Is This What The Long-Term 'Nominal' Stock Market Bulls Are Banking On?

Tyler Durden's picture

The Fed is set to become considerably more dovish in 2013 and beyond as Evans and Rosengren become voting members. It seems unlikely that any new 'Bernanke' would drastically alter the Fed's path; and so we present the 'Doves' path to prosperity (in nominal terms).


'v' is for voting members...

Chart: adapted from Barclays


Via BofAML:

The rise of the doves means Fed policy should stay easy even if the data continue to show improvement.


Over the past several weeks, the markets have focused on who might succeed Chairman Bernanke once his term as Fed Chair expires in January 2014. With President Obama winning re-election, we expect continuity in Fed policy in 2014. Meanwhile, as the end of the year approaches it is worth noting that the 2013 FOMC could be one of the most dovish in some time. Thus, market participants should be careful not to price out further Fed easing on somewhat better data.


Doves rule the nest


Four of the five voting positions on the FOMC rotate among the regional Fed presidents. The president of the New York Fed is a permanent voter, by virtue of being the ex officio vice chair of the FOMC. Current New York Fed President Bill Dudley skews to the dovish side. He will be joined in 2013 by two über-doves: Chicago’s Charles Evans and Boston’s Eric Rosengren. Evans was an early proponent of quantitative “thresholds” for interest rate policy; recently, other Fed officials (such as Rosengren) have supported that approach for asset purchases as well. These two also favor focusing on achieving a substantial labor market improvement, which portends easy policy throughout 2013.


Joining Evans and Rosengren are two presidents to the hawkish side of the spectrum: St. Louis’s James Bullard and Kansas City’s Esther George. Note that we know a lot about Bullard’s views, as he speaks regularly; George has given very few speeches to the national press and so her perspectives on monetary policy remain a bit of a mystery. Bullard is interesting because he was an early advocate of taking a flexible approach to the balance sheet — but may not support further expansion under current economic conditions. He has long opposed putting much emphasis on forward guidance. Neither is likely to be quite as hawkish as Lacker this year, or Fisher and Plosser the year before, but one or both may dissent more often than not. But they will remain a distinct minority.


A gaggle of governors


The governors also retain a dovish bent, as Bernanke and Yellen have recently been joined by Jeremy Stein, a fellow academic who supports further Fed support for the economy. The remaining Governors have backgrounds in something other than economics. Daniel Tarullo and Sarah Bloom Raskin have consistently supported the majority; to date, so too has recent appointee Jerome Powell.


The 14-year appointment of the seventh Governor, Besty Duke, ended early this year. She has stayed on to allow the Fed to operate with at least five Governors since the start of 2012. President Obama is now likely to appoint a replacement next year. Moreover, should Chairman Bernanke decide to retire, President Obama would fill a second position in his second term. Two appointees in a four-year presidential term is actually fairly low historically. Bernanke and Duke are the last Governors not appointed by Obama, but most presidents have appointed a majority of Governors during their term in office. Yet as the Fed now places more emphasis on forward guidance, long-term targets, and communications, the impact of these appointments may persist beyond 2016.


More immediately, the doves largely support the idea that policy should be kept easy “for a considerable time” after the recovery is underway. Market participants thus should be cautious not to overreact to better near-term data: the Fed isn’t likely to turn notably more hawkish any time soon.

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Fredo Corleone's picture

"Doves versus hawks"..."Republican versus Democrat" -- there is no longer a distinction. All are appendages of the State; as such, regardless of who is installed as Bernanke's successor or which party controls Congress, those fiscal policies which most benefit the State shall be enacted.

Cursive's picture

Money growth should be tied to population growth.  No more, no less.  This avoids the problem of hard money and easy money.

flacon's picture

That might encourage the government to legalize illegal immigration ("Free social security cards for anyone who wants one"). 

Cursive's picture


Encourage?  More than currently?  It's safe to say that "undocumented" aliens are already welcomed by our loving leaders.  Moreover, why would we let immigration policy determine our monetary policy?

WhiteNight123129's picture

Cursive, there is nothing you can do to prevent people to speculate. But you do not have to bail them out. When you have a convertible currency, the guys swimming naked go in debtors prisons. So if there is legitimate good credit, or large increase in good bills self liquidating why the hell would you prevent that? You let people take them responsibility but you make the price for irresponsibility very high and you do not have teh depositors bailout the entrepreneurs through money printing.


Kamehameha's picture

A pillar of the American society: The Federal Reserve Board.

How could we exist as a nation without them?


Everybodys All American's picture

they are all doves if Bullard is considered a hawk.

max2205's picture

No hike till Dow is at 26,000. I guess that makes cents

spastic_colon's picture

policy should be kept easy “for a considerable time” after the recovery is underway.....this was merely to keep the markets from selling off on good news

ytraderx's picture

John Paulson lost big time on his German bund trade. Complete analysis here:

chump666's picture

Mario is a smug f*cker.  The German DAX right now has that Wiemar feeling.  Europe will blow apart on inflation and riots, secured for 2013


davidsmith's picture

There's $40 trillion more to steal before it all collapses.  On what date will that collapse occur?

khakuda's picture

WTF does it matter, it's game over.  Three months after QE3 they are announcing QE4 because they need the stock market to go up even more so rich people feel wealthy and they can tax them even more to give the money to everyone else.  15% on the S&P this year isn't enough for them, nor is a doubling off the lows.  They want a full scale bubble yet again because, hey, it worked so well the last few times.

They should just be honest and say:

1.  We really don't give a shit about unemployment or inflation.  Our real goal is to avoid a deleveraging of the $55 trillion in credit market debt at all costs and to see that total debt continue to rise at double digit rates ad infinitum.  Additionally, we are here to provide completely free money to Congress to continue indebting our formerly great nation.  We will buy every bond they issue and then return the coupon interest back to them, thus "reducing" the deficit.  Hahahaha.  Good thing 98% of Americans are financially illiterate and keep falling for ponzi schemes.

2.  Our goal is to debase the dollar more than any other currency is debased.  That will cause nominal asset prices to rise as the currency becomes worthless.  People will think we are doing a good job.  Maybe our exports will even rise, not that we really care.

3.  When it all blows up, we will blame banks, greedy millionaires who make over $50,000 per year, evil speculators, some dictators somewhere.

4.  Our bad policies caused tuitions, housing and healthcare to be unaffordable.  Since we were so successful with these, we will now try to cause general inflation levels to skyrocket to raise the price of everything else so that people can't afford anything.  We actually don't really care about that.  We want nominal prices to rise to make it easier to pay off the nominal debt.  Nevermind that the debt will keep rising anyway as a result of our bad policies, because the tooth fairy will arrive at some point and the "strong" economy we are engendering will solve all the problems.

5.    Don't believe everything you read, the story of Weimar Germany was just a fable like Rumplestiltskin.  Those crazy Germans, they're just hilarious!

disabledvet's picture

All I have to do is see the people actually RUNNING the White House to be bullish. Don't get me this guy...I know what's in his heart ("my people") and what's in his head ("I'm President now phuckers!")...but Lincoln...and Bill Clinton...moved the ball forward not by talking about what divides us but unites us...and there is a FUNCTIONAL reason for that. Unlike the President "Governments are dumb." In other words..they operate on consensus and the "Rage Against the Machine" which I understand when overlaid by the State "simply does not compute." what does compute is "insurrection" to which I default to the famous Angeleno who said "can't we all just get along?" and indeed...are We the People really this far apart? Or does the Dow need to hit 20,000 before we look in the mirror and say "shit, boy am I being played"?

Savyindallas's picture

Lincoln united us? By killing several hundred thousand southernors and buring down , raping an pillaging the South? But I'm sorry  -you aid he "talked about uniting us"  -kind of like the orwellian double speak we have coming from the Ministry of Truth to tell us how free we are by setting up the police state

max2205's picture

Get on the fucking chumwagon and let's ride dog!

cxl9's picture

Paul Krugman for Fed chairman. Bernie Madoff for Treasury secretary. That's the only way we keep this bitch afloat for another ten years.

petolo's picture

cxl9! Can't you find room for Jon Corzine on the platform. How about in the accounting department or guarding gold (tungsten ) at Fort  Knox?

Mike Cowan's picture

The financial system will collapse before they tighten. They will never tighten except in some strange "bulb burn out" moment at the end. We are past the point of no return. I could hate them, but I don't. I would rather heroin addicts run the Fed . . . oh wait, they do.

ekm's picture

There's no such a thing like VOTING in a central bank, any central bank. The chairman is the decision maker who takes orders from the minister of finance or treasury secretary who takes orders from the prime minister or president. The so called voting is just for appearance of democracy.


It has been like this, it is like this and it will be like this.

In England the press mocks the BOE board members as "yes men".

Most board members of the Fed are academics who care only about speech fees and retirement income plus hubris.


This is the procedure:

- Obama tells Timmy G what to do.

- Timmy G tells Benny B to jump

- Benny B says: How high?

- The little mice will do what the big rat says.


AynRandFan's picture

Of course this is the bullish case. It is only certainty there is. The Fed is trying to reflate the only truly domestic manufacturing sector, namely construction and real estate. Everything else is secondary.

q99x2's picture

Birds of a feather...

They are not birds. Thay are human financial terrorists of the demonic kind. The FED is an institution of insolvency now. It is the black hole of the monetary system physically located in the United States. By corrupting the politicians through violation of natural law the institution of the FED has committed acts of treason against the people of the United States of America. The FED is way not cool. If they are birds then they should migrate. The bond bubble is starting to blow. Mark Carney has fired up the printers in London.

Holy smoke hope there is some truth about the rumor that the Rothschildes have stolen 500 trillion. Looks like they are going to need it.

MagicMoney's picture

That Rosengren guy is more of a extremist than Bernanke.

DavidC's picture

FURTHER Fed easing?! Omigod!