The Federal Reserve Is On Pins & Needles

Fed’s Clarida Signals Fed Aim of Rates Rising to Neutral

Federal Reserve Vice Chairman Richard Clarida said U.S. central bankers need to continue raising interest rates to a level that keeps supply and demand in balance in the economy, while keeping a close eye on slowing growth abroad.

“Certainly where the economy is today, and my projection for it and the Fed’s projection of where it is going, I think being at neutral would make sense,” Clarida said in an interview with CNBC Friday. “The global economy is something” the Fed has to pay attention to, he added, as there “is some evidence that it’s slowing.”

His remarks sent the dollar tumbling along with Treasury yields as investors interpreted his remarks as signaling he did not favor aggressive rate hikes.

My view:

The Fed has been determined to raise interest rates as quickly as possible as the US economy expanded over the past two years to try and “catch up” with where interest rates are normally at the end of an expansion cycle.  Hence, much of the data from emerging markets and soft data domestically that pops up from time to time has been ignored.
However, the prospect of continuing soft data as of late, several major emerging markets in crisis (Argentina, Turkey, South Africa and now India) have softened their resolve.  Today, the Brexit deal is now in question as many British ministers are quitting due to the weakness of the deal.  Turmoil in the UK’s economy will hardly help the Americans quest for higher interest rates as the global economy slows.
Most interesting has been the behaviour of our favorite precious metal in the midst of the interest rate fuelled bull run in the US dollar.
As the chart below shows, a longer term bottom may now be in place as well as a higher low.
We will monitor closely for the next few weeks, and take trading positions accordingly. 
To us, it appears the dollar may be a bull trap, and the beaten down precious metals sector may soon outperform.  As the reader likely knows, gold has negative beta, and typically does well when stocks are in bear markets.