If there is any doubt as to the confusion inside the FOMC, one needs only to examine its models. The latest updated projections make a full mockery of both monetary policy and the theory that guides it. Ferbus and the rest don’t buy the labor market story, either, which is why the Fed can only be hesitant at best about “normalization.” Coming from the (neo or not) Keynesian persuasion, what is showing up should never happen.
The FOMC used to say that a hike would be “good news” because it represented great confidence that economic conditions were so good. Now the Fed wants us to believe that their dovish stance is good news as well, because it means greater levels of accommodations. It is a stretch to believe that both can be true. Financial intermediation between savers and investors has hints of trouble due to negative rates. A news story yesterday said that Munich Re is experimenting with storing cash and gold. The time has come to end NIRP and ZIRP, and other forms of aggressive central bank experimentation and the dangerous consequences that come with them. It time they take a giant collective BURP, I mean BIRP (Basic Interest Rate Policy).
Spain and Catalonia are locked in a hilarious staring contest over the latter's unpaid bank debt which Barcelona has essentially demanded that Madrid pay. If Spain says no, Catalonia may well just default, a move that would send yields on SPGB's through the roof. Of course if Spain does pay, Madrid is effectively subsidizing Barcelona's independence bid.
In the aftermath of the Fed's surprising dovish announcement, overnight there has been a rather sudden repricing of risk, which has seen European stocks and US equity futures stumble to roughly where they were when the Fed unveiled its dovish surprise, while the dollar collapse has continued, sparking deflationary fears resulting in treasury yields plunging even as gold soars, all hinting at another Fed policy error. So was that it for the Fed's latest intervention "halflife"? We don't know, but we expect much confusion today over whether even the Fed has now run out of dovish ammunition.
Santelli: Steve, could you understand any of it? Any of it seriously? Just a yes or no.
Liesman: Not much, it was not precisely responsive to the question i asked.
Tumbling US unemployment and surging US inflation is not what really matters to 'Global' Janet. She knows what happened the last time "market" expectations were so disclocatedly bullish relative to "economic" expectations... and doesn't want to be driving the current bus off the great-er depression cliff...
Be careful what you wish for - awesomely low unemployment (which is in no way misleadingly manipulated by a collapsing workforce) and surging inflation appear no longer as important as Brazilian exchange rates, Chinese equity volatility, or Japanese bank stock prices... unless of course all that "good" US data is just propaganda bullshit? We are sure at least one member of the press will ask the tough questions... though the last time someone dared to cross the line into actual reporting, they were blackballed...
"Federal Reserve officials reduced estimates of how much they expect to raise short-term interest rates in 2016 and beyond, nodding to lingering risks to the economic outlook posed by soft global economic growth and financial-market volatility."
Today Janet Yellen and the FOMC will go back to square one and try to reset global expectations unleashed by the ill-fated December rate "policy mistake" hike, when at 2pm the Fed will announce assessment of the economy, even if not rate hike is expected today. Just like in December the Fed will be forced to telegraph that it is hiking rates as a signal of a strengthening US, and global, economy where "risks are balanced" and hope that the subsequent global reaction will not be a rerun of what happened in January and February when confusion about the Fed's intentions led to a global market rout.
What made Europe and Japan agree that negative rates - with all their known and unknown consequences - are a solution to our current economic malaise?
Just last week, the BRL was riding high on news that former President Luiz Inácio Lula da Silva was detained in connection with money laundering. He was then charged with corruption by state prosecutors. The market hoped his arrest and possible prosecution would give momentum to the effort to impeach Rousseff. Then, in a dramatic turn of events, Rousseff invited Lula to accept a ministry post yesterday. Initially, reports indicated he would resist the idea of accepting, but that soon changed.
Caught On Tape: "Enormous Crowds" Of Unemployed Chinese Miners Take To The Streets, Clash With Riot PoliceSubmitted by Tyler Durden on 03/14/2016 15:54 -0400
The market is worried about China. Worried about growth, worried about whether Beijing can actually manage to pull off the transition to a consumption-led economic model, worried about the yuan, and perhaps most pressingly, worrried about whether a push to stamp out the excess capacity that's driving the global deflationary supply glut will end up creating an employment crisis. Here to 'reassure" you are People’s Bank of China Governor Zhou Xiaochuan and Xiao Yaqing, who oversees the government commission that looks after state assets.
"While investors focus on oil and the ECB, they overlook the largest current macro market risk – and opportunity – which centers on the Fed. Although our economists expect rates will remain unchanged, a credible argument can be made for the FOMC to proceed with the “flight path” it had previously outlined.... The market’s eventual acceptance of the Fed tightening path will spur some parts of the momentum trade to resume and others to unwind."