Is Yellen Targeting Mid-September for Rate Hike?

At a Wednesday meeting last week, the Federal Reserve left key interest rates unchanged and near zero, which means that the low-rate regime that began at least six years ago has been extended yet again.

However, various mainstream media reports were in agreement that September might be the month when the Fed finally targets higher short-term rates. This would occur as a result of a 16-17 September policy meeting.

It is doubtful that Yellen will decide on a large hike. Probably a quarter point or so. But the economy is so weak that even a small hike might have significant investment consequences.

And by investment consequences, we mean a shock to the markets – and specifically to the bond and stock markets– that are by many measures incredibly overbought.

September has in any case traditionally proven to be one of the “worst” months for stocks – a month that is causing nervousness already because of the Shemitah event occurring on September 13th.

TDV has set the pace for explaining the shocks that might come in the fall because of Shemitah or simply because the markets is probably more overbought than it’s been since the Roaring 20s.

Of course, that’s not what the Fed wants to portray. Yellen wants to portray a society and economy in recovery. She has previously told the US Congress that “we’re close to where we want to be” when it comes to hiking rates.

This rhetoric is part of an apparent determination by the Fed head to initiate a rate hike in 2015. Presumably Fed credibility is at stake since central bank official have been warning of tightening throughout the year.

Also, a rate hike would send a signal that the economy is doing better and verging on “health” – which is politically important as well, given upcoming elections, including a presidential election.

The Fed’s apparent determination to hike, coming after so many months of warnings and speculation, only reemphasizes the difficulty that the US central bank – and indeed central banks around the world – have in utilizing a main weapon of monetary policy.

Many countries are carrying such high debt payments that even a small rise in rates will divert considerable capital away from public spending and cause a significant debate about monetary policy – which is the last thing central banks probably want right now.

The shock of a rate rise can do more than cause controversy of course. It can have actual and serious monetary impacts.

The UK Guardian newspaper, in an article about the recent Fed policy meeting, put it this way: “Will a rise in US interest rates cause investments to tumble? Even the mere prospect of the Federal Reserve raising interest rates has delivered a shock to US markets due to a lack of liquidity.”

The UK Guardian also asks, “So what can investors expect when the inevitable rate hikes actually come to pass?”

The chances are that when Yellen’s timid rate hike comes, markets have already digested the possibility. But the damage will be larger as time goes on. When it’s made, reality will be readjusted. Instead of looking at easing, investors will be looking at tightening.

The ramifications will doubtless play themselves out inescapably with more and more damage, and there is nothing the Fed or any central bank can really do. Gradually or hurriedly, bonds will enter a bear markets and stock markets – not nearly so healthy as presented – will also enter bear territory.

With such fragility being introduced by central bank monetary policy, it won’t take much more to knock markets and even economies off balance. If we are correct about Shemitah itself, the combination of a reversal of monetary policy with other events that Shemitah itself portends could have a devastating effect on portfolios and people’s wealth in general.

Everything points to September, as I have often written now. But even if the effects of Shemitah are muted, possibly because we’ve written so much about it, the ongoing trends are crystal clear. This economy like 2007’s, is a charade perched tipsily on top of a disaster. It is ready to topple over and won’t take much of a push.

For more information on what you can do to help yourself and your loved ones, I urge you to take a look at the www.SurviveShemitah.com website we’ve put together and then to read the White Paper and take action.

Originally Appeared At The Dollar Vigilante