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Still Failing the Test of Common Sense

Citing “recent global economic and financial developments” the Federal Open Market Committee kept its zero interest rate policy in place yesterday – not acting to raise rates, and leaving without change emergency policy that’s been in effect since December, 2008.

We would argue this decision not to act continues to fail the test of common sense.   To that point, the Leading Economic Indicators Index (LEI), a basket of 10 components including items such as building permits, average weekly hours and interest rate spreads that tend to foreshadow changes in the overall economy, have been in a positive trend since 2009.   This is the longest time frame – by three full years – that the Fed has chosen not to be active with a rate increase given these generally positive (though maybe not robust) indicators, in almost half of a century.

We could make an additional case that the Fed is being influenced by news and events outside of mandated purview – but that’s an argument we’ve made before (October 2014 Quarterly Point of View) and won’t expound on here.  Just looking at the case of the LEI however, this continued stance does not pass the test of common sense…


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