The Fed's Bill Dudley just unleashed the most cognitively dissonant statement of his career. That superlative is highlighted by theses two headlines:
DUDLEY SAYS U.S. ECONOMY IS IN QUITE GOOD SHAPE
DUDLEY: DON'T SEE NEGATIVE RATES HAVING 'BIG CONSEQUENCE'
Try telling The BoJ's Kuroda that!!
It seems monetary policy is exhausted and the next exogenous lever to pull would be political fiscal initiatives. If/when they fail to stimulate demand, there would be only one avenue left – currency devaluation. If/when confidence in the mightiest currency wanes, we would expect the US dollar to be devalued too - not against other fiat currencies, but against a relatively scarce Fed asset.
In the fourth quarter, lending standards tightened for the second consecutive quarter. This is problematic because as DB's Jim Reid writes, two consecutive quarters of tightening standards "has never happened before without it signalling an eventual move into recession and a notable default cycle. Once we have 2 such quarters lending standards don't net loosen again until the start of the next cycle."
Futures Jump After Bill Dudley Hints At Fed "Policy Error", Warns Of "Significant Consequences" From Strong DollarSubmitted by Tyler Durden on 02/03/2016 09:37 -0500
"A weakening of the global economy accompanied by further appreciation in an already strong dollar could also have "significant consequences." I read that as saying we're acknowledging that things have happened in financial markets and in the flow of the economic data that may be in the process of altering the outlook for growth and the risk to the outlook for growth going forward."
- Bill Dudley
The Fed Vice-Chair has begun laying the groundwork for NIRP in the US.
Bill Dudley and the Federal Reserve (Fed), in their efforts to influence economic growth may have created a speculative and consumption driven environment that is crushing productivity growth. Ingenuity, not debt, made America an economic powerhouse. If we are to resume down that path we need the Fed to end their “self-defeating” policies and in its place we must demand ingenuity from them. The Fed, along with government, needs to properly incent productivity. The Fed should start this arduous task by removing excessive stimulus which will take the speculative fervor out of markets and allow asset bubbles to deflate.
In July it was 5, then in October the number rose to 8, and moments ago we learned that during the meetings on October 15 and 22, a total of nine regional Feds had asked to increase the Fed's discount rate from 0.75% to 1.00%, with Boston joining the St. Louis, Atlanta, San Francisco Fed, Cleveland, Dallas, Philadelphia, Kansas City and Richmond Fed. Two banks, the Chicago and NY Fed wanted to keep rates at 0.75%, while the domain of Fed's uber dove Kocherlakota, the Minneapolis Fed where former Goldmanite Neel Kashkari will soon operate, asked for a Discount Rate cut to 0.50%.
The Fed's Bill Dudley confirmed this morning why The Fed is so keen to raise rates no matter what - "liftoff will signal The Fed's confidence in the US economy." In other words, the 'con' continues... We have two simple questions - 1) Given the chart below, which 'economy' is The Fed confident in? and 2) What is The Fed going to say when they reverse the rate hike (as we have seen with every nation who has tried to raise rates since 2010)?
Following this morning's basic admission by Janet Yellen that "no matter what" The Fed is raising rates in December (which was then solemnly supported by an obedient Bill Dudley who "100% agrees with Yellen"), Fed Vice-Chair Stan Fischer, speaking tonight, reaffirmed this belief by, as we detailed previously, telling investors to ignore weak inflation. After San Fran Fed's Williams admission that "there's something going on here we don't understand," Fischer tonight admitted "US inflation is not as low as you think," at once contradicting Yellen's earlier comments and the various market-based measures, while confirming our previous detailed solving of the mystery of the hidden inflation.
The Federal Reserve was supposed to serve the nation, however as even Bloomberg observes today, ended up "steamrolling" Main Street. One reason why: directors such as this one. Presenting former Morgan Stanley CEO, James Gorman, whose former employer got a $107 billion loan from the Federal Reserve to avoid implosion.
As FT reports, "some of the European Central Bank’s top decision-makers met banks and asset managers days before major policy decisions, and on one occasion just hours before, copies of their diaries reveal."
The US Federal Reserve is obsessed with market reactions to its policies. Because of this, anytime the Fed plans to announce a major change in policy, it preps the markets via numerous leaks and hints… oftentimes for months in advance.
Perhaps it was the public shaming of Iceland's diametrically opposite approach to 'dealing' with its bankers, or perhaps Janet Yellen needs a distraction from her own 'Fed Leak' problems, or finally perhaps Carmen Segarra's 2013 whistleblowing over the cozy relationship between Goldman and The New York Fed was just too conspicuous to brush under the carpet. Despite Bill Dudley's insistence that The New York Fed is not a subsidiary of Goldman, The NY Times reports, federal prosecutors are preparing to announce a criminal case this week against a former Goldman banker suspected of taking confidential documents from a source inside the government.
Thanks, we presume, to a resurgent stock market (because almost every macro and micro fundamental data item has been a disaster), UMich Consumer Sentiment rose from 89.0 to 92.1, bouncing after 3 straight months lower. Both current situation and futures expectations rose (the former to near cycle highs). Good news right? Be careful what you wish for however, as The Fed's Bill Dudley previously noted this consumer confidence data is a must-watch for The Fed in its rate-hike decision-making.
The Fed's Bill Dudley is out on the speaking-circuit today and dropped some clangers during the Q&A. Initially proclaiming that monetary policy should be independent from politics he then admitted that "The Fed can't be completely walled off from politics." Then he spooked stocks with his comment that "actual inflation is not needed for confidence on the 2% goal," or roughly translated - we'll hike no matter what the data says...