Too obvious for even the Fed to ignore

2016-01-05 12pm EDT  |  #Chicago Business Index #Fed #NAPM

The cluelessness of the FOMC members continues to astound me. I know they can’t go around expressing their private concerns out loud, but the blinders they have on regarding the strength of the US economy were designed for the Budweiser Clydesdales.

Yesterday two more Federal Reserve Presidents were hard at work, proclaiming everything hunky dory. First up was Cleveland’s Loretta Mester:

“Underlying fundamentals of the U.S. economy remain very sound,” Mester said yesterday in an interview on Bloomberg Television.

Really? Very sound? The world economy is slowing down at a fierce rate, world trade is collapsing and about the only thing doing well is the US dollar. And you call this very sound?

Oh, and don’t worry about China – Fed officials have already built any difficulties into their “outlook”:

Mester said a weakening economy in China had already been built into the outlook for 2016 by Fed officials.

"I don't see that as a significant risk for the forecast," she said.

Or how about San Francisco’s Fed President John Williams who said the following:

Williams said he expects the Fed to raise rates three to five times in 2016, provided the economy stays on track. The median estimate of quarterly Fed projections released in December was for four quarter-point hikes this year.

He expects the Fed to raise rates three to five times next year? So Williams thinks the US economy can handle another 125 basis points of tightening?

I don’t think the economy can take another 25 basis points forget about 125 basis points.

The US economy is hanging on by the skin of its teeth while the Federal Reserve slowly chokes off worldwide US dollar liquidity. Pretending it isn’t happening while you smile through your rosy economic pronouncements isn’t helping matters.

On New Years Eve the Chicago Business Barometer index was released. It got littleattention as most traders were at the liquor store stocking up for the night’s festivities, but it came in at an abysmal 42.9.

Have a look at the chart:

There has never been a reading at this level that has not resulted in a recession!

Fine, you might argue Chicago does not constitute the whole of America, but it is not like this is an outlier reading.

The National ISM Manufacturing index was released yesterday, and it too slipped to new lows:

The US economy is far from strong.

Obviously I am cherry picking the worst of the economic releases (there can be no doubt the service sector is hanging in there… for now), but given the Fed’s insistence on staying the course with their tightening policies, it is only a matter of time before this economic weakness becomes even too obvious for the FOMC members to ignore…

Thanks for reading,

Kevin Muir

the MacroTourist