Last week’s FOMC meeting went as expected but the press conference actually provided some solid questions as the media put some pressure on Chair Jerome Powell. NPR actually received an answer to what TRANSITORY means to the Fed chair: Prices will stay but the process of inflation will stop or slow dramatically. Hmm, the continued use of the LUMBER and AUTO markets did not reflect that definition at all. It seemed that the authorities were pursuing the concept of roll back.
Steve Liesman asked the first group of questions and went after Powell, asking about the issue of inflation or employment being the most critical. Liesman was not aggressive in pursuit of this question but the genesis got the FED to discuss the employment issue: Both inflation and jobs play critical roles in the FED‘s decision to begin tapering ASSET PURCHASES.
Also, the FED and other central banks will strive to avoid the mistake that Powell made in 2018. It will either be balance sheet shrinkage OR interest rate increases, not both simultaneously.
Fed policy makers Neel Kashkari and Lael Brainard picked up on Powell’s concerns about the employment situation via weekend speeches and press appearances. Kashkari warned on “Face the Nation” that the Covid delta variant could be a problem for service jobs returning. Then, in an appearance at the Aspen Economic Strategy Group, Governor Brainard again noted, “while we are seeing progress on employment, joblessness remains high and continues to fall disproportionately on African Americans and Hispanics and lower-wage workers in the service sector.”
The FED has many voices of concern for social justice, which I believe prevents any premature tightening. Brainard summed it up thusly, “The determination of when to begin to slow asset purchases will depend importantly on the the accumulation of evidence that substantial further progress on employment has been achieved. As of today, employment has some distance to go.”
As we saw back in 2012-13, this gives the FED the ability to keep moving the goalposts. Remember when 6.5% unemployment was going to be the key barometer? This cements lower for longer.
Traders beware: The G-30 is a non-elected body that carries great influence with global financial authorities. The Fed announced Wednesday the permanent establishment of domestic and foreign repo operations. I believe this caused all asset classes to rally during Powell’s press conference. The DOLLAR sold off as it was revealed that besides a domestic repo there would be a foreign facility for up to $60 billion for any dollar-stressed institution.
What bothers me is that prior to the FED’s announcement, there was a story on the Financial Times’s website titled, “U.S. TREASURY MARKET NEEDS URGENT REFORM,WARN FORMER POLICYMAKERS.” It was put forward by the AUGUST group known as the G-30. This specific report was led by former Treasury Secretary Tim Geithner, who now heads up the private investment bank Warburg Pincus. (I advise my readers to examine the members of this group and judge the insider trading possibilities which exist.) There are many on this committee that I hold in high esteem and several that I hold in contempt.
The point remains that the financial media ran this story five hours before the announcement. More importantly, the establishment of a Standing Repo Facility, or SRF, acts to alleviate the onerous restrictions of the Supplementary Leverage Ratio since the exemptions ended March 31. (Remember, upon this announcement, the Fed said it may need to address the current design and calibration of the SLR due to the recent growth in the supply of central bank reserves and the issuance of Treasury securities.)
Senators Warren and Brown will be upset as the FT article said: “Without permanent changes to the SLR,’banks are highly unlikely to allocate more capital to market-making in the Treasury and treasury repo markets.” (Do not think that my complaint is based on market losses for as soon as I read this Fed plan I sold dollars and bought gold.)
The problem remains that the FED bent to the consultations of this illustrious non-elected group with potential for great financial impact. It further confirmed my hypothesis that the FED cannot lead the move to end QE but must be a laggard or suffer the consequences of an overly strong DOLLAR.
***One further point considering the financial impact of nation-states. On Friday, the Swiss National Bank announced that it made $47 billion dollars on its portfolio for the first half of the year, with reserves reaching $1.1 trillion. The SNB invests 25% of its reserves in global stocks as it continues to practice alchemy by printing SWISS FRANCS and selling them to keep the EUR/CHF cross under control. (Much of SWISS trade is with the EU.)
This gain on equities easy supplanted the $14 billion loss sustained from the BOND market. Again, the SWISS are a nation-state actor with a heavy influence on the scales of global financial outcomes. The FED buys its own bonds while the Swiss, Japanese, Russians, Chinese and others use the power of their foreign reserves, pensions, insurance funds, and sovereign wealth funds to acquire a myriad of assets. Wait for the G-30 to provide guidance for Powell and company.
Tags: employment, Federal Reserve, G-30, inflation, standing repo facility, Swiss National Bank, tapering, U.S. Dollar
August 1, 2021 at 9:55 pm |
Mr. Powell & Company remind me of Justice Potter Stewart’s famous quote from Jacobellis v. Ohio (1964).
“I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description, and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that.” (“shorthand description” = hard-core pornography)
August 2, 2021 at 6:28 am |
Professor—years of wisdom gleaned from the ag based banks have rendered you an expert on financial pornography—we know what we see it but just can’t take our eyes away.It was Joseph who was the first grain futures merchant but Joseph’s greater role is that he did not succumb to the pornographic desires of Potiphar—-we may have the wisdom to plan ahead but do we have the inner-strength not to succumb to the desirable cheap money and trade the short term affects but be prepared for the inevitable pain—-pain flows two ways—first as financial repression and the power of the backflow—-see the last quarter of 2018 for the story
August 2, 2021 at 3:19 pm |
remember when Hildebrand had to resign as head of SNB due to his wife’s (now former wife) currency trading excapades? like he didn’t know what she was going to do….they’re all rotten…..
August 3, 2021 at 4:24 am |
If. Bitcoin. 0
https://www.economist.com/finance-and-economics/2021/08/02/what-if-bitcoin-went-to-zero?utm_campaign=the-economist-today&utm_medium=newsletter&utm_source=salesforce-marketing-cloud&utm_term=2021-08-02&utm_content=article-link-2&etear=nl_today_2
August 3, 2021 at 7:36 am |
[…] Link Here to the Blog Post […]
August 4, 2021 at 11:35 am |
Clarida Speech worth a read…https://www.federalreserve.gov/newsevents/speech/clarida20210804a.htm
Highlights
“But let me be clear on two points. First, if, as projected, core PCE inflation this year does come in at, or certainly above, 3 percent, I will consider that much more than a “moderate” overshoot of our 2 percent longer-run inflation objective. Second, as always, there are risks to any outlook, and I believe that the risks to my outlook for inflation are to the upside.”
“While, as Chair Powell indicated last week, we are clearly a ways away from considering raising interest rates and this is certainly not something on the radar screen right now, if the outlook for inflation and outlook for unemployment I summarized earlier turn out to be the actual outcomes for inflation and unemployment realized over the forecast horizon, then I believe that these three necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022…My expectation today is that the labor market by the end of 2022 will have reached my assessment of maximum employment if the unemployment rate has declined by then to the SEP median of modal projections of 3.8 percent.”
“Given this outlook and so long as inflation expectations remain well anchored at the 2 percent longer-run goal—which, based on the Fed staff’s common inflation expectations (CIE) index, I judge at present to be the case and which I project will remain true over the forecast horizon”
August 5, 2021 at 9:29 am |
Recoba—I listened to that interview with Posen and the obvious question to Clarida is why didn’t you vote NO at the FOMC meeting—he clearly disagrees with Powell on the unemployment as he sees it aggregated and not looking at the affects on Blacks and Hispanics as Powell continually points out—so as Clarida sees it he ought to be voting NO,NO,NO for that would be more important then any speech he makes
August 4, 2021 at 5:59 pm |
https://tradingeconomics.com/germany/30-year-bond-yield
The entire German yield curve is negative.