One of the biggest doves at the Fed is St. Louis Fed President James Bullard. He says interest rates are too high. But he also says it’s “premature’ to talk interest-rate cuts”.
And on one hand he says don’t worry the yield curve doesn’t mean what it used to. On the other hand he is concerned.
Finally, Bullard says normalization is over. Let’s investigate that concept.
Likely Temporary
Please consider Fed’s Bullard Says Spate of Weaker Data Likely ‘Temporary’.
“We’ve had a spate of weaker data, but I still think it is probably mostly temporary,” Bullard told reporters after a speech at the University of Wisconsin-Madison.
“I think the notion of a rebound in the second quarter is a good forecast,” he added.
Bullard, who is not a voting member of the Fed’s interest-rate committee this year, said it was “premature” to contemplate rate cuts.
Simultaneously Worried and Not Worried
You gotta like this consistency: Despite being one the first Fed officials to express concern with the flattening yield curve, Bullard said the recent inversion of some parts of the yield curve was not an important signal on its own.
On March 22 Bullard had this to say in a Wall Street Journal Interview.
MR. DERBY: So the argument, you know, we often hear is that this time is different and that, you know, there’s a lot of different sources acting in – you know, the long end of the curve had depressed yields, and so maybe the yield curve doesn’t mean what it used to mean. What do you say to people with the “this time is different” argument?
MR. BULLARD: Well – (laughs) – I myself made the “this time is different” argument in 2000 and again in 2006, and I was burned both times. And this made me think that the macro-forecasting community doesn’t connect very well with the asset-pricing community. And the asset-pricing implications of macro models are notoriously bad; I mean, they don’t match the data. And so the macro-forecasting group doesn’t like to get signals from the market that the market knows better than they do what the future of the U.S. economy is.
So what I have done is learn to respect this signal and to respect the empirical evidence that’s out there for the U.S. economy that yield curve inversion is an important signal and we need to take it seriously, even if it doesn’t match up with our models as nicely as we’d like it to. And that’s why I’m, you know, making a bigger deal out of this than I would have in 2006 or 2001.
Apparently it’s different this time and not different this time. By the way, the WSJ article was March 22. The don’t worry it’s temporary article is from March 28.
Interest Rates Too High
Although it’s premature to contemplate rate cuts, interest rates are now too high.
On February 21, CNBC reported Fed’s Bullard Says Balance Sheet Reduction ‘Coming to an End’.
“I think the message from my point of view is the normalization process in the United States is coming to an end,” the central bank official told CNBC in a “Squawk Box ” interview.
In particular, he said the December rate hike, which was the fourth of 2018, was a mistake and helped trigger a negative market reaction.
“I thought at the December meeting, myself I thought it was a step too far. I argued against that move,” Bullard said. “We did get a bad reaction in financial markets. I think the market started to think we were too hawkish, might cause a recession.”
Too Early to Reverse Mistakes
Apparently a hike was a mistake, but it’s too early to reverse mistakes. You have to like that pair of ideas.
But the key point of that article is the normalization process is complete.
Normalization Over
Bullard says “I think we’re in a good place today,” he said. “We had a lot of success. People said it couldn’t be done.”
Phew. That’s a relief. Count me among the nay-sayers who said it would never happen. I didn’t think they would ever do it.
But they did. Normalization is over and congratulations are in order.
No doubt, inquiring minds want a picture of this tremendous success. I can help.
Normalization in Pictures
This is the new normal folks. It’s a great spot and they said it couldn’t be done.
One of my readers accurately commented “It’s clear that the members of the FOMC are clueless in their outlook, yet they continue to micromanage the economy with unproven, newly minted monetary tools“.
I recently sent my list of questions for the Fed to Jerome Powell. Prior to that, I sent them to the Wall street Journal.
Neither responded. The Journal would rather conduct bullshit interviews, and the Fed would rather give silly speeches than address some thoughtful questions.
In case you missed it, please consider Hello Jerome Powell, We Have Questions.
Mike “Mish” Shedlock
Why should i believe the man who said that QE shouldn’t end, then turned around and said QE should end, when it did and Japan picked up the QE baton?
The Fed is institutionally designed to protect the Wall Street banks, consequences be damned. The public PR about stable prices and full employment is just a pleasant ruse designed to placate a largely ignorant populace.
With continued deregulation of the banking sector during the last few decades, it should not be surprising that the Federal Reserve itself has become a corrupt, morally bankrupt institution guided by equally morally bankrupt FOMC officials. These crony capitalists come from Wall Street or various ivy league elitist institutions. Being millionaires, or multi-millionaires themselves, the real economy is not their concern, and it never will be…until the Fed’s charter is revoked by Congress.
Deregulation is orthogonal to it. Any possible central bank, will always be “a corrupt, morally bankrupt institution guided by equally morally bankrupt FOMC officials.” Printing money is simply counterfeiting. There are no possible exceptions to that.
In a related story, clowns the world over are calling for Mish’s head on a pike for comparing FED governors to them.
They probably got them from Harvard. Only Ivy League graduates could be that stupid.
This is the result of inbreeding when you live in your echo chamber. It is time to nominate members from different walks of life, not just academics or pseudo-academics. These mental disorders are not just annoying, they are frightening.
As long as at least one of the members is a hair triggered nuclear device, and attendance at all meetings is mandatory, nominating different members just may lead to an improved outcome.
Otherwise, it’s just more of the same. After all, Stalin’s five year plans didn’t fail because Stalin failed to pick the right planners.
IMHO the role of these guys is not to manage the economy, it is to manage the expectations of the consumer, the less informed politicians and the investing community (at least those of whom buy what they are selling). It is all Kabuki theater.
It is the role of every thinking person to manage their own expectations and investments. I’m an amateur and that thought is frightening.
But, so far so good. I have been following the thoughts of Mish, John Hussman, and Wolf Ricther and others who are more clear minded than the official sources of prognostication. You have to carefully pick your oracles.
The stock market is up. The US dollar is king again. Gold is being dumped like yesterday’s trash. What’s not to love? As the Japanese have shown time and time again, this can go on a long time before it falls apart. Maybe another twenty or thirty years.
This is a good point because it’s become clear that the “market” will not crash of its own volition. Fake money can keep it afloat indefinitely.
The question now is when people start to rebel. The pitchforks and torches could come out with half the country on fire and the DOW would shoot back into the green around 3:45PM with a little help from the PPT.
One of my readers accurately commented “It’s clear that the members of the FOMC are clueless in their outlook, yet they continue to micromanage the economy with unproven, newly minted monetary tools”.
Added towards the end of my article
“Micromanage” is definitely not the right verb.
The Fed must be institutionally designed to select for clowns. In that regard, this time is never different.
They’re designed to be thieves. To steal from the productive, and hand the loot to the connected. It’s the lengths they go to, in trying to pretend they are involved in anything at all whatsoever, which makes them seem so clownish. Like catching a kid red handed in the candy jar, and listening to him trying to explain it away.
I think the clown phase is part of an organizations life cycle. I’m seeing many clowns in older corporations, the ones several generations removed from their founders. GE and IBM come to mind. Edison and Watson would never have made such bad business decisions.
You can laugh of course, but inflation is 2% and unemployment is under 5% and have been for what, 4 or 5 years? That’s their mandate.
And we can all be martians, if only we arbitrarily define martians to mean us.
There is no way out of this but to keep printing and monetizing. The dollar in some ways is too big to fail because it is the defacto reserve currency.
We’re at 15 minutes to midnight’: Citi predicts US recession this year.
-By Ambrose Evans-Pritchard
As the saying goes:
If one is in the ‘business of prediction’ predict more often! Some where along the way, one will be right and you hang on to that. And claim as if you saw the ‘future’
It’s clear that the members of the FOMC are clueless in their outlook, yet they continue to micromanage the economy with unproven, newly minted monetary “tools”
President Truman yearned for a “one handed economist”. This morning I was listening to Robert Shiller on Bloomberg and within the first 2 or 3 minutes of watching, he used the term “but on the other hand” 3 times. I think he covered almost all eventualities so that at some point in the future he can claim he correctly predicted whatever comes our way.
My biggest problem is that these guys simply won’t admit any failure or uncertainty, they want to maintain a facade of omnipotence and keen understanding of all aspects of the economy. Yet after years of monetary experiments all they can do is promise more of the same. There simply isn’t an objective review of their actions and the side effects of their policies.
We ourselves are to blame for turning over so much power and discretion to a small handful of academic know-it-all’s.
No one alive turned over power to the Fed. It happen so long ago in the dark of night that even now not many people understand it.
Agreed, although in recent decades the Fed’s mission has crept far beyond its original intent. It is now professedly micromanaging our economy and our markets, which is far beyond its mandate.
There is no oversight and not even an audit of Fed activities, probably for fear of what would be found.
Congress has the oversight responsibility, which they refuse to undertake. Unfortunately, congress is we the people.
” I think he covered almost all eventualities so that at some point in the future he can claim he correctly predicted whatever comes our way.”
There is no other way to conduct empirical “economics.” Since not one single part of economics, is in any way amendable to neither empirical refutation nor confirmation. A guy building a tornado shelter in Texas, will lead not one, but rather all, mosquitoes in Tokyo, and everywhere else including on undiscovered planets, to flap their wings in order to best take advantage of that change to their environment. And so forth and so forth.
So all you can do to impress the idiot army dumb enough to fall for the scam that “the economy” is, even in principle, manageable, is just be vague. Or you can make an educated guess, say the exact opposite of what you’re guessing, and have a 50% chance of being right. It’s no different than picking stocks: Completely irrelevant for outcomes whether you “invest” with the goal of making as much money as you can, or simply try your best to lose it all.
“I myself made the “this time is different” argument in 2000 and again in 2006, and I was burned both times.”
And yet he still has a powerful role at the Fed. I really believe that in exchange for wealth and power, you have to submit to being beheaded at age 55 to ensure that you can’t do any more damage. Let a new group of nitwits take over on occasion.
I predict by 2030, the FEDs balance sheet will be in excess of $20t. After a massive municipality and pension bailout.
….And Ron Paul will still have been “crazy” for wanting to put the end to the idiocy… Talk about a nation of nothing but an undifferentiated mass of well indoctrinated absolute idiots.