Fed Up With The Fed- Follow Up
Follow up from Peter Tchir of TF Market Advisors
Well, the statement was more dovish than I thought - leaving in the extended period language, offset only a little by a slightly more direct reference to inflation. This was the first sign that the conference would be positive for stocks. As soon as it became clear that no questioner would really be allowed any follow up questions, the Q&A took on the 'Does this dress make me look fat?' tone. A few reporters tried to ask some tough questions, but the format made it far too easy for the Chairman to avoid answering in any great detail.
There are a few useful takeaways from the conference:
The Fed over-estimated growth and under-estimated inflation in January, but now they have it right. Hmmm. Its seems like their estimates are as much what they hope for as what is likely to happen.
I learned that the man who sets interest rates and prints dollars has nothing to do with creating a 'strong' or 'weak' dollar. I'm still scratching my head, as I would have thought interest rates and supply of dollars had more impact on exchange rates than the Treasury Secretary saying he supports a strong dollar, but clearly I'm wrong on this.
Transitory is a great word and applies only to bad things the Fed wants to go away. Inflation - transitory. First quarter weakness - transitory. Hmmmm.
The vote was unanimous. I keep hearing this is a strong indication that everyone backs the policy. To me, it just means there is no point listening to any other Fed governors speak as in the end they will all do what the Chairman wants. If there ever was a time that the vote was meant to be a real vote that is long gone and the Fed is clearly a dictatorship at this point.
I was disappointed that they did not push out their target maturity. I'm also disappointed they rarely mentioned rates as a sign of the success of QE2. In fact, it became clear they viewed stock market rally and to a lesser extent, credit spread tightening as measures of success of failure. So in spite of their stated goals of economic growth and employment, their hidden goal of dollar weakness, their stated metrics are now asset prices. It seems clear that the stock market can rest assured that the Fed is vigilant and will do what it can to support the stock market. With stocks now at multi year highs, but the deficit and unemployment remaining high, I would have hoped he would have less focus on stocks. He doesn't, so clearly have to be very careful betting against stocks while Ben has free rein.
In the meantime, European sovereign debt remains relatively weak, though we continue to see the outperformance of CDS relative to bonds. I'm still not sure exactly why, but the divergence bears watching.
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