Germany’s central bank is the Bundesbank. Prior to the commencement of trading of the euro in January 1999, the Bundesbank conducted Germany’s monetary policy. The Bundesbank has a reputation for pursuing general price-level stability above all else. You might say that the Bundesbank has inflation phobia. The reason for this Bundesbank inflation phobia is the remembrance of the hyperinflation Germany experienced between World Wars I and II. Given the US central bank’s recent actions, it would almost seem that the Fed has developed inflation phobia too. Continue reading →
President Donald Trump on July 10 nominated Randal Quarles to be one of the seven governors of the Federal Reserve System, the central bank of the United States.
Before I get to Quarles and his qualifications, it’s important to understand the Fed and what it does. Its decisions are vital to every person on the planet who borrows or lends money (pretty much everybody) since it has enormous influence over global interest rates. Its board of governors also influences most other aspects of the global financial system, from regulating banks to how money is wired around the world. Continue reading →
With stocks soaring briskly around the globe following Yellen’s “dovish” hike, and futures set for a sharply higher open with the Nasdaq approaching 6,000, something surprising caught our attention: in a note by Goldman’s Jan Hatzius, the chief economist warns that the market is overinterpreting the Fed’s statement, and Yellen’s presser, and cautions that it was not meant to be the “dovish surprise” the market took it to be.
Specifically, he says that while the FOMC delivered the expected 25bp hike, with only minor changes to its projections. “surprisingly, financial markets took the meeting as a large dovish surprise—the third-largest at an FOMC meeting since 2000 outside the financial crisis, based on the co-movement of different asset prices.”
Even more surprisng is that according to Goldman, its financial conditions index, “eased sharply, by the equivalent of almost one full cut in the federal funds rate.”
In other words, the Fed’s 0.25% rate hike had the same effect as a 0.25% race cut!Continue reading →
The Dow has soared 13% since Election Day, and just last week (Feb. 10), all three major indexes closed at all-time highs. The “Trump Rally” has been great for stocks, but some observers are starting to wonder if soaring highs mean a stock market crash is coming.
No one can predict a stock market crash with 100% certainty. But we want our readers to be as informed as possible about what could happen in the market.
That’s why we’re looking into historic stock market crashes to identify warning signs that can be used now. Continue reading →
The Federal Open Market Committee, in its latest meeting Wednesday, reiterated the same message to spellbound investors that’s been in place the last eight years: The Fed is committed to maintaining a massive balance sheet through bond buying, but someday that balance sheet and near-zero interest rates will revert to normal levels. Continue reading →
After a brief hiatus from the ongoing currency wars, China fired another salvo at The Fed tonight by devaluing the Yuan fix to 6.5693 – its weakest against the USD since March 2011. After eight days higher in a row for The USD Index, it seems PBOC has turned its currency liberalization plan off, stabilizing the broad Renminbi basket (which has been steadily devalued) and turning its attention to devaluing against the USD. Having unleashed turmoil in August (pre-Sept FOMC) and January (post Dec rate-hike), it appears the rising rate-hike probabilities jawboned by The Fed are decidedly disagreeable to “authoritative persons” in China. Continue reading →
Let it be no secret that the Obama administration will be leaving poison pills and traps behind should Trump win.
Make no mistake, what you saw with the Fed’s September meeting and subsequent (in)decision was an FOMC that simply froze like a deer in headlights. As we’ve documented exhaustively, there are no right answers and Janet Yellen only made it worse by, in Deutsche Bank’s words, “removing the fourth wall” and admitting that the committee is reflexive.
The Fed cannot hike for fear that a soaring dollar will accelerate EM outflows and plunge the world’s most important emerging economies into chaos. Continue reading →
The central bank is facing a communications problem.
The effectiveness of the Federal Reserve’s communication strategy is clearly questionable when the outcome of a Federal Open Market Committee meeting is considered a coin toss among economists who closely follow monetary policy.
What’s missing from the central bank’s communication strategy?
As previously mentioned by Marc Farber, if there’s any ‘taper’, it will be largely symbolic and the problem will only resurface sometime soon down the road.
“So at some stage the economy will weaken again, and at that point, the Fed will argue, ‘Well, we haven’t done enough, we have to do more.'”
The Federal Reserve will reduce its $85bn a month in bond purchases by $10bn starting in January
The US Federal Reserve last night announced plans to start weaning America off quantitative easing (QE), in a move which signals the central bank’s confidence in the stability of the US economy.
The central bank said that it will pare its $85bn-a-month bond buying scheme back to $75bn next month, and continue ratcheting it down in “measured steps” if the US economic recovery remains on course. Continue reading →
The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33 percent over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.
An increase in the price level of 2 percent in any one year is barely noticeable. Under a gold standard, such an increase was uncommon, but not unknown. The difference is that when the dollar was as good as gold, the years of modest inflation would be followed, in time, by declining prices. As a consequence, over longer periods of time, the price level was unchanged. A dollar 20 years hence was still worth a dollar.
But, an increase of 2 percent a year over a period of 20 years will lead to a 50 percent increase in the price level. It will take 150 (2032) dollars to purchase the same basket of goods 100 (2012) dollars can buy today. What will be called the “dollar” in 2032 will be worth one-third less (100/150) than what we call a dollar today.