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Not a rate-cut economy.

The inflation index that the Fed has anointed to be the yardstick for its inflation target – the PCE price index without the volatile food and energy components – rose 0.19% in May from April, according to the Bureau of Economic Analysis this morning. This increase in “core PCE” was near the top of the range since 2010. It followed the 0.25% jump in April, which had been the third largest increase since 2010:

Fed Chair Jerome Powell, at the press conference following the no-rate-hike FOMC meeting last week, gave a clear and succinct summary of the US economy. It was mostly in good shape, he said, in particular where it mattered the most: “All of the underlying fundamentals for the consumer-spending part of the economy, which is 70% of the economy, are quite solid,” he said.

He acknowledged that there were some problems, including the slowdown in manufacturing and the current bust in the vast US oil-and-gas sector, and that the Fed would be watching for further deterioration in the economy, before it would take action. But “low” inflation was another matter.

Sustained “low” consumer-price inflation – as the Fed defines it – worries the Fed, though it’s a godsent for consumers. If inflation, as measured by the core PCE price index, drops in a sustained manner below the Fed’s pain threshold, wherever that may be, the Fed would likely adjust monetary policy no matter what the economy does.

The Fed’s “symmetric” target is a 2% annual increase in the core PCE index, meaning the increase can fluctuate some above or below the target without causing the Fed to act.

…click on the above link to read the rest of the article…

The Capitulation of Jerome Powell and the Fed

March 25, 2019

The Capitulation of Jerome Powell and the Fed

This past week, on March 20, 2019, Federal Reserve chairman Jerome Powell announced the US central bank would not raise interest rates in 2019. The Fed’s benchmark rate, called the Fed Funds rate, is thus frozen at 2.375% for the foreseeable future, i.e. leaving the central bank virtually no room to lower rates in the event of the next recession, which is now just around the corner.

The Fed’s formal decision to freeze rates follows Powell’s prior earlier January 2019 announcement that the Fed was suspending its 2018 plan to raise rates three to four more times in 2019. That came in the wake of intense Trump and business pressure in December to get Powell and the Fed to stop raising rates. The administration had begun to panic by mid-December as financial markets appeared in freefall since October. Treasury Secretary, Steve Mnuchin, hurriedly called a dozen, still unknown influential big capitalists and bankers to his office in Washington the week before the Christmas holiday. With stock markets plunging 30% in just six weeks, junk bond markets freezing up, oil futures prices plummeting 40%, etc., it was beginning to look like 2008 all over again. Public mouthpieces for the business community in the media and business press were calling for Trump to fire Fed chair Powell and Trump on December 24 issued his strongest threat and warning to Powell to stop raising rates to stop financial markets imploding further.

In early January, in response to the growing crescendo of criticism, Powell announced the central bank would adopt a ‘wait and see’ attitude whether or not to raise rates further. The Fed’s prior announced plan, in effect during 2017-18, to raise rates 3 to 4 more times in 2019 was thus swept from the table. So much for perennial academic economist gibberish about central banks being independent! Or the Fed’s long held claim that it doesn’t change policy in response to developments in financial markets!

…click on the above link to read the rest of the article…

The Fed’s Failures Are Mounting

March 14, 2019

The Fed’s Failures Are Mounting

In the decade between “60 Minutes” interviews, the central bank has sparked a recovery without inflation but not much else.

Fed Chairman Jerome Powell has his work cut out for him. Photographer: Justin Sullivan/Getty Images North America

Danielle DiMartino Booth, a former adviser to the president of the Dallas Fed, is the author of “Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America,” and founder of Quill Intelligence.

Friday marks the 10-year anniversary of the Federal Reserve Chairman Ben S. Bernanke’s groundbreaking “60 Minutes” interview. To listen to current Fed Chairman Jerome Powell on the same show a decade later, the central bank’s best laid plans since then would seem to have played out according to script with one glaring exception: the Fed’s balance sheet.

When “60 Minutes” reporter Scott Pelley asked Bernanke if the Fed was printing money, his reply was, “Well, effectively. And we need to do that, because our economy is very weak, and inflation is very low. When the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation.”

If the primary goal was recovery without inflation, the Fed delivered. Since the onset of recovery in June 2009, the core personal consumption expenditures index, which measures the prices paid by consumers for goods and services net of food and energy prices that tend to be more volatile, has been above 2 percent in just five months in 2018, four in 2012 and one in 2011.

…click on the above link to read the rest of the article…

Federal Reserve Chairman Appears on 60 Minutes – Why Now?

March 12, 2019

Federal Reserve Chairman Appears on 60 Minutes – Why Now?

One of the most famous, and prescient, financial cartoons in American history is the above depiction of the Federal Reserve Bank as a giant octopus that would come to parasitically suck the life out of all U.S. institutions as well as free markets.

The image is taken from Alfred Owen Crozier’s U.S. Money Vs Corporation Currency, “Aldrich Plan,” Wall Street Confessions! Great Bank Combine, published in 1912, just a year before the creation of the Federal Reserve.

Last night, the current high priest of money printing, asset bubbles and inequality, Jerome Powell, appeared on 60 Minutes. Interviewer Scott Pelley mentioned the fact that such discussions are rare and noted the last time a Fed head appeared for such a chat was Ben Bernanke back in 2010.

As such, what I find most interesting about this event wasn’t Powell’s boilerplate, bureaucratic propaganda about how the economy’s doing fine and how much central bankers love average Americans, but why he and the institution he heads felt a need to do this now.

There’s no doubt something has the Fed spooked otherwise Powell never would have done this. One factor is they know the economic ground’s starting to shift beneath them, and they need to push a particular narrative ahead of time so central bankers can once again do as they please when “the time to act” arrives.

This is why Powell pushed the blame on the current economic slowdown on China and Europe. The Fed is no different than your average politician. It takes full credit when things go well, but endlessly deflects and blames outside forces when things fall apart.

Rule number 1 of the Federal Reserve: It’s never the Fed’s fault.
Rule number 2 of the Federal Reserve: It’s never the Fed’s fault.
Rule number 3 of the Federal Reserve…

…click on the above link to read the rest of the article…

Ides and Tides

March 11, 2019

Ides and Tides

Just as presidents are expected to act presidentially, Federal Reserve chairpersons are expected to act oracularly — as semi-supernatural beings who emerge now and again from some cave of mathematical secrets to offer reassuringly cryptic utterances on mysteries of the economy. And so was Jerome Powell wheeled out on CBS’s 60 Minutes Sunday night, like a cigar store Indian at an antique fair, so vividly sculpted and colorfully adorned you could almost imagine him saying something.

Maybe it was an hallucination, but I heard him say that “the economy is in a good place,” and that “the outlook is a favorable one.” Point taken. Pull the truck up to the loading dock and fill it with Tesla shares! I also thought I heard “Inflation is muted.” That must have been the laugh line, since there is almost no single item in the supermarket that goes for under five bucks these days. But really, when was the last time you saw a cigar store Indian at Trader Joes? It took seventeen Federal Reserve math PhD’s to come up with that line, inflation is muted.

What you really had to love was Mr. Powell’s explanation for the record number of car owners in default on their monthly payments: “…not everybody is sharing in this widespread prosperity we have.” Errrgghh Errrgghh Errrgghh. Sound of klaxon wailing. What he meant to say was, hedge-funders, private equity hustlers, and C-suite personnel are making out just fine as the asset-stripping of flyover America proceeds, and you miserable, morbidly obese, tattooed gorks watching this out on the Midwestern buzzard flats should have thought twice before dropping out of community college to drive a forklift in the Sysco frozen food warehouse (where, by the way, you are probably stealing half the oven-ready chicken nuggets in inventory).

…click on the above link to read the rest of the article…

Remember, The Fed Hasn’t Actually Done Anything Yet

March 1, 2019

Remember, The Fed Hasn’t Actually Done Anything Yet

When the financial markets got, um, choppy towards the end of 2018, the Fed caved almost instantly. But only rhetorically.

Fed chair Powell promised to stop raising interest rates and shrinking the money supply, and the financial markets, trained to salivate at the sound of Fed happy talk, immediately morphed from “risk-off” to “risk-on.” Stocks are now approaching last year’s all-time highs, bond prices are way up (which is to say long-term interest rates are way down) and the financial press is back to celebrating the “Goldilocks economy.”

But remember that as far as actual monetary policy goes, nothing has changed. Last year’s Fed Funds rate increases are still in place, while the Fed’s balance sheet remains diminished (which is to say the cash drained from the economy as the bonds in the Fed’s account were retired remains out of action). So the damage has not been undone, and it’s starting to bite. Some examples:

US retail sales are falling:

source: tradingeconomics.com

Housing, which a year ago was in a mini-bubble, is rolling over. Housing starts are down…

source: tradingeconomics.com

… while existing home sales have cratered:

source: tradingeconomics.com

US manufacturing orders missed big in the most recent reporting month:

Corporate earnings, meanwhile, are so weak that analysts are talking about an “earnings recession”:

From a February Zero Hedge article:

One week ago, when looking at the dramatic collapse in consensus Q1 EPS estimates, we noted that the “profit party” is over and the days of near record earnings growth are about to end with a bang as a result of the recent barrage in profit warnings and negative preannouncements, first and foremost starting with Apple, which issued a shocking guidance cut one month ago for the first time since 2001.

…click on the above link to read the rest of the article…

Weekly Commentary: Dudley on Debt and MMT

February 24, 2019

Weekly Commentary: Dudley on Debt and MMT

December’s market instability and resulting Fed capitulation to the marketplace continue to reverberate. At this point, markets basically assume the Fed is well into the process of terminating policy normalization. Only a couple of months since completing its almost $3.0 TN stimulus program, markets now expect the ECB to move forward with some type of additional stimulus measures (likely akin to its long-term refinancing operations/LTRO). There’s even talk that the Bank of Japan could, once again, ramp up its interminable “money printing” operations (BOJ balance sheet $5.0 TN… and counting). Manic global markets have briskly moved way beyond a simple Fed “pause.”

There was the Thursday Reuters article (Howard Schneider and Jonathan Spicer): “A Fed Pivot, Born of Volatility, Missteps, and New Economic Reality: The Federal Reserve’s promise in January to be ‘patient’ about further interest rate hikes, putting a three-year-old process of policy tightening on hold, calmed markets after weeks of turmoil that wiped out trillions of dollars of household wealth. But interviews with more than half a dozen policymakers and others close to the process suggest it also marked a more fundamental shift that could define Chairman Jerome Powell’s tenure as the point where the Fed first fully embraced a world of stubbornly weak inflation, perennially slower growth and permanently lower interest rates.”

And then Friday from the Financial Times (Sam Fleming): “Slow-inflation Conundrum Prompts Rethink at the Federal Reserve: Ten years into the recovery and with unemployment near half-century lows, the Federal Reserve’s traditional models suggest inflation should be surging. Instead, officials are grappling with unexpectedly tepid price growth, prompting some to rethink their strategy for steering the US economy.

…click on the above link to read the rest of the article…

Get Used to the “Powell Put”

February 15, 2019

Get Used to the “Powell Put”

In the land of the Federal Reserve and its market-manipulating mechanisms, there’s now an unofficial market term called the “Powell Put” or the “Powell Pivot.”

It is in direct reference to Fed chairman Jerome Powell. Before he became chairman, Wall Street referred to prior heads’ policies with terms like the “Greenspan Put” the “Bernanke Put” and the “Yellen Put.”

In layman’s terms, what the term means is that if the markets fall by too much, the Fed will swoop in and try to save the day, the month, or the year. A “put” in options terminology is insurance against a drop in prices. Nowadays, the “Powell Put” is the market’s insurance that the Fed will act to stimulate the markets if necessary.

Markets had been waiting for it to materialize. But Powell had previously talked about the need to raise rates to give the Fed “enough ammunition to fight the next crisis.” The size of the Fed’s balance sheet would also have to be reduced enough to provide it enough room to grow if needed.

Markets began to worry the Powell Put might never materialize when he raised interest rates in December, when the market was in the middle of a severe correction (that nearly culminated in a bear market). He also said the balance sheet reductions, or quantitative tightening, would run on “autopilot.”

Markets tanked on his comments. But then on Jan. 4, after stocks fell nearly 20%, the “Powell Put” finally materialized.

In comments addressing the American Economic Association, Powell said he was “prepared to adjust policy quickly and flexibly.”

And about the balance sheet reduction policy that was on autopilot in November, he said

…click on the above link to read the rest of the article…

The next recession could force the Fed to cut interest rates into negative territory. Here’s what that means, and how it could affect you.

February 8, 2019

The next recession could force the Fed to cut interest rates into negative territory. Here’s what that means, and how it could affect you.

Federal Reserve Chairman Jerome Powell takes the oath of office administered by Federal Reserve Board member Randal Quarles at the Federal Reserve in Washington, U.S., February 5, 2018. REUTERS/Aaron P. Bernstein/File Photo — Federal Reserve Chairman Jerome Powell taking the oath of office.

The San Francisco Federal Reserve recently published a paper indicating that an unprecedented policy step, if adopted, would have helped the economy recover more quickly from the most recent financial crisis.
With the next recession looming, a prominent Wall Street strategist thinks the unpopular tool will be needed to combat it.

The Federal Reserve’s extraordinary efforts to combat the Great Recession more than a decade ago raised many concerns about what tools it would have left to fight the next crisis.

One measure that was floated, but largely passed off as improbable, was the use of negative interest rates. The Fed already did the unusual and held its Fed funds rate — the benchmark for all other borrowing costs — near zero from 2009 through 2015. This made it sufficiently cheaper for companies and consumers to access credit and rebuild the battered economy.

Anything below zero, however, was once considered unthinkable. After all, a negative interest rate means that, for example, savers actually pay banks to hold their money instead of earning interest.

The mainstream discussion on negative rates has quieted down for a while since Sweden became the first country to cut rates below zero in 2015. But a recent paper from the San Francisco Fed, coupled with widespread concerns about an economic slowdown, are returning the concept to the forefront.

Vasco Cúrdia, the research adviser who wrote the paper, examined what would have happened had the Fed adopted a negative-interest-rate policy during the most recent recession.

“Allowing the federal funds rate to drop below zero may have reduced the depth of the recession and enabled the economy to return more quickly to its full potential,” he said.

…click on the above link to read the rest of the article…

Weekly Commentary: No Mystery

February 3, 2019

Weekly Commentary: No Mystery

January 30 – Financial Times (Sam Fleming): “After putting traders on notice six weeks ago to expect further increases in US interest rates in 2019, the Federal Reserve… executed one of its sharpest U-turns in recent memory. Leaving rates unchanged at 2.25-2.5%, Jay Powell, Fed chairman, unveiled new language that opened up the possibility that the next move could equally be down, instead of up. Forecasts from the Fed’s December meeting that another two rate rises are likely this year now appear to be history. Changes to its guidance were needed, Mr Powell argued, because of ‘cross-currents’ that had recently emerged. Among them were slower growth in China and Europe, trade tensions, the risk of a hard Brexit and the federal government shutdown. Financial conditions had also tightened, he added. Yet the about-face left some Fed-watchers wrongfooted and bemused. Many of those hazards were already perfectly apparent in the central bank’s December meeting, when it lifted rates by a quarter point and kept in place language pointing to further ‘gradual’ increases.”

The Wall Street Journal’s Greg Ip pursued a similar path with his article, “The Fed’s Mysterious Pause.” “Last December, Mr. Powell noted his colleagues thought they’d raise rates two more times this year, from between 2.25% and 2.5%, which was at the lower end of estimates of ‘neutral’—a level that neither stimulates nor holds back growth. On Wednesday, he suggested the Fed could already be at neutral: ‘Our policy stance is appropriate right now. We also know that our policy rate is in the range of the… committee’s estimates of neutral.’ If indeed the Fed is done, that would be a breathtaking pivot. Yet the motivation remains somewhat mystifying: What changed in the past six weeks to justify it?”

…click on the above link to read the rest of the article…

U.S. Debt Worries Fed Chairman Powell – Fears May Be Confirmed in March

January 26, 2019

U.S. Debt Worries Fed Chairman Powell – Fears May Be Confirmed in March

As we enter 2019, the U.S. national debt continues to grow, approaching $22 trillion with global Government debt sitting at $72 trillion.

It seems like the 21st century is hitting the U.S. with a debt “haymaker,” according to CNBC (emphasis ours):

U.S. debt began accelerating at the turn of the 21st century. The total jumped 85 percent to $10.6 trillion during former President George W. Bush’s two terms, another 88 percent to $19.9 trillion under President Barack Obama and has risen 10 percent during the first two years of President Donald Trump’s term.

And even though the U.S. economy may be growing, the sustained annual deficit exceeds $1 trillion. This is concerning economists, including Chairman Powell:

I’m very worried about it… It’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face.

If a recession hits (and signals are potentially pointing towards one), then having that amount of sustained deficit could be devastating.

And since the Fed is partially responsible for creating this debt problem, it seems odd for Powell to call it a “long-run” issue when it’s more of a “right-now” issue.

According to a recent CNBC article, normally when the deficit is expanding, the “Fed would be lowering rates”. But they aren’t. In fact, rates have been on a steady rise for the last few years.

At the global level, the picture isn’t much better. Debt has reached record levels, double what it was in 2007.

This is “leaving many countries poorly positioned for financial tightening as global interest rates begin to move higher,” says James McCormack, Fitch’s global head of sovereign ratings, in a statement.

Powell and other economists have every right to be concerned, because both debt and deficit spending may be spiraling out of control.

…click on the above link to read the rest of the article…

Fire the Fed?

January 21, 2019

Fire the Fed?

President Trump’s frustration with the Federal Reserve’s (minuscule) interest rate increases that he blames for the downturn in the stock market has reportedly led him to inquire if he has the authority to remove Fed Chairman Jerome Powell. Chairman Powell has stated that he would not comply with a presidential request for his resignation, meaning President Trump would have to fire Powell if Trump was serious about removing him.

The law creating the Federal Reserve gives the president power to remove members of the Federal Reserve Board — including the chairman — “for cause.” The law is silent on what does, and does not, constitute a justifiable cause for removal. So, President Trump may be able to fire Powell for not tailoring monetary policy to the president’s liking.

By firing Powell, President Trump would once and for all dispel the myth that the Federal Reserve is free from political interference. All modern presidents have tried to influence the Federal Reserve’s policies. Is Trump’s threatening to fire Powell worse than President Lyndon Johnson shoving a Fed chairman against a wall after the Federal Reserve increased interest rates? Or worse than President Carter “promoting” an uncooperative Fed chairman to Treasury secretary?

Yet, until President Trump began attacking the Fed on Twitter, the only individuals expressing concerns about political interference with the Federal Reserve in recent years were those claiming the Audit the Fed bill politicizes monetary policy. The truth is that the audit bill, which was recently reintroduced in the House of Representatives by Rep. Thomas Massie (R-KY) and will soon be reintroduced in the Senate by Sen. Rand Paul (R-KY), does not in any way expand Congress’ authority over the Fed. The bill simply authorizes the General Accountability Office to perform a full audit of the Fed’s conduct of monetary policy, including the Fed’s dealings with Wall Street and foreign central banks and governments.

…click on the above link to read the rest of the article…

Volatility Holds the Key to Markets in 2019

January 17, 2019

Volatility Holds the Key to Markets in 2019

Over the last two weeks, after making good on the four-rate interest hike of 2018, Fed Chairman, Jerome Powell, became more dovish to start 2019.

His change in tone is worth considering because of his historical stance on reducing the amount of artificial stimulus coming from the Fed. Last week, after the required five-year holding period for Fed transcripts were up, we got a glimpse into Powell’s thoughts from 2013, before he was Chairman.

Powell tried to persuade then-Chairman, Ben Bernanke, to reduce the Fed’s stimulus, even though it would lead to greater near-term market volatility. That was when the third round of the Fed’s asset-buying program (QE3) was in full swing. The Fed was purchasing an estimated $85 billion per month mix of Treasuries and mortgage-backed securities.

To indicate that the Fed wouldn’t buy bonds forever, Bernanke floated the idea of slowing down its program, or “tapering,” at some non-defined future date.

Powell, on the other hand, believed the market needed a specific “road map” of the Fed’s intentions. He said that he wasn’t “concerned about a little bit of volatility” though he was “concerned that there may be more than that here.”

Indeed, once Bernanke publicly announced the possibility of the Fed’s bond-buying program slowing down, the market tanked, in a response that became known as a “taper tantrum.” As a result, Bernanke backed off the tapering idea.

Fear of more taper tantrums kept the Fed in check after that. The Fed ultimately waited until it had raised rates sufficiently, before starting to cut the size of its balance sheet. But now Powell is the Chairman. And it seems that he is much less comfortable with volatility than he was under Bernanke, as his most recent remarks indicate.

But it certainly wouldn’t be the first time a Fed chairman has modified his views when he was in control. Alan Greenspan, for example, was a staunch advocate of the gold standard when he was younger (and as presented in Foreign Affairs). But once he was Fed head, suddenly he thought a gold standard wasn’t such a hot idea after all. Go figure.

…click on the above link to read the rest of the article…

Weekly Commentary: Global Markets’ Plumbing Problem

January 6, 2019

Weekly Commentary: Global Markets’ Plumbing Problem

“Goldilocks with a capital ‘J’,” exclaimed an enthusiastic Bloomberg Television analyst. The Dow was up 747 points in Friday trading (more than erasing Thursday’s 660-point drubbing) on the back of a stellar jobs report and market-soothing comments from Fed Chairman “Jay” Powell.

December non-farm payrolls surged 312,000. The strongest job gains since February blew away both estimates (184k) and November job creation (revised up 21k to 176k). Manufacturing jobs jumped 32,000 (3-month gain 88k), the biggest increase since December 2017’s 39,000. Average Hourly Earnings rose a stronger-than-expected 0.4% for the month (high since August), pushing y-o-y gains to 3.2%, near the high going back to April 2009.

Just 90 minutes following the jobs report, Chairman Powell joined Janet Yellen and Ben Bernanke for a panel discussion at an American Economic Association meeting in Atlanta. Powell’s comments were not expected to be policy focused (his post-FOMC press conference only two weeks ago). But the Fed Chairman immediately pulled out some prepared comments, perhaps crafted over the previous 24 hours (of rapidly deteriorating global market conditions).

Chairman Powell: “Financial markets have been sending different signals – signals of concern about downside risks, about slowing global growth particularly related to China, about ongoing trade negotiations, about – let’s call – general policy uncertainty coming out of Washington, among other factors. You do have this difference between, on the one hand, strong data, and some tension between financial markets that are signaling concern and downside risks. And the question is, within those contrasting set of factors, how should we think about the outlook and how should we think about monetary policy going forward. When we get conflicting signals, as is not infrequently the case, policy is very much about risk management.

…click on the above link to read the rest of the article…

Trump Is A Pied Piper For The New World Order Agenda

January 5, 2019

Trump Is A Pied Piper For The New World Order Agenda

In my last article, ‘The Fed Is A Suicide Bomber With A Deeper Agenda’, I explored and dismantled recent propaganda surrounding the Federal Reserve’s tightening actions, including the propaganda that Jerome Powell is some kind of rogue central banker who is rebalancing the system for the good of the nation. To summarize the points made in that article:

The Fed deliberately created the “Everything Bubble” so that it could be deliberately imploded at the proper time – in other words, the crash we have been witnessing so far during the final quarter of 2018 and continuing into 2019 is a controlled demolition of the economy. Jerome Powell is not some “rebel” going against the easy money dictates of the Fed. Jerome Powell is playing the role that has been given to him. Ben Bernanke and Janet Yellen’s job was to inflate the bubble. Jerome Powell’s job is to crash the bubble.

This is a tactic used by the Fed and the globalists that run it for over 100 years – conjure a debt bubble, deflate the debt bubble, cause a crisis, siphon up hard assets for pennies on the dollar, use the panic to gain more power and centralization, introduce new control measures while everyone is distracted, rinse, repeat.

This process of controlled demolition needs a considerable distraction so that the central banks and the globalists ultimately avoid blame for the painful consequences of the event. Enter Donald Trump and the false Trump vs. Globalist paradigm. As I mentioned last week, the Fed is only one side of the equation for the crash; Trump is the other side.

…click on the above link to read the rest of the article…

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