Weekend Reading: Yellen’s Line In The Sand

This past week, the big news for the market was the release of the April 27th FOMC minutes which once again suggested the Federal Reserve may be on a path to hike rates sooner rather than later. The reality is simple, with the markets hovering on critical support, a Presidential election just around the corner and no real evidence of economic recovery, the likelihood of a rate hike in June is approaching zero.

Here are some key highlights from the meeting minutes:

“Participants generally agreed that the risks to the economic outlook posed by global economic and financial developments had receded over the inter-meeting period.

Participants also raised concerns about “unanticipated developments” associated with how China manages its exchange rate.

Still, Fed officials signaled they weren’t overly worried about the apparent [Q1 GDP] slump, judging it was temporary and “could partly reflect measurement problems and, if so, would likely be following by stronger [gross domestic product] growth in subsequent quarters.”

The view wasn’t unanimous. Some officials worried that softness in consumer spending and declines in business investment may be a sign of a more persistent slowdown in economic activity.”

There is a tremendous amount of “hope” built into those statements. And despite the continuing call of economic growth which has remained terminally elusive, the Federal Reserve is faced with numerous challenges ahead.

The central bank already missed the “window of opportunity” for normalizing rates in a manner that doesn’t hamper the recovery. This is evident when you look at Janet Yellen’s proprietary index that Yellen herself has stated as critical for Fed movement.

As I have repeatedly discussed in the past, since payrolls tend to track corporate profits by about six months AND the small business confidence gauges are in decline, there will be weakening, not strengthening, in employment as the year progresses.