Bullard Admits It's "Unwise" To Continue Rate Hikes, Says "If Needed" Will Do More QE

Tyler Durden's picture

For the latest confirmation of just how trapped in a corner of its own making the Fed now finds itself, look, or rather read no further than the presentation given moments ago by St. Louis Fed president James Bullard before the CFA Society in St. Louis which was circular, confusing, illogical, and thus a splendid summary of the Fed's "thinking" from beginning to end.

In it Bullard, who one month ago said he favors 4 rate hikes in 2016, said that it would now be "unwise" for the Fed to continue hiking interest rates given declining inflation expectations and recent equity market volatility, in comments that mark a stark change of direction for one of the Fed's more hawkish inflation foes. 

What he really meant is that having digested the Fed's policy error which was the decision to hike rates in December in the middle of a global recession (as warned here quite explicitly) not only did global markets tank, but so did inflation expectations (the 5Y5y inflation outlook for the US was lower than that for Europe as recently as one week ago) with the market now pricing in not only a halt to rate hikes, but a return to ZIRP if not Negative rates in the U.S.

And here comes the first confirmation of just how confused the Fed is:


Yes, the Fed it hiked: and the hike itself led to the collapse in not only inflation expectations but markets, and the latest devaluation of the Yuan. But one clearly can not be a Fed economist to realize all these very simple things.

The ironies continues: Bullard, who for much of last year argued for an earlier rate hike, said he now feels key assumptions supporting higher rates have been undermined.

Inflation expectations have fallen "too far for comfort," making it more probable inflation itself will fall and continue to miss the Fed's 2 percent target, Bullard said in remarks prepared for delivery to a gathering of financial analysts.

"I regard it as unwise to continue a normalization strategy in an environment of declining market-based inflation expectations," Bullard said. In addition, declining equity prices and other tightened financial conditions have made dangerous asset bubbles "less of a concern over the medium term."

As a result, it would be "unwise" for the Fed to continue hiking interest rates given declining inflation expectations and recent equity market volatility.

And just like that, Bullard admits that just like all throughout the 2009-2015 period, the Fed remains hostage to the market's every whim.

Then there was the topic of bubbles, which was mentioned on at least 8 separate occasions in his presentation. His point here was simple: at 2100, the S&P is too high and so the Fed was justified to hike; at 1900 the S&P is too low and the bubbles have popped. It appears that for the Fed, the Fed balance sheet implied fair value of 2,000 for the S&P is the perfect sweet spot of "fair value". 

This lunacy is best summarized by the following tweet:

Here is one of the Fed's biggest fake hawks justifying the need for a full Fed relent, and halting the rate hike cycle until risk asset prices increase:


But what about the Fed's own inflation survey which suggest far higher inflation expectation?


Translation: these aren't influenced by the S&P500 so ignore them.

Another question: what if the market is simply reflecting the slide of the world into another recession?


Oh ok. But what if it is?


Yeah, 25 basis points.

But the punchline, and why tonight's speech was a rerun of the first Bullard moment from October 15, 2014 when the market soared after Bullard hinted at QE4 was the following:


And there it is: the first admission that the Fed is not only contemplating NIRP - in the middle of a rate-hike cycle no less - but also QE.

What should be most troubling for the Fed is that while any other time a Fed hint of more QE would have sent futures soaring, that this time nothing is happening as a result of the "second Bullard moment" is the most disturbing sign that not only can the Fed can no longer jawbone the market higher, even with the most nonsensical statements and hidden promises, but that the Fed is on the verge of losing control of the market.

For those who wish to waste 5 minutes of their life, his presentation is below (pdf)

Comment viewing options

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

As for effect, give it 15-20 minutes.

Soul Glow's picture

Yeah I'd love to see them do another QE.  Gold would spike to the moon.

wee-weed up's picture

Yep, 10... 9... 8... ---  3... 2... 1... 0... gold blastoff!

philipat's picture

Only if USD/JPY declines.

Soul Glow's picture

Gold has doubled in rubles YoY.  Just sayin'.

MalteseFalcon's picture

Blah, blah, blah, blah, blah.

Now raise those interest rates

It's time to clean out the Augean Stables.

Yeah, it's going to hurt.

Sometimes work is like that.

back to basics's picture

FFS, someone string up these guys and shut them up before they totally destroy all of us.

When will this madness end?

philipat's picture

Fucking clueless. The problem is, their Keynsian models predict that ordinary folks will spend more. If they actually knew any ordinary folks they would see that:

  1. The ordinary folks, after years of ZIRP and declining real disposable incomes don't have the ability to increase spending.
  2. Even if they did have any residual disposable income, they are concerned for the future (Perhaps recognising that SS and pensions won't be there) and still would not spend.

This is the same reason the economy is stalling. In an economy comprised 70%+ consumption, to grow, said economy must have increases in consumption.

sun tzu's picture

ZIRP is wrecking SS trust and pension funds. Imagine what NIRP will do as these retirement plans will have to pay out money for the bonds they hold. 

DavidC's picture

Indeed, spot on.

Forgive my language, but please, Bullard, just shut the fuck up.


Yen Cross's picture

 I just unloaded the fiat truck. Bought $4k in five ounce bars. I'm going to get some gold next week, but this trade makes sense.

 Thanks again, for reminding me why I read Z/H.

ultimate warrior's picture

Peter Schiff called this like a boss. Fuck you CNBC.

Squid Viscous's picture

someone needs to kill this m.f.

his mother should have as soon as she saw that face and clown ears

Lynx Dogood's picture

Atlanta or Dallas will throw water on him.

Watch the trends/manipulations and go from there. The Joker would be in disbelief.

StychoKiller's picture

Paraphrasing:  "Meh, it's easy to nail jelly to a tree, just use a LOT of nails!"

Yen Cross's picture

 Bullard looks like a rabbit with a toupet.

yrad's picture

Just a bunch of head fakes. Does it matter which head they use? DOW +300 tomorrow!!

surf0766's picture

They did not hold sub 1870. Today I said S&P 2300...

They will never let this crash under their progressive leader.



Mark Mywords's picture
Mark Mywords (not verified) surf0766 Feb 17, 2016 10:11 PM

Progressive leader.

Tell me - when you see a mop, do you call it a broom?

Durrmockracy's picture
Durrmockracy (not verified) Mark Mywords Feb 18, 2016 2:06 AM

yes, a wet broom (not a dusty mop)

nidaar's picture

They hiked rates 0.25 and then gold jumped 20%.

I dare them to continue on this wrecked track. For every .25 hike, gold will jump at least another 20%.

It's the same compound interest formula they use to fuck people. By the time they reach 1% rates, gold will be $2000. 2% and gold will be $5000.

xrxs's picture

2000?  Does it matter if earnings keep decreasing?

Mark Mywords's picture
Mark Mywords (not verified) xrxs Feb 17, 2016 10:14 PM

Earnings? We don't need no stinkin' earnings!

NoWayJose's picture

No effect now means that it was probably leaked 3 trading days ago!

back to basics's picture

I wish I could up vote you more than once

philipat's picture

But I thought it was old Yellen herself who is reasponsible for leaks?

SillySalesmanQuestion's picture

They're still directly/indirectly intervening in the casino every day. They can window dress it in anything they like, mark to zero/fantasy, direct/indirect monetization, outright stock purchases...you name it.

stant's picture

Right Feds never wrong got it. So who gets QE4? This time

khakuda's picture

The great joke is always when it comes to their market valuation metrics.

Here is the actual math:

S&P at 2100 was with prior earnings expectations of $130. Multiple equals 16.15.

S&P at 1930 is with earnings expectations of $118. Multiple now at 16.35.

Of course, these are all non-gaap earnings. Other than Apple and Microsoft technology companies do not expense options. If they did the S&P earnings will probably be around $105 and the market would look very expensive.

The market is actually more expensive than it was before because earnings expectations have declined more than the market has. It is so painful to see their poor analysis. Even Janet Yellen's says stocks are no longer overvalued with a less than 10% decline on earnings expectations that have come down at least that much. There is no discussion of record high profit margins at a time of little topline growth and pressure to raise wages.

So, now we have our answer. The only mandate of the Fed is to keep the stock market up and a minor decline of 5 to 10% is too much for them.

rickowens's picture

Can this guy change his last name to Bullshit yet?

Ms No's picture

Chances are some of them already have changed their last name.  They do that. 

ebworthen's picture

Oh fuck me.  Set the rate at 6% and get the hell out of the way you asshats!

Jesus H., people actually get a degree to engage in this immoral insanity!?

__Usury__'s picture
__Usury__ (not verified) ebworthen Feb 17, 2016 10:25 PM

PhD's no less.............

''The Federal Reserve Board employs over 300 Ph.D. economists, who represent an exceptionally diverse range of interests and specific areas of expertise. Board economists conduct cutting edge research, produce numerous working papers, and are among the leading contributors at professional meetings and in major journals. Our economists also produce a wide variety of economic analyses and forecasts for the Board of Governors and the Federal Open Market Committee.''


ebworthen's picture

So was that Bullard and Yellen that down-voted me, or some true "FED believers"?

The FED is an immoral and utterly corrupt construct; discuss.

Sorry_about_Dresden's picture


Read this link from the Feral Reserve asking for comments on their new policy. It looks like you are goning to get your 6% because the Feral Reserve has now changed the divedend from 6% to the yield on the 10 years UST bond.

Until the FAST Act amendments to section 7(a)(1) became effective on January 1, 2016, all member banks were entitled to a six percent dividend on their paid-in capital stock.6 Section 7(a)(1) ...................... now provides that stockholders with more than $10 billion in total consolidated assets shall receive a dividend on paid-in capital stock equal to the lesser of six percent and “the rate equal to the high yield of the 10-year Treasury note auctioned at the last auction held prior to the payment of such dividend.”

Why take less when you can take moar?

The banks now have an incentive to get the 10 year UST note to 6%. 

Dazman's picture

From the Slides:

"Should the Fed rethink the Summary of Economic Projections (SEP)?"

Hell no, the FED are a perfect fade. I love their Economic Projections.

iggenFlot's picture
iggenFlot (not verified) Feb 17, 2016 10:24 PM

I need to buy some silver with my income tax refund.  Hope they hold off on QE/negative rates until the end of the year.

ninefourfour's picture

Sorry, we borrowed your refund.

Why do you have to pay it to them to get a refund?

Ms No's picture

How long will QE possibly work?  We are screwed regardless its just a matter of the date.  If they raise rates it will happen then, if they don't it will happen shortly there after.  There is noooo fixing this beauty they have cultivated and of course they knew that.  It's creepy now that you can see the symptoms that reveal that the end is near.


pitz's picture

It would be far, far more efficient use of digital ink merely to say, "Peter Schiff was right" than to generate that slide deck.

Cabreado's picture

Can't "end the Fed" 'til a legitimate congress is restored, and can't restore a legitimate congress without effort; an effort that supersedes a greater ignorance...

I suppose that means leadership from the rank and file rising up and rallying the troops, while there is still something left to rally for -- that being Principle and Rule of Law, and nobody's getting anywhere close to that without a legitimate congress.

Farmer Joe in Brooklyn's picture

The first "Bullard Bounce" is what inspired me to quit my job, liquidate all my retirement accounts, buy a load of PM's, and start getting short the market through puts on financials. 

....and here we are again. This bitch is going down.

Tick tock, tick tock...

Cabreado's picture

Sincerely, I wish you luck.

But too many checking out creates the vacuum in the first place.

Cheka_Mate's picture

Who is John Galt?

Better a year early than a day late to plan for the coming shit storm 

Cabreado's picture

Ah, what an inspiration Ayn Rand was...

your go-to source for rationalizing your own personal checking-out.

And you don't even wonder how it really all falls down.

Janet Shalom Bernanke's picture

When the government doles out it's capital punishment on Bullard, his punishment should be hanging him from his jaw.

These corrupt fools don't have the sense to manage a McDonalds, let alone the country's monetary system.  How did America put itself in this predicament?  where a band of fucking idiots are able to EXPERMIENT with monetary policies on a captive society, NO OVERSIGHT, NO AUDIT, and ZERO REPRESENTATION from the VERY Government representatives that are sent to Washington to look out for the citizens.   


It is absolutely unbelievable to watch this continuous looping shit-show play itself out, desperate measure after desperate measure.   Bullard can't swing from a rope soon enough.  Please where are our government representatives when we need them?


daveO's picture

Taking payoffs thru the back door would be my guess. I received another political ad post card from my congress critter today. They were bragging about being a fiscal conservative. Yet, no mention about their voting FOR the debt ceiling increases.