The Next Move For The Fed: "Trial Balloning" QE4

Tyler Durden's picture

Submitted by Dominique Dassault of Global Slant

The Next Move For The Fed: "Trial Balloning" QE4

With the idea of a Federal Reserve interest rate hike quickly fading the only real question left to ponder is what is their next move…if any?

Before that question is answered let’s consider the current economic environment in the United States. First of all Q1 GDP is likely to be much softer than current expectations. Most of the economic data point to it i.e. throw a dart at the Q1 economic calendar and you are sure to hit a soft statistical series. Key to this trend is the $88B Q4 inventory build that is not being depleted. Wholesale and business inventory data from Q1 are sluggish which is not entirely unexpected. More importantly though, Q1 wholesale and business sales are dramatically lagging this anemic inventory growth suggesting a further bulging of finished goods for Q1. This is not a good recipe for Q1 economic growth…or the Q2 outlook.

* * * * *

Furthermore the dollar has launched in Q1 [perceived Fed tightening of rates], effectively, hamstringing exports [by making them more expensive] while importing deflation from around the globe. The continual jawboning, from the Fed’s own FOMC members and Treasury Secretary Lew, that a well bid dollar equates to signs of economic strength and confidence in the U.S. economy is totally bogus. The dollar’s strength can be primarily assigned to the currency diluting policies of both the ECB and the Bank of Japan…both of which are still at the early stages of open ended debt monetization strategies. Add to that the twenty-four separate central bank interest rate cuts in the first three months of 2015 and, ceteris paribus, the dollar strengthens…especially as the world’s reserve currency [at least for now].

Moreover, Wednesday’s Federal Reserve statement was littered with dovish language. Also referenced was a hint of frustration with the strong dollar and its negative impact on exports. Consider the following excerpts …Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat…export growth has weakened. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation remain low. And that The Fed’s internal projections for the federal funds rate, at the end of calendar 2015, were halved further demonstrates their unease.

The simplest short term fix, addressing all of these concerns, is to weaken the dollar. The current strength of the dollar truly cuts into both of The Fed’s bureaucratic Congressional mandates. Incrementally slower economic growth is never good for employment [although the data have, thus far in 2015, been very good…although income growth is non-existent] and, as mentioned earlier in this post, a stronger dollar is dis-inflationary by virtue of both less expensive imports and by depressing the value of commodities [almost all of which are dollar denominated]…the most important of many being petroleum.

The new paradigm in the domestic economic mosaic is that the U.S. economy cannot presently withstand the headwinds of an overly starched and strong dollar. Greenback strength also has a negative offshore impact as it increases the costs of dollar based liabilities held by foreign companies/countries – which are substantial. The Fed is well aware of this dilemma and, of course, will respond accordingly as they are hostage to the financial markets.

* * * * *

Sometime after the initially soft Q1 GDP “print” expect a “trial balloon” of more debt monetization [QE4] issued by some FOMC constituent. Naturally this will weaken the dollar and immediately suspend/reverse the Fed’s dollar based concerns articulated earlier in this post. However, this will also serve to “piss” off both Kuroda [BoJ] and Draghi [ECB]…as their heavily depreciated and shorted currencies will, at least initially, sharply reverse course…and the continual game as to which global economic zone can depreciate their currency the fastest is “on”…again.

In the end, however, this is a truly pointless game. Eventually one of these infinitely diluted currencies will certainly collapse [most likely the yen] as investors finally, and correctly, perceive these actions as economically destructive. This will mightily shake global economic confidence but may, perversely, be the necessary flash point to end the serial money printing illusions of global central bankers.

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One And Only's picture

Janet Yellen has had menopause right? This is actually the most important thing to know for investing.

Farqued Up's picture

Yellen is an alien hybrid with no ovaries. Mare piss estrogen fucked up her nasal cavities and turned her hair to albino melamine free Snowdyke White. 

Sir SpeaksALot's picture

She can still print..., how about a mother of all QEs 20 $Tr in 3 months :P

Smegley Wanxalot's picture

Yellen's been giving men a pause in their virility since her face went public as a child.

kliguy38's picture


Arnold's picture

Infield pop up................................

Vazquez is waving everybody off...........................

Caught in front of the plate...................

That ends the inning..................... the score tied zero zero.


HardlyZero's picture

I read the title as "Trial Baloney"...heh.


Whose' trial baloney is biggest ?

B2u's picture

Yellen makes a goat look attractive...

bowel collapse's picture

THATS HARSH......I like goats

tc06rtw's picture

     … a  MALE  goat …

Buckaroo Banzai's picture

Well, you can't accuse the Fed of not having a sense of humor:

indygo55's picture

",,,the necessary flash point to end the serial money printing,,,"

Yeah but then what? A new global currency? Woar? Both?

viahj's picture

first you will have competing currencies for GRC (already has bugun)

then you have major world war (started already, just not full scale yet)

last, the winner (if there is one) sets the world stage for Bretton 2.0

Chuck Knoblauch's picture

When did QE3 end?

I keep asking, but no one wants to answer me.

Young fools.

Beam Me Up Scotty's picture

How does anyone know since we can't have a true audit of the Feds balance sheet?  They could be printing a trillion a month yet for all anyone knows--they are just telling us they aren't and everyone takes their word for it.  If they aren't doing this yet, they will in the future---they will realize its pointless to tell people the truth---because we lie when things get serious.

El Vaquero's picture

QE3 ended when the Fed said it did.  I very much doubt that Fed printing ended with it.  It's a matter of what they're purchasing from and through whom as well as when, and how much.  Think Belgium. 

Dekyus's picture

it ends in october 2014 but the Fed keeps buying bonds for 150 b$ a year,  in order to maintain the balance sheet at 4500 b$

Kayman's picture

It's really too bad this country wasted so many decades building a real economy when all we needed was the Federal Reserve to print, purchase stocks and bonds, ZIRP, NIRP. Oh yeah, I forgot burp and slurp.

Government needs you to pay taxes's picture

burp, slurp, AND CIRCLE JERK.  Fixed it for you.

sun tzu's picture

The balance sheet actually expanded by $50 billion by Dec 2014 when QE3 supposedly "ended" in Oct 2014. Their asset purchases actually increased after QE3 ended, which might explain how the stock market shot straight up after the Oct mini-crash.

bwh1214's picture

They can not stop money printing without a monetary overhaul. The economy wants td de-lever which is deflationary, not possible in a debt based monetary system, especially one that has been going on this long.

All explained here:

TheReplacement's picture

You really need to fix the spelling and grammar issues with that write up so that we can reference it to the rest of the world.  Nothing kills legitimacy for the sheep than to see an authoritative informational with errors like that.  That said, it is pretty good.  Please fix.

iofera's picture

Nah, nothing says "stark raving mad" like a classic Tyler Durden rant.

Riddled with grammatical errors, and one might reasonably assume, logical ones as well.

It's Zero Hedge to a "T."

sun tzu's picture

In a debt-based global economy, deflation means default for governments and corporations. 

Fix It Again Timmy's picture

All these economists and financial wizards with PhD's are following the exact same strategy as that of any 3-year old when given a piece of candy - MORE!...Are they smarter than a 3-year old?  I have my serious doubts...

JustObserving's picture

US has debt of over $18.15 trillion and unfunded liabilities over $150 trillion and 122 million taxpayers.  And US debt and unfunded liabilities rise at $7 to $9 trillion a year at least (Kotlikoff says they rise at $11 trillion a year).  

So interest rates can never be allowed to rise. Or even come close to normalization.

"No Rate Normalization During My Lifetime" Bernanke

QE forever.

Blink! U.S. Debt Just Grew by $11 Trillion

GMadScientist's picture

Those "unfunded liabilities" are only reality if you think people will carry water for the babyboomers indefinitely; I wouldn't take that bet.

"Part of the fiscal gap’s growth reflects changes in policy, such as the Bush and Obama tax cuts, the introduction of Medicare Part D, and the expansion of defense spending. "

The US has wealth of $55T...maybe they can find some coins in all those cushions while they're popping pills and ordering drone strikes and such.

Beam Me Up Scotty's picture

"Obama tax cuts"

Uhhh, what tax cuts were those? 


As to carrying water for the baby boomers, I agree.  I can't believe their is one person under the age of about 45 years old who isn't mad as hell that they are paying social security----money that they will never EVER see in their old years.  They are just taking care of the current crop of nipple suckers.

Shad_ow's picture

As it was for those under 45 20 years ago.  No one was or is given a choice. So stop playing their game of divide and conquer.

Uncertain T's picture

Scotty, the Bush tax cuts expired.... Obama extended them.

moneybots's picture

"No Rate Normalization During My Lifetime" Bernanke


No normal economy during Bernanke's lifetime.

TheReplacement's picture

Not only can rates never go up but they must either print moar or lower rates forever or maybe a combination of both.

Winston Churchill's picture

Sooner or later even the FedRes will realize that the horse is staying dead.

no matter how many times you flog it.


Chuck Knoblauch's picture

What will come first?

An increase in current QE, or the Shale bailout?

Young fools.

Buckaroo Banzai's picture

Shale bailout? Don't be absurd. Those aren't union workers. Therefore, no bailout.

HardlyZero's picture

I agree it is the season again to determine "firsts" for this Summer Circus.

Greek bailout    or bailin ?

Any EU exit.

New QE

Major Collapse (Japan, China, any PIIGS, any northern Europe, Venzuela/Brazil/Argentina/Peru)

Any Interest Rate shock/surprise.


Wow, where is the good news ?

TheReplacement's picture

Of all the possibilities, a student loan bailout and/or some kind of illegal immigrant bailout.  Gotta protect (bribe) the voters (FSA).

GMadScientist's picture

I'm reminded of the exponential decay as a coin spins faster and faster just before falling flat.

venturen's picture

I thought you were talking about the coin roller....where it circles down the funnel...round and round it goes...till it falls into the void. 

Bill of Rights's picture

And the Fakeonomy continues.

chunga's picture

Does ISIS take requests? I can think of some good beheading candidates.

Shad_ow's picture

Oh the lists we could make for them!


Arnold's picture

I beleive the WE channel is looking for late night content.

stant's picture

They will raise rates a smidgin to keep credibility then QE what Eva foreva

Eyeroller's picture

Yep.  Rates go up a little so they can then lower them.  The Ponzi Munchkin is out of bullets.  Look for her to resign 'to spend more time with family' and leave the house of cards to her successor.

Seasmoke's picture

Collect $200 salary as you pass GO

Seize Mars's picture

Ok, look. Let's say you're in the business of printing LGPP's (Little Green Pieces of Paper).

If the price of oil is low, you can print fewer LGPP's (petrodollar). No good!

However if you jawbone an interest rate hike, then the currency surges in value (the rest of the world is reducing rates to negative). So now you can print more LGPP's. But if you (clearly) cannot and will not hike rates, then you're back to oil.

So you need to hike oil prices. How? Unfortunately there's a lot of it!

To the rescue, QE(). There will be QE(4). And it will be fucking glorious. The US stock market will continue upward, accompanied by widespread poverty and cops, cops, cops.

ISEEIT's picture

Currency 'war' has definitely escalated. Seemingly (but they're not) random moves in all USD pairs. FX is an incredibly absurd 'market'. It's basically a live realtime arbitrage party. Interday price action offers amazing technical and momentum plays for serious $$$ with 50x leverage and consistently reoccurring trade set-ups though.

Fading CB announcements (in either direction), almost any major propaganda release offers 50+ pips on either a correctly surmised  'bias' or (my preference) a fade off the initial directional move (+/-).

It's basically scalping. May as well get what ya can while it's still around right?