By Kevin Muir
It’s never easy being a central banker. Too many of us, with the benefit of hindsight, look back and proclaim judgment on policies they took (or didn’t take) often forgetting that the future is never easy to predict. I am by no means innocent of this charge. I take potshots at central bankers all the time without consideration of the difficulty of their jobs.
Even the most revered central banker in history, Paul Volcker, was only admired years later.
Amid his administering the harsh medicine to stop spiraling inflation, there were howls of protest from the public who were being squeezed by the high cost of money. And by no means was Wall Street all-aboard either. Here are some of Volcker’s own recollections of the period from a 2013 NBER interview:
Continue reading Powell Has a Plan
Jury Still Out On Whether That’s Good Or Bad
Ok so in sum, on the Fed: three hikes (total) projected in 2018, a steeper trajectory in 2019 and 2020, upward revisions to growth this year and next, lower unemployment trajectory across the board, and a modest inflation overshoot on core next year and on headline and core in 2020.
Here’s what Neil Dutta, head of U.S. economics at Renaissance Macro Research had to say:
So, next year, the median FOMC official sees a slight overshoot on inflation (+0.1ppt) another 0.3ppt drop in the unemployment rate and just one more rate hike. That’s somewhat less than you’d expect in a standard Taylor Rule type model. That is not really hawkish, in my view. Buy stocks. Buy front end.
Inline with what I was suggesting earlier, the statement was kind of lukewarm on growth, describing economic activity as rising at a “moderate” rate, while describing job gains “strong” – that’s as opposed to the “rising at a solid rate” language and the less exuberant take comes courtesy of household spending and business fixed investment having “moderated”.
Continue reading Powell Don’t Talk Much Like Yellen…
By Otto Rock
The short intro piece in this week’s edition of The IKN Weekly, IKN461*:
Jerome does an FOMC
“I don’t care what the newspapers say about me as long as they spell my name right.” –Phineas Taylor Barnum
There are things we know and things yet to discover about the FOMC meeting this week:
- We know Jerome Powell sits at the top of the table for the first time.
- We know that a rate hike is going to happen. Put another way, if rates aren’t hiked a notch the market will be very surprised and the market doesn’t like surprises at the best of times, let alone from a Fed with a brand new chair.
- We are yet to discover how Fed Head Powell handles the presser post-FOMC, but considering his polished performance in front of Congress a couple of weeks ago, a few pesky journalists are unlikely to ruffle his feathers.
- But most important of all next week, we are yet to discover the tone and content of the FOMC communiqué, that publication of always close focus will be pored over, examined and debated more intensely than ever as the market tries to interpret the direction Powell will (or at least want to) take.
Anyway, Wednesday’s your day. We’ll see how “King Dollar” looks afterwards (thank you Kudlow) and by definition, gold.
Talking of which, I’m hoping that President Trump’s new (latest?) economic advisor Larry Kudlow continues the gold trash talk and more of his “I would buy King Dollar and I would sell gold” comments are highly welcomed by these pages. Less because Kudlow is a time-tested contrary indicator and more because the average financial professional and market participant, beyond casual mockery of we tinfoil hat wearers, simply doesn’t think about gold very much. Therefore, if the guy whispering in the ear of Trump is talking gold it doesn’t even matter that his comments are negative, it’s going to get more people to at least consider gold’s position in the investment firmament. We are in the political era that PT Barnum could only dream about, after all.
*Yes, that does mean I’ve spent the last 461 weekends writing the thing.
Ok, so we got through the first of two Powell testimonies, and it went ok, all things considered. The message was mildly hawkish on balance and the result for yields, the dollar and secondarily, for stocks, was predictable.
The comments that set the tone came early on when Powell suggested that his outlook on the economy had improved of late and although he said he “wouldn’t want to prejudge” anything about the rate path, he noted that for him, the data “add some confidence to the view that inflation is moving up to target.”
“We’ve also seen continued strength around the globe, and we’ve seen fiscal policy become more stimulative,” he added.
Treasurys dropped on those comments as 10Y yields quickly moved above 2.90.
Zooming in on 2Y yields just as the comments excerpted above hit, you can really see the impact:
Continue reading They’ve Done Studies You Know…
Ok, here come Powell’s prepared remarks.
If you need to know what to look for here, you can peruse some of the color on today’s closely-watched hearing here, but basically, it’s the same old thing.
People want clues about the outlook and about how fiscal stimulus plays into the committee’s decision calculus and about inflation and, ultimately, about whether we’re likely to get four rate hikes this year.
Powell needs to learn the art of obfuscation and fine-tune his skills at employing euphemisms in the service of not sounding too dovish or too hawkish. Basically, he needs to master the art of using a whole bunch of words to say nothing.
Well speaking of a whole bunch of words, his testimony is out. Here are some (seemingly hawkish) bullet points :
- POWELL: SOME HEADWINDS FACING U.S. ECONOMY ARE NOW TAILWINDS
- POWELL SEES FURTHER GRADUAL RATE HIKES, OUTLOOK REMAINS STRONG
- POWELL: U.S. ECONOMIC OUTLOOK STRONG, INFLATION TO RISE TO 2%
- POWELL: FOMC SEES RISKS ROUGHLY BALANCED, MONITORING INFLATION
And here are some excerpts from the testimony:
Continue reading Jerome Powell ‘Is Pleased’ To Offer You This Half-Assed Janet Yellen Impression