Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Futures are riding the wave again as details of Fed VP “Easy Money” Janet Yellen filter out. Clearly if it were solely up to her, we’d be on a continuous IV of easy money for many years ahead. Granted we’ve been in special accommodation for four years now – so perhaps she is getting what she wants – we’ve still got at least 2 more years of it and if Obama is re-elected it appears Janet will be our new Chair(wo)man!
Too many people focus on all these Fed heads – only 3 matter: Ben, Janet, and NY VP head honcho Dudley. Everyone else is just details. Futures are up nearly 0.4% as I speak type and any confirmation from Ben tomorrow will surely provide a sugar high to markets. No one asks anymore what good these actions do, but since everyone has been trained by the “Tepper rule” to buy when the Fed does an action, there is no need for questions. While I believe each Fed action go forward is going to have a shorter and shorter half life, until the market believes the same we know the game. I wonder what happens when in the future we are in the heart of a QE program and the jobs numbers go negative; will there be calls for QEsquared? (a QE on top of a QE?)
Zero Hedge with the speech here. Reuters with the summary:
- The Federal Reserve’s second-highest official on Wednesday laid out the case for the U.S. central bank to provide more support to a fragile economy as financial turmoil in Europe mounts. Janet Yellen, the vice chair of the Fed, cited risks from ongoing housing problems, a weak jobs market and worsening financial conditions in a speech in Boston. Her views carry great weight with Fed Chairman Ben Bernanke, and her comments suggest that the Fed may be close to easing policy again.
- Yellen said the U.S. economy is growing at around a 2 percent rate and said the labor market seems to have stalled – and that is before the scheduled year-end expiration of various tax cuts that she said would be another “huge drag” on growth. Because of “a number of significant downside risks,” Yellen said, “it may well be appropriate to insure against adverse shocks that could push the economy into territory where self-reinforcing downward spiral of economic weakness would be difficult to arrest.”
- Yellen, who is known as favoring aggressive Fed moves to support growth, laid out a thorough argument why the economic outlook is darkening. Her remarks came on the heels of remarks by several centrist Fed policymakers who also expressed mounting concerns.
- Yellen said the Fed could buy more bonds to keep rates low or push even further out the date it has given for when to expect the central bank’s first interest rate increase. The Fed, which has kept rates near zero percent since December 2008, has already pledged conditionally to keep rates ultra low until at least late 2014. “I am convinced that scope remains for the (Fed) to provide further policy accommodation either through its forward guidance or through additional balance-sheet actions,” she said. While both communications tools and bond purchases have limitations and costs, the looming risks make a strong case for the Fed to take precautionary steps to safeguard the economic recovery, Yellen said. Asset purchases could take the form either of a fresh round of bond purchases or an extension of the current program exchanging shorter-term securities for longer-term ones, which pushes down longer term interest rates, she added.
- In making a case for monetary policy insurance, Yellen cited risks that the European sovereign debt crisis could spin out of control. “The deterioration of financial conditions in Europe of late, coupled with notable declines in global equity markets, also serve as a reminder that highly destabilizing outcomes cannot be ruled out,” she said.
(I am still amazed equity markets are part of the Fed’s equation even though I should no longer be after they apparently explicitly target it now.)
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