In testimony before the Senate Banking Committee, Fed Chair Janet Yellen flagged “considerable uncertainty about the economic outlook” higher up in her remarks. Then she reiterated later on that “the economic outlook is uncertain, so monetary policy is by no means on a preset course.”
Not enough evidence for you that the Fed is confused? Then consider that Yellen used some variation of the word “uncertainty” 13 times at the press conference that followed last week’s meeting, according to a Reuters tally. That was twice as much as in March.
The Fed’s actions at that meeting were puzzling, too. Consider: The “dot plot,” which tracks members’ forecasts about future policy steps, showed a large reduction in the forward path of interest rates. But at the same time, the Fed barely downgraded its estimates of future GDP and unemployment trends.
|Federal Reserve: “Considerable uncertainty.”|
That makes no sense. Why wouldn’t you raise rates as much as you thought you would a few months ago unless you believed the economic outlook was getting worse? If you do now believe that, why aren’t you cutting your economic and job growth forecasts?
I can assure you that you will NOT get a bunch of namby-pamby, on-the-one-hand/on-the-other-hand stuff here in Money and Markets. My job, and the job of my colleagues, is to tell it like it is. So here goes:
I see a bunch of global central banks that have printed up more than $12 trillion in new money via QE and that have cut interest rates more than 650 times since the Lehman Brothers collapse. They have bought everything from government bonds to corporate bonds to ETFs and REITs in order to prop up asset markets.
But here we are almost eight years later, and growth, inflation and global interest rates remain stuck in the muck. Not only that, but the latest figures, data and anecdotal observations clearly tell me the credit cycle has turned for the worse, and that we are now stumbling toward recession.
Treasuries and gold are blowing away stocks when it comes to investment performance, and within the stock market, it isn’t your higher-risk sectors leading. It’s utilities, consumer staples, telecoms, and other “Safe Yield” plays.
|“I see clear evidence that things are getting worse, even if the Fed can’t.”|
I don’t see much uncertainty or ambiguity in that. I see clear evidence that things are getting worse, even if the Fed can’t (or won’t admit to doing so).
But that’s just me. What’s your take on the economy and policy here? Are we headed toward recession, and is the Fed just afraid to admit it? Or do you think we’ll be able to keep muddling through? Why does Yellen keep reiterating a message of “uncertainty”? Share any thoughts you might have in the comment section.
It’s almost time for the Brexit/Bremain vote … and many of you shared your opinions on what you expect to see, as well as what you’d like to see, happen.
Reader Joseph I. said: “The U.K. was always a strong and powerful nation before joining the EU. Once it joined the EU, the U.K. lost its power and leadership in the world due to restrictions imposed by the EU. Therefore, the world really needs an independent, strong, powerful U.K. in order to maintain a balanced and safe world community. So Vote ‘Leave.’ “
Reader Nick said: “The ‘Brexit’ issue merely provides a distraction from the existing, more serious issues. The new ‘risk on’ sentiment on Monday, after new polls suggested that the U.K. is more likely to remain than leave the EU, was not a surprise. All of the established politicians and corporations in Europe have various vested interests in the U.K. remaining within the EU.
“But I am British and personally favour leaving, mostly due to the fact the EEC > EC > EU mutation has resulted in a largely undemocratic project governed by a system that can override many U.K. government laws and preferences. And it still costs the U.K. GBP 8 billion annually, at a minimum, as far as I can discover.”
As for the impact of the vote on the markets longer-term, Reader Clint said: “I don’t think either way the Brexit vote goes that it solves anything short or long term. The world is awash in debt. We have not totally come out of the 2007/2008 recession and in fact, we are in worse shape now than then. The weight of the debt load will sink the ship no matter what ocean you’re in.”
Reader Henry A. also picked up on that theme, saying: “It’s time to stop being distracted by worthless government statistics. Instead, you can see our future by looking at this one fundamental reality that underlies our economy: We no longer grow our economy by saving and accumulate capital.
“We now depend on artificial money expansion by government. Fiat money expansion causes bubbles, inflation, disparity of incomes, mal-investment (wastes scarce capital), non-productive debt, and a lower standard of living. It’s a free lunch for now, but we will pay dearly for it when the check comes.”
I appreciate all the comments, and I largely agree with them. We keep trying to paper our way over much deeper, fundamental problems – and that results in situations like today, where we have a massive “Everything Bubble” to deal with.
As for Brexit, just keep in mind what I said yesterday. The longer-term issue is the turn in the credit cycle here in the U.S. – and neither a “Remain” nor a “Leave” vote impacts that. If you want to add to the discussion, don’t forget to use the comment section below.
Is protectionism the next major threat to the global economy? That’s what the World Trade Organization just warned about in a new report. The group said countries are taking the most aggressive anti-trade steps seen since 2008 in an effort to prop up their economies at a time of weak global growth.
Boeing (BA) announced plans to sell as many as $25 billion worth of new airplanes to Iran Air, though any agreement is fraught with political, financial, and execution risk. Airbus is also angling for Iranian business in the wake of the rollback of foreign sanctions on the Islamic nation.
Mobile gaming is big business, and China’s Tencent Holdings wants a bigger piece of it. That’s the logical conclusion in the wake of news that Tencent will shell out $8.6 billion for Supercell Oy, a Finland-based maker of smartphone-based games like Clash of Clans. Baidu (BIDU) and Alibaba Group Holdings (BABA) are also likely to spend big bucks to boost their online presence at home and abroad.
Forget the economists and the pollsters. Gamblers in the U.K. are betting on the “Remain” camp winning in two days. British bookies can legally take bets on all kinds of events over there. And representatives of Ladbrokes PLC said betting patterns suggested “Remain” had a 74% chance of winning as of Monday.
So do you think British punters have the right idea? Or is there a real chance “Leave” wins the vote? Any thoughts on the global ambitions of Chinese companies like Tencent? How about the Boeing deal – will U.S. companies make significant amounts of money in Iran? Should they? Hit up the comment section to weigh in.
Until next time,