The Fed hawks don’t matter. The doves do!
Doubtlessly, the Fed will flip-flop in its elegant manner about rate increases as it has been for over two years, but this time a reliable dove flipped. That itself is scary to the markets. And the reason he mentioned for flipping sent cold chills down their spine.
He named one of the biggest and riskiest asset bubbles, commercial real estate. It doesn’t plateau. But it either booms, driven by cheap credit, lots of liquidity, and endless hype. Or it crashes. And he worried that banks and other coddled investors, including holders of commercial-mortgage backed securities, will get hit by the shrapnel.
When Boston Fed governor Eric Rosengren, a voting member of the Federal Open Markets Committee, where monetary policy is decided, shared some aspects of his worries on Friday morning, markets tanked instantly.
This post was published at Wolf Street by Wolf Richter ‘ September 10, 2016.