Notes From Underground: The Fed Meets Market Expectations … So How Was It Unanimous?

In the Beatles Album “Let It Be” John Lennon introduces the phrase, “Doris Gets Her Oats.” It’s supposedly just typical Lennon gibberish. But in a nod to the Beatles, Janet Yellen got her oats and the Fed did not LET IT BE. The “oats” that Janet got was that the FED increased its interest on excess reserves (IOER) to 50 basis points and overnight reverse repo (O/N RRP) rate to 25 basis points in order to pull the fed funds into the corridor. The most astounding outcome was that FOMC vote was unanimous, 10-0. With the recent über-dovish comments from Fed Governors Brainard and Tarullo, how could they have voted with the Fed Chair? Some commentators remarked that the “historic” occasion of Yellen presiding over the first Fed hike in almost nine years needed a unanimous vote. Question: What did Chair Yellen have to promise the über-doves in order to garner their votes and suffer the wrath of the Shadow Fed Chairman, Larry Summers? This will be an important question going forward for it may mean that Yellen may have compromised herself to lower for longer.

The FED also announced that it will make available more than $2 trillion of U.S. Treasuries of its balance sheet assets to ensure the O/N RRP facility operates in a smooth manner. At first thought I perceived this to be hawkish but as Danielle Booth wrote today in a piece titled, “The Fed Awakens”, the increase of the O/N RPP protects the FED from having to shrink its balance sheet, which would be the ultimate hawkish move.

The markets’ response to the FOMC move was predictable in that the equity markets sharply rallied. But the GOLD, SILVER and CURRENCIES were left dazed and confused. As I have suggested, the Friday closes will be more important than the algo-driven immediacy of market volatility. The YIELD curves will help shine a light on some of the uncertainty but I advise being patient.

The ECB still has plenty of QE to do for the month of December as European sovereign debt yields have risen as the ECB waited for the FOMC to make its determination. Volatility has been the theme of the fourth quarter and now that we are in the final stretch of the year and with so many fund managers nursing poor annual performances be cautious about erratic movements aided by a lack of liquidity-inspired holiday markets. I will try to right an extended piece before Monday.

***NOTE: I recorded a web posting for the Financial Repression Authority with Gordon Long. The link is below and I know the response to it will not be unanimous.

Tags: , , , , , , , , , ,

14 Responses to “Notes From Underground: The Fed Meets Market Expectations … So How Was It Unanimous?”

  1. Simon GILLIS Says:

    I dont think its gibberish… “Got her oats” in Britain means: had sex

  2. asherz Says:

    Yra-Your Financial Repression posting asks the question, will it be a French or a German Euro? If all it took to relieve a debt problem was QEs and printing paper, Zimbabwe would be in great shape. Germany tried that in 1922/3 with the Papiermark. We know what happened. That history over 90 years ago still affects Bundesbank policy today. Declining free cash flows seemingly has not affected the equity markets as Algos are tuned in to Fed statements. But as hard as white haired Yellin tries to resemble Santa Claus, the canary in the coal mine (how long will we still be able to refer to those after the global climate change enthusiasts Paris convocation) is the Junk Bond market. Blocked Third Ave-like redemptions will begin to proliferate mutual and hedge funds as liquidity in many markets recedes and the fundamentals overwhelm the Central Banks market determinists. As Bernard Connolly concludes in his The Rotten Heart of Europe, capitalism as we know it is being destroyed by our financial elites. The 2016 players of The Big Short are busy at work.

  3. arthur Says:

    So forget Star Wars – it’s the prospect of a new episode of Currency Wars that is occupying our thoughts. The dark forces of deflation and secular stagnation may be about to intensify.

  4. Nnic Says:

    If you’re English, you know what ” got your oats” means but not fit for reprint here

  5. yra Says:

    To my brits—I guess in this sense it fits for yellen it seems an unanimous FOMC rate rise is ORGASMIC–see the equity markets for a ZF

  6. Sophocles Sophocleous Says:

    Nice interview. Can we order the book from your website?

  7. Chicken Says:

    Helicopter money for special interest groups, can’t simply print near enough to paper over this giant pooch screw. Otherwise, gold would be flying.

    Bait and switch combined with lip service is the tool of tools..

  8. yra Says:


  9. kevinwaspi Says:

    Utter nonsense! The IOER move to 50bps just doubles the reward to my banks for talking no lending risks, and I didn’t even ask her for a Christmas present! These academics are pathetic!

    • Chicken Says:

      Lets see how those banks do with their newly flatter yield curve…. I guess they will need all the help they can get.

      China Beige Book not looking to good? Commodities dead forever?

      “The Beige Book’s profit reading is “particularly disturbing,” with the share of firms reporting earnings gains slipping to the lowest level recorded, CBB President Leland Miller wrote in the release. While retail and real estate held up reasonably well, manufacturing and services performed poorly, with revenues, employment, capital expenditure and profits weakening.

      The survey shows “pervasive weakness,” Miller wrote in the report. “The popular rush to find a successful manufacturing-to-services transition will have to be put on hold for a bit. Only the part about struggling manufacturing held true.””

  10. yra Says:

    Waspi—great post as are all the pieces that people have taken time to reply.Also,the new DEAN seems to be a refreshing addition to the Business school

  11. Chicken Says:

    Can it be said the FED raised b/c they felt compelled to absorb some sting from the coming realizations?

    I’m pretty sure they were upset about Congress raiding their coffer for infrastructure funds as well but I think Congress was smart to do this instead of allowing the FED to walk away with this wealth?

    Am I off base, delirious?

  12. the american limey Says:

    Well it’s going to be a VERY happy 2016 as the old country has started the music on forcing the Scots to go it alone. In my favourite newspaper ( the FT) the “bonus” section is dedicated to my tipple, single malt scotch and the business of producing it. bottom left is the “minimum pricing proposal prompts a spirited defence”

    So right now a bottle of the good stuff has 78% tax on it, you’d think that would push the kilted ones over the edge to William Wallaceville BUT NO! BUT undaunted our heroes in London have a new cattleprod called “taxing the alcohol.”
    now last go round our advice to the men in skirts was NOT To go independant as the have a pretty poor health level and oil revenues wouldn’t cover it BUT this time through the lads under Big Ben have a rip snorter of an idea right up their with the Molasses tax remember how well that went down in 1733 ( spotting a trend are we…) how about the Cider Bill of 1763. So if you are looking for an interesting investment strategy consider Haggisville separating from the land of spotted dick. More fun that figuring out the feds next move ( reducing the number of hikes to 2 from 4)
    a happy xmas to all and take the time to watch a great little film called “Local Hero”

    • Chicken Says:

      Hasn’t Argentina also just gone through a period of price control? I believe the final conclusion was to vote out the old same thing in favor of a new same old thing?

Leave a Reply

%d bloggers like this: