It's one thing for a fringe website to mock the Fed (on a daily basis, for the past 7 years), with articles such as this one [6]we posted just before noon today, showing that inflation expectations have once again imploded, less than a month after the Fed's rate hike was supposed to signal confidence in the economy and a renormalization in inflation:
Since The Fed hiked rates in December, the market's inflation expectations have collapsed in yet another clear indication of "policy error." 5Y5Y Forward inflation swaps have crashed below 2.00% for only the 3rd time in history (Lehman 2008 and September's Fed Fold were the other two) as despite central banker promises of transitory low-flation, the money is being bet against them as the regime-shift from full-faith to no-faith in Fed support continues.
However, when a former Fed president, one who was employed as recently as two weeks ago by the Minneapolis Fed, Narayana Kocherlakota, best known for being the biggest hawk to dove conversion in Fed history, and also being the one person to dare put a negative dot on the Fed's ever amusing dot plot, suggesting it is time for negative rates does exactly the same, you know that the Fed's credibility has already run out.
From Kocherlakota: "Very worrisome signal for Fed credibility as 5 yr 5 yr forward breakevens plumb new lows ..."
Very worrisome signal for Fed credibility as 5 yr 5 yr forward breakevens plumb new lows ... pic.twitter.com/OxavyW2cTD [7]
— NRKocherlakota (@kocherlakota009) January 13, 2016 [8]
Of course, the far more worrisome signal for Fed credibility is not that inflation forwards are plunging, but that one of the Fed's faithful has now taken to a public forum like Twitter to troll his former co-workers.
All that it would take now is for Yellen to formally admit the Fed's credibility is gone and to cut rates first back to zero, and then negative, with a solid dose of QE on top, admitting it was always only about the markets.