Speculation continues to swirl around the question of who President Trump will appoint as Federal Reserve Chair when Janet Yellen’s term comes to an end in February.
Trump will reportedly meet with Yellen this week to discuss the possibility of her staying on as the head of the central bank. During the presidential campaign, Trump was highly critical of Yellen, saying she is “obviously political,” and accusing her of “doing what Obama wants her to do.”
Last week, Janet Yellen announced the Federal Reserve will begin the much anticipated “tapering” of its massive balance sheet. The Fed chair also hinted another interest rate hike is in the works. After the most recent FOMC meeting, we raised the question: Is this a viable path forward, or is the central bank playing a game of monetary chicken? Peter Schiff has argued that the Fed ultimately won’t be able to reduce its balance sheet to any significant extent. So, despite the Fed’s hawkish stance, the path forward seems far from certain.
In a recent article published on the Mises Fed Watch, Tho Bishop also raised some poignant questions about how the Fed will actually move forward with monetary policy.
The Federal Reserve took a hawkish stance at its latest Open Market Committee meeting, announcing plans to begin unwinding its balance sheet next month. Fed chair Janet Yellen also indicated she plans to raise interest rates one more time this year.
Here’s the question: Is this a viable path forward, or is the central bank playing a game of monetary chicken?
A “put” is an option that gives the owner the right, but not the obligation, to sell a specific amount of an asset such as a stock at a set price within the specified time. During a recent interview on The Street, Peter Shchiff used the “put” to describe Federal Reserve chair Janet Yellen’s control over the US stock market.
The host opened the show talking about how the stock market recovered after the recent sell-off, but Peter didn’t share his optimism, saying he wouldn’t buy US stocks even if everybody thinks they’re going up. He said, “there’s certainly not enough upside potential to justify the downside risk” thanks to the Federal Reserve and the likely expiration of the “Yellen put.”
The real risk here is this market could go down a lot. We could have a bear market. We haven’t had one in a long time. That’s a 20% decline. Because we’ve had this ‘Yellen put,’ the Fed wouldn’t let the market go down when Obama was president. They certainly didn’t want it to go down before the election because they wanted to put Hillary Clinton into the Oval Office after Obama. So, they had the market’s back. There was this ‘put.’ But what if the put expired with Donald Trump? I don’t know if the Fed has much love for Trump. And now that Trump has put his brand on this stock market and this economy, maybe the Fed is happy to allow a bear market that can be blamed on Trump.”
America is partying like its 1928 – right before the crash the kicked off the Great Depression. Some analysts believe the next crash is looming on the horizon. What will spark it? That remains to be seen. But no matter what the catalyst turns out to be, Mark Thornton says the cause will be the same as the last several collapses – Federal Reserve policy. Therefore, we should dub it the Bernanke-Yellen Bubble-Depression This article by Thornton was originally published on the Mises Wire.
In a recent article I advocated for a new way of naming business cycles. The new approach emphasizes the cause rather than the effect. So instead of the “housing bubble” and “financial crisis,” we should refer to the Greenspan-Bernanke Crisis. Here we will turn our attention to the current situation.
We’re partying like it’s 1928.
Of course, that was the year before the Black Tuesday stock market crash and the beginning of the Great Depression. During a recent interview on CNBC’s Power Lunch, Morgan Creek Capital CEO Mark Yusko said he sees a lot of parallels between today and 1928-1929.
I have this belief that we’re flowing toward the path of 1928-29 when Hoover was president. Now Trump is president. Both were presidents with no experience who come in with a Congress that is all Republican, lots of big promises, lots of things that don’t happen and the fall is when people realize, ‘Wait, it hasn’t played out the way we thought.'”
Federal Reserve chair Janet Yellen spoke to Congress yesterday. She talked. But she didn’t say a whole lot.
Most analysts seemed to view Yellen’s speech as “more dovish.” She expressed concerned that inflation my not be rising fast enough to meet the mythical 2% target, and that could slow the pace of rate hikes.
It’s premature to reach the judgment that we’re not on the path to 2% inflation over the next couple of years. We’re watching this very closely and stand ready to adjust our policy if it appears the inflation undershoot will be persistent.”
The Fed is hawkish about jacking up interest rates, but even the mainstream is catching on to the disconnect between Fed rhetoric and actual data.
The recent Federal Reserve rate increase and talk of more boosts in the future has sparked a rally for the dollar. This has caused the price of gold to sag. But TJM Institutional Services managing director Jim Iuorio recently said on CNBC’s Futures Now that he’s still bullish on gold because he thinks the Fed’s hawkish tone doesn’t line up with actual economic data.