Market Overview

The Fed Would Be 'Dumb' To Raise Interest Rates

The Fed Would Be 'Dumb' To Raise Interest Rates

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

Moneyball Economics editor Andrew Zatlin does not have a high opinion of the Federal Reserve heading into next week's critical FOMC decision. On Benzinga's #PreMarket Prep, Zatlin said that the Fed is full of "smart people" who behave "stupid" if they are considering an interest rate hike. According to Zatlin, the results could be dire: a hike could "tip us into a recession – full blown."

Zatlin took issue with the Fed's understanding of the Internet and supply chain management, in particular criticizing the central bank because none of its governors "got their PhD's after the Internet was created." Zatlin argued that the Internet matters, particularly with respect to inflation. With the Internet, around 40 percent of capital has been freed up – capital that used to be in inventories is now held in cash, Zatlin said.

Yet the Federal Reserve has not changed its framework to account for this "totally different economy," Zatlin noted. He compared the Fed's methodology to trying to fix a modern watch by winding it.

Increased Signs Of Layoffs?

Zatlin did say that the economy may be able to absorb the impacts of an interest rate hike, but said that the "economy doesn't need it." He noted that durable goods orders are contracting and there may be increased signs of layoffs, despite a GDP in the 2 to 3 percent range.

To Zatlin, that means that the Fed should continue to stay the course of low, steady interest rates. If the Fed heeds his course of action, Zatlin predicted an immediate relief rally, though that could be tampered if the Fed stays unclear about the criteria for a hike.

"The market wants to know with a lot of clarity, what does the Fed think is really going on?" Zatlin blamed this lack of clarity on the market's pullback over the past couple weeks. Without knowing what concerns the Fed, the market is flying blind.

Including Tuesday's 2.5 percent rally, the SPDR S&P 500 ETF Trust (NYSE: SPY) has dropped 6.2 percent since August 1, with most of those declines coming since the middle of the month.


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