In response to an FT article by Sam Fleming on 28th August 2016, entitled 'Cleveland Fed’s Mester outlines ‘compelling’ case for rate rise'
When the email arrived saying FT Exclusive: 'Cleveland Fed’s Mester outlines ‘compelling’ case for rate rise' I thought something compelling had happened...maybe something along the lines of Loretta Mester making a compelling case for a rate rise...
Instead, it seems that:
'Ms. Mester declined to say what her decision would be at the Fed’s September meeting, saying she wanted to review all the economic data at that time and listen to her colleagues. But she added: “Making another gradual step — there is a compelling case for that.”
Such compulsion is truly compelling, and such a giant leap from what she said to CNBC on Friday:
"I see a gradual...upward pace in interest rates as being appropriate." As to when the Fed might raise rates next, she said, "I go into every meeting with an open mind."
On the other hand she is slightly more compelling than Dennis Lockhart, who said this to the Wall Street Journal on Saturday:
"If we had a lot of good news and we got into the September meeting and other people wanted to go, I could support that - but again I'm talking about one increase and no planned increases after that."
But it matters little how compelled or not these folks are, or pretend to be - they talk rubbish. The prize for missing the point (a desk sized statue of Humpty Dumpty) should definitely go to Dr Janet Yellen, who said this:
"The federal funds rate at the start of the past seven recessions was appreciably above the level consistent with the economy operating at potential in the longer run. In most cases, this tighter-than-normal stance of policy before the recession appears to have reflected some combination of initially higher-than-normal labor utilization and elevated inflation pressures. As a result, a large portion of the rate cuts that subsequently occurred during these recessions represented the undoing of the earlier tight stance of monetary policy.”
In her new role as Head of Monetary Revisionism, it seems Dr Yellen would like us all to forget that just prior to the last recession mortgage debt had doubled since 2001/02, or perhaps she thinks that this doubling was caused by tight monetary policy...similarly we’re all supposed to believe that the low of 1% prior to the dotcom bust, was another example of tight monetary policy.
I used to think Dr Bernanke should win the statue of Humpty, but now I think it should go to Dr Yellen – Ben will have to make do with a marzipan model of the Pillsbury Dough Boy.
The Fed are frightened, and so they should be. They have lost control over the markets, which are now equally likely to do the opposite of what they want. They have lost control of the 'big beasts' like Icahn, Soros, Gross, and Gundlach who are shorting stocks, buying gold, and doing the rounds on CNBC and Fox telling the world that the Fed have lost it; and they have even lost control of Fed apologists like Jon Hilsenrath at the WSJ who last week wrote a piece entitled "Years of Fed Missteps Fueled Disillusion With the Economy and Washington"...yes really...
They have arrived at the point where fewer and fewer people take them seriously. Personally I think I'll watch what they do, not what they say...or perhaps try tea leaves...or even see if I can channel Eric the Octopus, now sadly deceased. Say what you like about Eric, but he never tried to rewrite history, and he also knew a bubble when he saw one.
PS. A fellow subscriber reminded me that the late lamented 'Eric the Octopus' was in fact 'Paul the Octopus'. Eric is still with us I believe, but his full title is 'Eric the Octopus Whisperer'. He runs snorkelling excursions in Maui and clearly has a great affinity with octopuses. His communication skills would be a great addition to the Fed, but I suspect that would be a backward step for him.