Minneapolis Fed President Expects Fed's Balance Sheet To Normalize... By 2020; The Parable Of The Fed And Sarah

Minneapolis Fed president Narayana Kocherlakota gave a presentation before the Minnesota Chamber of Commerce earlier today. While still following the party line, Kocherlakota continues to demonstrate out of the box type type thinking, which hopefully will push him into the Hoenig camp before it is too late. His biggest warning, which is inline with prevailing common sense arising out of the fact that the Fed's SOMA has a $1 billion DV01, is that Bernanke will have to sell "a nontrivial amount of its MBS holdings if it is to be able to normalize its balance sheet in the next two decades. Such sales might cause untoward jumps in interest rates unless the Federal Reserve is able to credibly commit to a sufficiently slow pace." Yet even Narayana does not see any normalization in the monetary picture until 2020: "I am optimistic that we will be able to normalize our balance sheet by the end of the teens." Which means, no rate hike until 2015 theearliest, and possibly later. And you all thought the Maestro was bad.

Fed Minutes: Hoenig Protests, Says Low Fed Funds Rate Extended Period "Not Advisable"

Mr. Hoenig dissented because he believed it was no longer advisable to indicate that economic and financial conditions were likely to warrant “exceptionally low levels of the federal funds rate for an extended period.” Mr. Hoenig was concerned that communicating such an expectation could lead to the buildup of future financial imbalances and increase the risks to longer-run macroeconomic and financial stability. Accordingly, Mr. Hoenig believed that it would be more appropriate for the Committee to express its anticipation that economic conditions were likely to warrant “a low level of the federal funds rate for some time.” Such a change in communication would provide the Committee flexibility to begin raising rates modestly. He further believed that making such an adjustment to the Committee’s target for the federal funds rate sooner rather than later would reduce longer-run risks to macroeconomic and financial stability while continuing to provide needed support to the economic recovery.

EIA Issues Short-Term Energy And Summer Fuels Outlook, Expects WTI To Average $81 This Summer, Sees Stock At 58 Days Of Cover

EIA's projections for West Texas Intermediate (WTI) crude oil spot prices have changed very little over the last five Outlooks even as spot crude oil prices continue to fluctuate on a daily basis. EIA expects WTI prices to average above $81 per barrel this summer, slightly less than $81 per barrel for 2010 as a whole, and $85 per barrel by the fourth quarter of 2011. EIA estimates that commercial oil inventories held in the Organization for Economic Cooperation and Development (OECD) countries stood at 2.67 billion barrels at the end of the first quarter of 2010. This level is equivalent to about 58 days of forward cover, and is about 69 million barrels more than the previous 5-year average for the corresponding time of year.

Guest Post: Quantitative Easing And Its Effect On Inflation And The Economy

The Fed's response to the financial meltdown was twofold: Interest rates were effectively set at zero, and the monetary base was increased 140%. While it is not known exactly what formula the Fed used to arrive at the 140% increase of the monetary base, the expansion from roughly 800 billion to 2.2 trillion roughly correlates with the asset backed securities since purchased by the Fed. Quantitative easing is nothing new, as between 2001 and 2006, Japan used QE to gradually increase the monetary base by about 70% in an attempt to spur loan growth and promote inflation. The extra liquidity provided by the Bank of Japan did increase lending and promote inflation, but once the liquidity was withdrawn, the deflationary pattern resumed. Apparently liquidity alone did little or nothing to promote long-term price stability.

BLS Releases Latest Job Openings Data, Number Of Unemployed People Per Open Spot Increases In February To 5.5

The number of unemployed persons per job opening has started to increase again, hitting 5.5 in February, as just disclosed by the BLS' most recent Job Openings and Labor Turnover Survey. In February, the total number of job openings declined from 2.85 million to 2.72 million sequentially. The job openings rate was little changed over the month at 2.1 percent. The hires rate (3.1 percent) and the separations rate (3.1 percent) were also little changed in February. Most importantly, there is no improvement in the rate of Hiring, which declined from 4.09 million to 3.96 million. Attached are the main charts of relevance along with BLS commentary.

US Military Releases Official Investigation Results Relating To Wikileaks Iraq Massacre Video

The US Military issues its official retort to the Wikileaks video. Here are the official US Army recommendations based on that episode:

I ratify the appointment of the investigating officer, MAJ [Blanked out]

The recommendation that:

-(10a) Members of the press be encouraged or required to wear identifying vests or distinctive body armor within the MND-B AOR is (approved) (disapproved) (remanded to the BCT Cdr).

-(10b) Coalition Forces be notified when members of the press are operating in their AORs is (approved) (disapproved) (remanded to the BCT Cdr).

-(10c) Condolence payments be made to families of the two children wounded in this engagement is (approved) (disapproved) (remanded to the BCT Cdr).

I remand the matter to the 2/2ID Cdr for appropriate action.

Morning Musings From Art Cashin

"While the pundits and the papers try to force fit the economic data to the market action, currency controlled again.

Quite simply, you could credit the better numbers in the ISM service sector and in Pending Homes sales for moving stock prices higher. With a little finesse you could even credit that data with sending crude prices higher (economic recovery, etc.).

It is less easy to credit that data with helping to push gold higher. Today’s rule of thumb is that if the Troika (oil, gold and stocks) is moving in the same direction, the catalyst is currencies. If the Troika is up, odds are that it’s based on a weakening in the dollar. Conversely, if the Troika is down, you can bet the dollar is probably firming.
Is that boring and frustrating? You bet it is! But it is the dominant force in today’s markets." - Art Cashin