The Federal Reserve’s policy statement yesterday elicited a strong King Dollar reaction with its mild dose of hawkishness, which I applaud. I’m reading the Fed positively here. There was no announcement of any new debt monetization via Treasury purchases, a slightly more positive economic view, and an end to deflation worries. This all to the good.The result was a stronger dollar in world currency markets. King Dollar. This is very good.
I was encouraged that the Fed cited rising commodity and energy prices. It is another nod to a market-price rule. That is clearly the best way to conduct policy, rather than the goofy Philips Curve tradeoff between inflation and unemployment.
Now, the Fed is going to keep the target rate near zero for the foreseeable future. But remember, the Fed’s balance sheet has flat-lined over the last six months as it has slowed down the overworked printing presses. So, while the Fed didn’t mention an exit strategy, it may already be building one.
The markets basically voted in favor of the Fed. While the Dow was off slightly on the news, the S&P gained almost 1 percent, with the NASDAQ finishing up a solid 27 points. As you know, markets conduct an up-or-down election vote every single day on the economy, Washington, and policy. It remains the most important opinion poll there is.
Finally, I think this sideways market correction we’re in is nearing an end. As a result, I think this could be a strong buying opportunity for investors, who can put some of their sidelined cash back into stocks.
