Some coaches are gamblers. When faced with 4th-and-short,
they inevitably give in to the crowd’s chants to “Go for it!” Coach Yellen is
not one of those gamblers.
In recent months, there has been a great deal of stress
introduced into the global economy. While lower oil prices are a boon for many,
they cause great harm to some. The losing economies (ehem, Russia) have introduced
a new risk to tepid global growth, and any shocks have the ability to do far
greater harm than anticipated. Contagion has been something that investors have
become accustomed to ever since Long-Term Capital Management introduced
leveraged risks into the stock market. Cyprus, a tiny nation with an outsized
banking industry, nearly derailed the global economy a few years back. Russia
has a far larger role in the global economy, with the 8th largest
GDP of $2.1 Trillion. Today’s dovish Fed statement may also be an attempt at
reducing global instability. We have felt that lower interest rates were
inevitable, even before the drop in oil prices. Considerable labor market slack
and muted wage growth are a recipe for low inflation, an environment where a
rate increase is not justified. With the dramatic drop in oil prices since
Thanksgiving, today’s Fed is faced with even less impetus to raise rates.
