Again?

By Jeffrey Snider of Alhambra

It would have been better in 2011 for central banks to sit that one out, to let a second crash develop even if it was equal in size and duration to the first one

It is more than interesting that Herbert Hoover has become the modern ideal of the liquidationist. In these very trying times, one is either that or a Keynesian, Hoover’s supposed opposite, an interventionist who believes there is no good in any recession or deflation at any time. To “prove” the superior foundations of the latter, the ideological associates of that position will always invoke the Great Depression. In what is the economic equivalent of Godwin’s Law, in some ways just a corollary since it was the Great Depression that made the Nazi extreme possible, to advocate free market liquidation is to be pressed into the corner of wanting another Great Depression.

It is, of course, a true non sequitur, for most who are committed to free markets can be so without ever having the slightest desire for calamity. It has been in the decades since the 1930’s a common tactic to associate free markets with such dangerous messiness and the role of government the virtuous economic janitor forced to clean up from the chaos. The panic in 2008 gives us a great test to some of those theories, especially as intervention was the rule almost from the start (August 2007 rather than February 2007, but still close enough to the initial rupture).

The fact that the Fed interceded at every turn but also on every count humiliatingly failed demonstrates one fact of false interventionist lore – that without the skill and courage, as Mr. Bernanke himself has called it, the Great “Recession” would have become a second Great Depression. In other words, without QE in this specific case there would have been no stopping the destructive capacity of the panic; it would have gone on and on and on until there was nothing left to the global economy.

That was always an irrational assumption, as even the messiest of free markets undergoing the messiest of liquidations reach on their own an end. No economy will ever liquidate down to zero. The idea that a crash will just keep on going until the enlightened central banker stops it is more politics than economics. In the case of 2008, it was truly absurd because nothing any central banker did led to any positive effects whatsoever. If the Panic of 2008 stopped, it was because it was always going to stop.

The case of the Great Depression was a singular, unique one; though there are enormous similarities of general outline between the 1910’s to 1930’s and the 1990’s to the so far 2010’s, in truth there are a great many differences especially monetarily. In the former period the public payment system was greatly endangered by its close and often direct connection to asset markets; in the latest period, the public’s money was never in such peril, as it was only interbank money where panic was realized. The worst of this age was never what happened up front in late 2008, it has been instead the lack of growth following it.

Even though the 2007-09 liquidation stopped largely on its own, intervention has continued almost constantly anyway. Largely based on the credit central bankers had initially given themselves, they kept at it year after year after year even though after several years it was more than enough time to realize “something” wasn’t working. As of last year, even central bankers have quietly surrendered, leaving them to finally admit that something was their “stimulus” – though they have yet to truly consider why.

The problem is primarily global economic potential, on that point even the interventionists have finally agreed. The Great “Recession” in other words was never actually a recession, it was instead a giant and permanent rupture in global economic function. Orthodox economists have no idea why even if they now recognize it for that condition. This is the so-called “supply side” where “stimulus” is exclusively intended for aggregate demand; if the supply side is so impaired then it is no wonder demand side stimulus failed to stimulate.

But how could the supply side become so shrunken? There is no mechanism in their literature that could explain it, which is why economists and policymakers have turned to the ludicrous almost exclusively. They will never willingly re-evaluate the assumptions that underpinned their interventionist stance. Including:

“All the stakeholders emphasized today that we have to avoid delays,” EU Economic Affairs Commissioner Pierre Moscovici told a news conference after the meeting. “That would be very harmful. That would impair the confidence of investors and consumers. That would be detrimental to economic recovery.”

I have to confess that when I read this paragraph I actually laughed. It was an inappropriate one, and so more about again the ridiculousness of it the ideas expressed literally rather than the plight which was being described related to it. The article which contains that passage is one published initially yesterday relating apparently a new crisis in Greece, the fifth or sixth depending upon your definitions; which is to say the same crisis of Greece that has been ongoing for now seven years without interruption no matter the intervention.

Continue reading Again?

Another Missed Opportunity

By Doug Noland

Credit Bubble Bulletin: Another Missed Opportunity

March 16 – Financial Times (Robin Wigglesworth, Joe Rennison and Nicole Bullock): “When Romeo impatiently hankered after Juliet, the sage friar Lawrence dispensed some valuable advice: ‘Wisely and slow; they stumble that run fast.’ It is a dictum the Federal Reserve clearly intends to live by, despite the improving economic outlook. There have been rising murmurs in financial markets that after years of the Fed being too optimistic on the economy, inflation and interest rates, it is now behind the curve. But on Wednesday the US central bank sent a clear message to markets that it is not in a hurry to tighten monetary policy.”

Yes, markets had begun fretting a bit that a sense of urgency might be taking hold within the Federal Reserve. But the FOMC’s two-day meeting came and went, and chair Yellen conveyed business as usual. Policy would remain accommodative for “some time.” The focus remains resolutely on a gradualist approach, with Yellen stating that three hikes a year would be consistent with gradualism. And three baby-step hikes a year would place short rates at 3.0% in early 2020 (the Fed’s “dot plot” sees 3% likely in 2019). It’s not obvious 3% short rates three years from now will provide much restraint on anything. As such, the Fed is off to a rocky start in its attempt to administer rate normalization and a resulting tightening of financial conditions.

Yellen also suggested that the committee would not be bothered by inflation overshooting the Fed’s 2.0% target: “…The Fed is not inclined to overreact to the possibility that inflation could drift slightly — and in the Fed’s view temporarily — above 2% in the coming months.” There would also be no reassessment of economic prospects based on President Trump’s agenda of tax cuts, infrastructure spending and deregulation. “We have plenty of time to see what happens.” Moreover, the Yellen Fed did not signal that it is any closer to articulating a strategy for reducing its enormous balance sheet.

Bloomberg had the most apt headlines: “Yellen Calms Fears Fed’s Policy Trigger Finger Is Getting Itchy;” “Yellen Faces New Conundrum as Conditions Defy Hike;” “The Market Is Acting Like the Fed Cut Rates.”

Ten-year Treasury yields dropped 11 bps on FOMC Wednesday to 2.49%, the “largest one-day drop since June.” Even two-year yields declined a meaningful eight bps to 1.30%. The dollar index fell 1.0%, with gold surging almost $22. The GSCI commodities index rose more than 1%. EM advanced, with emerging equities (EEM) jumping 2.6% to the high since July, 2015.

I think back to the last successful Fed tightening cycle. Well, I actually don’t recall one. Instead it’s been serial loose financial conditions and resulting recurring booms and busts. And, once again, the Fed seeks to gradually raise rates without upsetting the markets. Yellen: “I think if you compare it with any previous tightening cycle, I remember when rates were raised at every meeting, starting in mid-2004. And I think people thought that was a gradual pace, measured pace. And we’re certainly not envisioning something like that.” Heaven forbid…

In her press conference, Yellen again addressed the “neutral rate” – “The neutral level of the federal funds rate, namely the level of the federal funds rate, that we keep the economy operating on an even keel. That is a rate where we neither are pressing on the brake nor pushing down on the accelerator. That level of interest rates is quite low.”

Yellen may not believe the Fed is “pushing down on the accelerator,” yet the truck is racing down the mountain.

March 14 – Bloomberg (Claire Boston): “Companies are issuing bonds in the U.S. at the fastest pace ever… Investment-grade firms are on track to complete the busiest first quarter for debt sales since at least 1999. Firms… have pushed new issues to more than $360 billion so far in 2017, closing in on the previous record of $381 billion from 2009… That puts bond sales 14% ahead of last year’s record pace… High-yield bond offerings have also roared back after a plunge in commodity prices muted new issues last year. Junk-rated firms have sold more than $72 billion in 2017 through Monday, compared with $41.7 billion in the first quarter of 2016.”

March 16 – Bloomberg (Sid Verma and Julie Verhage): “Financial markets are telling Janet Yellen there’s more work to be done — or else. While the Federal Reserve chair raised interest rates by 25 bps as expected Wednesday, the outlook was less hawkish than market participants foresaw, with projections for the medium-term tightening cycle largely unchanged… ‘Our financial conditions index eased by an estimated 14 bps on the day — about 2.3 standard deviations and the equivalent of almost one full cut in the funds rate — and is now considerably easier than in early December, despite two funds rate hikes in the meantime,’ Goldman Chief Economist Jan Hatzius and team wrote…”

Continue reading Another Missed Opportunity

Behind the Curve? Pussycat Yellen Confronts “Largest Dovish Policy Deviation Since the 70s”

By Heisenberg

Some folks will be talking about the Fed today.

In just a few hours we’ll get a hike, but once again, it’s all about the messaging. Any kind of dovish lean would be a (bigly) surprise. What’s got some people spooked is the possibility that, in their rush to prove they aren’t behind the proverbial curve, they get too aggressive with the messaging. Here’s what SocGen said overnight (and please, just forget that you ever heard the term “pussy-cat” in a sentence that refers to Janet Yellen):

The Fed is a pussy-cat that would like to change its spots into something more like a leopard’s. In practical terms, that means that this evening’s FOMC announcement (6pm GMT, with a press conference half an hour later) is all about the Fed’s projections rather than whether they raise rates or not. Anything other than a 25bp rate hike would be a huge surprise to the market. Discounting that possibility on the grounds that the Fed is so (too) obsessed with managing market expectations ahead of policy moves, what we’ll watch are the ‘dots’ showing FOMC’s projections of where Fed Funds might go. Market pricing of Fed Funds through 2017- 19 is at the bottom of what the Fed currently projects. Our US economists think that the 2017/18 dots probably won’t move but beyond that, an upward adjustment is possible to send a signal to the market that the FOMC is serious about normalising policy.

Yes, “to send a signal to the market that the FOMC is serious about normalizing policy.” And see that’s the problem. The Fed already tried that. And since March odds converged on 100%, we’ve seen nothing but signs that while this market will probably be willing to write off one hike as a positive development (you know, as confirmation of the reflation narrative’s legitimacy), anything beyond that in terms of an overzealous normalization trajectory could very well trigger a tantrum and undercut oil prices further.

So is the Fed behind the curve? Or, put differently, are we right to fear an FOMC that sees itself as playing catch up? In short, probably. Here’s Goldman:

Exhibit 1 shows the gap between the funds rate and the rule-implied rates. Positive values indicate that policy is “too tight,” while negative values indicate that policy is “too easy.” The results using the HLW estimate of r* imply that policy is just over 1pp easier than the rule-prescribed rate, while the results using a 2% neutral rate imply that policy is almost 3pp easier. Accounting for the impact of the balance sheet would make both gaps moderately larger. The constant neutral rate assumption implies that the current policy stance represents the largest dovish policy deviation since the 1970s, though it is only half as large as the most extreme gaps of the 1960s and 1970s.

BehindTheCurve

If the Fed is behind, what would it take to catch up? Last week, we showed that the Fed’s projections over the next few years already correct the modestly “too easy” stance implied by its depressed r* view. Under the alternative assumption that critics of the low r* thesis are right and a 2% neutral rate is a better guide, current policy is about 3.5pp too easy and the Fed’s terminal rate estimate about 1pp too low, requiring 1 additional hike per year beyond those already planned to catch up by 2020.

Got that? Ok, good.

Continue reading Behind the Curve? Pussycat Yellen Confronts “Largest Dovish Policy Deviation Since the 70s”

Fed Rate Hikes, Fiscal vs. Monetary Policy and Why Again the Case for Gold?

By NFTRH

I’ve been thinking about the current Fed Funds rate hike cycle, which is logically gaining forward momentum now that the Fed can stand down from its 8-year, ultra-lenient monetary policy cycle.  That is because the Obama administration’s goals required a compliant Federal Reserve to continually re-liquefy the economy as its fiscal policies drained it.

With the coming of Trump mania and its very different fiscal policy goals, we will witness the end of much of what I considered to be the “evil genius” employed by the Federal Reserve, mostly under Ben Bernanke.  When he oversaw the brilliant and completely maniacal painting of the macro known as Operation Twist in 2011, I knew we were not in Kansas anymore.  We’d gone off the charts and off the balance sheet into a Wonderland of financial and monetary possibilities.

What else would you call a plan to sell the government’s short-term debt and buy its long-term debt in the stated effort to “sanitize” (the Fed’s word, not mine) inflationary signals on the macro?  It was evil, it was genius, and it worked.  So too did various other financial manipulations that took place before and after Op/Twist.  And here we are.

The Republican view is one where businesses and consumers are stimulated, not money supplies.  I think it is a better economically, but not by much in this case.  That is because the Trumpian ‘reflation’ would simply be another form of man-made stimulation attempting to deny market and economic excesses from being cleared.  A normal economy goes through normal cycles.  We have not had a normal economy or a normal cycle since at least pre-2000.

Since Alan Greenspan panicked and blew the credit bubble of last decade, we have been on a continuum further into uncharted waters.  Trump’s policies are not going to stop it, either.  Besides, he inherits this (chart source: SlopeCharts).

s&p 500 and monetary base

What we see above is a dangerous correlation between Monetary Base, which is the product of monetary policy, and the S&P 500.  We see that the S&P 500, which followed the Base in lockstep for much of the bull market, is playing a little catch up to the Base, which itself is only bouncing within a topping structure.  That is a dangerous looking chart if the assumption that monetary policy will be withdrawn as fiscal policy is anticipated/enacted is a good one.

Continue reading Fed Rate Hikes, Fiscal vs. Monetary Policy and Why Again the Case for Gold?

No Mere Trivia

By Jeffrey Snider of Alhambra

There is a grave misunderstanding about the reasons the Fed is “raising rates” in the first place

We are at the stage ten years later where it is still necessary to define terms. In every finance and economics textbook, the chapter on monetary policy defines “tight” money as when the Federal Reserve (or whatever central bank) raises its policy rate(s). Conversely, “accommodative” money is where it lowers the rate(s). In the US system, the technical reason given is open market operations, where the FOMC acting through the Open Market Desk of its New York Branch (FRBNY) will buy and sell securities as necessary to achieve the target rate.

From the perspective of the banking system, that means the Fed will, if pushed, provide whatever level of bank reserves necessary to keep the Effective Federal Funds rate sufficiently near the policy rate. When the policy rate is being raised, as it was in the middle 2000’s, it was in theory moving upward because money market participants fully believed that the Fed would sell bonds into the market (if needed) to reduce the level of available reserves – “tightening.”

That policy was instituted at that time because the FOMC felt the change in stance was warranted given an economy that finally appeared to be recovering from the unusually durable after-effects of the unusually mild dot-com recession. The Fed raised the federal funds rate to achieve that “tightening” so as to reduce economic momentum before it became overly inflationary. It is this assumed set of conditions which are used today to characterize the current action of monetary policy.

But on the most basic level, is that what happens? Is raising the federal funds rate truly equivalent to tightening? The answer is emphatically, unequivocally no.

Starting in the middle of 2004, Alan Greenspan’s Fed began a series of “rate hikes” meant to accomplish a “tighter” monetary stance for the reasons stated above. Between June 2004 and June 2006, the FOMC voted 17 times to increase the federal funds target, bringing it up from 1.00% to 5.25%. During that time, inflation continued to accelerate, as did all manner of other monetary indications outside of the traditional money supply statistics (the M’s, including the drastically incomplete M3). There is no way to characterize that period or the year immediately thereafter as “tight.”

From September 2007, however, through October 2008, the FOMC did just the opposite. In much more condensed fashion, the FOMC voted to reduce the federal funds target from 5.25% back to 1.00%. There is absolutely no way to characterize that period as anything even approaching “accommodative”, especially as it encompasses two of the three liquidation events associated with what was truly a bank panic (and the third one followed the introduction of ZIRP).

Continue reading No Mere Trivia

Credit QE

By Jeffrey Snider of Alhambra

Although he didn’t state it specifically in his November 2010 Washington Post op-ed formally justifying QE2, it was very clear that then-Fed Chairman Ben Bernanke intended it to work through lending and especially the bank channel. Though he doesn’t explain, nor has any official ever, why a second one was needed given that the first was “quantitatively” determined, Bernanke was unusually clear about what he expected to happen for it:

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth.

If one is of the mood to be hugely charitable toward QE, you can claim that judging from this narrow benchmark it worked. According to the Fed’s Z1 statistics, bank lending resumed steady growth in Q2 2011. Since that quarter, the total of loans on the books of depository institutions has increased by 31%. It is unclear if QE was the motivation for that change, or perhaps it was the 2011 crisis which might have convinced banks to get out of the money dealing business so as to at least get back to the lending business, but again if we are being purposefully favorable we can attribute it to the Fed’s signature monetary policy.

It took a little while longer, and another two QE’s, for the other financial sectors to follow what banks were doing. The non-bank sector, after shrinking precipitously after the panic (Q3 2008), finally resumed positive numbers in the middle of 2013. Like the bank sector, it isn’t clear what motivated the change as that time period like 2011 was characterized by not just additional QE’s but also a great deal of financial turmoil.

The rest of the economy contributed positive loan growth in greater appreciation, though once again the inflection coincides with a prospective QE as well as a great many economic and financial questions (maybe lending doesn’t work the way it is theorized?).

Continue reading Credit QE

That Smell in the Fed’s Elevator

By Michael Ashton

A new paper that was presented last week at the 2017 U.S. Monetary Policy Forum has garnered, rightly, a lot of attention. The paper, entitled “Deflating Inflation Expectations: The Implications of Inflation’s Simple Dynamics,” has spawned news articles such as “Research undercuts Fed’s two favorite U.S. inflation tools”(Reuters) and “Everything the Market Thinks About Inflation Might Be Wrong,”(Wall Street Journal) the titles of which are a pretty decent summary of the impact of the article. I should note, because the WSJ didn’t, that the “five top economists” are Stephen Cecchetti, Michael Feroli, Peter Hooper, Anil Kashyap, and Kermit Schoenholtz, and the authors themselves summarize their work on the FiveThirtyEight blog here.

The main conclusion – but read the FiveThirtyEight summary to get it in their own words – is that the momentum of the inflation process is the most important variable (last year’s core inflation is the best predictor of this year’s core inflation), which is generally known, but after that they say that the exchange rate, M2 money supply growth, total nonfinancial credit growth, and U.S. financial conditions more broadly all matter more than labor market slack and inflation expectations.

Whoops! Who farted in the Fed’s elevator?

The Fed and other central banks have, for many years, relied predominantly on an understanding that inflation was caused by an economy running “too hot,” in that capacity utilization was too high and/or the unemployment rate too low. And, at least since the financial crisis, this understanding has been (like Lehman, actually) utterly bankrupt and obviously so. The chart below is a plain refutation of the notion that slack matters – although much less robust than the argument from the top economists. If slack matters, then why didn’t the greatest slack in a hundred years cause deflation in core prices? Or even get us at least close to deflation?

I’ve been talking about this for a long time. If you’ve been reading this blog for a while, you know that! Chapters 7-10 of my book “What’s Wrong With Money?: The Biggest Bubble of All” concerns the disconnect between models that work and the models the Fed (and most Wall Street economists) insist on using. In fact, the chart above is from page 91. I have talked about this at conferences and in front of clients until I am blue in the face, and have become accustomed to people in the audience staring at me like I have two heads. But the evidence is, and has long been, incontrovertible: the standard “expectations-augmented-Phillips-Curve” makes crappy predictions.[1] And that means that it is a stupid way to manage monetary policy.

I am not alone in having this view, but until this paper came out there weren’t too many reputable people who agreed.

Now, I don’t agree with everything in this paper, and the authors acknowledge that since their analysis covers 1984-present, a period of mostly quiescent inflation, it may essentially overstate the persistence of inflation. I think that’s very likely; inflation seems to have long tails in that once it starts to rise, it tends to rise for some time. This isn’t mysterious if you use a monetary model that incorporates the feedback loop from interest rates to velocity, but the authors of this paper didn’t go that far. However, they went far enough. Hopefully, this stink bomb will at last cause some reflection in the halls of the Eccles building – reflection that has been resisted institutionally for a very long time.

[1] And that, my friends, is the first time I have ever used “crap” and “fart” in the same article – and hopefully the last. But my blood pressure is up, so cut me some slack.

Trump to Fed: “Bow Down to Caesar” or Risk “Horrifying Misstep”

By Heisenberg

Ok, so we all know the Fed is more “S&P dependent” than they are “data dependent,” right? Don’t forget this from Wells Fargo:

The Fed rarely tightens unless the market is pricing at least a 60% of a rate hike one month before the FOMC meeting. Figure 7 underscores this point. The Fed has implemented 25 bps hikes on 27 occasions since 1991. Twenty days before the hike, the implied probability was below the key 60% level in only three of the 27 cases. The Fed tightening in December 2016 fit the historical pattern. The rate hike was very well advertised by the Fed, and the implied probability was about 80% a month before the FOMC meeting.

wells

As I wrote last week, it’s not often that we get to say “wow, that Wells Fargo note is looking pretty prescient right about now,” but given that the excerpted passage and chart shown above came out in early February, this is one of those rare times.

But when it comes to the Fed anno 2017, one of the interesting dynamics to observe is the interplay between a committee that wants to normalize and a new administration that wants a weak dollar.

Obviously, a FF hike only serves to exacerbate the extent to which rate differentials are dollar supportive and so by definition, a hike is anathema to Trump and Navarro. Oh the f*cking irony, right? This would be the very same Donald Trump who just last year accused Yellen of keeping rates to low and doing “political things.”

Below, find the latest from former FX trader Richard Breslow who notes that the committee must now bow to “Caesar.”

Via Bloomberg’s Richard Breslow

Do you know why the Fed has decided to raise rates next week? It’s not because things have started to go well. It’s because nothing new has gone bad. What they fear like the dickens is to have to stand down, let alone backtrack. Better to leave it to the last moment and if the coast looks clear, make their move. Data dependence in an environment where the numbers have certainly been good enough has morphed into a vigil for when the next shoe will drop. This is the new form of optionality.

  • Talk is cheap. When they suggest three rate hikes or upgrade their dots, they are really promising little. They don’t know what the world will look like come June, let alone December. It will be one rate hike at a time, events permitting. Which also means data, while important, is a body of evidence whose meaning will only be revealed at the last moment
  • Don’t expect that we’re in a tightening cycle that will ever resemble those of yore. Global economic and geopolitical risks make that a simplicity of fond memory. The financial crisis-hangover means we are forced to take it the proverbial one day at a time

RateHike

  • The institutional threats they face make the thought of any misstep horrifying. With all of the sniping from other parts of Washington and the looming new appointments, they understand the need to be the perfect Caesar’s wife. A lot to ask as they disengage the policy auto-pilot of the last eight years
  • By moving the rate hike forward, they did indeed increase the chances of more this year than previously priced. That’s true simply by definition. But their hawkish lurch changed pricing far less than anyone would have expected. Unless you were prescient enough to be playing the April futures contract
  • Friday’s post-Yellen price action was less buy the rumor, sell the fact, than a reevaluation of just how much things may not have changed to the as yet believable trajectory of things. Something to at least consider as you evaluate just where you think the dollar or 10-year might be going in the near future
  • Will Friday’s non-farm payrolls matter? Yes, only not for March. But how we begin talking about June. It won’t be an economic release potentially derailing the hike, just another of those infernal unknowns

Has the Fed Been a Long-Term Success?

By Steve Saville

To know whether or not the Fed has been a long-term success, the reason for the Fed’s creation must first be known. Here is the reason from the horse’s mouth: “It [the Fed] was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system.” If this is the real reason then over the long-term the Fed has not been a success. In fact, it has been an abject failure.

That the Fed has blatantly not been successful in providing the nation with a more stable monetary and financial system is clearly evidenced by the following ultra-long-term chart from www.goldchartsrus.com. This chart shows that the Dow/gold ratio experienced much greater long-term volatility post-Fed than it did pre-Fed.

Dow_gold_010317

This doesn’t mean that the Fed hasn’t been a success, only that it hasn’t been a success if judged based on its publicly-stated purpose.

If the Fed was actually created to ensure that the government could borrow and spend with no rigid limit and to enable the banking industry to grow its collective balance sheet far beyond what would be possible under a less ‘flexible’ monetary system, then the Fed has been a resounding success.

Get This Through Your Damn ‘Brain’ard

By Heisenberg

So basically, the message is that unless the S&P were to suddenly collapse, the Fed is going to hike.

They’re really pushing the envelope on the messaging and if you buy into the whole reflexivity argument, then you have to think they want to move – and soon. Put differently, if this is all about stocks and the dollar (“the market”) then the light is green. Like blindingly green. I talked a bit about this earlier this week. If it’s financial conditions that are the determinant, well then we are ready to go.

In case there were lingering questions – which there apparently were as the dollar faded on Wednesday afternoon, they were answered last night at 6 EST when Lael Brainard dropped a few tape bombs via prepared remarks for a speech at Harvard. To wit:

  • “Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path”
  • “We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing, and risks to the outlook are as close to balanced as they have been in some time”
  • “The past few months have seen continued progress in the labor market”
  • “Inflation has moved up lately as the effect of past increases in the dollar and declines in energy prices have faded”
  • “Recent months have seen an increase in the upside risks to domestic demand,”
  • “Near-term risks to the United States from abroad appear to have diminished”
  • “As the federal funds rate continues to move higher toward its expected longer-run level, a transition in balance sheet policy will also be warranted,”
  • “There are good reasons to expect a normalized balance sheet to be considerably smaller than its current size but larger than its pre-crisis level”

Any questions?

You’re reminded that Brainard isn’t exactly known for being hawkish, so this represented a notable reversal and that change in tone was promptly reflected in USDJPY:

brainard

That gave the all clear for the reflation narrative to remain firmly in place during the overnight session. Panning out a bit, you can get a sense of things:

Continue reading Get This Through Your Damn ‘Brain’ard