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.