[OPINION: The views expressed by Investopedia columnists are those of the author and do not necessarily reflect the views of the website.]

The Federal Reserve missed a wide-open, obvious opportunity to raise interest rates another 25 basis points this week. Perhaps the Fed is scared of President Trump and won’t hike during this recent economic acceleration? Who knows. What I do know is that it’s been a long time since I ripped on the Fed. So bear with me.

Let’s begin with our current Fed chief Janet Yellen’s predecessor Ben Bernanke. He clearly had his own issues with “fake news” as he devalued the US Dollar to 40-year lows. And don’t forget his assertion there was “no inflation” in 2011 at the all-time high for commodities.

But Yellen? Wow – what a forecasting track record! Our analysis suggests that since Bernanke's tenure, Fed forecasts on growth and inflation are wrong approximately 70% of the time.


The Yellen Fed missed an entire cyclical recession from 2015 to 2016, and now they are missing both growth and inflation accelerating over the last 3 months. After missing a layup opportunity to raise interest rates into that acceleration yesterday, I think our Fed chairwoman is a Dead Dove Walking cooing herself into retirement.

Her big “pivot”:  instead of saying she “expected inflation to rise to 2%,” she said inflation “will rise to 2%.” Yep. That had to be the best call of the year. For the record, headline CPI is already +2.1%.

I’m sure Yellen will get richly paid to give speeches once her time at the Fed is up. Trump has at least 4 Federal Reserve appointments to make, including Chair and Vice Chair next year.

But back to the stubborn market and economic data:

-S&P 500 Earnings accelerated to +3.9% year-over-year growth as of Feb 1, with 224 of 500 companies reporting

-ADP Employment accelerated from +151,000 in December to +246,000 in January 2017

-ISM (USA) accelerated (again) from 54.5 in December to 56.0 in January 2017


Within the widely-watched Institute for Supply Management (ISM) report were some massively huge ramps:

1.    “Current Production” ramped over 60 for the 1st time since Yellen missed #Deflation developing in late 2014

2.    “Employment” ramped to a 30-month high reading of 56.1 (at this time last year that reading was 46.2)

3.    “Prices Paid” ramped like no other ramp, to a herculean level of 69.0!


In case you didn’t know what the ISM is, it’s what we call a “diffusion index.” Basically a bunch of people get surveyed about conditions within their business. Readings of 40-50 are considered low. Readings of 60-70 are considered high.

ISMs, PMIs, etc. are mean reverting by nature. Once they get into the mid 40s and everyone is pessimistic and “beared” up, that’s when they tend to bottom and then bounce. The opposite is true once they get into the high 60s. Everyone is optimistic and “bulled” up and that’s when they tend to top and roll.



Q: How the heck does the supposedly “data dependent” Federal Reserve get away with missing ramps in major economic data series like this? You know, like astronomically obvious rate-of-change ramps?

A: The Fed doesn’t do rate of change. Believe me.

Someone send this to Trump for me, please. Because if he isn’t completely full of it on the branding of “MAGA” (Make American Great Again), he absolutely has to change the complexion, culture, and process of The Federal Reserve.

Sure, the Dollar Doves love Yellen. The U.S. dollar continues to fall following the statement from Yellen & Co yesterday. Non-fake news fact: Down Dollar, Down Rates policies did not make America great again.

But they did create massive asset bubbles that ultimately imploded. That forced the Fed to try and reflate those bubbles doing the same damn thing, going “dovish” (in dollars), again, and again…

Then what? The People who got plundered got mad. And Trump won.

Why did he win? Because we (Washington and Wall Street – I have offices in both places) got paid by owning the asset inflation as The People paid for that in real-cost-of-living terms.

Yes, yes, yes. Americans get paid in dollars. Devaluing their hard-earned dollars raises their cost of living. So, believe me, if Trump’s monetary policy looks anything like Bush or Obama’s (i.e. the same “QE creates demand” nonsense), then “MAGA” is dead too.

My rant is over.

P.S. Bannon, instead of reading that Zero Hedge perma-bear spin, I hope someone gets this note to your desk.


Keith McCullough is the Founder and CEO of Hedgeye, an independent investment research and online financial media firm based in Stamford, Connecticut. Click here to get (for free) the 5 most popular investing insights from Hedgeye emailed to you each week.



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