• Tag Archives Janet Yellen
  • Weekend Reading: Yellen Takes Away The Punchbowl

    September 20th, 2017 will likely be a day that goes down in market history.
    It will either be remembered as one of the greatest achievements in the history of monetary policy experiments, or the beginning of the next bear market or worse.
    Given the Fed’s inability to spark either inflation or economic growth, as witnessed by their dismal forecasting record shown below, I would lean towards the latter.
    The media is very interesting. Despite the fact there is clear evidence that unbridled Central Bank interventions supported the market on the way up, there is now a consensus that believes the ‘unwinding’ will have ‘no effect’ on the market.

    This post was published at Zero Hedge on Sep 22, 2017.


  • Broken Velocity: Yellen’s Low Inflation Quandary (Hint: FHFA Home Price Index Growing At 6.62% YoY)

    Here is a brief summary of Fed Chair Janet Yellen’s thoughts from yesterday courtesy of Deutsche Bank’s Peter Hooper: The Fed is on track to raise rates once more this year and three times in 2018. Yellen recognized that inflation has been running low recently, and that while there was some uncertainty around this performance, one-off factors that are not expected to persist, and which have not been associated with the performance of the broader economy, have been important. At the same time, Yellen noted that monetary policy operates with a lag and that labor market tightness will eventually push inflation up.
    Inflation has been running low ‘recently’? Actually, ‘inflation’ (defined as core personal consumption expenditure price growth YoY) has been below 2% since April 2012 and below 3% since July 1992. Notice that hourly wage growth for production and nonsupervisory employees has remained low as well, particularly since 2007.

    This post was published at Wall Street Examiner on September 21, 2017.


  • The Federal Reserve’s Unspoken Truth

    Originally posted at Briefing.com
    The Federal Reserve’s latest policy announcement has generated a lot of opinions about its implications for the capital markets. What it didn’t generate is a lot of movement in the stock market.
    The September Federal Open Market Committee (FOMC) meeting was a two-day affair that concluded on September 20 with the issuance of an updated policy directive, the release of updated economic and policy rate projections, an announcement that the Federal Reserve will start its balance sheet normalization process in October, and a press conference by Fed Chair Yellen to discuss it all.
    Check out Interview: Louise Yamada on Stocks, Tech, and Interest Rates
    There was a whole lot of information to digest. The key talking points from the Fed Day bonanza included the following:
    The target range for the fed funds rate was left unchanged at 1.00% to 1.25%. The vote was unanimous. The Federal Reserve said it will start its balance sheet normalization process in October in accord with the framework laid out in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans

    This post was published at FinancialSense on 09/22/2017.


  • Janet Yellen’s 78-Month Plan for the National Monetary Policy of the United States

    Past the Point of No Return
    Adventures in depravity are nearly always confronted with the unpleasant reality that stopping the degeneracy is much more difficult than starting it. This realization, and the unsettling feeling that comes with it, usually surfaces just after passing the point of no return. That’s when the cucumber has pickled over and the prospect of turning back is no longer an option.
    In late November 2008, Federal Reserve Chairman Ben Bernanke put in place a fait accompli. But he didn’t recognize it at the time. For he was blinded by his myopic prejudices.
    Bernanke, a self-fancied Great Depression history buff with the highest academic credentials, gazed back 80 years, observed several credit market parallels, and then made a preconceived diagnosis. After that, he picked up his copy of A Monetary History of the United States by Milton Friedman and Anna Schwartz, turned to the chapter on the Great Depression, and got to work expanding the Fed’s balance sheet.

    This post was published at Acting-Man on September 22, 2017.


  • Jim Rickards Warns “QT1 Will Lead To QE4”

    There are only three members of the Board of Governors who matter: Janet Yellen, Stan Fischer and Lael Brainard. There is only one Regional Reserve Bank President who matters: Bill Dudley of New York. Yellen, Fischer, Brainard and Dudley are the ‘Big Four.’
    They are the only ones worth listening to. They call the shots. The don’t like dots. Everything else is noise.
    ***
    Here’s the model the Big Four actually use:
    1. Raise rates 0.25% every March, June, September and December until rates reach 3.0% in late 2019.
    2. Take a ‘pause’ on rate hikes if one of three pause factors apply: disorderly asset price declines, jobs growth below 75,000 per month, or persistent disinflation.
    3. Put balance sheet normalization on auto-pilot and let it run ‘on background.’ Don’t use it as a policy tool.

    This post was published at Zero Hedge on Sep 21, 2017.


  • Bill Blain: “Let’s Pretend”

    Blain’s Morning Porridge – Fed Acts, ECB Smoking – but what?
    The Fed acts. Normalisation. Hints of a rate rise in December, confirmation of further ‘data-dependent’ hikes to come next year, and ending the reinvestment of QE income. Exactly as expected – although some say three hikes in 2018 is a bit hostage to the global economy. The effect: Dollar up. Bonds down. Record Stocks. Yellen threw the bond market a crumb when she reminded us low inflation will require a ‘response.’
    Relax. US markets will sweat, but not break. Dollar ascendant.. Yen collapses.. What about Yoorp?
    Not quite as simples in Europe.
    I’m indebted to my colleague Kevin Humphreys on BGC’s Money Market desk for pointing out yet another Northern European central banker with a smug self-satisfied smile on his face this morning.
    Klass Knot (Holland) has been telling us the European reflationary environment is improving to the extent where the tail risk of a deflationary spiral is no longer imminent. He said ‘robust’ economic developments have improved confidence inflation will rise in line with the ECB’s mandated aims. He added the appreciation of the Euro reflects an improving assessment of the EU’s economic success. And, he concludes the ECB should focus on the more important structural and institutional issues facing Europe, rather than the short-term stabilisation and crisis management – WHICH ARE NO LONGER REQUIRED.

    This post was published at Zero Hedge on Sep 21, 2017.


  • “So What Did We Learn From Yellen?”: Deutsche, Goldman Explain

    For those still unsure what Yellen’s rambling, disjointed press conference meant yesterday, or are still in shock over the Fed’s admitted confusion by the “mystery” that is inflation, here is a quick recap courtesy of Deutsche Bank and Goldman, explaining what we (probably) learned from the Fed and Yellen yesterday.
    First, here is DB’s Jim Reid:
    So what did we learn from the Fed and Yellen last night? Firstly we learnt that stopping reinvestment is a sideshow for now and that the market still cares more about the probability of a December hike and where the Fed thinks inflation is heading. Just briefly on the balance sheet run-off, they have committed to the plan from the June meeting of $10bn per month ($6bn USTs and $4bn Mortgages) with an incremental increase every 3 months until we get to $50bn. However on the rates and inflation outlook the committee and Yellen were on the hawkish side. As DB’s Peter Hooper discusses in his note, barring negative surprises in the months just ahead, the Fed is on track to raise rates once more this year and three times in 2018. Yellen recognised that inflation has been running low recently but put a higher blame on one-off factors than was perhaps anticipated. At the same time she noted that monetary policy operates with a lag and that labour market tightness will eventually push inflation up.
    The complication for markets though is that beyond 2017, the FOMC will see a huge upheaval in its membership which could easily mean current member’s thoughts are meaningless in a few months time and also that Mr Trump’s fiscal plans (or lack of them) have the ability to completely change the debate. So its difficult to read too much into the current FOMC’s forecasts. However for now December is very much live with the probability of a December rate hike moving from a shade under 50% to 64% by the US close (using Bloomberg’s calculator).

    This post was published at Zero Hedge on Sep 21, 2017.


  • Spot The Moment Inflation Turned Exponential

    In the aftermath of a surreal Janet Yellen press conference, in which the Fed chair admitted that Fed “no longer understands” the “mystery” that is inflation, we did our best to explain to Yellen that the reason why the Fed’s search for inflation has been fruitless, is because for nearly a decade it has been looking in the wrong place: the “real economy” where the Fed’s impact has been negligible, as opposed to “asset prices” where the Fed has unleashed near hyperinflation.
    ***
    Sadly, we doubt the Fed will understand what the above chart means.
    Which of course, is ironic, because it was the Fed’s arrival in 1913 that was the catalyst for inflation to snap and unanchor from 700 years of patterns, and to mutate from gradually upward sloping to spike exponentially over the past 100 years. Furthermore, as Deutsche Bank’s Jim Reid writes, nothing will change, and Inflation remains the most likely outcome “until a new global financial system found.” Incidentally, he adds the latter because even chief credit strategists of major banks have come to the same “tin foil” conclusion we unveiled in 2009, namely that the existing financial and economic (if not social) system is doomed as long as an unconstrained fiat regime, which creates ever greater and greater asset bubbles, remains.

    This post was published at Zero Hedge on Sep 20, 2017.


  • Traders Yawn After Fed’s “Great Unwind”

    One day after the much anticipated Fed announcement in which Yellen unveiled the “Great Unwinding” of a decade of aggressive stimulus, it has been a mostly quiet session as the Fed’s intentions had been widely telegraphed (besides the December rate hike which now appears assured), despite a spate of other central bank announcements, most notably out of Japan and Norway, both of which kept policy unchanged as expected.
    ‘Yesterday was a momentous day – the beginning of the end of QE,’ Bhanu Baweja a cross-asset strategist at UBS, told Bloomberg TV. ‘The market for the first time is now moving closer to the dots as opposed to the dots moving towards the market. There’s more to come on that front. ‘
    Despite the excitement, S&P futures are unchanged, holding near all-time high as European and Asian shares rise in volumeless, rangebound trade, and oil retreated while the dollar edged marginally lower through the European session after yesterday’s Fed-inspired rally which sent the the dollar to a two-month high versus the yen on Thursday and sent bonds and commodities lower. Along with dollar bulls, European bank stocks cheered the coming higher interest rates which should help their profits, rising over 1.5% as a weaker euro helped the STOXX 600. Shorter-term, 2-year U. S. government bond yields steadied after hitting their highest in nine years.
    ‘Initial reaction is fairly straightforward,’ said Saxo Bank head of FX strategy John Hardy. ‘They (the Fed) still kept the December hike (signal) in there and the market is being reluctantly tugged in the direction of having to price that in.’
    The key central bank event overnight was the BoJ, which kept its monetary policy unchanged as expected with NIRP maintained at -0.10% and the 10yr yield target at around 0%. The BoJ stated that the decision on yield curve control was made by 8-1 decision in which known reflationist Kataoka dissented as he viewed that it was insufficient to meeting inflation goal by around fiscal 2019, although surprisingly he did not propose a preferred regime. BOJ head Kuroda spoke after the BoJ announcement, sticking to his usual rhetoric: he stated that the bank will not move away from its 2% inflation target although the BOJ “still have a distance to 2% price targe” and aded that buying equity ETFs was key to hitting the bank’s inflation target, resulting in some marginal weakness in JPY as he spoke, leaving USD/JPY to break past FOMC highs, and print fresh session highs through 112.70, the highest in two months, although it has since pared some losses.

    This post was published at Zero Hedge on Sep 21, 2017.


  • Questions Remain as the Fed Finally Begins to Reverse QE

    Today the Federal Reserve announced that it will finally begin the process of reversing quantitative easing. Following the process it outlined earlier this year, the Fed will start allowing assets (Treasurys and mortgage-backed securities) to mature off its balance sheet, rather than re-investing them as had been its prior policy. The current plan is to start with a $10 billion roll off in October, and increasing quarterly until it reaches $50 billion by October of next year. Considering the Fed’s balance sheet currently stands $4.5 trillion, the Fed is envisioning a slow, multi-year process. As Philadelphia Fed president Patrick Harker described it earlier this year, the goal is for it to be ‘the policy equivalent of watching paint dry.’
    Of course the old saying about the ‘best laid plans of mice and men’ also applies to central planners, and as Janet Yellen once again noted today, ‘policy is not on a pre-set course.’ Should markets react negatively, as they did when Bernanke hinted at reducing their purchases in 2013, the markets have reason to expect the Fed to act. In fact, when asked, Yellen kept the door open to both lowering interest rates and stalling its roll off should market conditions worsen. In fact, it appears that markets are already betting on the Fed to not follow through on its projected December rate hike.
    As the Fed has been signaling for months now that a taper was in the works, the mainstream narrative suggests that tapering has been priced in (though stocks dropped on the news.) There are still major questions left unanswered.

    This post was published at Ludwig von Mises Institute on September 21, 2017.


  • Fed’s Asset Bubbles Now At The Mercy Of The Rest Of The World’s Central Bankers

    “Like watching paint dry,” is how The Fed describes the beginning of the end of its experiment with massively inflating its balance sheet to save the world. As former fund manager Richard Breslow notes, however, Yellen’s decision today means the risk-suppression boot is on the other foot (or feet) of The SNB, The ECB, and The BoJ; as he writes, “have no fear, The SNB knows what it’s doing.”
    As we reported previously, In the second quarter of the year, one in which unlike in Q1 fund flows showed a persistent and perplexing outflow from US stocks, a trading desk rumor emerged that even as institutional traders dumped stocks and retail investors piled into ETFs, a “mystery” central bank was quietly bidding up risk assets by aggressively buying stocks.
    The answer was revealed this morning when the hedge fund known as the “Swiss National Bank” posted its latest 13-F holdings. What it showed is that, as rumored, the Swiss National Bank had gone on another aggressive buying spree in the second quarter, and following its record purchases in the first quarter, the central bank boosted its total equity holdings to an all time high $84.3 billion, up 5% or $4.1 billion from the $80.4 billion at the end of the first quarter.

    This post was published at Zero Hedge on Sep 20, 2017.


  • Stock And Financial Markets Pause Ahead Of FOMC Statement, Yellen Comments

    World stock markets were mixed in subdued trading overnight. U. S. stock indexes are pointed toward narrowly mixed openings when the New York day session begins.
    Gold prices are higher in pre-U. S.-session trading, on bargain hunting, short covering and some safe-haven demand following a fiery speech by U. S. President Trump at the U. N. on Tuesday. Trump threatened to completely destroy North Korea.
    Markets have paused ahead of the Federal Reserve’s Open Market Committee (FOMC) meeting that began Tuesday morning and ends Wednesday afternoon with a statement.

    This post was published at Wall Street Examiner on September 20, 2017.


  • What the Fed’s New $4.5 Trillion Balance Sheet Plan Means for the Stock Market Today

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    The Federal Reserve is set to announce more details about unwinding its massive $4.5 trillion balance sheet at today’s FOMC meeting. That will officially signal the end of the Fed’s stimulus program, going all the way back to 2007.
    The Five Top Stock Market Stories for Wednesday
    This afternoon, the U. S. Federal Reserve will conclude its two-day meeting on monetary policy. Fed Chair Janet Yellen will hold a press conference to announce the central bank’s plans on how it will unwind its massive balance sheet. This will be considered the official announcement by the Fed that it is ending its stimulus program that began after the financial crisis. Investors should remain cautious, as this truly is the great unknown regarding market risk. In fact, investors should read Lee Adler’s latest commentary on how the central bank’s stimulus programs work and what it means for your investments. Be sure to read Sure Money Investor.

    This post was published at Wall Street Examiner by Garrett Baldwin ‘ September 20, 2017.


  • Full Preview Of Today’s “Historic” FOMC Meeting

    It is virtually guaranteed that on Wednesday the FOMC will make history by officially announcing the Fed’s plan to begin shrinking its balance sheet through the gradual phasing out of bond reinvestments, which however in a world in which other central banks continue to pump $125 billion per month, will hardly by noticed by markets at least in the beginning.

    So aside from the start of balance sheet renormalization what else should traders expect tomorrow? Earlier today, we showed a cheat sheet from ING that broke down the various USD bullish and bearish permutations of how Yellen could still surprise the market, including the Fed’s signalling on policy rates, economic projections, a shift in the “dots”, comments on asset prices and, last but not least, whether Yellen will stay or leave when her term expires in Feb 2018.

    This post was published at Zero Hedge on Sep 20, 2017.


  • Fed to Launch Quantitative Tightening – Should You Be Worried?

    Expectations are currently that the Federal Reserve will announce plans to begin unwinding its balance sheet this Wednesday. When you consider that the Fed currently owns around 29% of the market for mortgage-backed securities and 17% of the market for Treasuries, you might be tempted to scream OMG!
    But before you do, recognize that plans have been in place for this for quite some time, and the market has already had plenty of time to react. Not only that, but the Fed will continue to take the same ‘steady as she goes’ attitude that has been a hallmark of Janet Yellen’s time as Fed chair.
    Back in June, the Fed outlined how this process would likely unfold. They will begin by allowing $10 billion of assets ($4 billion of mortgages and $6 billion of Treasuries) to roll off the balance sheet each month. As time goes by, assuming the economy and financial markets don’t throw too big a fit, the roll-off amounts will continue to rise, up to a maximum of $50 billion per month.
    One thing that’s important to understand is that during this process, the Fed will not actually sell any bonds. Instead, they will simply allow bonds to mature, and not reinvest the proceeds. This means that the incremental effect to the mortgage and Treasury markets should be mild, and not represent the ‘severe tightening’ that some analysts are making it out to be.

    This post was published at FinancialSense on 09/19/2017.


  • Ahead Of Tomorrow’s Historic Fed Meeting, Here Is The Only “Cheat Sheet” You Need

    Ahead of tomorrow’s historic Fed announcement, in which for the first time the Fed is expected to announce the phasing out of bond reinvestment and the shrinking of its balance sheet by roughly $10 billion per month starting in October and November, but fear not the BOJ and ECB will more than offset this decline..

    … there are various other unknowns with which Yellen could still surprise the market, including the Fed’s signalling on policy rates, economic projections, a shift in the “dots”, comments on asset prices and, last but not least, whether Yellen will stay or leave when her term expires in Feb 2018.
    Below, courtesy of ING, is the definitive “cheat sheat” matrix laying out all possible permutations of what can happen tomorrow, as well as the most likely market reaction.

    This post was published at Zero Hedge on Sep 19, 2017.


  • Global Stocks Storm To New Record High Ahead Of Historic Fed Announcement

    Last week’s bullish sentiment that sent the S&P not only to a new all time highs, but a burst of last-second buying pushed above 2,500 for the first time ever, has carried through to the new week, with European and Asian shares rallying across the board, US futures again the green, and world stocks hitting a new record high on Monday ahead of a historic Fed meeting in which the FOMC is expected to announce the start of the shrinkage of its balance sheet.
    ***
    ‘The FOMC’s latest verdict will be of special interest,’ said Daniel Lenz, an analyst at DZ Bank in Frankfurt. ‘The Fed could well set the balance-sheet-reduction process in motion.’
    MSCI’s index of world stocks hit a new all-time high, adding to gains seen on Friday when Wall Street set its own record level, while Europe’s main stock index opened at a six-week high on Monday and MSCI’s broadest index of Asia-Pacific shares ex-Japan rose to heights not seen since late 2007.
    As DB’s Jim Reid summarizes the week’s key events, this week will be dominated by 3 of the most powerful women in the world “and I’m not talking about Daenerys Targaryen, Cersei Lannister and Sansa Stark. Instead we have our real world version with Mrs Yellen likely to announce the end of Fed reinvestment on Wednesday, Mrs Merkel firm favourite with the pollsters to see a big election win on Sunday and Mrs May set to outline her latest Brexit vision in Florence on Friday. Of the three, Mrs May’s speech is currently the least predictable but after a big week for the UK last week (GBPUSD +2.98%, GBPEUR +3.75%, 10yr Gilts +32bps, and the November hike probability from 18.4% to 64.5% according to Bloomberg’s calculator), Sterling assets are seeing some significant volatility at the moment.”

    This post was published at Zero Hedge on Sep 18, 2017.


  • LIES, LIES & OMG MORE LIES

    ‘There are three types of lies – lies, damn lies, and statistics.’ – Benjamin Disraeli
    Every month the government apparatchiks at the Bureau of Lies and Scams (BLS) dutifully announces inflation is still running below 2%. Janet Yellen then gives a speech where she notes her concern inflation is too low and she needs to keep interest rates near zero to save humanity from the scourge of too low inflation. I don’t know how I could survive without 2% inflation reducing my purchasing power.
    This week they reported year over year inflation of 1.9%. Just right to keep Janet from raising rates and keeping the stock market on track for new record highs. According to our beloved bureaucrats, after they have sliced, diced, massaged and manipulated the data, you’ve experienced annual inflation of 2.1% since 2000. If you believe that, I’ve got a great real estate deal for you in North Korea on the border with South Korea.
    ‘Lies sound like facts to those who’ve been conditioned to mis-recognize the truth.’ ‘ DaShanne Stokes

    This post was published at The Burning Platform on Sept 17, 2017.


  • Deutsche Bank: “This Is The $2.5 Trillion Question”

    Next Wednesday, the Fed is widely expected to officially launch its balance sheet reduction or “normalization” process, as a result of which it will gradually taper the amount of bonds its reinvests in the process modestly shrinking the Fed’s balance sheet.
    Very modestly. As shown in the chart below, the Fed’s $4.471 trillion balance sheet will shrink by $10 billion per month in October and November, or about 0.4% of its total AUM. Putting this “shrinkage” in context, over the same time period, the Bank of Japan and the ECB will continue adding new liquidity amounting to more than $400 billion. As a result, in Q4 net global liquidity will increase by “only” $355 billion, should Yellen begin “normalizing” in October following a September taper announcement as expected.

    That much is known, however there are quite a few unknown aspects about the Fed’s upcoming QE unwind, and as a result, Deutsche Bank writes that “the Fed is about to become hugely important for financial assets.”
    Assuming it all goes well, DB forecasts smooth sailing ahead, manifested by “nominal core rates will be relatively stable and the dollar gently weaker. 10s might trade a sustainably lower range 1.8-2.3 percent. There will be more of a gradual risk asset rotation favoring US (growth) equities, EM, some commodities at the expense of (value) equities, Eurostoxx, NKY with credit somewhere in between.”

    This post was published at Zero Hedge on Sep 16, 2017.