While most retail assume the F_E_D "Has their backs", I've found that other than statements they've made with clear "plausible deniability" meant to effect the market in the short term and then allow the F_E_D speaker to back away from the statements as they were "Plausibly deniable" or just ambiguous enough that they are left wide open to cognitive bias, the F_E_D has actually been pretty clear about what they intended to do.
Some of you may recall when QE3 was unleashed, the very day in fact and the very press conference with Bernanke just after, I said (somewhat ironically being QE was just unleashed), that the F_E_D was already preparing the ground work for their exit which started first with hints that they'd change forward guidance or the yardstick the market uses to asses the F_E_D's intent from a very clear and unambiguous qualitative (date and target based) guidance to the very ambiguous and ope to any interpretation the F_E_D wishes to attach to it, "Qualitative guidance".
The suggestion for the change in guidance we was made at that press conference. Within 6 months the F_E_D changed their forward guidance from quantitative like, "When unemployment is below 6.5% we'll stop the QE program and 6 months after the end of the QE program, we'll begin hiking rates", which took another 6-12 months or so to get that out.
Then forward guidance was changed to qualitative, not that I have an argument with that, it's just as we saw earlier this year and in fact until Wednesday, the F_E_D has been totally ignoring the slipping economy and hadn't really acted as if they had taken any notice of it beyond a transient event until this Wednesday when they made some downgrades to forward looking outlooks, but still removed "Patience".
Another example is the F_E_D saying they'll hike rates before Core Inflation reaches their target of 2% as long as they "Feel" it will be headed that way. Well the F_E_D has been wrong on inflation for 2+ years, but that's not the point. Qualitative guidance which sounds much more reasonable, also allows the F_E_D to do something like hike rates while inflation shows no movement toward 2% because all they have to do is say that they "Feel" it's headed in that direction.
Thus if you read between the lines a bit, the F_E_D is actually pretty transparent, how else did we forecast on September 13th 2012 as the F_E_D opened up QE3, that they were already planning their exit from accommodative policy and here we are 2.5 years later and QE is over (which was open ended by the way) and we are looking at the first rate hikes sometime in the not too distant future?
Well I'd say Dick Fisher is one of the least unambiguous of the F_E_D presidents and this is pretty close to verbatim what he had to say this morning as the F_E_D will give the market a message, often you have to read between the lines and more often than not people rather ignore it or apply some cognitive bias, but to me this seems pretty straight forward as a follow up to the F_O_M_C... (Thanks for the transcription Mike).
Here's the actual link to the interview
In addition, "Lockhart 'rate hike under serious consideration' ... per Liesman"
'We're in a good spot here, relative to the rest of the world, we're a '10'.
'Investors have become too dependent on the Federal Reserve. Are we vulnerable to a significant market correction? I believe we are. People have gotten lazy.'
Santelli 'has the Fed conditioned people to be lazy?'
Fisher: 'What worries me is that people watching this show and particularly the big-money traders, are dependent on the Fed. The markets have a responsibility to do their own work. The Fed must implement normalizations ... I could see a correction taking place of significant magnitude. Should the Fed react? I don't think so. These markets are hyper-over-priced right now in my view. '
Santelli - are we going to have all these flash-crashes now because the Fed has distorted things?
Fisher - I just hope people are beginning to discount in their own ways that the base rate will be raised.
Santelli - 'One word answer - will the Fed raise rates in 2015?'
Fisher - 'That's up to them. I would start the process.'
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