Axel Merk Warns “Investors Are In For A Rude Awakening”
by Axel Merk via Merk Investments,
ZeroHedge.com
09/16/2015
Will she raise or will she not? As financial markets focus on whether we will see a Fed rate hike this week, investors may be in for a rude awakening.
Why do we care about the Fed?
We care about the Federal Reserve (Fed) because it controls short-term interest rates and the underlying money supply that’s available to the banking system. What the Fed does with these controls has implications to the credit (the ease and cost of borrowing money) that is available to the broader economy (for corporate loans, household mortgages, etc.).
What is the Fed’s job?
Most central banks have a single mandate to keep inflation low and stable. The Fed, under former Fed Chair Bernanke’s leadership, has adopted an explicit 2% inflation target. In addition, Congress bestowed upon the Fed the mandate to maximize employment. And, because it appears so convenient for Congress to outsource seemingly everything to the Fed, it now has the responsibility to also provide financial stability.
In our assessment, the Fed has achieved one thing: they have compressed risk premia. What? What about inflation, employment, financial stability, and what the heck does it mean, “the Fed has compressed risk premia?”
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