• Tag Archives Janet Yellen
  • Trader: “We Need Another 20 Basis Points For The Entire Narrative To Change”

    As noted yesterday, Bloomberg trading commentator Richard Breslow refuses to jump on the bandwagon that the Fed is hiking right into the next policy mistake. In fact, he is pretty much convinced that Yellen did the right thing… she just needs some help from future inflationary print (which will be difficult, more on that shortly), from the dollar (which needs to rise), and from the yield curve. Discussing the rapidly flattening yield curve, Breslow writes that “the 2s10s spread can bear-flatten through last year’s low to accomplish the break, but I don’t think you get the dollar motoring unless the yield curve holds these levels and bear- steepens. Traders will set the bar kind of low and start getting excited if 10-year yields can breach 2.23%. But at the end of the day we need another 20 basis points for the entire narrative to change.”
    To be sure, hawkish commentary from FOMC members on Monday (with the semi-exception of Charles Evans) and earlier this morning from Rosengren, is doing everything whatever it can to achieve this. Here are the highlights from the Boston Fed president.

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

  • The Fed’s Policy and Its Balance Sheet

    At its June meeting, the FOMC again raised the target range for the federal funds rate by 25 basis points, to 1 – 1 percent. They did so despite evidence that inflation had moderated and that the second estimate of first quarter GDP growth was clearly subpar at 1.2%. Furthermore, despite the fact that 7 of the 12 Federal Reserve district banks had characterized growth in the 2nd quarter as ‘modest,’ as compared with only 4 banks that described it at ‘moderate’ (the NY bank simply said that growth had flattened), the FOMC in its statement described growth as ‘moderate’ (here one needs to know that in Fed-speak ‘modest’ is less than ‘moderate’). The overall discussion evidenced in the statement and subsequent explanations by Chair Yellen in her post-meeting press conference, together with the fact that the only significant change in June’s Summary of Economic Projections was a slight downward revision in the unemployment rate for 2017, failed to make a convincing argument to this writer that there was a compelling case for a rate move at this time. The principal conclusion we can draw is that the FOMC had already conditioned markets to expect an increase in June and that the FOMC’s main rationale was its desire to create more room for policy stimulus should the economy take a sudden turn to the downside.
    More significant than the rate move, however, was the detail the FOMC provided on its plan to normalize its balance sheet, which elaborated on the preliminary plan it put forward in March. Once the Committee decides to begin that process, it will employ a set of sequentially declining caps, or upper limits, on the amount of maturing assets that will be permitted to run off each month. The cap for Treasury securities will initially be $6 billion per month, and it would be raised in increments of $6 billion every three months until $30 billion is reached. Similarly, the cap for MBS will be $4 billion per month, which would also be raised by that amount every three months until $20 billion is reached. These terminal values would be maintained until the balance sheet size is normalized. Left unsaid was what the size of the normalized balance sheet would be.

    This post was published at FinancialSense on 06/19/2017.

  • Bi-Weekly Economic Review: Has The Fed Heard Of Amazon?

    This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
    The economic surprises keep piling up on the negative side of the ledger as the Fed persists in tightening policy or at least pretending that they are. If a rate changes in the wilderness can the market hear it? Outside of the stock market one would be hard pressed to find evidence of the effectiveness of all the Fed’s extraordinary policies of the last decade. Even there, I’m not sure QE is actually the culprit that has pushed valuations to, once again, incredible heights. I’m also not sure exactly what the Fed is trying to accomplish and I don’t think it really does either. All evidence points to the nonsensical idea that interest rates need to be raised so the Fed will have room to cut them later. Unfortunately, that is as logical as monetary policy gets these days.
    I may not know what’s going on and Janet Yellen surely doesn’t but the bond market usually does. And unlike Yellen we here at Alhambra do pay attention to what the bond market is telling us. It isn’t a tale of full employment and imminent wage and cost push inflation. It also isn’t a tale of robust growth that needs reining in lest it get out of control and put too many people back to work. So, we are left scratching our collective heads trying to figure out what exactly is motivating Yellen & Co. to try and slow down an economy moving at the speed of a sloth.

    This post was published at Wall Street Examiner by Joseph Y. Calhoun ‘ June 18, 2017.

  • Here Comes Quantitative Tightening

    All of a sudden the Fed got a little tougher. Perhaps the success of the hit movie Wonder Woman has inspired Fed Chairwoman Janet Yellen to discard her prior timidity to show us how much monetary muscle she can flex when the time comes for action. Although the Fed’s decision this week to raise interest rates by 25 basis points was widely expected, the surprise came in how the medicine was administered. Most observers had expected a ‘dovish’ hike in which a slight tightening would be accompanied by an abundance of caution, exhaustive analysis of downside risks, and assurances that the Fed would think twice before proceeding any farther. But that’s not what happened. Instead Yellen adopted what should be viewed as the most hawkish policy stance of her chairmanship. The dovish expectations resulted from increasing acknowledgement that the economy remains stubbornly weak. Just like most of the years in this decade, 2017 kicked off with giddy hopes of three percent growth. But as has been the case consistently, those hopes were quickly dashed. First quarter GDP came in at just 1.2%. What’s worse, second quarter estimates have been continuously reduced, offering no indication that a snap back is imminent. The very day of the Fed meeting, fresh retail sales and business inventory data surprised on the weak side, becoming just the latest in a series of bad data points (including figures on auto sales and manufacturing). By definition these reports should further depress GDP growth (much as widening trade deficits already have).

    This post was published at Euro Pac on Friday, June 16, 2017.

  • The Eternal Plea for Inflation

    This is a syndicated repost courtesy of The Daily Reckoning. To view original, click here. Reposted with permission.
    We learned in yesterday’s Washington Post that the Federal Reserve ‘needs to learn to love inflation.’
    Economics writer Matt O’Brien argues the Fed’s 2% inflation target is far too modest… that Janet Yellen lacks something in the way of vocational ambition.
    This fellow believes Ms. Yellen should set her cap much higher – 4% inflation:
    The higher inflation is, the higher interest rates have to be to control it – and the more room there is to cut them when the economy gets into trouble. So if a 2% target doesn’t get rates high enough to keep them away from zero, then maybe a 4% one will…

    This post was published at Wall Street Examiner by Brian Maher ‘ June 17, 2017.

  • History May Rhyme, But These Curves Repeat

    What is most tragically ironic about the last decade is that the people who are supposed to have been in charge are the same people claiming it could never happen. Ben Bernanke, for example, made his career on studying the Great Depression. Using Milton Friedman’s brand of primitive monetarism as a base, he and others like him developed the modern central bank based on analysis of all the grave mistakes made primarily by monetary authorities in the 1930’s (updated with further opposite mistakes made in the 1970’s).
    But in starting with Friedman, it is quite apparent they never really listened to him. Economists like Bernanke, Alan Greenspan, or Janet Yellen don’t get the bond market. It’s a problem because they really should given their self-assigned responsibilities, and more than that bonds describe fundamentals better than anything else. Next to every complex and elegant DSGE model ever invented, the simple yield curve is beyond compare.
    In 1987, Ohio State economist Stephen Cecchetti wrote a paper for the NBER examining other characteristics of US Treasury rates during the 1930’s. Nominal rates were not exclusively determined by the outlook for growth and inflation, rather there was great value leftover at maturity. Because of the US deficit situation throughout the decade, the US Treasury Department offered what Cecchetti called an ‘exchange privilege’ that at many times proved quite valuable.

    This post was published at Wall Street Examiner on June 16, 2017.

  • Haunting Yellen

    I wouldn’t put it in the category of LBJ ‘losing Cronkite’, but it is at least a measure of amplified pressure (or just any pressure). This week has been utterly embarrassing for the Federal Reserve, a central bank that refuses to define clearly what it is attempting to do. It leaves questions even for who used to be highly sympathetic.
    Their aim is simple enough as a matter of pure economics. The economy didn’t recover and is never going to (so long as monetary matters remain truly unexamined). Having resisted this possibility for nearly a decade, officials who have now come around wish to avoid having to admit it. So they let the media define the economy by the unemployment rate which projects an image of conditions that simply don’t exist.
    The New York Times has typically been friendlier to the official stance on these matters. Credentials go a long way there, and who has better pedigree than Federal Reserve policymakers? But even they may have to call foul because it’s not like the unemployment rate just yesterday dropped so low. It’s been flirting with official levels of ‘full employment’ for three years, forcing the FOMC’s suspect models to redefine down their calculated central tendency (the theorized range where low unemployment is believed to spark serious wage acceleration and then consumer price inflation) time and again.
    At 4.3%, the unemployment rate doesn’t any longer leave much room for interpretation. It’s go time, now or never.

    This post was published at Wall Street Examiner on June 16, 2017.

  • The Last Time Economic Data Disappointed This Much, Bernanke Unleashed Operation Twist

    For the 13th straight week, US economic data disappointed (already downgraded) expectations, sending Citi’s US Macro Surprise Index to its weakest since August 2011 (crashing at a pace only beaten by the periods surrounding Lehman and the US ratings downgrade). The last time, Us economic data disappointed this much, Ben Bernanke immediately unleashed Operation Twist… but this time Janet Yellen is hiking rates and unwinding the balance sheet?

    As Citi notes, breaking down this move, we can see that the recent data
    disappointments have been driven by a steady fall in the underlying
    data, rather than overly exuberant expectations. In other words, economists have been adjusting expectations downwards, but the data has been falling at a faster rate.

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

  • Quiet Start To Quad Witching: Stocks Rebound Around The Globe, BOJ Hits Yen

    Today is quad-witching opex Friday, and according to JPM, some $1.3 trillion in S&P future will expire. Traditionally quad days are associated with a rise in volatility and a surge in volumes although in light of recent vol trends and overnight markets, today may be the most boring quad-witching in recent history: global stocks have again rebounded from yesterday’s tech-driven losses as European shares rose 0.6%, wiping out the week’s losses.
    USD/JPY climbed to two-week high, pushing the Nikkei higher as the BOJ maintained its stimulus and raised its assessment of private consumption without making a reference to tapering plans, all as expected. Asian stocks were mixed with the Shanghai Composite slightly softer despite the PBOC injecting a monster net 250 billion yuan with reverse repos to alleviate seasonal liquidity squeeze, and bringing the net weekly liquidity injection to CNY 410 billion, the highest in 5 months, while weakening the CNY fixing most since May. WTI crude is up fractionally near $44.66; Dalian iron ore rises one percent. Oil rose with metals. Treasuries held losses as traders focused on Yellen hawkish tone.
    The MSCI All Country World Index was up 0.2%, and after the latest global rebound, the value of global stocks is almost equal to that of the world’s GDP, the highest such ratio since th great financial crisis, BBG reported.

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

  • Is the Fed Repeating ‘The Mistake of 1937’?

    The esteemed brothers and sisters of the Federal Reserve raised interest rates 0.25% yesterday.
    It was the fourth rate hike since December 2015… and the third in six months.
    Janet Yellen has officially taken to the warpath.
    Phoenix Capital:
    … the Fed is embarked on a serious tightening cycle. One rate hike can be a fluke. Two rate hikes could even be just policy error. But three rate hikes means the Fed is determined.
    But is the Fed repeating ‘the mistake of 1937’?
    Stricken by the Crash of ’29, the American economy was climbing out of its sickbed by 1936.
    Annual GDP growth – real GDP growth – was rising steadily.
    Unemployment was falling, from its 25% high to 14%.
    But by 1936 the Federal Reserve grew anxious, anxious that it was incubating inflation… that its previous loose monetary policy had healed enough.
    It feared any more could start a fever.

    This post was published at Wall Street Examiner on June 15, 2017.

  • Why ‘Suddenly Hawkish’ Yellen Brushed off the Dip in Inflation

    She did her homework. And consumers got a temporary gift. A ‘suddenly hawkish’ Yellen, as she is now being prefaced by some voices, brushed off the dip in inflation when she spoke after the FOMC meeting yesterday.
    Inflation backtracked a tiny bit. The Consumer Price Index rose ‘only’ 1.9% year-over-year in May, and the core CPI without food and energy rose ‘only’ 1.7%. ‘Only’ in quotes because there is still enough inflation to whittle away at the purchasing power of wage earners who have to make do with stagnant wages and retirees who have to live off their near-zero-yield savings.
    But Yellen looked at the details of the inflation reports and discovered that there were some one-time or short-term factors that brought inflation down a bit – and none of them are going to last.

    This post was published at Wolf Street on Jun 15, 2017.

  • Trader: “The Downside Doesn’t Get Interesting Until S&P Hits 2,400…”

    “Keep It Simple Stupid,” is the key lesson from Bloomberg’s Richard Breslow note this morning as he conjures doves, snakes, hawks and starfish to make his point. Simply put, don’t panic… yet. Here are the assets he’s watching and levels to trade…
    Sometimes when you just can’t keep the story simple, it’s best to do so in your trading. The world is a complicated place and there’s great risk in trying to reduce all causality to one factor. There’s a tug of war going on and the rope resembles a starfish not a snake. Although I’d have to admit, a lot of what we’re witnessing has a distinctly reptilian aura about it.
    So what are some of the things we need to factor in?
    Chair Yellen was hawkish. Why various assets responded to her in the way they did is a story about them. And well worth considering. But it doesn’t change the underlying fact. Bonds being bid doesn’t mean they don’t believe her or we’re watching a different press conference than precious metals traders.

    This post was published at Zero Hedge on Jun 15, 2017.

  • New York Fed Soars To Highest Since Sept 2014, Philly Fed Also Beats

    In a much needed confirmation that Janet Yellen did not make a policy mistake by hiking rates yesterday, moments ago both the Empire State and Philly Feds smashed expectations, with the first printing at the highest level since September 2014 of 19.8, above the expected 4, and well above May’s -1 contraction print, while the Philly Fed posted at 27.6, also beating consensus estimates of 24, if a drop from last month’s 38.8.
    The New York Fed breakdown:
    Prices paid fell to 20 vs 20.9 New orders rose to 18.1 vs -4.4 Number of employees fell to 7.7 vs 11.9 Work hours rose to 8.5 vs 7.5 Inventory rose to 7.7 vs -0.7

    This post was published at Zero Hedge on Jun 15, 2017.

  • Gold Market Morning: June-15-2017 — Gold on the back foot after the Fed!

    Gold Today – New York closed at $1,262.70 yesterday after closing at $1,275.60 Tuesday. London opened at $1,260.00 today.
    Overall the dollar was stronger against global currencies, early today. Before London’s opening:
    – The $: was stronger at $1.1164 after yesterday’s $1.1217: 1.
    – The Dollar index was stronger at 97.28 after yesterday’s 96.92.
    – The Yen was stronger at 109.65 after yesterday’s 110.14:$1.
    – The Yuan was weaker at 6.8019 after yesterday’s 6.7976: $1.
    – The Pound Sterling was weaker at $1.2696 after yesterday’s $1.2785: 1.
    Yuan Gold Fix
    Yesterday global gold markets saw volatility in all three markets ahead of the Fed. Once the statement was out global gold markets settled and steadied around $1,260, with London $5 lower than Shanghai.
    We expect today will see a digestion of Mrs Yellen’s statement followed by gold’s reaction.
    Silver Today – Silver closed at $17.13 yesterday after $16.76 at New York’s close Tuesday.

    This post was published at GoldSeek on 15 June 2017.

  • Global Stocks Slide On Trump Probe Report, Fed Indigestion

    Is it going to be another May 17, when US stocks tumbled as concerns of a Trump impeachment over obstruction of justice and impeachment surged ahead of Comey’s tetimony?
    Overnight, S&P500 futures accelerated their decline following yesterday’s WaPo report that Special Counsel Mueller has launched a probe into potential obstruction of justice by Trump…

    … while European and Asian markets dropped dragged lower by commodities which reacted to the latest Fed rate hike, as copper dropped and oil fluctuated. The Bloomberg commodity index fell to the lowest in more than a year, pressuring miners and E&P companies which were among the big losers as the Stoxx Europe 600 Index retreated for a second day. The dollar advanced after the Fed raised interest rates for the second time in 2017 and Yellen suggested the strength of the U. S. labor market will ultimately prevail over recent weakness in inflation, which however the bond market strongly disagrees with, sending the curve the flattest its has been since October.

    This post was published at Zero Hedge on Jun 15, 2017.

  • Cudmore: Yellen Just Made A Big Mistake

    One of the lingering questions to emerge from yesterday’s FOMC meeting, after Yellen’s “first dovish, then hawkish” statement rocked the dollar and markets, is whether the Fed chair has some more accurate way of forecasting inflation than the rest of market to justify her optimistic outlook, and to explain why the divergence between the Fed’s dot plot and the market’s own FF forecasts is nearly 100%. And, if not, is the Fed about to make another major policy mistake by forecasting a far stronger economy than is possible, culminating with a recession.
    According to Bloomberg’s Mark Cudmore, the answer is that while Yellen is desperate to infuse confidence in the market, the Fed, which “hasn’t been correct for seven years”, remains as clueless as ever, which is why the Fed’s hawkishness is actually a signal to buy long-end bonds, which will add to further curve tightening and ultimately precipitate the next recession.
    Put otherwise, “if Yellen had acknowledged that the policy frameworks she and her colleagues have been using since the crisis have all been incorrect, then we might believe she has a chance of now applying a more appropriate framework and has a credible plan to sustainably hit the inflation target. Instead, traders can’t help but feel that no lessons are being learned and will have to raise the probability of a major policy mistake in market pricing. This means that the yield curve will need to flatten further through long-end yields dropping.”
    In simple words: the Fed has just brought the next recession that much closer, which shouldn’t come as a surprise. As we showed before, every Fed tightening akways ends with a recession. The only question is when.

    This post was published at Zero Hedge on Jun 15, 2017.

  • Markets Blow off the Fed until Next ‘Financial Event’

    Fed lays out plan to unwind QE by $600 billion a year. Markets shrug. But ‘Painful sell-offs eventually materialize…’ Yellen sounded ‘surprisingly hawkish,’ the experts said after the news conference today. She saw a strong labor market and downplayed slightly softer inflation as temporary. The Fed forecast economic growth at the same miserably slow rate we’ve seen for years, with the median projections of 2.2% growth in 2017, 2.1% in 2018, 1.9% in 2019, and 1.8% in the ‘longer run.’
    So the FOMC voted eight-to-one to hike by a quarter point the target for the federal funds rate to a range between 1.0% and 1.25%. It maintained its forecast of one more hike this year. And it laid out its plan on how to unwind QE.
    The Fed is no longer speculating whether or not to start unloading its $4.5-trillion balance sheet. It has a specific plan. The nuts and bolts are in place. It was agreed to by ‘all participants,’ it said in the Addendum. And it’s going to start ‘this year.’

    This post was published at Wolf Street on Jun 14, 2017.

  • In “Significantly Great News” China Parts Ways With Yellen, Refuses To Hike, For Now

    When the Fed last hiked rates by 25bps in March, China’s central bank followed suit almost immediately by engaging in a “soft” hike, raising the rate on its various reverse repo operations by 10bps

    But not this time: when the PBOC announced its daily reverse repo operation last night, which saw a net injection of CNY 90 billion in the market, traders were only looking at one thing: whether the PBOC would again raise rates on its various reverse repos. It did not, and as we remarked last night, the PBOC instead kept all open market operation rates unchanged at 2.45%; 2.6%; 2.75% for 7/14/28 day repo.

    This post was published at Zero Hedge on Jun 15, 2017.

  • Global Markets Down On More Hawkish Fed, Trump Obstruction Investigation

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    (Kitco News) – World stock markets were mostly weaker overnight. U. S. stock indexes are pointed toward lower openings when the New York day session begins.
    The news reports late Wednesday that special prosecutor Robert Mueller will investigate U. S. President Donald Trump for obstruction of justice has thrown more uncertainty into the world marketplace.
    Gold prices are solidly lower in pre-U. S.-session trading Thursday. The yellow metal is pressured by the hawkish reading the marketplace gave this week’s FOMC meeting.
    The Federal Reserve on Wednesday afternoon raised U. S. interest rates by 0.25%, as expected by most. The Fed said it will also fairly aggressively reduce its big balance sheet of government securities in the coming months. The FOMC statement also said U. S. inflationary pressures have eased a bit recently. However, Fed Chair Janet Yellen at her press conference sounded a more hawkish tone on inflation. After digesting the FOMC statement and Yellen’s remarks, the marketplace deemed this latest Fed meeting as more hawkish on U. S. monetary policy.

    This post was published at Wall Street Examiner by Jim Wyckoff ‘ June 15, 2017.

  • When Will Janet Live Up To Her Reputation?

    I am asking you to put aside all your notions about monetary policy for a moment, and think about the next couple of points with an open mind. Forget about scary Central Bank balance sheets. Fight the urge to worry about the unprecedented quantitative easing programs. Dismiss the warning cries of the frightening levels of debt. Ignore the apocalyptic forecasts of coming stock market crashes. Let’s just have a look at the data. And most of all, let’s not worry about what should be done, but think about what will be done.
    Rightly or wrongly, the Federal Reserve has a dual mandate. They are tasked with maximizing employment and maintaining price stability. Although many will debate what constitutes price stability, the Federal Reserve has interpreted it as a 2% inflation rate. You might think this absurd, so be it. It is what it is. Complaining will get you about as far as yelling at clouds.
    When Janet Yellen took the reins of the Federal Reserve, many pundits predicted a period of exceptionally easy monetary policy as she was widely viewed as a uber dove. But has her reputation proved deserved?

    This post was published at Zero Hedge on Jun 14, 2017.