INSIDE THE FEDERAL RESERVE 113I think it’s nonsense to believe that we would be closely
coupled on the way up but somehow the rest of the world is
going to go down and the U.S. won’t be affected by that.
Growth is weak, so not only would I expect some disrup-
tion from the rate increase simply because people don’t listen or
they’re greedy or they stay in the trade too long, but I would say
the Fed’s got the economy wrong and they’re going to increase
rates into a very weak economy.
I would expect probably for the U.S. economy to come close
to a recession, more deflation, and probably some disruption in
equity markets. The one market that might rally actually is the
bond market. Ten-year notes are still pretty attractive based on
everything we see.
Now, that’s if they raise rates. Let’s flip that around and
talk about what happens if they don’t raise rates, because
that’s the other scenario. Very few people expect this outcome,
but I actually don’t think they will raise rates. I’ve been saying
that for about six months, and more people are jumping on
board that bandwagon recently.
I did a bunch of interviews in the fall where I said I did not
think the Fed would raise rates in 2015. We can debate 2016
— that’s still pretty far away — but let’s just talk about 2015.
If you go back six months just to last summer, the debate
was the Fed’s definitely going to raise rates in 2015. The only
question was: would it be March or June? I was one of those
saying they won’t do it. Well, here we are and nobody is talk-
ing about March.
Even Janet Yellen said they weren’t going to raise them in
March, so now you have your April people and your June, July
people, but you’re hearing more and more people say maybe
it won’t be until September. Bill Gross recently said he expects
it in December. What’s the difference between December 2015
and January 2016? Not much.
We’re starting to hear a lot of doubt about whether they