stands to decouple policy alignment by implementing an opposing strategy than it's peers.  

The perpetuate notion of the central bank's delaying the inevitable and effectively stretching out monetary policy longer than would be seen as plausible in the normal course of a business cycle continues to spill over into current thinking amongst policy makers with many assuming the hindrance of such actions being brought about to appease market valuations.

The old Fed is dead https://t.co/E0NpqCMCXO

— Michael S. Rubin (@mrubin63) September 19, 2016

However the longer the Federal Reserve's holds up marching forward with interest rates, the less credible the inferences made from statements become and the less likely the market will find comfort in finding a voice of reason when dire consequences take hold.

Alternatively it could ignore the warning signs and impose interest rate hikes on the global economy but it could come with the cost of having to take the blame for throwing the entire financial system into disrepute by upending the ambivalent calm that lies in the market which doesn't conform to the thought of sharing the responsibility in an age of globalisation.  

Either way the Fed is stuck between two evils of which the decision will ultimately come down to choosing the one with lesser impact, but it won't take away from the necessary action of departing from the thought of monetary infinity.  

The Closing Position: Wrap of this Week's Blogs

The Fed's indecision is making markets nervous

Technical Tuesday: Altria Group Inc.

The Fed is being pushed into finding scope with negative interest  rates

5 Steps to Becoming an Algo Trader

Are EU economic indicators a true reflection of Europe?

The Fed is being pushed into finding scope with negative interest rates

The search for yield in the current market environment has become an ever increasing theme that's gaining momentum from global central banks persistent decision to drastically rely upon the effects of fictitious money creation to kickstart the world economy. The unabating actions of these institutions has meant markets around the globe face the difficulty of finding decent returns and the prospects of being flooded by a wave of excess liquidity created in a monetary stimulating frenzy.

As the flow of money supply entering the global financial system eclipses the actual demand for it, investors are swept into seeking out riskier investments than usually accepted placing them with a grave dilemma to contend against. Either ignore the consequences of the risk or face having your money stagnate and in some cases drawn down when participating in negative interest rate deposits.  

ICYMI! The global high yield #spread has tightened by over 300(!) basis points since February this year. pic.twitter.com/EKTDjIzKhv

— jeroen blokland (@jsblokland) August 24, 2016

Debate has raged over whether Federal Reserve chair Janet Yellen, set to speak at the annual Economic Policy Symposium tomorrow in Jackson Hole Wyoming, will clear up any uncertainty regarding the bank's once ambitious belief of progressive hikes in the interest rate which has been halted by the emergence of economic distress outside its borders.

However as much as Fed officials try desperately to throw smokescreens in front of market participants by speaking of minatory prospects of interest rate hikes, markets aren't taking the bait and continue to drive developed nations yields further into negative territory.

The Fed realises that should it pursue further interest rate increases the gains obtained from those seeking out yield could ultimately gravitate into financial catastrophe leading many to believe the might of this trend will eventually forced the Fed to conform to the existing inclination on the part of other central banks such as Bank of Japan and the European Central Bank in feeding the market's mammoth appetite for stimulus and thus dismantling the possibility of normalisation in interest rates.  

The US Federal Reserve's indecision making markets nervous

Market participants were scarcely off their recent rebounded confidence at the start of the week heading into a crucial week for the US Federal Reserve whose annual Economic Policy Symposium to be hosted in Jackson Hole, Wyoming from the 25-27th August evolving into an uncertain distraction away from the focus on buoyancy driving markets higher.  

The annual symposium sees Fed officials from around the United States gathering in one place to discuss economic circumstances the country is absorbing as a result of monetary policy implemented throughout the year. This year's theme: Designing Resilient Monetary Policy Frameworks for the Future giving a good idea what might be on many officials minds.

Last week we saw the Fed release the FOMC minutes of the meeting that happened in July which highlighted a deep divide amongst members in deciding whether the US economy was strong enough to sustain an interest rate hike. Some prominent regional members such as William Dudley, president of the New York Federal Reserve expressed his view that the central bank couldn't wait much longer to implement the second round of rate hikes whilst relaying a tone that set the scene for an imminent increase expected in September.

Needless to say his thoughts weren't shared amongst all decision makers with half the participants opting for a stay of execution in favour of  more evidence from economic data regarding the strength of the economy.

Yellen’s speech at Jackson Hole set to dominate mood on Wall Street https://t.co/zyTWExtoO2 pic.twitter.com/ej5XYOfeys

— Yahoo Finance (@YahooFinance) August 22, 2016

I wrote an article about this dilemma the Fed had found itself in saying the split in opinion was creating uncertainty in markets which would be met with trepidation. I went further on to discuss two possible scenarios that could happen depending on the type of action the Fed decided to take saying it was likely for them to buckle under the pressure of global policy alignment that's become the norm over the past few decades and follow its developed nation peers in pushing for softer monetary conditions from a low base.

Yesterday we heard another prominent figure, vice chairman of the Federal Reserve Stanley Fischer reiterating Dudley's comments on the strength of the economy and necessity of an interest rate hike. He said the Fed's target's were close to being met on most economic indicators with positive remarks about employment but recognising the economy has done "less well"than hope for.

It's getting down to crunch time for the Federal Reserve to choose the direction of its course with both outcomes having major impacts in the long term scheme of things.

The Fed's integrity may have suffered in the months gone by since implementing the first interest rate hike in December while over confidently saying it expected to hike rates four times in 2016, a statement I had said showed the miscalculation of an influential policymaker.

This possibly provides an explanation why some FOMC members have come out strongly with the intention to hike conscientiously knowing how important integrity remains in building trust with the public in the decision it takes. The absence of such virtue evades policymakers from any conviction on the part of participants in finding relief in future intervention measures and thus a failure in its effectiveness.  

US Federal Reserve continues to be under pressure

Minutes of the FOMC meeting that took place in late July showed members of the US Federal Reserve were cautious in their belief towards hiking interest rates for a second time since initially setting the trend in motion last year in December. Although there was a considerable amount of debate whether the US economy was fit enough to sustain a fresh hike, it was decided that more certainty in terms of members full agreement on the timing of the move would be necessary.

We saw remarks earlier in the week from New York Fed President William Dudley emphasising a number of points directly showcasing the strength of the economy whilst going on further to say an interest rate hike was still on the cards at the Fed's next FOMC meeting in September.

But as surprising as it may seem, markets hardly reacted to the enticement by Dudley instead remaining relentless in its view that the current progression from other central banks around the world in extending bond-buying programs while simultaneously exploring the "new" lower bounds of interest rates underneath zero percent was slowing down the Fed's ambitions.      

#Fed minutes this week may show why Yellen & co kept timing vague on next rate increase https://t.co/gw5pirYkWY pic.twitter.com/NmnIWAwiNv

— Bloomberg Economics (@economics) August 16, 2016

Inasmuch as the economic indicators relied upon by the Federal Reserve to make a decision constantly show positive signs within the US economy the issue of enforcing an interest rate becomes a different matter altogether with the alignment of countries economic policies over recent decades making pulling the trigger harder than it looks.

It requires a consensus from all other nations in following the direction of the move although not necessarily to the exact same timing as the other. If we looked at the current global monetary policy stance that's dominating headlines, it doesn't appear wise to apply discretion in the contrary direction which places the Fed's expected trajectory under scrutiny.

Should the Fed see a divergent policy appropriate it would mark the first signs of an uncoupling of a global understanding where the economic decision taken by an individual country no longer influenced by its impact or effects on its counterparts.

Or contrary to this we'll see a less stringent pathway of interest rate hikes with an eventual outcome of the Fed buckling under the pressure of a joint global effort to exploit monetary policy to its withers end till the point of financial catastrophe.    

The longer the Fed stalls hiking rates the more likely it'll fall prey to the second scenario because with every meeting that passes with no action registered a wave of doubtfulness will fill the thoughts of market participants who've already become accustomed to "easy" money to drive up asset prices higher and eager to test central bankers commitment further.    

US job numbers continue to grow as economy appears weaker

A closely watched gauge of economic performance often associated with the prospects of economic strength or weakness is the US non-farm payrolls that's captured much attention since overtaking a previous record set for the longest consecutive jobs gained in the labour force which last occurred in the late 1980's.

The current reading continues to surpass it's prior record by an ever increasing number of months as time passes leaving many analysts and commentators baffled at the sheer consistency of the measure over the past five years in contrast to the stagnancy of the United States economy.

One would've thought the paradoxical thought which refuses to acknowledge the direct relationship between employment growth translating into economic value might have raised the alarm bells for policymakers who continually believe the farcical numbers they broadcast.  

70...

As in 70 consecutive months of job growth, by far the longest streak in history. #payrolls pic.twitter.com/1aHcX5MCZS

— Charlie Bilello, CMT (@MktOutperform) August 5, 2016

You sense the irony in US indices breaking into higher territory off the back of this measure when the steadiness of trend in economic growth is hardly explicit.

The most probable cause for a spike in optimism relates to a lower than expected number US Federal Reserve officials would be satisfied with in its restless progression of rate hikes or even yet the possibility of rescinding it's barely formative strategy of normalisation under the pressure of following its peers in other developed economies of driving interest rates lower than zero.

Strange as it may sound, the Fed's doubt that 70 consecutive months of job gains isn't enough to be comfortable the economy is capable of handling another interest rate hike eludes to either a lack of confidence in the measure itself or quite simply using it as propaganda feed to abate the feeling of nervousness amongst the investment community. A frightening thought to ponder over considering it's stimulating nature of financial markets...

BREAKING: Nasdaq and S&P 500 close at record highs » https://t.co/TGMGUaWBm7 pic.twitter.com/n11XN0yRVd

— CNBC Now (@CNBCnow) August 5, 2016

Travelling Technicals with Global Indices: U.S Dollar Index

There's no denying the importance currencies play on economic activity of the world with trillions of dollars exchanging hands everyday. The most prominent of all is the US Dollar that's been adopted as a standardised way of trading with other nations, easing the necessity to hold stock of a wide range of different currencies to facilitate trade. 

A fair amount of coverage has been given to the recent spike in the US Dollar against other major currencies as a result of the market heeding the call of the US Federal Reserve's promises to lift interest rates that have remained abnormally low for an extended period of time.  

If you've been watching proceedings closely of the progress year to date you'd noticed the divergence of trend emerging between the developed nations monetary policy in which the US has stood firm by its decision to see rates normalise whereas countries such as Switzerland, Europe and more recently Japan exploring the depths of interest rates by sinking them below zero. 

I thought a fair assessment of the situation could be put to the test with the analysis of the famed U.S Dollar Index which tracks a basket of a few of the largest trade partners currencies against the US Dollar. I stress a few because currencies such as the Mexican Peso, Chinese Yuan and many more are not included yet form a significant part of trade from and into the US. 

The currencies included; 

Euro (57.6%)

Great Britain Pound (11.9%)

Swiss Franc (3.6%)

Swedish Krona (4.2%)

Japanese Yen (13.6%)

Canadian Dollar (9.1%)

Monthly

A general expectation of the index is big moves occur whilst monetary policy is changing which doesn't leave too much surprises in terms of understanding possible directions. We saw that during the tenure of Ben Bernanke the index remained subdued up until the point when quantitative easing was weaned away.  His successor Janet Yellen was the first to make mention of hiking interest rates and in doing so set in motion a stampeded of dollar bulls who shot off on an impressive run.  

They managed to surpass the important resistance of 88 that marked out the end of the downtrend suggesting we would experience bullish overtone when tracking the dollar in the medium term. However what we've witnessed is a pause in trend, a correction in time rather than a correction in price that has trapped the index into a consolidatory range. 

This aligns with the Fed's indecisiveness or hesitancy not to hike rates at the moment which departs from their projected outlook they gave in December with the first increase. 

Staying range bound instead of pulling back indicates the market doesn't expect a shift in the Fed's policy anytime soon which gives the Fed an added bit of confidence in their ability of handling the outcome thus far. The price is sitting on support with the stochastic in an oversold position so I'd expect to see price moving back to the top of the range, if it doesn't major support will be found at 89 which could be a possibility if the RSI slips back under 50.

Weekly

On the weekly we see the same range bound formation but a number of indicators that signal contrary to the Monthly chart, the first being the 50 simple moving average (SMA) that exhibits a flat gradient and shows the price hovering below it.  The second is the RSI below the 50 for a consecutive number of weeks indicating a slowdown in momentum. Apart from these the only indicator that shows any kind of parallel to the Monthly chart is the stochastic that's approaching the oversold region. 

This makes our analysis difficult to speculate the direction of the next move however it should also be noted that longer timeframes hold preference over shorter ones. In saying that it would be expected that the support of the range should be strong enough to hold for the time being unless further evidence would suggest a degree of weakness emerging out of the US economy. 

Fed's indecision rests on government's unwillingness to commit

Much to be expected, the US Federal Reserve held interest rates steady once again following a two day FOMC meeting that concluded on Wednesday. Fed Chair Janet Yellen cast a cautionary tale over the direction of the world economy with doubts raised whether the strength of US economic growth was concrete enough to sustain consistent setbacks seeping through from their counterparts in the developed world.

In Wednesday's article I said it was becoming difficult for the Fed to defend its strategy of keeping interest rates unmoved after issuing a guide, the so called "Dot Plot", in providing the market with some clarity of the pace that would be set in hiking rates throughout the next 3 years.

December's liftoff was disguised in confidence and perhaps even a show of arrogance to other central banks who've resorted to interest rates below zero in a last bid attempt to evade deflation. Needless to say the road to normalisation is fraught in containing the onset of policy decoupling and as a result has seen the negative externalities ploughing their way into US economy.

I am of the belief that nations, especially those who make up the majority of global GDP and thus direction, benefit greatly from policy coordination. We've witnessed this simply by observing the actions of central banks in developed nations feeding their economies with a mass money creating bonanza at artificially low rates.

You can't fault central bankers for finding the propensity to enact similar measures to their peers as it fell in line with global policymakers agenda of coordination. So where has it all gone wrong then?

Quite simply the scarcity of bold fiscal policies aimed at addressing failed systemic mechanisms that brought about the height of the financial bubble in 2008/09 as well as exploring new ways of implementing regulations with rigid framework to prevent the same from occurring again.

Yet we continue to see the ignorance of world governments, most importantly those representing the bulk of the world economy, in delaying the process everytime an economic inconveneince spoils the outlook of their nations economy by propagating voters ears with utopian policies.

Until such time we see these governments take radical steps to correct the mishaps hurting their activity, the longer the world will sit with the problem of low growth coupled with deflation.

The Fed’s missing dot belongs to the St. Louis Fed’s James Bullard https://t.co/detoU2K5GQ pic.twitter.com/Gin7suB1zv

— Bloomberg Markets (@markets) June 17, 2016

Will the Fed's hesitancy lead the market to see more risk?

Wait and see; that's the approach expected to be taken by the US Federal Reserve at today's announcement around its decision on interest rates that are yet to see further hikes after initiating the first such increase in rates in almost a decade following the Fed's December meeting. Since then the market has been largely affected with issues like China's economic growth stagnancy, a European refugee crisis and now a possible exit from the EU by the United Kingdom.

All these events have prevented the Fed from acting on their aspirations of seeing the Fed Funds Rate sit at a targeted level of 1.4%...pretty rich coming from a central bank that's been artificially fuelling asset bubbles since the introduction of Quantitative Easing.

Many at the time shot down the FOMC's projections by reiterating the weak global economic outlook that seemingly took hold of proceedings in the latter half of 2015 that was expected to last throughout the entire 2016. We've seen those conditions escalated in the first half of this year with advanced economies taking the front seat in terms of uncertainty, all showing signs of dragging down global growth.

5 things everyone will be talking about this Fed day https://t.co/BpeQaWs9ht pic.twitter.com/EGLOIU2ex1

— Bloomberg (@business) June 15, 2016

Brexit might be the excuse used this time but the Fed knows very well that if it continues to stall hiking interest rates the higher the likelihood will be for it to renegade on its normalisation policy.

The real risk presenting itself in the global financial system resides in the fact that central bankers are losing their influential hold on directing their economies by allowing world government's to fall back on monetary policy to reboot the global economy.

This no longer stands as a strong deterrent of deflation that poses a risk to an ever increasing debt mound that injected myopic confidence into a system with the results proving unsuccessful. It also shows a worrisome sign for the economic outlook that partly fed the miniscule economic growth numbers we've seen up until now.

Questions are being asked whether US Treasury's will follow in the footsteps of fellow nations such as Japan, Switzerland and now German in dipping below negative yields?

I don't think the answer to the question should be to speculate whether they could but rather what are the implications if they do and these nations should decide to start the normalisation process considering their bond instruments are amused "safe" and investors continue to flock into them to weather the financial storm.  

Update on Global Bond Yields as Global Growth continues to slow pic.twitter.com/h6jL2hcWlF

— Keith McCullough (@KeithMcCullough) June 15, 2016

Is the Fed correct in thinking rate hikes?

When the Fed finally lifted interest rates in the US for the first time in over a decade last year December the tone that was struck by the Fed was one of caution in its pursuit to normalise the interest rate cycle from an abnormally low rate for an extended period of time.  At the time I had written that although the Fed had envisioned to see its reference rate near 1.4% at the end of the year suggesting four rate hikes during the course of the year, it was highly unlikely that we would see that develop given the nature of the global economy as well as the converse pathway being followed by most of its developed counterparts.

The Fed didn't sideline this issue stating that the normalisation process would be taken in accord with the strength of the world economy knowing well that a steep climb in interest rates could destabilise the entire financial system. It's fair to assume that the Fed has stuck by its word by reconsidering a proposed hike in April saying that the outlook of the Chinese economy was waning on the global economy making it difficult for them to lift rates.

But yesterday the Fed's Minutes of Meetings for April were released showing that most FOMC members were ready to hike once again spooking the market into recess at the mere thought of it. The news came as somewhat of a surprise as many were expecting the hiking process to be further delayed to the first half of 2017.

Fed signals interest rate hike firmly on the table for June https://t.co/K25aq8kE1r pic.twitter.com/j2fe5xHXeM

— Reuters Top News (@Reuters) May 18, 2016

If it were to happen it would certainly set the trend for the divergence between developed nation's monetary policy which would indicate a departure from the current undertaking of economic coordination so as to insulate the world economy from shocks and place a concerted effort from all nations on finding a unified solution to economic hardship. A common theme that's cropped up often over the last while is the need to protect a nation's sovereignty giving further evidence that the economic pathway countries are about to endure upon requires solitary objectives as opposed to collective thought.

The move certainly provides short term relief for currencies such as the Japanese Yen that have suffered severely from policy mismatch with participates inflicting the opposite action the BOJ had expected them to after announcing an expanded and extensive stimulus program. The market has been unrelenting on countries engaging with negative interest rate policy with many warning the negative impact they will have if implemented.

This leads me to the first reason I believe the Fed isn't foolish in its decision to continue hiking rates as its escaped the trap of falling into the mindset of NIRP which could've thrown the US economy further into the abyss, instead relieving the reliance of the monetary policy by shifting economic policy decision towards fiscal decision makers. This issue has been spoken about from a number of institution who have said the functions of monetary policy have started to wear thin and the need for governments to restructure their economies a necessity.

Secondly the US economy although considered weak when looking back at previous years is much stronger relative to its peers currently, so when weighing up the pros and cons it would lean towards stabilising the economy rather than making it softer by delving deeper into negative territory with interest rates.  It's facing up to the headwind risk that's been created from abnormally low interest rates to be certain of normalised policy in the future, an aspect that doesn't feature at all in Europe and Japan.

If there were anyone that would be disappointed or despaired by the guidance it would be market participants who haven't adapted to this new way of economic cooperation or rather lack of. The sudden price moves that occur as a result of policy decoupling should be expected as the notion of paralleled policy enforcement no longer matches. It wouldn't be naive to think that such a move might aid the momentum of a new economic shock which I have no doubt, but we haven't reached a point where we can clearly assess the severity of such an event should it happen.

For now being aware of a changing tide is all that matters, its certainly going to make things interesting in the short term and more so over the long run.