The Fed Misses an Opportunity

By: Chip Hanlon | Thu, Aug 18, 2005
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The segment below was written and distributed only to the media within an hour of last week's Federal Reserve interest rate hike, with excerpts/themes picked up by various national media. At the prompting of a colleague, I have decided to post it here along with updated comments:

Tuesday, August 9th, 12:00pm, PDT-

The market, uncharacteristically, is typically correct in its expectations of Federal Reserve interest rate actions; indeed, it is with this fact in mind that many argue that the Fed merely follows the market with regard to setting interest rate policy. Were there ever a time for the Fed to surprise the market, however, that opportunity existed today - the Fed should have taken advantage of a number of current economic conditions to hike by 50 basis points at Tuesday's meeting.

I'm well aware that mainstream economists had been hoping for the opposite - a signal that the end to the Fed's tightening campaign was near, but I disagree with that sentiment based on the following factors:

Acting to more aggressively rais e the Fed Funds rate is not without risk since an inverted yield curve (and recession) could still result. However, if I'm reading things correctly and the market is poised in such a way that we'll soon be worrying again about another "soft patch" or worse, anyway, then the Fed missed an opportunity.

Short-term rates are inching higher from what were such extremely low levels that the Dollar is still in need of support and the Fed Funds rate will need to first get even higher if the Federal Reserve wants to consider rate cuts as a "cure" for the next recession, whenever it should arrive. Therefore, when economic conditions as well as the long end of the yield curve give the Fed room to be more aggressive in raising rates, it needs to take advantage.

- end of excerpt -

The above release is now part of a full-length article, one that also contains comments on gold and the Euro and is available at our website,


Chip Hanlon

Author: Chip Hanlon

Chip Hanlon
Delta Global Advisors

Currently the President of Delta Global Advisors and the founder of Green Faucet, Chip Hanlon is regularly featured in the national media for his global economic viewpoints and is a contributing writer for Real Money, the subscription service from Previously, Hanlon has served as the C.O.O. at Euro Pacific Capital, as the President of Unfunds, Inc., and as Vice President of Investments and Syndicate Manager with Sutro & Co.

Copyright © 2005-2009 Chip Hanlon

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