Notes From Underground

The Kansas City Fed Symposium was steeped in boredom as all the hype failed to live up to the expectations of the media. The excitement centered around Mario Draghi potentially dropping hints about the beginning of quantitative tightening (QT). Rick Santelli spoke with former FOMC Governor Mark Olson, who rightfully predicted Chair Yellen would not reveal any sense of Fed intentions but he was dead wrong about Draghi. Olson opined that Yellen put the spotlight on President Draghi, but the ECB President must have suffered stage fright as he very bland when speaking to concerns about the Trump administration’s move to economic nationalism. There was not a single word about ECB policy.

It did appear that Chair Yellen and President Draghi did coordinate on their desires to prevent the rollback of financial regulations. Yellen spoke to U.S. issues. She said: “The balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth. But many reforms have been implemented only fairly recently, markets continue to adjust, and research remains limited. The Federal Reserve is committed to evaluating where reforms are working and where improvements are needed to most efficiently maintain a resilient financial system.” This statement highlights concern about maintaining regulations and seems to be directed at the White House/Wall Street efforts to rollback the Dodd-Frank financial regulations. President Draghi followed with his view: Specifically, when monetary policy is accommodative, lax regulation runs the risk of stoking financial imbalances.

By contrast, the stronger regulatory regime that we have now has enabled economies to endure a long period of low interest rates without any significant side effects on financial stability, which has been crucial for stabilizing demand and inflation worldwide. It appears that the central banks are relying on macro-prudential regulatory policy in an effort to prevent further exorbitant asset price appreciation. In the only reference to European economics, Draghi said — according to a Bloomberg headline, “Euro Area Recovery Is Gaining Ground.” The EURO CURRENCY rallied after the headline was published, definitively broken above the critical 118.50 spot price, even though there was not a hint of the ECB removing its NIRP nor QE.

My response to Yellen and Draghi’s speech is that Yellen and friends is pushing back against the narrative being promoted by the Wall Street inspired sycophants of established wealth.The financial is promoting the narrative of Gary Cohn for FED Chair and some pundits believe it is a given.These are the same voices who continued to promote Larry Summers back in 2013 over Ms.Janet Yellen–in this blog I stood firm against that narrative and today I stand against the promotion of the Cohn narrative.Then,as now,I believe the trio of Senators Lizzie Warren,David Vitter and Sherrod Brown will block a Wall Street insider from being in charge of monetary policy.

The Gary Cohn narrative is subsumed in the thesis of the Dodd-Frank rollback. If COHN were to replace Janet Yellen as the next Fed chair it would be a MAJOR victory for Wall Street over Main Street, resulting in the loss of President Trump’s last bastion of solid support. It wasn’t Wall Street that put Trump in the White House, therefore Trump owes the financial establishment NOTHING. Yellen’s speech in Jackson Hole was a warning shot about Wall Street’s designs on watering down the regulations put in place after the global financial crisis. For investors the question is: How much of the equity markets’ recent strength is due to the “COHN as Fed chair” narrative?

Tags: Dodd-Frank, ECB, Euro, Fed, Fed Chairman, financial regulation, Gary Cohn, Janet Yellen, Mario Draghi, QE, QT, tapering

This entry was posted on August 27, 2017 at 4:17 pm and is filed under ECB, Fed, Regulation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.