Tag: Janet Yellen

Jim Rogers: Biggest Financial Collapse in my Lifetime is Overdue

 

The billionaire commodity guru Jim Rogers believes the next economic catastrophe is coming and when it arrives it will be the worst financial calamity the 74-year old investor has ever seen. “The financial markets are going to have the worst problems in my lifetime.” Jim joins us at Whiskey Politics and discusses China, Janet Yellen, why “Mr. Obama wasn’t a very smart guy,” his opinions about Donald Trump, and of course we ask Jim to suggest how we can protect ourselves.

This Might Be How Trump Picks a Fed Chair

 

As I wrote yesterday, Donald Trump used to talk about the “highly political” Fed boss Janet Yellen. He has suggested Yellen probably wouldn’t get a second term heading the central bank. No more inflating the “false economy.”

But now this in the WSJ:

Ms. Yellen was a frequent target of Mr. Trump’s during the campaign, when he criticized her for keeping interest rates low. Asked if Ms. Yellen was “toast” when her term ends in 2018, Mr. Trump said, “No, not toast.” “I like her, I respect her,” Mr. Trump said, noting that the two have sat and talked in the Oval Office. “It’s very early.”

When the White House and the Fed Collide…

 

I am not a superforecaster. And you really don’t need to be one to have anticipated a potential conflict brewing between monetary policy at the Yellen Fed and fiscal policy from the Trump White House and GOP congress. But I saw this coming (via the New York Times):

For President Trump and his economic advisers, the strong February jobs report was a cause for celebration — and a first step toward delivering on the president’s promise of faster economic growth. For the Federal Reserve, it was the final confirmation that the time had come to raise interest rates to prevent the United States economy from overheating. Mr. Trump and Janet L. Yellen, the Fed’s chairwoman, appear to be headed toward a collision, albeit in slow motion. Mr. Trump has said repeatedly that he is determined to stimulate faster growth while the central bank, for its part, is indicating that it will seek to restrain any acceleration in economic activity.

So what happens when the Fed chair and the US president see things differently? Or what set of circumstances previously led the Fed to badly fall behind the tightening curve? A new Goldman Sachs research note highlights “a cautionary tale from US monetary history” recently told by Richmond Fed President Jeffrey Lacker. GS:

At Last She Moves, But How Many More?

 

yellenJanet Yellen and the Federal Reserve made next to no news at all with the announcement to move the Federal funds rate to the 0.5-0.75% range.  They had very well hinted at this in their meeting just before the election. The Federal Open Market Committee’s statement announcing the change showed very little change in its description of economic conditions — it changed the adjective describing growth from “modest” to “moderate.” As Bob Eisenbeis pointed out a few hours before the decision, the change does not seem to connect to actual economic conditions, so chances are they changed the word in order to justify what they’d already committed to doing. And as I said in my most recent post on Fed policy, they were committed to this move.

The Fed prefers to move when they have a press conference to explain themselves, and today was no exception. Because the Fed changed slightly its outlook for 2017, wherein it looks like the median of the Fed is to make three more increases in the Fed funds rate (to 1.25-1.5% by a year from now) from the two it forecast in September, Ms. Yellen had to explain that it was just a few people who moved. It’s also worth noting that the FOMC membership changes before the next meeting, as it does every year with the rotation of Fed presidents from the 12 regions. The next group coming in is known to have views that are more dovish (easier money) than the group about to depart. Listening to the press conference, I thought Yellen was trying very hard to tell us not to get hung up on three. Perhaps it’s because she is in the two-increase camp.

I thought the press conference attendees did a good job pressing Ms. Yellen on some points. On the Trump presidency, there was a silly question about Twitter. She waved this off with reference to the Fed’s independence — what else could she say? But the more interesting questions concerned fiscal policy and whether the Fed would take a non-accommodative stance in response to easing. There’s been much chatter in the econ and finance blogs about this and it’s mostly rubbish. On expansionary fiscal policy, ever the Keynesian, Ms. Yellen said we needed fiscal stimulus a few years ago when demand was slack, but not so much now. But when pressed on this by two different reporters, she did relent that fiscal policy which improved productivity would be welcome, would encourage real growth, and would allow interest rates to rise without choking off an expansion.

Liftoff at Last

 

shutterstock_273355862In a move more hinted, heralded and harkened than the Christmas birth, the Federal Reserve finally moved on raising the Fed funds rate. It had talked about this for months, with Yellen and friends deciding in September to hold off after indicating to the market it would move then. As I wrote then, the Fed blinked in the face of pressure from global market.

When the Fed chooses to hold off on a rate increase it had telegraphed a month ago, it is saying its information is that the economy is worse than you think. When confidence is dented and GDP falls, the Fed will congratulate itself. When the economy turns around next, the Fed will say it wants to raise rates, and China will get the vapors again, and the blinking returns.

I was half-right. Confidence was dented and GDP struggled to get above 2% (and will again.) But the noise in financial markets subsided and announced itself prepared now for a rate increase, and so they got it. Markets indeed rose after getting a little jittery mid-day, bond markets yawned and the dollar rose. Yellen’s goal was to not surprise the market — after surprising them in September — and she hit that mark.

Will Janet Yellen Sabotage Hillary?

 

131219121134-janet-yellen-horizontal-large-galleryA 211,000-job increase for November will finally push the Fed over the line and into a quarter-of-a-point rate hike later this month. The question is, how much and how fast will the central bank raise its target rates?

My advice to Janet Yellen is to move at the pace of an injured snail. But Yellen is determined to start “normalizing” policy. She’s bet the rhetorical ranch on a December move. It’s sort of like defending the Fed’s manhood, or in this case, womanhood.

I don’t think womanhood is the kind of rules-based monetary policy that former Fed head Paul Volcker or Stanford economist John Taylor have been calling for. But Yellen doesn’t like rules. The closest she gets is a 2 percent inflation target. But you know what? Over a normal lifetime, 2 percent inflation will quintuple the price level, doing enormous damage to consumers, savers, businesses, and the economy.

The Unraveling

 

Day One: Woman Having Credit Card Declined

The grocery carts stopped moving, as all the customers listened in on the din from the front of the store. A young mother with three young children was furiously yelling at the check-out clerk. Apparently, the uproar occurred as the clerk would not allow the woman to take her groceries until her debit card was approved or another form of payment was provided. The young woman continued the commotion by shouting that there was money in her account and she needed the milk and food for her babies.

Janet Yellen’s Back-to-the-’50s Interest Rates

 

Janet Yellen told us last week that the fed funds target rate will be raised slightly later this year. But after that, future rate hikes will be small and gradual over the next several years. In fact, we may never have true normalization (4 percent). In my view, Yellen is offering a back-to-the-’50s approach to interest rates. And she’s right, though for many wrong reasons.

For average folks, what might this policy mean? I’ll take a guess: No boom and no bust. No inflation and no recession. All the post-war recessions were preceded by an inverted Treasury yield curve, where short rates are higher than long rates. That won’t happen for many years. Plus, upward oil-price spikes lead recessions, but we’re now in a downward energy-price cycle.

Yellen Makes Both Sides Unhappy

 

After a fall of increasing GDP numbers, better employment data and inflation still at modest levels, the Federal Reserve’s FOMC came out with a statement that managed to satisfy only the financial markets.  They had been lead to believe the Fed would remove its language that short-term interest rates would stay at zero for a “considerable time.” The FOMC chose instead to use tortured language to insist that what they were saying was different but consistent with “considerable time.” The markets ran off to their best day of 2014 after that.

There were three dissents in the vote of the 12 committee members. One of them voted against the statement of the Fed’s intention for interest rates as going too fast to raise them, while the other two said the Fed was not raising interest rates fast enough.

The Sun Will Come Out Tomorrow at the Fed

 

YellenThe Federal Reserve’s latest two-day meeting of its policymaking committee wrapped up this afternoon with few surprises. Its statement on policy generally displayed a belief that the economy is stronger; notably, the Federal Open Market Committee statement did not change at all on the question of inflation, even though the latest CPI figures showed an uptick. 

More telling was the summary of economic projections the Fed provided to the markets at the same time. GDP growth for 2014 was revised sharply downward, while unemployment forecasts dropped slightly. I suspect that this reflects the increasing view within the Fed that unemployment rates are being driven down by low labor force participation than it does some brightening of job prospects. The Wall Street Journal interpreted the optimism as the Fed’s way of saying the economy is doing fine … and you’ll all see it in 2015. The market reacted with a nice 98 point gain on the Dow, almost all of which came after the announcement.

What to make of it all? Simply this: The Fed is going to remove quantitative easing at this rate come hell or high water. There’s enough price inflation out there to justify a slight speed-up; it is apparent now that whatever they decide to do with interest rates will happen in the first half of 2015 — and it doesn’t appear they are going to speed up, largely because they don’t know exactly what to do. They are nervous enough about inflation to slightly lift their forecasts for short-term rates for the end of 2015 … to a range of 1-1.25% from a straight 1%. As I said, “slightly.” Asked about the CPI inflation data today, Janet Yellen called it “noisy”. 

Janet Yellen and the Great Woman Theory of Monetary Policy — James Pethokoukis

 

A “market rattling” press-conference performance from Janet Yellen, and Wall Street is suddenly thick with Ben Bernanke nostalgia. “The more experienced Bernanke knew to avoid clarifying deliberately vague statement language,” wrote JPMorgan economist Michael Feroli in a research note. Feroli was referencing Yellen’s squishy, off-the-cuff remark that interest rate hikes might start earlier rather than later next year, or “about six months” after the end of the central bank’s bond buying program. A “rookie gaffe” is how economist Paul Edelstein of IHS Global Insight put it.

Judge the new Fed chair’s debut as you will, but the bottom line is that Fed policymakers now expect rates to be a bit higher in 2015 and 2016 than they did previously. Also of note: The Fed de facto downgraded the efficiency of the US economy, as seen in its projection of reduced GDP growth and unemployment. These changes suggest, from the Fed’s perspective, more structural weakness in labor markets and an economy that, the WSJ’s Justin Lahart explains, “generates more inflation at a lower rate of growth — a notion reinforced by the Fed’s stepped-up expectation of when it will be time to raise rates.” Despite the decline in labor force participation and the share of adults working, the Yellen Fed is suddenly concerned about the inflation risk of tight labor markets.