Jim Dandy (Fed Presidents) Halt a Taper Tantrum and Coordinate a Stock Market Rescue

I was watching the Futures Sunday evening and noticed the yield on the long bond dip below the 2% level. Stock futures were down as well. 

I did not comment on it, wondering how long it would last. The answer was not long.

Others Noticed Too

Climate Change?

Powell to the Rescue

At 4:30 AM on Monday, Econoday noted Jerome Powell Delivered a Prepared Speech. 

In a prepared text, Jerome Powell repeated key points of prior statements including those of last week’s FOMC press conference: that economic activity and employment have shown sustained improvement, that inflation has increased “notably” in recent months, and that the pandemic continues to pose risks to the outlook.

On inflation, he repeated that pressure reflects very low prior readings, the pass-through of higher oil prices, the rebound underway in spending, and the effects of supply bottlenecks. The latter he emphasized, calling the effects “transitory” and saying that once they abate, he believes inflation will drop back toward the Fed’s longer-term goal (2 percent).

Williams to the Rescue

 Later in the morning, NY Fed president John Williams said Fed Not Ready to Pare Aid.

“It’s clear that the economy is improving at a rapid rate, and the medium-term outlook is very good,” Mr. Williams said in a virtual appearance Monday. “But the data and conditions have not progressed enough for the [Federal Open Market Committee] to shift its monetary policy stance of strong support for the economic recovery,” he said.

Speaking with reporters after his formal remarks, Mr. Williams acknowledged that officials are talking about paring asset purchases, but said that he isn’t ready to call for such a move and that policy makers haven’t yet discussed the tactics of slowing the bond buying.

“We’ve made some progress for sure. We’ve seen progress in employment; we’ve definitely seen a big increase in inflation,” Mr. Williams said. But, “from my perspective, we are quite a ways off from achieving my interpretation of substantial further progress” on the central bank’s job and inflation goals that the Fed said would need to be attained before slowing the asset buying, he said.

The New York Fed leader also rejected the idea that financial markets had reacted adversely to the central bank’s policy meeting in a replay of the so-called 2013 taper tantrum in which yields surged when the Fed discussed a pullback in bond buying.

“I definitely would not describe this as a mini taper tantrum of any kind,” and markets are just reacting to what the Fed has said and reflecting their own assessment of the economic outlook, he said.

Mr. Williams, in his comments to reporters, played down any concerns about massive sums of money flowing into the central bank’s reverse repo facility. As he has in the past, Mr. Williams said the facility is working as expected. 

Translation

Phew, we just halted a mini taper tantrum.

At karaoke I sing the original Jim Dandy by LaVerne Baker, a 1956 R&B #1 hit. However, the live Black Oak version is a more fitting tribute to the Powell Fed.

On Friday, June 18, I commented Hello Fed, How’s Your QE Asset Taper Trial Balloon Doing?

Sunday evening stock futures and bond yields were down. 

The 1-2 punch on Monday starting at 4:00AM by Powell with the NY Fed president following did the trick. 

As Expected 

In regards to “working as expected”, note that Reverse Repos Surge to Record $756 Billion, Taking Back Over 6 Months of QE

The Fed Pumps $120 Billion a month to banks via QE. Then the Fed mops up after itself by offering a now record $756 Billion in reverse repos.

This of course is “expected” behavior according to Williams and “working as designed” according to Powell. 

Finally, in regards to DiMartino Booth’s comment “THIS is subject of first meeting when those over 60 & the lowest paid getting skewered by inflation?!” please see my June 16 post Consumer Inflation Expectations Jump 7th Straight Month to a New Record High

Mish