Boston Fed Says "Markets Are Wrong," Rates Are Going Higher, Sooner

Gold and bond prices dropped and stocks popped as yet another open-mouth operation went underway this evening from none other than Boston Fed president Eric Rosengren. Ahead of next week's FOMC meeting, and just days after another Fed president said no April hike, Rosengren spewed firth that "I don't think financial markets have it right." Of course, what this preacher means is that while stock markets are perfectly efficient (and correct), bonds and rate futures areclearly inefficient and "investor outlooks for Fed rate hikes are too pessimistic," because "the US economy is fundamentally sound."




Of course, after a day of oil/stock rebounds on dismal disappointment in Doha, this makes perfect sense...

Federal Reserve Bank of Boston President Eric Rosengren issued a stark warning to markets Monday, telling traders and investors they are seriously underestimating how many rate rises the U.S. central bank is likely to deliver over the next few years.


"I don't think the financial markets have it right," Mr. Rosengren said in a speech given in New Britain, Conn., at Central Connecticut State University.


"While I believe that gradual federal-funds rate increases are absolutely appropriate, I do not see that the risks are so elevated, nor the outlook so pessimistic, as to justify the exceptionally shallow interest rate path currently reflected in financial futures markets," he said.

yeah you are probably right - what is wrong with this US economy?


Ignore this though he say - it's wrong too!!


As WSJ notes, however, Rosengren, currently an FOMC voter, has long skewed toward the dovish end of the Fed scale.

While he's been on board with the Fed raising rates he's definitely banged the drum for moving slowly. So his speech this evening is notable because he puts markets on warning for holding what he views as the wrong outlook on rates.


He says nothing about the April FOMC, but that said, if Mr. Rosengren thinks markets are underestimating what the Fed will do, investors and traders might want to listen.

There was some reaction in markets...


So - interest-rate markets are wrong; macro data is mostly wrong (apart from the jobs data); and The Fed is right?

As we showeed in our discussion of the Fed’s forecasts, these predictions have continued to fall short of reality.

“Besides being absolutely the worst economic forecasters on the planet, the Fed’s real problem is contained within the table and chart below. Despite the rhetoric of stronger employment and economic growth – plunging imports and exports, falling corporate profits, collapsing manufacturing and falling wages all suggest the economy is in no shape to withstand tighter monetary policy at this juncture.”


“Of course, if the Fed openly suggested a ‘recession’ could well be in the cards, the markets would sell off sharply, consumer confidence would drop and a recession would be pulled forward to the present. This is why “what the Fed says” is much less important than what they do.”

And here is Alan Greenspan meeting with Dixie Noonan et al on March 31, 2010:

This is a reason why the Board is getting an unfair rap on this stuff. We didn’t forecast better than anyone else; we regulated banks that got in trouble like anyone else. Could we have done better? Yes, if we could forecast better. But we can’t. This is why I’m very uncomfortable with the idea of a systemic regulator, because they can’t forecast better.

This comes from the person in charge of the most powerful central bank in the world; a world which now is reliant exclusively on central bankers for its day to day pretend existence.