The stock market’s non-endorsement of the Federal Reserves postponement of raising interest rates

The stock market initially applauded the Federal Reserve’s decision yesterday to postpone raising short-term interest rates.  But, overnight the market sold off and now it is moving higher again to just below where it started before the announcement yesterday.

The Federal Reserve has kept interest rates near zero for over six and a half years. They have painted themselves into a corner as they are not in a position to lower interest rates in the face of economic weakness (e.g., 0.5% growth in the 1st quarter). Had they raised rates, starting at the end of the great recession in 2009, they would now be at a historically normal level (i.e., 2% to 6%) and they would be in a position to cut.

The only sector of the economy that the Federal Reserve is helping is Wall Street.

Here is the 60 minute chart of the S&P 500:


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