Steen Jakobsen, chief economist and CFO for Saxo bank pinged me this morning with the Bloomberg headline Yellen Signals Rate Path Hinges on Whether Turmoil Persists.
Steen suggested the alternative headline “Yellen and Fed in Denial“. I added the word “total”.
Key Ideas
- Yellen expects to raise interest rates
- Financial conditions less supportive of growth
- Uncertainty over China growth and exchange policy has exacerbated concerns
- Too soon to tell if volatility, oil prices and bond yields is passing or headed deeper
- Lower fuel prices and steady job growth should boost household spending
- Inflation will eventually move back to 2% range
Steen writes “This is bad news for RISK. It will take time before full reaction is out as testimony will give more color.”
Sticking to Her Guns
“She is holding to her guns,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “The financial market turmoil is not going to make them reverse course. It could have an effect on the pace at which they normalize rates, but they are still committed to normalizing rates.”
With her testimony on Wednesday, Yellen joined Vice Chairman Stanley Fischer and other senior Fed officials in declaring it’s too soon to tell whether sharp drops in stocks, oil prices and some bond yields represent passing volatility or reflect worsening global economic fundamentals that will dampen growth and inflation in the U.S.
Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York, said Yellen’s remarks suggest the Fed is prepared to postpone, but not cancel, its plans for higher rates.
The above snips from Bloomberg.
Big Yawn
The bond market let out a big yawn to Yellen’s yap. Odds of a rate hike in March are still 2%, interest rates did not budge, and oil today is hovering near $28 a barrel.
Mike “Mish” Shedlock
Question: given that the fed does set interest rates, isn’t raising the rates and popping the bubble the right thing to do?
If so, isn’t it possible that Yellen is actually going to do the right thing?
Michael, no jokes before noon. You know the rules.
Deutsche Bank. insiders say that before 2017 German Government will have to take the bank over get your money out now before it is to late
Watched a bit of Yellen’s testimony this morning.
She was asked about whether bankers should have been criminally prosecuted, as bank fines do nothing to prevent criminal activity. A while ago, Bernanke lamented that no corporate heads were prosecuted, despite his having the ability to refer for criminal prosecution and made no referrals while in power.
Yellen made no reference to the ability to refer bankers for prosecution, mentioning only about banning them from future banking activities. She is following in Bernanke’s footsteps on this issue of protecting bankers from criminal prosecution for financial crimes.
This is the one thing I agree with Yellen on. She is a Fed governor, not an employee of the DoJ. Unless a banker has defrauded the Fed, it is none of the Fed’s business to tell the DoJ how to do its job or what job it should do. Treasury has done more to cover for legally questionable behavior than the Fed, in part because Treasury is a beneficiary as a safe haven and thus lowers its borrowing costs. If anything, the Fed is a front for Treasury and if Treasury doesn’t want prosecutions the Fed chair isn’t going to rock the boat.
“… it is none of the Fed’s business to tell the DoJ how to do its job or what job it should do.”
Sounds like a very…….
….nice…..
…….system.
But this only further legitimizes Fed bashing, but more importantly, continues to instruct. Even in the days of the S&L fraud, Americans were irate. Now we have the internet, more brazen and massive fraud with more widespread negative effects on the average American. It is painfully obvious that recently insolvent institutions with a continual record of committing fraud can borrow cheaply, and mark up the cost of capital to institutions and individuals with superior credit risk attributes. People understand that there are individuals who are doing time for drug money laundering, but not the bankers. It is in your face.
Central Bankers who manipulate markets to create a “Wealth Effect” for rich asset holders are financial criminals. Bernie Sanders traveling band of Socialist Money Printers will never understand why the American working classes standard of living is dropping like a rock.
FYI, there is a good article on Seeking Alpha
http://seekingalpha.com/article/3881646-never-oil
which echos what Mish says about the current mess. What the central banks have failed to recognize is that the world economy has shrunk. They keep doping a horse they think is a vigorous young filly and they refuse to recognize that in reality it’s a wheezing old nag. And they can’t understand why their efforts “unexpectedly” don’t work.
Central Banks are not just in “total denial”, but are now trying to “create their own reality”.
You can smell the desperation.
The “endgame” is not far off.
Denial? ….. or playing chess while everyone else playing checkers?
The FR is privy to information that will never see the light of day. She may well know things are going down no matter what … and at end of the day trying to protect $US hegemony.
Not to mention US banks are stuffed with US treasuries as capital … which will do very well in the coming storm.
US banks hold $2.2 trillion in treasuries and agency securities.
http://www.federalreserve.gov/releases/h8/current/
That is correct. Fools they are not, that is just the puppet show we have to endure. Exactly where their interests lie is another question, but I don’t think they all sit backroom having a laugh at what face they can get the traders and public pull. That does not mean they have it right either, just that they have it, and a large nation as well as a lot of the world is committed, voluntarily or not, to the fact.
By there very charter, a Central Bank’s job is to support the banks and not the American Citizen. It’s akin to Roger Goodell (NFL Commissioner) working for the NFL owners but being appointed by the POTUS. This wasn’t as big as a problem until Bill Clinton signed the repeal of Glass-Steagall Act and let the Wall Street Brokerages become mega-banks and rule and ruin almost all of the American Financial System.
Had the FDIC raised the Fed Guarantee on deposits (in real BANKS) to say $250K, the average American would have felt confident in the security of their money and I doubt if a bank run would have occurred. The other financial institutions should have been allowed to die if that was their fate. Executives would have lost jobs\golden parachutes but the system would have been cleansed. It would have been a punch in the gut, no doubt, but we would probably be on the road to a real recovery by now.
Regardless, we should have no sense of entitlement from the Fed. It is a bank for the banks. It’s a small club and we ain’t in it.
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Yellen should have raised rates long ago. The last thing she should do is lower rates.
U.S. negative rates = Game Over
The FED has like a handful of metrics. The DOW, SP, Gold, CPI(whatever that is on a given day is beyond me now)plus maybe, maybe GDP(another baloney metric.)
What they fail to understand is that asset values won’t ramp up unless the profit margin from the carry trade is wider. Money is too expensive to borrow-if you place it alongside assets like oil, gold, commodities, pretty soon home values-which are all losing value against the dollar.
You can see why borrowers want negative rates-as they follow the momentum of asset values down. SO LONG SUCKERS
COME ON WHAT DO YOU YELLEN WILL SAY ON CAMERA? SHRUG HER SHOLDERS AND SAY, “GUYS IT’S ALL OVER WITH CAUSE WE FUCKED UP BIG TIME.”