Here's What Was Missing From The Fed Rate Decision That Should Have Sent Off Alarm Bells

Michael Hewson is a weekly guest on #PreMarket Prep, a daily trading idea radio show hosted by Joel Elconin and Dennis Dick.

• In the wake of the Federal Reserve's rate decision last Thursday, the SPDR S&P 500 ETF Trust SPY declined 2.35 percent, while the Guggenheim CurrencyShares Euro Trust FXE was flat.
• CMC Markets Chief Analyst Michael Hewson said that the Fed's decision should not have come as a surprise to markets, given the lack of inflation and "tepid wage growth."
• Hewson said that bond and foreign exchange markets "focused on completely the wrong thing," and forecasted that the euro would move towards 1.17 and the Japanese yen would move to 116.

The window for a Federal Reserve rate hike is "starting to close," said CMC Markets Chief Analyst Michael Hewson. That statement comes after the Fed again left its interest rates at historically-low levels last week. The reaction following that meeting suggested that the market was "confused."

Related Link: How Wall Street Is Reacting To The FOMC Rate Decision

While most economists and forecasters were focused on unemployment numbers and the strong labor market, Hewson said that global economic weakness and the lack of inflation were the right factors to play up. As evidence of this, Hewson pointed to the June statement, which included a paragraph about stabilization in energy prices. That paragraph was not included in the July statement, which instead mentioned that energy prices were declining.

For Hewson, that change sent off "alarm bells." It told him that the Fed was concerned about the lack of inflation.

Along those same lines, Hewson forecasted that the Fed not hike rates at all this year. The Fed is "absolutely terrified" of the impact that a rate hike would have on emerging markets, he added. Further, additional moves by the Chinese central bank to devalue its currency might keep pressure off prices.

Hewson added that this is the response to the Fed's easy money program, which "created a monster" in terms of the amount of U.S. dollars in circulation. The Fed is now the "global central bank" since many emerging markets have a lot of dollar-denominated debt. Their decision reflects that, Hewson concluded.