* Janet Yellen spoke yesterday and this was the first time she spoke following the release of the much weaker than expected Non-Farm Payroll report that we got on Friday

* Not only was the month of May much weaker than expected but they revised down the prior month which was already weaker than expected and now it is even more weak

* This is the first time the Fed had a chance to react, remember Janet Yellen and all her cohorts at the Fed had been talking about how the economy is getting better and how we're getting ready for a summer rate hike

* Everybody was thinking, "Will they move in June or will they wait until July?

* Of course, I was saying all along that I doubted that they would move in either month

* They did make it clear, if you read the FOMC minutes that it was contingent on the labor market improving

* I had already pointed out that based on the most recent jobs report the labor market was already not improving, it was getting worse, and now we know it is even worse than the Fed would have understood

* By the time the minutes were released we had had all this bad news

* While people were jumping to the conclusion that the Fed was about to hike rates, even though the labor market had weakened since they expressed those sentiments and the Fed specifically said that the rate hike was contingent on improvements in the labor market, and we were getting the reverse

* I never understood why so many people were so convinced that a rate hike this summer was a fait accomplit

* But now all the people who were so convinced have caved in and no longer expect a rate hike in June or July, but they're talking September!  Why?

* Well Janet Yellen spoke yesterday and she's still talking about rate hikes

* She still said she thinks the economy is improving and at some point rate hikes will be appropriate

* Well of course!  That qualifies as a "Duh!" Obviously if the economy was improving, rate hikes would be appropriate, in fact they're appropriate right now

* They're appropriate even if the economy is not improving, because interest rates are much too low

* I believe one of the reasons the economy is so weak is because interest rates are so low

* Now I understand that if we raise interest rates we're going to burst this bubble

* If we raise interest rates, the stock market will come down, the real estate market will come down and that's going to be a big problem for a lot of people, in particular the banks

* And I know that when interest rates go up, all the people who borrowed so much money when they were so low, including the U.S. government, will be in a lot of trouble

* The Federal Reserve itself is going to be in a lot of trouble because it has an enormous portfolio, a balance sheet of long term bonds that will collapse in value when it raises rates

* I am not a Pollyanna, thinking if we raise interest rates everything is great - no, it is a disaster

* But it is a bigger disaster if we don't raise interest rates and keep waiting because we don't want to deal with the consequences


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