Chair Yellen, please take a vic­tory lap!

The Pak Banker - - OPINION - Jack Bouroud­jian

Pro­fes­sor Jeremy Siegel gave one of the best de­scrip­tions of present mar­ket con­di­tions in a CNBC in­ter­view last week. When asked about the Fed­eral Re­serve and the chances of a Septem­ber rate hike he said, "The an­tic­i­pa­tion of rais­ing rates is worse than the ac­tual act of rais­ing rates for the mar­ket." Be­ing the won­der­ful teacher he is, the mes­sage was clear: Noth­ing is as bad as your imag­i­na­tion makes it out to be. The truth is that the latest Fed min­utes, which gave us a blind­ing glimpse of the ob­vi­ous, showed the cen­tral bank can and should move in Septem­ber, even with loom­ing con­cern about China.

There are two good rea­sons: First, the Fed needs to show the fi­nan­cial world that they are con­sis­tent in their "data-de­pen­dent" stance (per­fect data do not ex­ist in this world). Sec­ond, to para­phrase Paul McCul­ley, for Janet Yellen to take a vic­tory lap. The hard­est pill for us to swal­low is the wait­ing game. Let's un­der­stand that we have never been in a zero in­ter­est-rate en­vi­ron­ment like we are now and any move by the Fed from these his­tor­i­cally low lev­els would be … well, his­toric! But the moves will cer­tainly be slow and grad­ual with no dras­tic sur­prises. Let's keep in mind that the mar­ket has traded in a coun­ter­in­tu­itive man­ner for the last seven years and a dog­matic ap­proach to the end of ZIRP (zero in­ter­est-rate pol­icy) would be short­sighted. With strong num­bers com­ing from the hous­ing sec­tor, cou­pled with solid, con­sis­tent job cre­ation over the past few months, the time has come for Janet Yellen and com­pany to fi­nally make their move and raise rates.

When quan­ti­ta­tive eas­ing was in­tro­duced to the United States, the unan­i­mous con­sen­sus among mar­ket observers was that it would end badly. The fi­nal re­sult was thought to be the de­bas­ing of our cur­rency and run­away com­mod­ity in­fla­tion. Bril­liant cen­tral bank watch­ers be­came "sooth­say­ers of doom," warn­ing of the im­pend­ing dis­as­ter cre­ated by such reck­less mon­e­tary ac­tions. Wrong! Nei­ther in­fla­tion nor dol­lar de­base­ment be­came a re­al­ity and the fears gen­er­ated by those wor­ried about an ex­pand­ing bal­ance sheet have all but dis­ap­peared. Guess what? The Fed was right.

One thing we must be re­minded of is that the Fed has a dual man­date. Not only must they be con­cerned about the prospects of in­fla­tion­ary or de­fla­tion­ary pres­sure but they need to be the vanguard of growth for the en­tire econ­omy. In a busi­ness cli­mate which fos­ters over-reg­u­la­tion, tax am­bi­gu­ity, hints of pro­tec­tion­ism and the to­tal lack of pro-growth poli­cies out of the congress, this dual man­date be­comes a heavy bur­den. To bor­row an old Ar­me­nian say­ing, the Fed has pulled a two-horse wagon alone. And it has done a mag­nif­i­cent job.

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