Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – March 13, 2017
The major averages struggled to begin the week on little real news ahead of the expected decision on interest on Wednesday. The consensus is nearly 100% that the Fed will raise rates once again despite the fact that rates are being increased into weakness, opposite the usual strategy of raising into economic strength. With the Fed apparently more interested in putting some powder aside for the next downturn so it can cut rates as per the standard policy response. Given that the Fed usually cuts rates 3-5% in response to economic and or financial crisis it is an odd strategy as the economy and the markets will not withstand that type of increase intact. Given the available data, levels of debt, asset valuations and the potential for crisis in Europe beginning with the official Brexit vote Wednesday and Asia amongst other items and the Fed is playing with fire if you ask me.
The February Federal Reserve monthly budget statement showed that total receipts slipped to just 172 billion, this pushed the deficit up to 192 billion as outlays reached 364 billion. This put the deficit on a year ago basis at 3.1% of GDP a significant jump from the 2.2% recorded a year earlier. The real issue here is that revenues actually fell 1.1% in February on a year ago basis. Declines such as this have a nasty habit of occurring at or near recessions the last time was July of 2008. The fact that the Fed is willing to ignore this and other data points while pushing interest rates higher is surprising to say the least as is the near unanimous cheerleading by the futures markets and mainstream media for higher interest rates as well. Additionally with much of this decline attributable to rapidly falling corporate tax receipts the recent strength, if you can call it that, in corporate earnings becomes suspect as well.