Fed Delay On Hike Was Right, Low Interest Is Needed
$DIA, $SPY, $QQQ, $VXX
“You need low interest rates in order to recapitalize, to term out debt.”
Bill Gross said the Fed was right in keeping interest rates near Zero+, and it may take years for the economy and rates to return to more normal levels.
Monetary policy has exhausted its effectiveness, with asset prices distorted by years of Zero+ rates, and fiscal policy would be needed to get the economy back on a stronger footing, Mr. Gross said Friday.
“I think they did the right thing,” he said, citing current financial conditions. “When they did the wrong thing, and this is way back in terms of past history, they went below 2% in terms of the short-term rate. They did not have to do that, they did not have to go to Zero. So now getting back up there will wreak havoc on asset markets.”
The Fed opted to keep rates Zero+ Thursday, citing concerns about a possible slowdown in global growth, low US inflation and market turbulence over the past month.
Traders in the federal funds futures market marked down the chances of a December rate increase to below 50% following the decision, from 64% Wednesday. That is based on the assumption that the effective fed funds rate will average 0.375% after liftoff.
Asked how long the distortions from low interest rates will continue, Mr. Gross said it may take another 10 yrs.
History will indicate that “if we had 20 or 25 years of fat, in terms of an expanding economy, expanding debt, then perhaps we will have to pay the price for at least another 5 or another 10” years, he said. “You need low interest rates in order to recapitalize, to term out debt.”
With uncertainty running high, volatility protection was in demand, evidenced by a two-point spike in the CBOE Volatility Index (VIX) 22.84, +1.70 (NYSEArca:VXX).
The US stock market finished the week on a broadly lower note.
DJIA -289.95 at 16384.79, NAS 100 -66.63 at 4827.23, S&P 500 -32.12 at 1958.08
Volume: Friday’s action was above average thanks to Quad-Witching, more than 2.1-B/shares changed hands on the NYSE.
- NAS 100 +1.9% YTD
- Russell 2000 -3.3% YTD
- S&P 500 -4.9% YTD
- DJIA -8.1% YTD
| HeffX-LTN Analysis for DIA: | Overall | Short | Intermediate | Long |
| Bearish (-0.38) | Very Bearish (-0.54) | Bearish (-0.29) | Bearish (-0.31) |
| HeffX-LTN Analysis for SPY: | Overall | Short | Intermediate | Long |
| Very Bearish (-0.51) | Bearish (-0.41) | Very Bearish (-0.67) | Bearish (-0.45) |
| HeffX-LTN Analysis for QQQ: | Overall | Short | Intermediate | Long |
| Neutral (-0.24) | Neutral (-0.07) | Very Bearish (-0.56) | Neutral (-0.08) |
| HeffX-LTN Analysis for VXX: | Overall | Short | Intermediate | Long |
| Bullish (0.26) | Neutral (0.17) | Bullish (0.44) | Neutral (0.18) |
Have a terrific weekend
HeffX-LTN
Paul Ebeling
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