Please consider a Sea Change in U.S. Monetary Policy by James Bullard.
Key Themes
- “Starting in January 2019, the Federal Open Market Committee (FOMC) made significant adjustments to the path of U.S. monetary policy.”
- “These changes were made in anticipation of slower growth in the U.S. economy during 2019 and also in anticipation of continued uncertainty regarding global trading arrangements.”
- “While additional policy action may be desirable, the long and variable lags in the effects of monetary policy suggest that the effects of previous actions are only now beginning to impact macroeconomic outcomes.”
- “Meanwhile, inflation pressures remain muted, and a more meaningful inversion of the yield curve continues to threaten.”
Bullet point three is the most interesting one.
Bullard has been one of the biggest doves on the Fed, but suddenly he adopted a wait-and-see attitude.
No doubt he is attempting to contain a bond market that expects three to four more rate cuts.
Bullard’s Minimal Success
Chart from CME Fedwatch with my “was” anecdotes.
Even if we attribute today’s move entirely to Bullard, a risky proposition, his speech accomplished little of his clear intent.
Fed GDP Projections
No Recession Through 2022
The median Fed projection is no recession as far as the eye can see.
Anyone believe that?
BS “Partial Inversion” Explanation
Yield Curve Spreads
Bullard says “The 10-year yield remains above the two-year yield, likely because markets are anticipating future policy moves by the FOMC, and so we are not seeing an intensification of the yield curve inversion so far.”
What a sorry joke.
Mike “Mish” Shedlock
The Fed would be better off if they just said they will never raise or lower interest rates again. The market would then go on about its business. The whole idea of trying to continually stimulate debt is going end in tears.
While additional policy action may be desirable, the long and variable lags in the effects of monetary policy suggest that the effects of previous actions are only now beginning to impact macroeconomic outcomes.”
Keep in mind that most loans for small and mid-size businesses are not easily or quickly refinanced – add the SBA guarantee and all options for refinancing are off the table.
Mr Bullard … Mr James Bullard … please pick up white courtesy phone in lobby …
And if the 10 year goes below the 2 year, big deal. Most of the recession predictors don’t work very well. Furthermore, we are in a new world of MMT. Historical references for monetary policy in a world of negative interest rates just don’t make sense. Maybe the upside down world will last another year or maybe 50 years. Went to a presentation by Lacy Hunt. He said we are in a cycle that could last a short time or 100 years. It will end by no one knows when.
Yield curve collapsing overnight.
2yr down 4bps …
10yr down 9 bps …
30yr down 10 bps …
My dog has been licking her paws lately. The last time she did that Lehman Bros went tits-up.
The Bull-tard has spoken once again. He is a pathetic, cartoonish caricature of what a Central Bank figure ought to be – and perhaps was, once upon a time. The days of Central Bank credibility are over.
Next they will be calling it an inverted rate hike. The world of upside down people.
Private/market rates will rise (starting early next year), while the masters of the universe will cap the rates on govt debt.
Bullard says “The 10-year yield remains above the two-year yield, likely because markets are anticipating future policy moves by the FOMC, and so we are not seeing an intensification of the yield curve inversion so far.”
…
Really?
Getting there.
Spread on July 1st … +25 bps
Spread yesterday … +16 bps
Spread today … +13 bps
If interest rates were in the right neighborhood, Gold would persistently trade in the neighborhood of $20/oz. The simple fact that it doesn’t, is proof positive they are not.