Time for Fed to act

September 17, 2015 12:00 PM

Most of you will receive this issue with ample time to consider our various contributors’ thoughts on the much anticipated Federal Open Markets Committee (FOMC) meeting concluding on Sept. 17. As you can read in “T-Day is coming, ready or not” there is a variety of opinions on what the Federal Reserve will do.

Martin McGuire makes an interesting point in saying that a rate increase will be good for the economy and market liquidity because various analysts will build models predicting future Fed action. While opinions will still vary, specific analysts, and the folks that follow them, will have confidence in their own models. He believes it will increase liquidity in the Treasury futures market because traders will have a model they can follow instead of this constant whipsawing of expectations in response to every economic data point. 

This was apparent in the 2013 tapering process. While there was much debate as to when the Fed would begin the process of tapering its $85 billion of bond purchases that were part of QE3 (and by how much), once the new Fed Chair Janet Yellen pulled the trigger on tapering, the Fed followed a consistent path and did not let minor variations in economic data alter the process. It would be helpful to all for the tightening to begin. 

Jay Feuerstein and Sheryl King provide great insight into the Fed and health of the Treasury market in “Pros weigh in on bond market.” Both are expecting a rate increase in September. Feuerstein expects another tightening in December, which he says will rile the markets and cause the Fed to step back in the first half of 2016. King is not sure on a December increase, but she expects the Fed to tighten by roughly 100 basis points per year in ensuing years. 

There seems to be a consensus among many analysts that after six years of recovery, albeit a tepid halting one at times, it is time the Fed had some ammunition for the inevitable economic downturn. 

Perhaps more concerning is the question of what will happen with fixed income investments when the bull market in bonds ends? In “Bond fund’s next frontier,” Rob Matthews and Josh Ireland point out how for certain fiexed income funds to maintain recent performance, yields would need to go negative. They conclude by asking, “What if the future is not as accommodating as the past?”

While there will always be speculation as to what the Fed will do going forward, we’ve gotten to the point where every piece of economic news is used to justify the Fed moving forward with a rate increase or pushing off another quarter or so. 

Frankly, it is getting tiresome. There are more important things to concentrate on than if the Fed will tighten interest rates by 25 basis points next month or whether they will wait until the end of the year. Our cover story, “Assume Breach: The cyber threat to traders,” is a good example. Garrett Baldwin provides a frightening view of the world of hacking as he speaks to actual hackers who understand the weaknesses in various systems. While these threats are not new, Garrett does a good job of taking them from an obscure concept to the very real threats we all face. 

In one of the more chilling items from the interview Terry Bradley said that he detected roughly 30,000 to 40,000 attacks on his personal home servers each day. While most of us who work on computers on a daily basis have learned the type of e-mails and alerts that raise red flags and that we should avoid, we also live in a busy world with tight deadlines. How easy is it to let our guard down for one second and click on some e-mail sent with a familiar name to us while we are multitasking: On a phone, responding to an urgent request from the boss and trying to wrap up some work so we can catch our train in 10 minutes? 

It just takes one temporary lapse in due diligence. And that is just talking about our work computer.  We’ve entrusted a great deal of personal information to institutions and provide access through various social media platforms and apps on our phones. I bet most of you, like me, get a strange chill when downloading a phone app and seeing a message that says it is trying “access your location,” but end up going ahead and allowing it. 

Perhaps you won’t after reading this story.



Daniel P. Collins
Editor-in-Chief, Modern Trader

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.