In response to an FT View on 10th April 2015, entitled 'Collateral damage from a delay to US rate hikes'
“One theory among investors has been that policymakers reached a tacit understanding on the advantages of a weaker dollar at February’s G20 meeting — an echo of the 1985 Plaza accord. This seems improbable, given repeated pledges to avoid any targeting of exchange rates”
Come on FT - this seems improbable given repeated pledges. Do you really think the Fed, or any central bank tells the truth about what it's up to? That's not how 'confidence' games are played.
Think back to Switzerland - "we will defend the peg to the euro at all costs...whoops, sorry Madame Lagarde, we forgot to tell you that we were coming off the peg on Monday morning. Yes I know we spoke last week but you know how it is - events dear girl, events"
Or Japanese NIRP. One minute it's "no chance", then a few days later Mr. Kuroda bumps into Paul Krugman or some other fan of tooth fairy economics in a Davos corridor and ‘whoops, events dear boy, events’.
There isn't enough salt mined in Pakistan to take with what these people say.
The Fed has a dilemma - If the dollar goes down, China is happy but Japan moves closer to its inevitable crisis. If the dollar surges, Japan is temporarily reprieved but China will be forced to devalue the Yuan and swallow capital flight, or watch its export sector slip further down the pan.
Who will Janet save? Does she know yet? What does her optimal control model say about the effects on the US, or will she consult the invisible spaghetti monster this time?
I've no idea. But I do know this. Rigging Pavlovian stock markets is easy for these folks, bond markets not so peachy, currency markets...no chance...$5 trillion a day slushing around...it's enough to make Paul Krugman break out in humility...well almost. What is it that Art Cashin always says at the end of his market missives? 'Stay nimble' or something like that...