I've put my view out there as far as the flip-flopping, good cop/bad cop scenario the F_E_D is constantly engaged in and how it's not just "Plunge Protection", but rather whatever the market needs at the time depending on which way the cycle is set up.
The post on the broader subject is here, The Plunge Protection and Market Correction Team.
One of the recent posts documenting the absurd flip-floppoing of a single F_E_D official and how he says what is needed (by Wall Street) at the time when a cycle is already fully in place (either a base or a top), all of the comments are lined up with previously known base/top cycles that we had already tracked in most cases a week before the comments. That post, again dealing with 1 F_E_D President alone, Bullard, is here, Beyond Ridiculous!
I think all of you know that the last bounce-base we tracked was put together around 1/14 through 1/16, the very same day (the 16th), Bullard did another about face with the comments,
- *BULLARD: FED COULD RESUME UNCONVENTIONAL POLICY IF NEEDED
- *BULLARD SAYS LESSON OF QE IS IT WORKS `FAIRLY WELL'
There's absolute 'plausible deniability there", he didn't say QE would be started again, in fact for a normal conversation he didn't say anything even close, but for a market that hangs on every word including the placement of a comma between 1 policy statement and the next, this is akin to the Gospel and it lined up right with the base for a bounce we had been tracking, here it is (which you've already seen dozens of times since it developed...
The positive divegrence across the entire market (major averages) at the same place- January 14-16 and Bullard's comments from above, on the 16th, the day before the base launched in to the bounce expected of it.
Despite the history of flip-flopping and in some cases like on inflation expectations, the flip flop was so fast, from the October lows (which we had tracked a base we said would produce a "Face ripping rally" with Bullard's comments at the very lows of Mid October, "A logical response at this juncture is to delay the end of QE" to 1 month later, "Inflation expectations have rebounded since mid-October".
The obvious question is how can something like inflation expectations have such a dramatic shift when there's at best 1 month of data, 1 data point since the previous comment. With inflation, any 1 month change would be considered noise, not a trend, but the market needed what the market needed, just as it has always been my firm belief that QE was nothing more than a stealth bank bailout because the real bailouts in 2008 were so deeply unpopular with voters.
However, my point today on Bullard's comments, interestingly the day after Yellen's rumored comments from a luncheon with Senate Democrats which was a day after the F_O_M_C (previously I've never heard of any Yellen luncheon/private meeting leaks from meetings with Republicans and Democrats until yesterday) contrasts Yellen's "most current views", which are being spun as 180 degrees the opposite of the last press conference and of this week's hawkish F_O_M_C policy statement.
Will the real James Bullard Please Stand Up?
You may recall the very next market open, the 20th because of the long Martin Luther holiday for the markets, Bullard came out again with something completely different, which was what I have subsequently gone on to research and believe is his real position, possibly the F_E_D's real position for reasons I describe in a post I'll link to.
The comments of Tuesday January 20th from Bullard were,
"I still think we should get off zero (interest rates). The kinds of things we’re observing now, it is not the constellation of data that would be consistent with a zero policy rate. I think it is important to get started and to start normalizing policy...
The thing about the funds rate is it is 400 basis points below normal. We’ve really got an emergency setting for the policy rate right now and we don’t have an emergency constellation of data anymore."
The same day unofficial F_E_D mouthpiece, Jon Hilsenrath of the WSJ write in an article that the F_E_D would not be deterred from moving forward with interest rate hikes...
I made the argument that this is the actual Bullard opinion, which may indeed be the F_E_D's plan, which is being communicated by members piece meal as the F_E_D likes to do to avoid an SNB scenario.
The argument for that case was posted here, Comedy Central Bank and is entirely based on the fact that Bullard's Jan. 20th comments were nearly identical to a little known Bloomberg radio interview from April1 of 2014, with 9 months of "Data Dependency" between the two comments, they are nearly exactly alike, looking for the same rate hike of +400 basis points by 2016 with the rate hikes to start the first quarter of 2015. You'll have to read the post for the case, which I think is strong, it was probably strengthened today with Bullard's comments this morning to Bloomberg TV...
"St. Louis Fed President James Bullard, speaking on Bloomberg TV, said the U.S. central bank risked getting "behind the curve" if it delays an interest rate rise too long later this year. "We will have to move more aggressively at that point - instead of 25 points go 50 basis points, and that kind of dynamic is not a good one," he said."
Keeping interest rates near zero “is not the right interest rate for this economy. We are much closer to our goals than we have been in a long time. Inflation is a little bit low, but it is not low enough to rationalize the zero interest rate policy,”
“As long as we feel confident that inflation will go back toward target, and right now that is my baseline projection that inflation will go back toward target, I think we are certainly able and willing” to raise rates, Mr. Bullard said.
Mr. Bullard shrugged off the underwhelming U.S. growth data reported earlier in the day, in which the fourth-quarter gross domestic product was reported at an under-expectations 2.6% rise. He said the number was “fine,” adding that “there are a lot of good things going on in the U.S. economy.” The official said that he expects what is currently a 5.6% jobless rate to fall to under 5% in the third quarter of this year.
The European Central Bank's planned bond-buying program is an "unmitigated good" for the U.S. economy, which is enjoying "a lot of bullish factors" right now.
THIS IS EXACTLY IN LINE WITH THE COMMENTS FROM APRIL 1 2014 AND JANUARY 20TH 2015, while that may not seem like a big deal or smoking gun, when you consider how many contradictory things Bullard has said in the interim period, he's back to being right on point with policy that hasn't changed one bit in timing, scope and size of the rate hikes in 9 months, the exact same dates, interest rate, etc despite the fact US data has changed considerably over the last 9 months, especially over the last quarter and this month more specifically.
As Yellen had once said, they are communicating what they will do and if the market is not listening, she washes her hands of the market.
What I find most interesting is the fact that inflation is not at the F_E_D's target, yet Yellen has said that they'd hike before the target for inflation was hit, so long as they "feel" inflation is moving toward the target. In the meantime, we are seeing deflation, especially in Energy (oil/gas) which has been dismissed as transitory or near term. THE F_E_D'S INFLATION GUIDANCE HAS BEEN DEAD WRONG FOR 2.5 YEARS.
I suppose the point is, saying you feel comfortable that inflation is moving toward the target is a VERY arbitrary statement that the F_E_D has already shown they will make even when the evidence is moving in the opposite direction. I suspect there's something much scarier the F_E_D is worried about, perhaps something like the US economy being closer to the next economic downturn than they are comfortable with while sitting on zero rates s the BIS warned of months ago.
Whatever all of this is about, my guess is that by the time this is over, we'll see that the F_E_D is going to hike rates despite where the economy or inflation are at and the reason may be the most worrying thing of all. In my view, something has them very worried about having painted themselves in to this corner and they seem to be moving quickly toward getting out of the scenario soon.
Bullard is back on his thematic talking points, the one he comes back to between flip flops of market cycles.
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