FOMC Watch

Statements from the FOMC have been eclipsed of late by more eagerly received comments on the US from Trump and Mnuchin. Last night Patrick Harker, a voter on the FOMC from the Philadelphia Fed, commented to journalists that he thought a March rate rise was on the table. Although we already know him as a hawk, he did manage to move markets. The CME FedWatch tool likelihood of no March rate rise shifted down from 91% to 86%, reflected also in the 2yr bond yield reversing earlier weakness. The USD also began a modest tear upwards. Not a lot, but not bad either… Read More

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In the December Meeting, inflation was still “tied down” by energy and import prices: The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. No more. It´s now more assertive about inflation: The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at… Read More

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While not strictly related to comments by the FOMC, Steve Mnuchin’s comment on the USD was very significant.  “The strength of the dollar has historically been tied to the strength of the U.S. economy and the faith that investors have in doing business in America,” Mnuchin said in a written response to a senator’s question about the implications of a hypothetical 25 percent dollar rise. “From time to time, an excessively strong dollar may have negative short-term implications on the economy.” The dollar slumped to the weakest in more than six weeks after the remarks, obtained by Bloomberg News on Monday. The comments… Read More

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Yellen: Preparing the terrain

This passage in the speech is illustrative, with Yellen all but guaranteeing rates will rise more than once this year: The extraordinarily severe recession required an extraordinary response from monetary policy, both to support the job market and prevent deflation. We cut our short-term interest rate target to near zero at the end of 2008 and kept it there for seven years. To provide further support to American households and businesses, we pressed down on longer-term interest rates by purchasing large amounts of longer-term Treasury securities and government-guaranteed mortgage securities. And we communicated our intent to keep short-term interest rates low… Read More

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When/if their time comes…they´ll have to ease!

In the recent American Economic Association Meetings in Chicago, a panel comprised of Potential candidates to head the Federal Reserve in 2018 suggested that monetary policy would be tighter if they were in charge. Speaking at the annual American Economic Association meeting that ended Sunday, Glenn Hubbard of Columbia University, along with Stanford University’s John Taylor and Kevin Warsh, criticized the central bank for trying to do too much to help an economy struggling with problems that monetary policy can’t solve. Fed watchers see the three; all-former officials in George W. Bush’s administration, as among the candidates to take over should… Read More

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FOMC Minutes: In the shadow of Trump

That´s clear: In their discussion of their economic forecasts, participants emphasized their considerable uncertainty about the timing, size, and composition of any future fiscal and other economic policy initiatives as well as about how those polices might affect aggregate demand and supply. Several participants pointed out that, depending on the mix of tax, spending, regulatory, and other possible policy changes, economic growth might turn out to be faster or slower than they currently anticipated. However, almost all also indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal… Read More

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As held with almost absolute certainty, the Fed raised the Federal Funds rate to 0.5% – 0.75%. Even that was a replay of the meeting held in December 2015, when the Fed raised the FF rate by 25 basis points to 0.25% – 0.5%. At that time, the expectation for 2016 was that the Fed would hike rates four times, ending 2016 with rates in the 1.25% – 1.50% range. Now, the Dot Plot indicates that the Fed has simply shifted it forward one year, with the expectation being that rates will end 2017 at the 1.25% – 1.50% interval.… Read More

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Newbie Robert Kaplan talks about everything but money

We had some hopes that Goldman Sachs alumni Robert Kaplan two years into his new role as President of the Dallas Fed might teach himself a bit of monetary economics. Any smidgen of knowledge here would be an improvement on his predecessor Richard “Inspector Clouseau” Fisher. He’s a voter in 2017 for the first time so it is worth paying a bit of attention, especially if Trump were to pick two hawks for the vacant permanent seats on the FOMC. But we are becoming more and more disappointed. His speech yesterday was typical of so many on the FOMC. It was… Read More

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Long Depression to deepen as the Fed has to preserve its credibility

The minutes of the November meeting surprised no-one judging by the market reaction, almost certainly because no-one is around coming out on the night before Thanksgiving. The exhaustive list of economic and financial conditions made no mention of the continuing shrinkage of Base Money, the only thing the Fed directly controls. But then it is hard to see the end of one’s nose unless one looks in a mirror. The message from the September FOMC that began the rise in bond yields and market-implied inflation expectations turns out to have been a bit of a mistake. “Federal Reserve communications immediately following the… Read More

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Well, that really is it for December. The uber-dove Bullard has caved and says he will likely support a December rate rise. No wonder the chances of a December hike are now 90%. To be fair, at least Bullard thinks this will be a neutral stance for monetary policy. To be brutal, he just doesn’t get it like all other members of the FOMC and most of the experts: the level of interest rates isn’t monetary policy.  NGDP Growth Expectations tell us the stance of monetary policy. Robert Kaplan, the Texas Fed President, also appears to have come strongly off the fence and said… Read More

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