The Fed Has Shifted Gears… And the Markets Aren't Paying Attention

Phoenix Capital Research's picture

As we noted earlier this week, the Fed is growing increasingly concerned of a bubble forming in the financial markets. Previously we noted that Janet Yellen was issuing warnings regarding this.

Now St Louis Fed President James Bullard is saying the same thing.


St. Louis Federal Reserve Bank President James Bullard said Thursday that the key risk for U.S. economy would be a bubble forming as the central bank removes monetary-policy accommodations, while he also raised concerns about financial stability in the U.S. economy.


"I don't see a major bubble right now, but one will form as we are trying to remove the accommodation in the years ahead, because that's what exactly had happened in the 2004-2006 period," Bullard told the Credit Suisse Asian Investment Conference in Hong Kong. "I do think that's a key risk going forward," he said.


Bullard related the risk to the situation in 2006, the housing prices had already started to peak at the same time as the central bank was in a tightening cycle. "Just because you are moving away accomodation doesn't mean the risk of bubble forming is going away," he said.


Bullard also emphasized that financial stability concerns are "looming large," as policy makers are thinking about how to accommodate those concerns. He said macroprudential tools, which have been strengthened, can be used to address emerging bubbles. Bullard is a non-voting member of Federal Open Market Committee this year.


Granted Bullard is a non-voting member, but his sentiments are beginning to echo throughout the Fed in general.


To whit, Bill Dudley, who is Fed President of the NY Fed and possibly the single biggest dove at the Fed, made a speech yesterday. Instead of issuing the usual “the Fed should print more money mantra,” he actually commented:



In my view, the fact that our large scale asset purchase programs affect the size of term risk premia globally is important.  This set of monetary policies affects financial asset prices in a different way compared to changes in short-term interest rates, and we should be humble about what we claim about understanding the importance of this distinction…  There is, of course, the argument that Fed policy has been too accommodative for too long, creating risks for financial stability worldwide.


Bill Dudley is never going to say that the Fed has made mistakes or created bubbles. So the fact that his comments indicate that he is thinking about financial stability is highly significant.


These kinds of changes in Fed policy are never blatant. You have to dig deep to find the hints that are being dropped. And it’s clear the markets have yet to fully digest these shifts in Fed tone.


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Best Regards

Phoenix Capital Research







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Philalethian's picture
"And the Markets Aren't Paying Attention"

To that the unadvised, uninformed, unaware, unwilling, unknown, uncertain, unintended, uneducated, expecting, and uncaring say...we got better intelligence.



Hovel Downs's picture

I used to wonder how I would answer my children when they asked how it all slipped away.  You know, talk about democracy, freedom shit like that.  Too late I realized they're going to ask where I hid all the .22's, cause they were so cheap and plentiful ya know.  Got to go out and buy some tuna fish. Fuckers  

Hovel Downs's picture

Blame the savers

blame the speculators

blame the pet owners for buying cheap dog food

gun owners for paying ahead for ammo, cause it's not booked until its delivered, oh your orders been cancelled.  Can we interest you in some exploding targets?  Fuckers

TrustbutVerify's picture

The crutch for the economy of the last decades has been spending borrowed money.  The totals accumulate.  More recent crutches have been more spending of borrowed money and "QE," printed money.  The totals accumulate.  At some point we just have to take our medicine.  

TheReplacement's picture

'We blew a huge bubble that is going to pop at some point as we tighten.  We are going to blame the markets for this.'

That's what I hear when I read that article.

buzzsaw99's picture

the fed has zero credibility therefore nobody believes that they will tighten

DerdyBulls's picture

"Deposits at the commerical banks are rising probably because investors think the Taper is going to cause a correction soon."

Underwriting guidelines are loosening for commercial real estate loans and sub-prime is ramping up again. Gotta have some folks to buy high to help out the 1 percenters, no?

Comte d'herblay's picture

How do you know a FED or governmental official is lying?

EVERYONE knows this answer, so why does Phoenix get to quote these lying, obfuscating, mealy-mouthed, confabulating, double-talking, silver tongued corrupt from their tippy toes to the high spot on their baldheaded noggins?

the grateful unemployed's picture

the fed has no clue about depressionary policy, (deflation) other than to keep pouring money into the hands of investors who don't really want the commodity, (ersatz speculators) but they need to put the money where it won't evaporate. the deeper the correction (in theory) the more money the fed makes available to these reluctant speculators and the more they buy and take off the market (like china and copper for instance) the more scarce these things become. gold drops to $1000 and there is none to buy. (same depression result only now you have handed the economy over to speculators, not savers, not investors, but currency hedgers) if you are buying gold on the way down, you certainly aren't selling it, and everyone is buying it on the way down. their fear should be that this spreads to vital commodities, food and energy. already you see hedge funds buying and storing oil, if obama wants to sell it out of SPR they'll buy it and store it. in the first depression onions weren't worth the cost to store them. the bag cost more than the onions, and there weren't any. farmers turned crops over in the field and they'll do it again, because these guys just aren't that smart.

AdvancingTime's picture

What I like about numbers is that when they are not jockeyed, jerked around, and falsified they tend to tell the truth. Looking down the road the numbers do not work. Allen H Meltzer is viewed by many economist as America’s foremost expert in monetary policy, Meltzer is the author of the three-volume “A History of the Federal Reserve.”

For over 25 years Meltzer chaired the Shadow Open Market Committee, a group that meets regularly to discuss the policy of the Federal Reserve. At 85 his mind is clear, but his mood cloudy. “We’re in the biggest mess we’ve been in since the 1930s,” he recently stated. “We’ve never had a more problematic future.” More on the views held by Meltzer in the article below.

nightshiftsucks's picture

Read the article,the joke is that they talk about exporting our way out of this mess.Isn't that every countries plan ?

Grouchy Marx's picture

When you are sitting on a bubble and it is big enough, why the world looks flat...

I Write Code's picture

I'd be really concerned about this if I could make any sense out of it, I think it's just some generic words of concern - when they're really afraid to say what they mean, which is only what we all know, that they can't keep it up, and they can't stop it, and so watch out belooooooooow!

AGuy's picture

I could be right or wrong but here are some potential reason for the Fed change:

1. The US is nearly out of gold to contain the value of the dollar. The US was to deliver 50 tons of the 1500 Tons it owes Germany. The US barely managed to hand over 5 tons instead of 50 tons it promised.

2. Back in December China stated that buying US treasuries was no longer in its national interest and has been a net seller ever since.

3. Many of the countries that the US runs large trade deficients are setting up trade settlements in non-dollar currencies, China-Brazil, China-Russia, Brazil-Russia, Just in China-Germany.


Could it just be that they realize that the dollar is become an endangered currency?


whidbey-2's picture

You are wrong.


The dollar is NOW a failed currency by virtue of having the Fed in the hands of those who kow-tow to the money center and commercial banks, or never saw a working bank. as a business operation. No in - betweens are at the Fed. 

 The central bankers are scared to death of how one un-tangles the  Feds Balance sheet without destroying the credibility of the Fed and the dollar at the same time. 

Do not trust the Chair. Yellen is a hanger-on to make the FED seems nonsexist, urbane and experienced, but she is also gutless, feckless, and boring as a spokesperson. (so much for window dressing)  The Credibility of the central bank is more important than its paper assets. No one believes the Governors of the FED are credible anymore, and most are starting to realize the dollar is worth only what the economy produces in hard goods and services annually, and if that can not be sold to end consumers, even the production of goods and services means very little. (Look at China). Look at the German-China yuan trade agreement - they both dislike the dollar and any deal to hang on longer is "OK" (but, only for a while before the deal starts to stink - besides it Just business, nothing personal!)  Such trade partners, we should be so fortunate.

Observers ,citizens and investors have very little time to get braced for another recession in a land where few citizens trust any central policy maker. We should be nervous about now. We have seen this movie before and know how it ends.



AGuy's picture

"You are wrong. The dollar is NOW a failed currency...  The central bankers are scared to death of how one un-tangles the Feds Balance sheet without destroying the credibility"

Huh? Then you agree with me.

Spanky's picture

"I don't see a major bubble right now, but one will form as we are trying to remove the accommodation in the years ahead, because that's what exactly had happened in the 2004-2006 period," Bullard told... -- Phoenix Capital Research

That's an interesting perspective -- bubbles don't form until the stimulus is removed. Or, in other words, QE doesn't cause bubbles because overvaluation will only become a problem after the FED closes the tap (and it pops)?

lucyvp's picture

Play the game, what can they say, any time someone makes a potent public statement.  Could Bullard say, "we are in a bubble and we are shutting off the juice."?  No he cannot.  I used to work for a large fortune 500 company.  Given the cash burn rate I estimated 30% cuts to expenses were needed or trouble in 1 year.  I was invited to an ask the CFO meeting and posed my question.  He scoffed and said no way.   Guess what one year later 20% head count reduction, BK filing.  Could that man say we are up sh*t's creek?  No.

Hovel Downs's picture

I dont get it either.  It appears to be a new meme.  Bizarro economics. Can sheep even believe this?  

dracos_ghost's picture

It's a rush to the exits when the accomodation is pulled off. Gotta grab that last cheese puff before they're all gone. It's like real estate and the "buy now why rates are low" syndrome. Never mind that rates are low because asset stability sucks and they're afraid of deflation. Nope, money is cheap and I'll get a great deal -- or even better low rates let me buy the house at a premium with no risk. Let's not forget for bankers it's "Sell High, Buy Low".

And do you guys think this disaster of bank stress tests isn't foretelling TARP II? With all the $$ put into the banks since TARP, anything less than 30 out of 30 banks with stability for the next century is a fail.

tradewithdave's picture

Yes, however "exits" are no longer measured in "quantity" of inches wide but rather in "quality" of your confidence that you can get through it.

Hovel Downs's picture

Deny there is a bubble.  If non-existant bubble pops... then the bubble was obviously caused by tapering. In a sick way its true, because we all knew that tapering (failing to continue QE to infinity) would blow the shit out of it.  Can they really sell this?  

Charles Wilson's picture

Meanwhile, back at the ranch, Buffalo Janet...

Is busy bustin' out M1 and M2 like there's no tomorrow.


The spike that you see at the far right of the M$ chart coincides with Yellen's Decent into Hell almost to the day.

AGuy's picture

The rise in M1 may be the precurse to the stock market bubble popping as investor move to the sidelines. Small Deposits continue to contract, meaning the non-wealthing are drawing down savings. Deposits at the commerical banks are rising probably because investors think the Taper is going to cause a correction soon. Its when the deposits (earning next to nothing) start dropping that inflation coming back as people convert dollars into something that retains value.

I don't think Yellen is going to get medevial on the dollar until there is major correction in the market. Maybe starting in May/June?


kaiserhoff's picture

Thanks, that expains why the curve is flattening.  Can't resist the urge to play god, the nasty little motherfuckers.

Tylers were right about the taper, though.  Sometimes, failure just busts you right in the chops;)


disabledvet's picture

"Hitler kept rates low."

Exceptionally low...for an extended period actually.
But even He had to have his War with Russia.

Unlike how that one started this one looks more like a gaggle of drunken hookers fighting over sidewalk space.

(Fwi I really do find making these really awful things to say hard to do. I mean I really have to think to actually make my words sound this bad. And of course if you don't find 'em funny...that's good...because they're about as funny as War with Russia!!!!!!!!)

TheReplacement's picture

You are wrong.  They are very funny compared to a war with Russia, even if we were to win decisively.