Friday, January 30, 2015

THE INSIDE SCOOP Yellen Meets Privately With Senate Democrats

Janet Yellen mat at a private luncheon on Thursday with Senate Democrats and according to a WSJ report told them that “things are going well” for the economy.

Sen. Joe Manchin told reporters after emerging from the luncheon Thursday afternoon that “She feels the economy is strong, a lot is good,” he said.

This is pretty much what I wrote in the EPJ Daily Alert yesterday about the Fed view. There is no indication that the Fed, like some forecasters are suggesting, will launch into another QE round anytime soon. I wrote:
There were no surprises in the FOMC policy statement released yesterday. All indications are that the Fed will start to raise rates sometime near the start of the second half of this year...

That said, I do want to point to the first paragraph of the statement, which provides a very good snapshot as to how the Fed does view the current economic situation:

Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace.  Labor market conditions have improved further, with strong job gains and a lower unemployment rate.  On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish.  Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power.  Business fixed investment is advancing, while the recovery in the housing sector remains slow.  Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices.  Market-based measures of inflation compensation have declined substantially in recent months; survey-based measures of longer-term inflation expectations have remained stable.

In other words, the Fed thinks that the economy is improving nicely.There is really no sense at all that they are going to launch a new round of quantitative easing anytime in the near future. I do a lot of radio interviews and one of the top questions I am asked is about such a new round of QE. It is not going to happen. The Fed is very comfortable with the current trends in the economy. 


  1. "The Fed is very comfortable with the current trends in the economy."

    Is there any surer sign that current trends will not continue?

  2. If the stock market cracks, as I suspect it will in the next few months, QE will definitely be back on the table. This will be especially true as the corporations that rely on non-domestic markets for a good slice of their revenue begin their lobbying efforts to make the case that the strong dollar is punishing them.

  3. Oops! Peter Schiff was wrong again about QE in 2015?

  4. Love the irony. The biggest debate against a central bank since the beginning of our country is that it will be controlled by politics and not rational level-headed thinking. When I was an auditor we were told the appearance of independence was as important as being independent. One would think this would also be a guiding principle at the Fed even more so. Yet, it appears that the Fed does not care at all about appearing independent which probably means that it also does not mind being politically driven. So unprofessional.

  5. However, personal consumption soared 4% in Q4 after 3.2% in Q3. Spending was led by … healthcare spending.
    Any wonder why mortgage purchase applications are so low? We are spending our money on healthcare and inflated house prices.

    The typical middle-class American family is not prepared for a major financial shock.

    This family could only replace 21 days of income with readily accessible funds, leaving it on financial thin ice in case of an emergency, according to a new report from Pew's financial security and mobility project. Those funds include cash on hand or in savings and checking accounts.

    Even if the family liquidated all its retirement savings and investments, it could only replace 119 days of income.

    The lowest-income families are even more strapped, with only 9 days of ready cash. But even the richest Americans can only dig up 52 days in an emergency.

    ex out stock option gains/asset gains and machinations with debt and your illusion of strength ceases to exist.

  6. Has QE really ended? I understand the Fed is still "re-investing" billions of the coupon payments of the bonds in their 4 trillion portfolio each month. Also, weren't Yellen's "everything is awesome" comments accompanied by an assurance not to raise rates "immediately?" Why was It even necessary to have this confab with Congress? Oh yeah, the Fed is 100% political now. Any attempt to raise rates will be equivalent to touching any number of political third rails. What happens to the debt service on $18 tril when rates go up? What happens to value of fixed income instruments and derivatives not to mention the almighty stock indices? I think it's possible we'll see official negative rates first.