Fed's Dudley Had Some Worrying Remarks During A Closed-To-The-Press Session

Tyler Durden's picture

Last week, Bank of America became the latest bank to wonder if the Fed, no longer even remotely data-dependent, is now hiking rates for no other reason but to burst what increasingly more are calling a risk bubble, to wit:

"Can it be the case that its hawkishness was prompted by something other than its reading of the economy? For example, is it possible that the Fed has become concerned about the recent surge in the equity market, especially tech stocks that has been feeding off low interest rates and low volatility? According to our equity strategists, the P/E of the tech sector (19x) is currently at its highest levels post-crisis while the EV/Sales ratio is at the highest since the Tech Bubble"

Overnight, CLSA's Valentin Marinov, after reading the latest BIS report, echoed BofA's assessment, as follows:

The BIS annual report released over the weekend will likely go down in history as the first official document to focus on the changing reaction function of global central banks against the backdrop of continuing cyclical recovery but persistently low inflation. In particular, in the report the BIS has encouraged the major central banks to use every opportunity from here to cautiously normalise policy. This will give the likes of the Fed a room to manoeuvre in the event of renewed economic downturn.

 

In other words, the BIS report has corroborated a conclusion that we have drawn and written about recently, namely our observation that the Fed in particular will continue to normalise policy in part because it wants to amass rate hikes which can be used to fight the next recession. This conclusion is consistent with the fact that, so far, the Fed has largely taken the recent disappointing US inflation data in its stride, signalling steadfast determination to normalising monetary policy further.

And while these non-FOMC opinions were clearly troubling for risk assets, as they suggest that the Fed - without admitting it - will keep hiking until stock prices drop, a confirmation that BofA, CLSA and many others before them are right, came from none other than Bill Dudley who speaking at the Bank for International Settlements' Annual General Meeting in Basel, confirmed that the Fed is now almost entirely focused on the market's financial conditions, which have eased to two year lows despite the two rate hikes in 2017...

... and that the recent narrowing of credit spreads, record stock prices and falling bond yields could encourage the Federal Reserve to continue tightening U.S. policy.

"Monetary policymakers need to take the evolution of financial conditions into consideration," the second most impoortant person in the Fed, former Goldman employee Bill Dudley, said on a closed-to-the-press panel on Sunday whose contents were disclosed moments ago.

"For example, when financial conditions tighten sharply, this may mean that monetary policy may need to be tightened by less or even loosened.  On the other hand, when financial conditions ease—as has been the case recently—this can provide additional impetus for the decision to continue to remove monetary policy accommodation."

There was more in the full speech (link here), but the gist was clear: the Fed is no longer hiking conditions in response to the economy, but to tighten financial conditions, of which the biggest contributor by far is the stock market.

Said otherwise, the Fed now wants stocks lower and will keep hiking rates until the market reacts accordingly.

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LawsofPhysics's picture

LOL!!!!

"Once unemployment goes below 6.5% we will normalize interest rates" - Ben Benranke...

The Fed continues to enable the greatest THEFT of real assets the world has ever seen...

They LIE.  Get long sharecropping and guillotines...

In the meantime...

"Full Faith and Credit"

Ghost of PartysOver's picture

Reading between the lines while wearing my tin foil hat it is apparent that the Fed Res wants to crash the market and lay the blame on Trump.  That would be a little bit of scorched earth policy enacted.

Watchingtheweasels's picture

I agree. One thing has become clear: all Obama appointees were placed in their positions because of ideological compatibility after swearing fealty. There is no reason to believe that this fed is any less a part of the deep state trying to intentionally crash the Trump presidency than the bureaucracy and congressional GOP. After all, the only thing that has changed since last summer is the occupant of the white house.

el buitre's picture

Dudley DoWrong.  Illustrious cartoon character.

HenryKissingerBilderberg's picture

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.... I believe that banking institutions are more dangerous to our liberties than standing armies.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. Thomas Jefferson

chickadee's picture

Jefferson never said that. The word "deflation" did not appear in the Oxford Dictionary until 1920.

http://www.snopes.com/quotes/jefferson/banks.asp

shoWTHyme's picture

At least Jefferson said

"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

 

(see https://www.monticello.org/site/jefferson/private-banks-spurious-quotati...)

 

 

DavidC's picture

Precisely! Well said!

Besides, what is the Fed supposed to do while the market is at or near all time highs? Wait for the recession and have no weapons available AT ALL to help combat it? At least, even if it's raising rates into an impending recession it'll have SOMETHING there.

The question of whether the Fed has left it much too late and should have done this in 2015 or whenever is another question.

DavidC

TeethVillage88s's picture

But...

They had to manipulate Gold & Silver, the Real Estate Market, buy up all the Mortgages, manipulate the bond market with zero rates for 10 years, and manipulate the stock market for 10 years...

Because well... our economy... our place in history... our congressional seats... our Black President... our Federal Reserve... our TBTF Banks... our Lobbyists... our US Empire... our US Allies & Hegemony... our Coup over the US Empire...

FreeNewEnergy's picture

"Monetary policymakers need to take the evolution of financial conditions into consideration," 

"For example, when financial conditions tighten sharply, this may mean that monetary policy may need to be tightened by less or even loosened.  On the other hand, when financial conditions ease—as has been the case recently—this can provide additional impetus for the decision to continue to remove monetary policy accommodation."

The doublespeak is strong in this one.

Paul Kersey's picture

The Fed isn't afraid of an economic downturn, because Main Street America is already suffering from one. The Fed is afraid of an asset price downturn. However, raising and then lowering rates will not backstop a runaway market crash. The Fed's next scam will be pushing easier mortgage loan qualifying and pegging mortgages to 50-year Treasuries. Mnuchin and Cohn are already pushing these debt extenders.

LawsofPhysics's picture

Bingo.  Would be a real shame if the rest of our TRADE partners decided they no longer accepted the FRN...

Antifaschistische's picture

So, if stock prices are THE key indicator...why not use margin debt requirements are the lever to lower prices?   By the way...where's all that "margin" debt coming from anyway?  The same place all other debt comes from these days!!   As a matter of money forensics...where is the money coming from to buy stocks to begin with!  Even the retail investor....note:  If 10 years ago you had a 200k mortgage and 50k in your 'investment' accounts ---- and today you have a $350 mortgage and 100k in 'investments'....100% of your investment account increases has come indirectly from your mortgage debt.

...as stupid as this scenario may sound to ZH'ers.....MOST of my friends are in this type of scenario and feel considerably wealthier today than they did 10 years ago.  And I don't dare do the math for them.  

 

syzygysus's picture

<-- The rate hikes will continue until the stock market crashes

<-- The beatings will continue until moral improves

 

 

philipat's picture

So given the total failure of Fed policy, what actually IS it's mission now? And if there is none, why do we need them?

 

LawsofPhysics's picture

Accountability?  Yeah, wouldn't that be great.  Start by clawing back ALL the bailout wealth and putting Hank "tanks in the streets" Paulson's HEAD on a fucking post!!!!

In the meantime...

"Full Faith and Credit"

 

The real mission of the Fed has always been to transfer as much real wealth to the private shareholders of the bank!

This has always been the truth.

back to basics's picture

A bunch of bullshit. If the FED wanted lower equity valuations all they have to do is to tell their proxies to stop buying the market.

 

If they lose the market, they lose everything, and they know it. What they really want is inflation of asset prices through higher stock prices but not so high (as they are now) to expose the scam and the massive diverge between financial asset perfornance and the real economy. Everything else is eye wash. 

LawsofPhysics's picture

Correct. Unfortunately, what percentage of the population is in banking and finance?

Such "let the majority eat cake" monetary, political, social and economic experiments have been tried before, this one will end no differently.

Fuck em.

RagaMuffin's picture

Is Dudley the FEDchimps favorite chump or the FEDchumps favorite chimp?

Lost in translation's picture

Dudley.

Yet another stool to be scraped off the bottom of one's shoe.

Pollygotacracker's picture

The FED is and always has been a joke. 

 

HAHAHAHAHAHAHAHAHAHAHAHAHAHA!!

Chippewa Partners's picture

Fed needs a lower market? That's funny.

Sick Monkey's picture

25 earnings = what 8% rate. Dream on. 

Batman11's picture

The BIS is worried about how high the markets are.

The FED called it a "wealth effect".

The BIS are the guvnors and have given Janet a good slap.


TeethVillage88s's picture

No Joke!

- RINOs, Trump want to loosen up on Basel III and Reserve Levels, as well as Volker Rule, and repeal Dodd-Frank
- But the market is in 10 years of Manipulated Interest Rates, QE 1-3, EU in QE, BoE in QE, Japan in QE, Federal Reserve holding the most Mortgages of any company and it's Balance Sheet is to the moon

Hey Paul Ryan, Mitch McConnell... try to stop gaming the markets before you let the banks have a free hand.

- Dumb Ass US Congress

pndr4495's picture

It is astonishing how many people do not give a shit that these bankers are only playing a game of 3 card monte and they control all aspects of the game , including the shills - just like a Manhattan streetcorner game of Monte itself. Oooooh but JP Morgan Chase was fined billions you say. Bullshit - they can print their own money, among other banks who are part of Paul Warburg's original scheme. Someone above mentioned that in the end it is theft of REAL ASSETS from honest decent people who have worked hard most of their lives expecting not to get f*%#ed in the end. I hope many more of us wake up to this continuing charade and theft soon.

GoldHermit's picture

My analogy:

You empty your revolver at the bad guys.  This time you only reload with three rounds.  You empty it again.  You only have one round left.  Eventually...  you lose the battle.

 

 

 

JailBanksters's picture

Don't forget who is the BIS, it's not run by a bunch of random hacks, It is Owned by the Rothschilds ! the same ones that own the Feral Reserve.

It's basically a Rothschilds Bank telling another Rothschilds Bank what to do, and thanks to the Media they give the Impression these two Corporations have nothing to do with each other in order to perpetuate the Fraud that is Central Banking.

 

 

pebblewriter's picture

"Said otherwise, the Fed now wants stocks lower and will keep hiking rates until the market reacts accordingly."

This is hard to swallow, as the Fed and its counterparts are the ones propping up stocks on a daily basis.  If they really wanted stocks to plunge, all they have to do is stop manipulating VIX, USDJPY and CL.

I believe they want higher, or at least flat, equity prices but without higher interest rates. Our debt is spiraling out of control -- with no apparent help on the way from Congress.  We simply cannot afford higher rates or we turn into Japan, and this is what keeps Fed members awake at night.

Oil helped prop up stocks after Feb 2016 and, periodically, since then.  But, they can't really raise oil prices much without it resulting in higher inflation and, thus, calls for higher interest rates. Thus, increases are limited to sporadic and strategically-timed spikes.

They'd like a nice strong dollar (also in order to keep a lid on inflation) but investors are aware that the level of inflation being engineered doesn't justify more rate hikes and, thus, the USD is under pressure.  When the USD is under pressure, the yen carry trade faceplants and stocks take a hit.

VIX has been the go-to algo tool for six months, now.  But, would investors finally realize the scam that's being pulled if it dropped below its 9.31 all-time lows?  I'd like to think so...

Bottom line, things are getting more complicated for the Eccles Building crowd. They know that their options are becoming more limited.  But, they're not about to give up on supporting stock prices.  They'll always find a way -- as long as it involves historically low interest rates.