Notes From Underground: The Magnificent Seven … the Governors Fall In Line

The vote was the key to the FOMC statement. Three regional presidents voted to raise rates for various reasons but at least the votes reflected their speeches. The Magnificent 7 voted to maintain rates at the current levels and wait for more time for labor market conditions to tighten as wage growth accelerates. (I TELL YOU JANET IT IS ALWAYS SOMETHING.) So the governors, plus new dove James Bullard, held firm against the outlying presidents. There’s no inner court role for Mester, George or Rosengren. My problem is that Stanley Fischer and William Dudley, both vocal proponents of raising rates, voted with Chair Yellen. Make no mistake about it, THIS IS JANET YELLEN’S FED.

Yellen’s discussion was heavily reliant on the PHILLIPS CURVE to make her case for continued slack in the labor market. It has been this blog’s argument since 2013 that Chair Yellen was/is a labor economist who will err on the side of wages versus profits. If wage increases come out of corporate profits the FOMC will be reticent to punish labor. The stock market has been the recipient of “the only game in town” mentality of investing, which has certainly been rewarding. However, as Paul Singer and others have recently warned, corporate leverage is reaching historic highs and time to be cautious. Will the warnings prove out? I don’t know when but financial engineered stock buybacks won’t be able to support declining profits forever. Yes, I have also argued that the Larry Summers’ clarion call for a massive global fiscal stimulus effort and believe that it would be short-term bullish for global industrial stocks. I WARN: The global central banks are being called out for failure to understand the economies they influence.

The GOLD performed in sync with the moves by the FOMC and the BOJas both banks seemed to raise more questions than they answer. The BOJ wants to steepen the curve as their last move at creating inflation. The FED will be cautious in not creating a rise in unemployment, which they don’t want to be its legacy. GOLD doesn’t rise because of inflation, but because of FED credibility. Many journalists raised the issue of FED CREDIBILITY, even CNBC’s Steve Liesman. Steve didn’t use the word credibility for fearing of offending the Fed Chair but when you discuss the frequent movement of GOALPOSTS you are discussing the FED’s CREDIBILITY AS FORECASTERS. Yellen’s answer to Liesman was more Phillips Curve rhetoric. NO STRONG PRESSURES ON UTILIZATION,SO ECONOMY HAS MORE ROOM TO RUN.

Data dependency is a myth because there will always be another headwind to be concerned about. I will be on with Rick Santelli tomorrow morning at 9:40 CDT and hope to discuss this in-depth, BUT MY PREVIOUS COMMENT ON SANTELLI STANDS. Because Stanley Fischer failed to vote for raising rates after his über hawkishness at Jackson Hole the highly regarded academic OUGHT TO RESIGN. Lael Brainard ought to be vice chair. Mr. Fischer could have voted with the regional three but he failed to support his tough vote with a meaningful vote. Not so magnificent seven after all.

 

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6 Responses to “Notes From Underground: The Magnificent Seven … the Governors Fall In Line”

  1. Michael Oliver Says:

    I think that gold IS rising because of inflation, but is way out front by a year as is it’s norm. You owe me a beer of my choosing if I am correct. Decision in 6-12 months. Will issue Ignore the Fed editorial report in next several hours. That said, and even though you are wrong on gold! you have an incisive mind well beyond that of the “asset manager” zombies who walk Wall St.

    On Wed, Sep 21, 2016 at 7:43 PM, Notes From Underground wrote:

    > Yra posted: “The vote was the key to the FOMC statement. Three regional > presidents voted to raise rates for various reasons but at least the votes > reflected their speeches. The Magnificent 7 voted to maintain rates at the > current levels and wait for more time for labo” >

  2. kevinwaspi Says:

    Yra,
    Welcome back, good to have you at the helm, and hope that your break was a good one. Janet and Stanley are a perfect good cop, bad cop team in this world of THE ALAN PARSONS PROJECT’s “Psychobabble”. I cannot be as polite as Steve Liesman was, and admire him for his vocabulary and restraint.
    Looking forward to the Santelli spot, and when are you two coming to campus???

  3. Michael Oliver Says:

    And other comment (not on your site) from Mike. There should be no debate about who ought to be chair or vice chair. they should all be on wanted posters!

    On Wed, Sep 21, 2016 at 7:43 PM, Notes From Underground wrote:

    > Yra posted: “The vote was the key to the FOMC statement. Three regional > presidents voted to raise rates for various reasons but at least the votes > reflected their speeches. The Magnificent 7 voted to maintain rates at the > current levels and wait for more time for labo” >

  4. asherz Says:

    It is almost obvious that there is one decisive factor that determines Fed rate policy. The Dow Industrial Average.
    Latest proof- December 9. Janet trots out Eric Rosengren with a very hawkish trial balloon. Dow ends the day down 390 points and makes headlines. In the days following there are whispers that, “no we didn’t mean it.”
    Today they show they didn’t mean it. The Magnificent Ten would love to raise rates, but every time they hint at it, the market hits them in the face with a wet fish. They have been hung by their own petard, and boxed into a corner with no exit. Look for continuing global QEs, negative or low rates and markets divorced from fundamentals.
    Data points being flashed from time to time are just games being played by Three Card Monti experts.
    However when the day arrives that the dam breaks, you better not be standing in the way. In the meantime, the music is playing.

    • Yra Says:

      Asherz–well stated in so many ways.The question of the press conference and the major gotcha was asked by Benyamin Applebaum of the NYT—the waitress who doesn’t plat politics was trapped by the headwind of Brexit and why they couldn’t raise in June and why is the U.S. election cycle politics but the Brexit vote not or Greece or Italy —when you are in the global game it is all politics said Perchek to Tevye

  5. Chicken Says:

    No way Fischer resigns until his employer gives him the signal.

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