INSIDE THE FEDERAL RESERVE 115This is interesting because the market is set up for a rate
increase. What if they don’t? I think we’ll get to the summer,
the data will be lousy, the Fed will make it clear that they’re not
going to raise rates anytime soon, and “patience” will just turn
into “more patience,” using their new favorite buzzword. (They
seem to come up with new buzzwords every six months or so!)
The Fed did QE1, QE2, QE3 part 1, QE3 part 2, then they
promised to raise rates. Once it becomes clear that they’re not
going to raise rates, I think the markets might think that they
can never raise rates.
It wouldn’t surprise me to see QE4 in early 2016. What
may happen then will be very interesting, because the stock
market could actually rally on that. It won’t be rallying on fun-
damentals; it will be rallying on cheap money.
The market’s expecting tightening. If they get ease, at least
no rate increase and the possibility of reasons to launch QE4,
markets might even rally. I’m not a big stock market bull, but if
the Fed doesn’t raise rates — and my expectation is they won’t
— you might actually see stocks higher at the end of the year
than they are now based on more free money.
I think by then the inflationary expectations will start to
ratchet up, and that’s probably good for gold as well. It could
be one of those periods in the second half of this year when
gold and stocks go up together for the same reason, that it’s
apparent the Fed has no way out of this dilemma.
■ Outlook for 2015
If you’re going to do an outlook, it’s always good to know
where you’re starting from and then project from there. I think
the biggest surprise in 2015 may be that the Fed does not raise
interest rates.
Right now, the markets fully expect an interest rate increase
coming from the Federal Reserve. The only debate is when.