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The Fed finally raised short term interest rates last December, too late in the opinion of many market watchers. But they also maintained their dovish stance, a comforting sign that they would be methodical in their interest rate normalization efforts.
Enter 2016, a global market meltdown, increased economic uncertainty, and what does the Fed do? They shook the markets by leaving a March interest rate hike on the table even as the Bank of Japan adopted a negative interest rate policy.
Nice job Janet & Co. in rattling an already nervous market. Realistically, we don't think that the Fed will raise interest rates in March. Perhaps they were just flexing their muscle and reminding us that they aren't swayed by public opinion. But to what end?
Now is the time that the Fed should show the markets that they are on top of their game, that they have a solid grasp on what is going on and affirm that conditions have changed for the worse since December.
Once commodity prices stabilize and it becomes apparent that the slowdown in China will not lead to a recession here, the current main obstacle to ending market uncertainty is the Fed. Let's hope they realize it as well.
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