Today's Fed Meeting: No Cut, No Hike

Today's Fed meeting should be pretty simple- no cut and no hike. The Fed Funds futures rate are pricing in no movement - well, almost no movement. The June futures are trading for 97.9950, which can be interpreted as a minuscule chance for a hike, but very minuscule. The Fed can’t cut because of inflationary concerns, and it can’t raise because of growth concerns.

Stagflation, a truly horrible word. At least with typical inflation, there is the nominal gain so people can feel like they are making money even if they aren’t in real terms.

It will be at least 5 years before we get any oil from the Gulf, and probably longer before Petrobras (PBR) sees oil pumping from its offshore “find”. With China and India growing more than 8%, and oil supply relatively inelastic in the next few years (the Saudis are the only OPEC country with untapped capacity and they aren’t helping us out- Don’t they know what happens when resource rich countries with little military might refuse to sell copious amounts of their product to the US?), the only way this oil crisis is going to end is if

1. there is a huge recession in the emerging markets which lessens demand,
2. there is a huge recession in the developed economies of the world which tapers demand, or
3. the US really buckles down starts saving energy, starts driving smaller cars and start seeking out sustainable forms of renewable energy like wind and solar power. 

And I have listed these from what I consider to be the most likely to the least likely.

Yes, I scoff at decoupling. America is sneezing and the emerging markets (India/China) will get the flu – maybe even mono. Then they won’t demand as much oil, oil prices will plummet back to more reasonable levels, and everyone will forget about the whole alternative energy thing- until the next scare. Not an ideal solution, but an historically accurate one.

Comments

[Stockaccumulator]

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