Everyone expects Janet Yellen to be a rolling over, inflationist stooge just like they did Ben Bernanke. Bernanke came on board after Alan Greenspan had taken the Fed Funds rate up to around 5% if I remember correctly. Inflationists and gold bugs thought they had it in the bag when ‘Helicopter Ben’ assumed control.
Indeed, Bernanke did what he was supposed to do (per the ‘Helicopter ‘Ben’ script) as systemic stresses began to gather in 2007, addressing that pesky Funds rate, culminating in December, 2008′s official ZIRP (zero interest rate policy). Here again is the chart showing the S&P 500′s ‘Hump #3′ attended by this most beneficial monetary policy.
As noted again and again, the much trumpeted ‘taper’ of QE is not only not a negative for the economy, we have made a strong case that its mechanics are actually a positive, in the near term at least. But putting ZIRP on the table would be a whole different ball of wax.
- We want more inflation; it’s better for the economy
- Taper continues as expected, it’s a non issue [my view]
- We don’t dare mess with ZIRP…
The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Full statement from FOMC
The HUI Gold Bugs index got Ukrained to the extent that global crisis hype seeped into this market leading into the weekend. The S&P 500 got Ukrained the other way as people actually acted as if the Crimea question is a macro fundamental.
I think after today the books are square on Ukraine but not yet the FOMC meeting, which will provide another hype opportunity. Will they or won’t they ruminate about an eventual hike to the anti-Grandma Fed Funds rate, AKA ZIRP?
Guest Post by Doug Noland
Bernanke chairs his final FOMC meeting.
I hope to at some point offer a more complete review of Ben Bernanke’s tenure at the Federal Reserve. I will be fascinated to see how future historians view the Bernanke doctrine. From my perspective, the Bernanke Era has been an abject failure. He was the most outspoken proponent of post-tech Bubble reflation. The noted academic was keen to use the government printing press – not to mention mortgage Credit – to fatefully drive asset inflation and stimulate a particularly unbalanced U.S. economic boom. I will give him less than zero Credit for then inciting an even greater Bubble, again in the name of system reflation, after the 2008 crisis.
In September the ‘taper’ hype was deafening. I put out some thoughts about why a ‘taper’ of T bond manipulation could be positive for gold. The Fed rolled over and punted on tapering, gold bugs immediately trotted out to take a bow and the precious metals got blown up again.
Hmmm, funny thing how the Fed is staying the course, cutting T bond and MBS buys by another $10b and yet gold is just fine (post announcement). Funny, only if you think for yourself. Not funny if you are a herd member putting stock in the luminaries.
FOMC: “Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month.”
Because it is Fed day (don’t you just love Fed day?) and because I have got Prechter in my head, we’ll stay on the topic of the long bond. The FOMC ostensibly has some kind of decision to make about Treasury bond manipulation today.
Dial back with me if you will to a happier time for inflationists. It was the spring of 2011 and the ‘right’ kind of inflatables were blasting off all over the place, led by silver. The inflation bulls were geniuses then. Why, even the Bond King declared his bearishness against long term T bonds and put his high profile bond funds short against it. Ah, no dear sir, incorrect. The ‘Continuum’ was at a turning point from up to down.
What was actually in store was a deflationary environment during which the usual inflatables got hammered along with much of the world. Here in the good old US of A the effect manifested as Goldilocks, with genuine deflation forestalled at least.
Today, in keeping with the theme that has seen legendary market luminaries and long time newsletter writers alike close up shop due to confusing market signals that just don’t seem to make sense, we have the Deflation King (Prechter) declaring he is bearish on T bonds, expecting as Gross had 3 years ago, for the yield to break out… this time (in response to inflation).
Sometimes I think it is an advantage being a relative simpleton instead of a market luminary. I have no clue if the yield is going to break out this time (nor if the ultimate condition for the next year or two will prove inflationary or deflationary for that matter) but I do know that I am not smart enough to make predictions like that. I am, in the tradition of the earliest Hominids, a simple tool user.
The tool above says that nothing has happened yet that threatens a condition in T bonds that has been in place for decades.
My neck hurts watching things fly all around post-FOMC.
It sure looks like Santa has arrived now, not waiting until next week. Wheee! Rah rah bulls! I am one of you for a short time. Maybe the 1929 analog is a good one after all because it was calling for another lurch higher in essence, now. So if there is follow through the rest of the week Santa is here and revelers should plan to be nimble.
As for the precious metals, they too looked like they wanted to party and then? Well, it is 2013 after all. Gold is a lump of coal.
A setup is in play, however. I had expected the precious metals to dump on a taper and that may or may not be what they are doing. The reversal to down in the face of a humping stock market was not good and it can be argued that they could use a final puke to destroy the last of the 2001-2011 guru geniuses. But the play for early 2014 is probably going to be to get contrary to what has been over the last year.
I guess I’d have to say that I am satisfied with how today went because the Fed tapered and things make sense, finally.
As the big, hype filled shadow of next week’s FOMC meeting looms over markets, we calmly review the ‘Continuum’ and note that if there is going to be a bond market reversal, the time is now. I look forward to moving beyond this infantile and cartoonish ‘will they or won’t they taper?’ drama.
The Continuum is at a point where it has reversed every damned time previously. If it does so again, the trends that have been in place for the duration of the Long Bond’s bottoming process and upturn are likely to reverse as well. So, will another red arrow be inserted above?