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Here is an interesting post by "Nemo" on self-evident.org, which might tie with EJ's speculation that the FED will do something to crash the market.
Calculated Risk draws our attention to a NY Times piece tonight:
As a general rule, the guys and gals on the FOMC do not even blow their noses in public without permission. They do not simply stand up and “speak their minds”.
Had it started and ended with Warsh going off the reservation two weeks ago, then it might be an anomaly.
But that was followed by Richard “speed and intensity” Fisher (speech), Charles “Great Inflation” Plosser (speech), Jeffrey “show stopper” Lacker, and Thomas “sooner rather than later” Hoenig (speech).
On the flip side, we heard from William “extended period” Dudley (speech - try searching it for “not well founded”) and Daniel “overstated” Tarullo (speech).
Whew!
This appears to be a deliberate attempt to introduce uncertainty into the market about the future course of monetary policy. Why might they want to do that?
Jansen:
Or perhaps the current behavior of financial markets is making the Fed a little nervous. (It is definitely making me a little nervous.) Maybe a rising stock market is good, but a 60% rise in six months is not. Maybe low interest rates are good, but Libor approaching zero is not. Maybe a weaker dollar is good, but skyrocketing prices across all assets, both risky and “risk-free”, is not.
Whatever they are thinking, these public statements are mighty peculiar.
Fissures are developing among policy makers at the Federal Reserve as they debate how and when to start raising the benchmark interest rate from its current level just above zero.
What is unusual is not that there are disagreements on the Federal Open Market Committee, but that these disagreements are being aired publicly. In the past two weeks, more than half a dozen FOMC members have made public statements about the “exit strategy” for the Fed’s extraordinary measures of the past two years, and their statements are largely contradictory.As a general rule, the guys and gals on the FOMC do not even blow their noses in public without permission. They do not simply stand up and “speak their minds”.
Had it started and ended with Warsh going off the reservation two weeks ago, then it might be an anomaly.
But that was followed by Richard “speed and intensity” Fisher (speech), Charles “Great Inflation” Plosser (speech), Jeffrey “show stopper” Lacker, and Thomas “sooner rather than later” Hoenig (speech).
On the flip side, we heard from William “extended period” Dudley (speech - try searching it for “not well founded”) and Daniel “overstated” Tarullo (speech).
Whew!
This appears to be a deliberate attempt to introduce uncertainty into the market about the future course of monetary policy. Why might they want to do that?
Jansen:
RBS Securities (the firm formerly known as Greenwich Capital) mentioned an interesting article by well respected research firm Wrightson in which Wrightson posits that some of the recent hawkish comments by Federal Reserve officials are a shot across the bow of leveraged speculators. Wrightson makes the salient point that if the trajectory of rates is unclear then leveraged positions are not such safe bets.
That is I think a key and under appreciated point with the new world of Federal Reserve transparency regarding policy.
The last Federal Reserve tightening cycle was completely transparent and consisted of 17 consecutive 25 basis point rate hikes which took the funds rate target to 5.25 percent from 1 percent. But Mr Greenspan diminished the effect of the tightening and never thoroughly damped down speculative excess as he made it manifestly clear that he would not raise rates in anything other than discrete 25 basis point intervals.
In so doing he allowed the junk which led to the current financial debacle to flourish.
When dealers and investors analyzed some of the detritus which was being created at the time, they knew that they had a clear path with no little hand financial grenades strewn across their path. The analysis of the returns to holding some of the junk was simple and easy and profitable and the lack of uncertainty encouraged production of garbage.
If dealers and investors had faced an uncertain and opaque future, then they would not have been as likely to load up on junk as they did. It would have been a much more cautious investing populace if the Federal Reserve had chosen a different path and left open the possibility that it might lob a couple of 50 basis point rate hikes in the path of investors.
If such a possibility had existed,then some of the speculative excesses which did develop might never have had a chance to hatch and history would be quite different.
Perhaps the message to financial actors is: Take precautions; do not over-extend; do not presume to know what happens next. Even if the Fed has never raised rates while unemployment was rising…That is I think a key and under appreciated point with the new world of Federal Reserve transparency regarding policy.
The last Federal Reserve tightening cycle was completely transparent and consisted of 17 consecutive 25 basis point rate hikes which took the funds rate target to 5.25 percent from 1 percent. But Mr Greenspan diminished the effect of the tightening and never thoroughly damped down speculative excess as he made it manifestly clear that he would not raise rates in anything other than discrete 25 basis point intervals.
In so doing he allowed the junk which led to the current financial debacle to flourish.
When dealers and investors analyzed some of the detritus which was being created at the time, they knew that they had a clear path with no little hand financial grenades strewn across their path. The analysis of the returns to holding some of the junk was simple and easy and profitable and the lack of uncertainty encouraged production of garbage.
If dealers and investors had faced an uncertain and opaque future, then they would not have been as likely to load up on junk as they did. It would have been a much more cautious investing populace if the Federal Reserve had chosen a different path and left open the possibility that it might lob a couple of 50 basis point rate hikes in the path of investors.
If such a possibility had existed,then some of the speculative excesses which did develop might never have had a chance to hatch and history would be quite different.
Or perhaps the current behavior of financial markets is making the Fed a little nervous. (It is definitely making me a little nervous.) Maybe a rising stock market is good, but a 60% rise in six months is not. Maybe low interest rates are good, but Libor approaching zero is not. Maybe a weaker dollar is good, but skyrocketing prices across all assets, both risky and “risk-free”, is not.
Whatever they are thinking, these public statements are mighty peculiar.
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