Hilsenrath Confirms Fed Angry At Itself For Making "Market" Too Risk-Free

Tyler Durden's picture

While the last 2 weeks have seen numerous Fed heads, most vociferously Bill Dudley, warning of 'complacency' in markets, fearsome of low volatility and worried about low risk spreads. Of course, investors don't care - don't fight the fed unless the fed tells you to sell, appears the mantra-du-jour. Fed communications are not working... and so they have left it to their mouthpiece - WSJ's Jon Hilsenrath - to explain that they are indeed concerned at just how risk-free markets have become..."Federal Reserve officials, looking out at mostly calm financial markets, are starting to wonder whether tranquility itself is something to worry about."

As WSJ's Jon Hilsenrath explains,

Federal Reserve officials, looking out at mostly calm financial markets, are starting to wonder whether tranquility itself is something to worry about.


So far this year the U.S. economy has suffered a brief economic contraction, the Fed has begun winding down a major bond-purchase program meant to spur growth, the Obama administration has clashed with Russia over its annexation of Crimea, China's economy has slowed and the Middle East has become a cauldron of civil strife.

"Markets" don't care...

Yet, looking at Wall Street stock and bond trader screens, the world looks like a model of stability.

The Dow Jones Industrial Average, up a steady if unspectacular 1% since the beginning of the year, has consolidated big gains registered last year. Yields on 10-year Treasury notes have fallen even though inflation—which typically sends bond yields up—has been inching higher from very low levels.

Other measures of risk aversion and market volatility show an especially striking sense of investor calm. The VIX, which tracks expected stock-market fluctuations based on options trading, has gone 74 straight weeks below its long-run average—a run of steadiness not seen since 2006 and 2007.

Moreover, the extra return that bond investors demand on investment-grade corporate debt over low-risk Treasury bonds, at one percentage point, hasn't been this low since July 2007. The lower this "spread," the less risk-averse are bond investors.

The Fed is worried...

The worry at the Fed is that when investors become unafraid of risk, they start taking more of it, which could lead to trouble down the road.


"This indicates a great deal of complacency," Richard Fisher, president of the Federal Reserve Bank of Dallas, said in an interview. "When you get complacency you're bound to be surprised at some point."

But it's the Fed's fault...

The Fed has given root to the sense of calm by offering investors assurances that interest rates will stay low far into the future. Its policy statement says officials expect to keep short-term rates near zero for a "considerable time" after the bond-buying program, known as quantitative easing, ends later this year.




"It is a problem of their own making. They can't have it both ways," said Martin Barnes, chief economist at BCA Research, an investment-advisory firm. "If they want to sustain zero interest rates and push up asset prices, how can they expect to have that with no excesses and no risk taking?"




"I cannot tell you for sure when this does get unwound," Mohamed El-Erian, former chief executive of the bond fund Pacific Investment Management Co., or Pimco, said in an interview of the recent period of market calm. "When it does we are going to be reminded of what happened last May and June."




"My concern is that keeping rates very low into late 2016 will continue to incentivize financial markets and investors to reach for yield in an economy operating at full capacity, posing risks to achieving sustainable growth over the longer run,"


"we are very pleased you all benefitted from the irrational surge in stock prices, and plunge in corporate bond spreads but it's got a little out of hand and we'd like you all to form an orderly queue and leave the building... do not panic"

So - how does the Fed fix this problem? We suggest QE-Next should monetize VIX futures.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ParkAveFlasher's picture

I will stagnation, I will volatility.  Because Benyellen.

kliguy38's picture

jon hilsendipchit.......watta douchebag

Arius's picture

do not be too hard on yourself people ... you tried your best!

Headbanger's picture

Good.  Maybe the Fed will commit suicide finally.

wallstreetaposteriori's picture

Its time to '87 this market...  #realityisabitch

Oracle of Kypseli's picture

He has no credibility this guy.

BTW: "Rehash Lint" and 'Renal Shhit" are both anagrams of his name

Relentless101's picture

Spineless bastards would never have dignity. No matter. People will soon realize their true colors. Better hit home depot. I'm getting low on nails...

Headbanger's picture

OK... But STAY AWAY from the DeWalt isle there! 

Cause you don't want to get any ideas about using this thing:



Aknownymouse's picture

I bet they stop all QE in june meeting. Here. Vix > 20 instantly.

venturen's picture

THEY HAND OUT $4 TRILLION to the Friends of OBAMA and WALL STREET  and they are mad..... WTF!

NYPoke's picture

$4 Trillion don't buy what it used to.

RaceToTheBottom's picture

Actually they are saying that it does.  You just have to substitute pink slime for the steaks that you used to eat.

NYPoke's picture

Which is still a step up from Solient Green...which is scheduled for QE4.

NidStyles's picture

Of course they are mad, they couldn't get the masses to buy into the Krugman theory to give them MOAR. Then they brought out this Picketty fellow as their new spokeperson, and that flopped rather dramatically... 

Sudden Debt's picture

Not mad... just Ooopsy like

But they can fix it. Just let silver and gold tripple in a few weeks AND THAT WILL TEACH THEM!!!! WHOEHAHAHAHAHAHAHAHA!!!!

AccreditedEYE's picture

They can't pull out now! They pushed grandma and grandpa out into risky investments... No way they pull the rug out. They are trapped.

Al Huxley's picture

Yeah, they'd never fuck grandma and grandpa over, they care too much.  That's their problem, always thinking about others, never taking enough time for themselves.

AccreditedEYE's picture

Remind them that the market is supposed to climb a wall of worry. Fixed.

JustObserving's picture

He forgot to report the Fed constantly popping Champagne corks to celebrate its control of gold and silver.

To call the Fed criminal is to insult all of the run-of-the-mill criminals

earnyermoney's picture

Interesting link from jesse's site.




Seems the banksters are angry at the Chinese for violating the "rules".

Obama_4_Dictator's picture

We chinesee, We play joke, we don't want your federal reserve notes.....

SoberOne's picture

Me American,  me so smart, me put tungsten in Chinese gold heart.

Kaiser Sousa's picture

dont trip...

paper Silver and Gold is all they got...stay the course and ignore the paper charade...

DarthVaderMentor's picture

It was a beautiful, gorgeous sunny day at Pearl Harbor as the Japanese warplanes came rolling in.........

shovelhead's picture

...and nobody saw it coming...

Everybodys All American's picture

All they have to do to pop this misperception is begin raising rates with an emergency meeting this week. Yeah that'll happen. lol.

ptoemmes's picture

Meanwhile, it's around 3:30PM and I do detect a slight uptick in the market indices. And, it is Tuesday after all.

Honey Badger's picture

QE was done to help banks.  Now volatility is too low and is hurting banks.  hmmm, I wonder what is in store for the "markets?"

SheepDog-One's picture

Yep, getting tough to shear a good profit from the sheeple anymore, that's all the Fed is really concerned about.

madbraz's picture

I don't buy this BS. If Bill Dudley wanted to put breaks on the market, instead of conspiring to push it higher, the NY Fed wouldn't do 100-200 billion in reverse repos that are used by primary dealers to short treasuries, not to mention give $4 billion more in securities lending today to a primary dealer(s).

Al Huxley's picture

Then why don't they buy back some of that volatility they've been selling, and spice it up a little?

kurt's picture

Hubris, look it up.

nosoeawe's picture

the Fed is concerned about

1. how to further kill employment, babies, and american citizens

2. how to ease the pain during a good bankster anal raping

3. how to take better selfies with sports and hollywood stars 

4. how to tape back them ears so the wind doesn't blow the  jihadist in chief back to kenya

5. how to counterfeit and launder 350 billion via their belgium connection

a risk free market is the least of the albino midget's worries

Rainman's picture

and then we gots Europe with the lowest bond yields since the days of Napoleon. Stay calm, citizens !


jubber's picture

Dutch bonds hit a 500y year low !

jubber's picture

Wow the S&P is back to the HOD....no one is listening, Dow almost green on the day as well, ...Nikkei 15k+ from <14k less than two weeks ago, FTSEMIB <20k  on the 19th May, now up 1800 points since then, DAX up 1000 points since 15th April  party on

Dr. Engali's picture

Stupid fuckers. What are they going to do, pull the BernankenYellen put? Fuck no, because the moment they do the "market" will vaporize. No they won't just pull the plug , what these people need is an event, and that's what scares the hell out of me.

shovelhead's picture

What would you like...

We got jihadi's, Neo-nazi's,and some Ayatollahs on tap...

Oh and a nice Chinese brew as well.

Take your time.

SheepDog-One's picture

Something 'no one could have ever seen coming' like 9-11 of course we know they always see them coming as Snowden pointed out the gubmint knew all about that well in advance.

Bryan's picture

The tragedy is that they MUST have known all of this back when they started the whole QE-infinity thing.  This cannot be a surprise that the market has leveled out and become calm as the heroin is continuously pumped in.

sschu's picture

Oh look, we created a bubble.  Gosh, we never wanted that so if we say we are angry and upset about it, maybe some will think it was not intentional.

The insanity never seems to end right now.

The gallows should be in some of these folks future.


buzzsaw99's picture

the fed likes bubbles, and they like complacency. what they don't like is ultra low volume in trading. that hurts their butt buddies the big banks.

SheepDog-One's picture

What's wrong, Fed? U mad @ urself bro?

QQQBall's picture

yes, but better than doing nothing.


undercover brother's picture

sad that politics and wall street have corrupted even the fed. but it's no surprise considering the fed was formed by bankers in order to protect their own banks. either they're book stupid or they're criminals. you pick.

shovelhead's picture


That's a tough one...


Still thinkin'....

Everybodys All American's picture

In light of the recent Russian and Chinese deals and the lowering need for US dollars and hence US debt be coming home to roost. Hence might then also the reality of the dollar's reserve currency status coming apart actually affect these sociopaths. Sure hope so but I would not hold my breath.

SharkBit's picture

Here's a tip.  Stop manipulating Gold and then see just how the market really BTF Story.

Bemused Observer's picture

"How does the Fed fix this problem?"...LOL!

They DON'T (can't).