I watched the talking heads on Bloomie today and mostly it was on the Fed's decision to slow up on their twist or whatever it is called now. It shows that Janet Yellen has a finger on the pulse of the economy and perhaps with the Middle East troubles and inflation starting to peek its head up, she felt it was prudent to out on the brakes.
There was a guy from Wells Fargo who reiterated this. Yellen seems to have some vision which is not bad to have in these times. Of course, the markets liked the move.
I would be interested in the thoughts of those who watch this with more intent than I do.
Comments
Quantitative Easing is done with.
The market thinks the Fed will be done with QE sometime around October of this year.
The dual Fed mandate is for employment and 'price stability'. What Yellen means by price stability is 2% inflation. She was asked by a reporter, when the Fed would raise the Fed Funds rate [currently at zero to 0.25%] after the end of QE. A while back during a similar Q&A session with reporters, she 'slipped up' and suggested that 6 months after the end of QE, the Fed might raise rates. This time she was very careful to say that there is no mechanical timeline, no set schedule for when the Fed would raise the Fed Funds rate. She said "it depends"......it depends on the data; the data on employment and inflation.
She talked about what I believe is called the equilibrium rate or neutral rate, or the normal rate for the Fed Funds rate. She said that it had been expected to be 4% after 'normalization' of the Fed Funds rate, but after the tally was taken of all the voting Fed members, apparently the most current Fed opinion is for a 3.75% neutral or normal Fed Funds rate. She noted that two of the voting members had been replaced and that two new ones replaced them, and she felt that the 3.75% neutral rate opinion was probably affected by the change in the guard.
FYI, Bill Gross has been talking about a "new neutral"; Pimco thinks the new normal or neutral Fed Funds rate will be 2% as opposed to what has typically been a 4% Fed Funds rate.
Interesting, that Janet Yellen specifically stated today that the stock market is not overvalued ! [or at least not significantly overvalued]. Interesting that she would even go there. She also noted that stock market volatility was significantly lower than usual, and stated something to the effect that she hopes that doesn't cause leveraged buying of the market, due to complacency.
Those are the main things I recall right now.
"due to complacency."
You mean the complacency caused by the Fed's actions? lol.
"She said "it depends".
In other words, the goalposts can continue to be moved as needed.
This way please
But, wait there's more......
http://omfif.createsend1.com/t/ViewEmail/j/AD679A12EEB1FB26
Well, you'll have to be the final judge, eh?
I think Yellen is showing some flexibility here. The jury may still be out on her actions but so far I like her a bit more than I did the Bernanke. The markets will always rally on any news that benefits them.
The oil prices are headed up which in turn does the same for fuel prices. I have seen some news that prices are going up in the US and the Wells Fargo guy said to watch that specifically as that could put the US in recession mode. I wish I had caught his name.
"You mean the complacency caused by the Fed's actions? lol."
I think you hit it right on the nose. You said lol but it's true. By coming right out and saying that the stock market is not overvalued; by continuing to taper slowly rather than end it right away; by giving crystal clear info that they are not going to be raising the Fed Funds rate any time soon; and by a number of other things she said, it causes complacency. If people decided to go on margin and buy stocks, what she said she was concerned about, it could very well be as a result of her speech today, and answers to the Q&A.
Posted on June 19, 2014 by Kenny Polcari
But – the FED still faces a number of questions we are now in our 5th yr of assistance, the economy has ‘continuously failed’ to take root, to live up to projected growth forecasts -( yet the mkt would have you believe that we are firing on all 8 cylinders)…so again – Janet lowered the expectations of future growth suggesting that the new normal may be as little as 2.1% GDP while at the same time upping the ante to say that rates could be 1.2% in 18 months and as high as 2.5% in 34 months….funny – the media is portraying this new outlook as ‘aggressive’. Aggressive?
I have been knocking my head on the wall saying that Janet and the 7 Dwarfs (Dopey, Grumpy, Doc, Happy, Bashful, Sneezy & Sleepy) would tend to err on the side of caution – saying that the US economy is recovering – slowly but recovering……but there are some obvious risks staring her in the face. Rising oil prices, Rising basic necessity prices (food), Rising healthcare costs -( see below), instability in the Mid East, stagnant wages, less than ‘robust’ job creation….so it is NO wonder that she goosed the mkts yet again – to draw the attention away from a host of failed policy initiatives.
In addition – she is falling in line with the path taken by her international counterparts at the E C B, B of J, P B of Ch.
http://www.kennypolcari.com/2014/06/19/morning-thoughtsthe-7-dwarfs-try-the-pappardelle/
Precious metals soar as Fed stays dovish and Americans head into Iraq
Seeking Alpha Jun 19 2014, 15:10 ET
A nice-sized rally has turned into a melt-up for the precious metals and the companies that pull them out of the ground. Gold is up 3.9% to $1,319, its highest level in two months, and silver is ahead 5.7% to $20.90. GLD +3.6%, SLV +5.4%
The gold miners (GDX +4.7%), and the silver miners (SIL +6.1%).
A dovish interpretation of the FOMC news from yesterday makes for a nice excuse, as does the President's move to send 300 military advisers to Iraq to try and head off an all-out civil war there.
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Gold and silver miner ETFs: GDX, NUGT, GDXJ, DUST, GLDX, JNUG, JDST, RING, GGGG, PSAU, SIL, SLVP, SILJ
An Impossible Dream?
A contracting economy, the highest corporate tax rate in the world and more young adults than ever living at home with their parents are among the many “alarm bells” that should make reforming the tax code a priority, according to Michigan Republican Congressman Dave Camp.
Camp’s proposal would eliminate more than 220 sections from the tax code, reducing the size of the income tax code by 25 percent, according to the Ways and Means Committee website. The tax system would be collapsed into two brackets of 25 and 10 percent. The proposed overhaul would also cut the corporate tax rate to 25 percent.
Read more: http://www.realclearpolitics.com/articles/2014/06/19/citing_economic_alarm_bells_camp_pushes_tax_reform.html#ixzz3589d7wzB
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