Some thoughts on interest rates
Source: Manfinancial
12:29: One more thought and it is counter intuitive and a bit perverted, but the Fed may be thinking that the uncertainty over a pause or sign of a pause will lift inflation premium on the long end. This is one way to lift long rates and slow the economy, and could be done without necessarily destroying credit or over stressing the banking system – I know the Fed does not make much of the curve, but say a 100 bp inversion between 3 month bills and the 10 year will have an adverse like impact on the banking activity.
12:13: My thought is that the Fed is actually trying to be forward looking in policy. They are making some predication and looking to see if their outlook plays out. It is not easy to predict the future, but I believe the equity market will like this as it cuts down on the probability of a hard landing. In reality, the Fed has tightened 400 bps, and wage and salary growth is not great looking at most data sets. Additionally, the unemployment measures have been changed twice, lowered, in my career for political reasons. Forget all the glitter given to Greenspan, he was a master of boom and bust -- 1990/1991 recession somewhat a result of the 1987 crash – too much easy and then too much tightening. The 2000 recession was a function of LTCM bailout and technology bubble – too much easy and too much tightening. He really only achieved a soft landing in the mid 1990’s – 1 for 3. Fixed income will probably not like the Fed’s grace to the economy. There is likely to be an elevation in the inflation premium. The yield curve should tend to steepen. However, this dynamic may not come about quickly. If the Fed is right, it will pick up credibility. Lastly, don’t forget that there is a lot of liquidity flowing out of Asia and the Fed cannot deal with this directly. FX management by the Chinese, Japanese, and Koreans is a fact of live and may be over stimulating the economy globally.
12:12: Calls trend GDP growth at about 3.00 to 3.25%. She thinks this is where the economy will go.
12:11: There is somewhat a sense that the Fed is “winging it”. This related to a published report. She seems to suggest this. She says they are looking for surprise.
12:10: Says she will watch housing and consumer spending for overshoot, but Fed is watching everything.
12:09: Calls high oil and commodity prices a reflection of strong global economy. Notes China and India. Also says energy supply situation is at work. She notes geopolitics playing into high commodity prices. She seems to dampen the direct signal on inflation, but they must fit in with other indicators.
12:07: Calls labor market tight. However, she says there is no magic number where job growth leads to inflation. Must watch wages and compensation.
12:06: She says that it is not wise to look at one month of CPI data. She notes the acceleration in short term growth raet, but benign year over year rate. She is looking for signs of pass through.
12:05: She says to take the statements in context – see seems to say that the Fed is looking for the economy to slow or moderate toward trend. The Fed also seems to be looking for inflation to moderate or be stable. Under these conditions, the Fed would be willing to pause.
12:04: Yellen is on CNBC now.
12:29: One more thought and it is counter intuitive and a bit perverted, but the Fed may be thinking that the uncertainty over a pause or sign of a pause will lift inflation premium on the long end. This is one way to lift long rates and slow the economy, and could be done without necessarily destroying credit or over stressing the banking system – I know the Fed does not make much of the curve, but say a 100 bp inversion between 3 month bills and the 10 year will have an adverse like impact on the banking activity.
12:13: My thought is that the Fed is actually trying to be forward looking in policy. They are making some predication and looking to see if their outlook plays out. It is not easy to predict the future, but I believe the equity market will like this as it cuts down on the probability of a hard landing. In reality, the Fed has tightened 400 bps, and wage and salary growth is not great looking at most data sets. Additionally, the unemployment measures have been changed twice, lowered, in my career for political reasons. Forget all the glitter given to Greenspan, he was a master of boom and bust -- 1990/1991 recession somewhat a result of the 1987 crash – too much easy and then too much tightening. The 2000 recession was a function of LTCM bailout and technology bubble – too much easy and too much tightening. He really only achieved a soft landing in the mid 1990’s – 1 for 3. Fixed income will probably not like the Fed’s grace to the economy. There is likely to be an elevation in the inflation premium. The yield curve should tend to steepen. However, this dynamic may not come about quickly. If the Fed is right, it will pick up credibility. Lastly, don’t forget that there is a lot of liquidity flowing out of Asia and the Fed cannot deal with this directly. FX management by the Chinese, Japanese, and Koreans is a fact of live and may be over stimulating the economy globally.
12:12: Calls trend GDP growth at about 3.00 to 3.25%. She thinks this is where the economy will go.
12:11: There is somewhat a sense that the Fed is “winging it”. This related to a published report. She seems to suggest this. She says they are looking for surprise.
12:10: Says she will watch housing and consumer spending for overshoot, but Fed is watching everything.
12:09: Calls high oil and commodity prices a reflection of strong global economy. Notes China and India. Also says energy supply situation is at work. She notes geopolitics playing into high commodity prices. She seems to dampen the direct signal on inflation, but they must fit in with other indicators.
12:07: Calls labor market tight. However, she says there is no magic number where job growth leads to inflation. Must watch wages and compensation.
12:06: She says that it is not wise to look at one month of CPI data. She notes the acceleration in short term growth raet, but benign year over year rate. She is looking for signs of pass through.
12:05: She says to take the statements in context – see seems to say that the Fed is looking for the economy to slow or moderate toward trend. The Fed also seems to be looking for inflation to moderate or be stable. Under these conditions, the Fed would be willing to pause.
12:04: Yellen is on CNBC now.
posted by CODACap at
3:50 AM
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