Fed May This, Fed May That... Fed will do what markets tell it to do.
A wave of surprisingly weak data on the U.S. economy may spur Federal Reserve policy makers to support growth by making it clear they’re in no hurry to shrink the central bank’s record balance sheet.
Surprisingly weak? It's right on cue, I'd say.
There’s a “strong possibility” that the Federal Open Market Committee will say following the June 21-22 meeting that it will keep reinvesting proceeds from maturing debt for a while, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. (JPM) in New York. Previously, the FOMC has said it will keep the benchmark interest rate near zero for an “extended period” without a similar pledge about its balance sheet.
Really Captain Obvious?
Yesterday’s reports showing manufacturing grew at the slowest pace in more than a year in May and employers added fewer jobs than forecast prompted Feroli to cut his estimate for second-quarter economic growth. The slowdown may push policy makers to consider what options are left after their second $600 billion round of asset purchases sparked a Republican backlash. Saying the balance sheet won’t shrink immediately could dispel any notion that the Fed is about to push up borrowing costs.
The Republicans will fold like a cheap tent if the contraction gets bad enough.
“The idea of extending the period in which they maintain this level of accommodation is an easy call, a natural call and the right call,” said Neal Soss, chief economist for Credit Suisse Holdings USA Inc. in New York. A third round of asset purchases “is so contentious within the committee and the broader political environment, that they aren’t going to go there. That makes it very unlikely.”
Wait till the herd gets a good dose of deflation fear. QE3 will not be contentious, it will be concensus.
Soss said he doesn’t expect any balance-sheet tightening until 2012 and no increase in the benchmark federal funds rate until the third quarter of 2012. Feroli sees the first rate increase in 2013.
Soss & Feroli, seers and soothsayers, robo commentators. Rates may increase in 2013 alright, but it would be in response to point of no return inflation main lined into the system during the supposed interim deflation.
Fed Vice Chairman Janet Yellen, in a Tokyo speech released late yesterday in Washington, said that “the current accommodative stance of U.S. monetary policy continues to be appropriate because the unemployment rate remains elevated and inflation is expected to remain subdued over the medium run.” She didn’t elaborate on her economic outlook or discuss the recent U.S. indicators.
Good Cop... speaking of which, have you noticed that the Bad Cops are all mean old men and a high % of the Good Cops are women? Must be a natural inclination to coddle and nurture.
“The most vulnerable moving part is when do they end the reinvestment of maturing securities,” said Carl Riccadonna, a senior economist at Deutsche Bank Securities Inc. in New York. “Most likely they will continue to reinvest over the course of the summer until they get a better sense of where the economy is,” rather than stopping immediately after the bond-purchase program ends in June, he said.
Stop micro managing you robot. The economy born of inflation, is going to unwind due to the unsustainability of a model that unleashes vast sums of funny munny but cannot control its ends. The privileged recipients are making off with the loot, and not giving it back to Main Street. Your linear boilerplate is really annoying.
Three months later, with job growth stagnant and deflation risks mounting, Bernanke and his colleagues decided to buy $600 billion in Treasuries, a move that John Boehner, now the House speaker, and other top Republican lawmakers criticized as risking dangerous inflation. Some Republicans also advocated legislation to eliminate the central bank’s goal of maximum employment to focus on keeping prices stable.
Sorry Mr. Boehner, but this amounts to heckling from the cheap seats. You guys are listening to Middle America now that it is politically convenient. Right?
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt known as the break-even rate, fell to 2.20 percentage points yesterday, the narrowest closing spread since December. That’s still higher than 1.47 points last August, when Bernanke signaled the Fed may start QE2.
“It is likely a higher bar for QE3 than last year because the trend in inflation has been upward,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. and a former Fed economist. At the same time, “the choppiness of the recovery is one reason we think the Fed will not be doing anything in terms of tightening this year.”
Enter deflation, enter the mis perceptions game, enter opportunity as the robots follow their conventional and traditional metrics at a time that is decidedly unconventional and herd has little clue how to deal with this simple fact.
A halting recovery may harm President Barack Obama’s prospects for re-election next year, said Bill Carrick, a Democratic political strategist, particularly since jobless rates are likely to be high by historic standards.
Which is why it might be errr... convenient to get a system reset (deflationary impulse) over sooner rather than later. From this may spring all sorts of miraculous inflationary policy once we tend the herd out of the pen and into that big ominous looking structure over there.
“The Fed is very solidly on hold in that they will not do anything for the next six to eight months,” said Ethan Harris, head of developed-markets economic research at Bank of America Merrill Lynch in New York. “The Fed’s clock only moves if the unemployment rate drops, and right now, we look like we hit the snooze button on the data.”
"Snooze button on the data"... I like that Ethan. Good one. Look for the slumber to be interrupted soon.
