Will We Have A Crisis Of Confidence In The Fed?

by Michael Haltman

Did Janet Yellen raise the fed funds rate in December only to turn around and lower it now?

With the selloff in the equity market, sharp decline in the price of crude oil and uncertainty surrounding the U.S. and global economies, the LAST thing we need is for a crisis of confidence to develop concerning the competence of the Federal Reserve!

Part of the text of Janet Yellen’s testimony to Congress that she will give today, just released, makes one wonder what the Fed saw in December 2015 sparking an increase in the fed funds rate that the rest of us didn’t see!

At the end of January 2016 I wrote the following…

‘The Federal Reserve, after raising its benchmark fed funds rate .25% in December 2015, yesterday left rates unchanged!

The December increase was implemented despite inflation remaining well below the Fed’s target rate of 2% and in the face of an economic recovery that could be, at best, termed tepid.

At the time some speculated that the Fed needed to raise rates so that they would have the ability to lower them again should the economy weaken. Still others thought that to retain any credibility they needed to make a move.

Neither one of those could be called solid reasoning when making decisions impacting the U.S. economy…‘ (Source: ‘Instant Replay! ‘U.S. Business In The Hands Of Federal Reserve Academicians!’)

Of particular note from the text of today’s testimony is the following…