Wednesday, August 31, 2016

Fed Vice Chair: Not So One And Done

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*Fed Vice Chair Stanley Fischer discussed the idea of one and one today.
*We wanted to offer two charts to say we don't think it will be one and done.
*His answer was a bit tricky but the transcript reads not so one and done.
There was a good question from Bloomberg's Tom Keene to Fed Vice Chair Stanley Fischer. The Fed Vice Chair was asked can the Fed do "one and done" or are they forced to do multiple hikes. Based on where we stand by historical standards the Fed is likely forced into a sequence of multiple hikes which we will show graphically. Ultimately that is a major drag on markets (NYSEARCA:SPY).
Let's first review what was asked and answered.
"When there is a rate increase could you and Chair Yellen frame a one off event or are you forced into a measured, a higher vector of rate increases? Can you do one and done or even two and done or do you have to go to a measured set of rate increases like we saw a decade ago?"
Of which the Fed Vice Chair Stanley Fischer answered:
"The work of the central bank is never done and I don't think you can say one and done and that's it. We can choose the pace but we choose that on the basis of data that are coming in. So I don't think we know at the time we start whether it's one and done or several. It depends entirely on what's happening in the economy."
The Fed means not one and done
It sounds like Fed Chair Fischer was trying to initially be tongue-in-cheek when saying "I don't think you can say one and done and that's it." He wanted to give off the impression that the answer meant to say is the Fed's work is never done. But he answered in terms of one and done and that may be what the Fed really means.
Fed cannot openly say "one and done" because they'll crush the economy
Because GDP is so slow the Fed cannot give an answer that there will be multiple hikes. It will crash the economy. They have to say one and done or "data dependent."
This is the lowest point GDP would start in a rate hike sequence. In every major rate hike cycle the GDP rate stood at 5% or more. This one starts at 1%. That's too low of a starting point to threaten markets with a series of rate hikes (even though that could be the reality).
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Chaim Siegel has been working with hedge funds and mutual funds as an analyst and PM his entire career. Chaim specializes in earnings and predicts, analyzes and reacts to earnings and earnings events as well as developing current company stories with a hedge fund perspective. If you want his analysis real time sign up to the right for real time email alerts. #in, $spy, $qqq, $iwm, $vxx, $ycs, $fxe, $EUO, $YCS, ^GSPC, INDEXSP:.INX, #elazaradvisorsllc, CME Globex: ES Disclosure: These trades can lose you money and principal especially when using leverage BY USING THIS SITE YOU AGREE TO TAKE ALL RESPONSIBILITY FOR YOUR OUTCOMES AND LOSSES AND HOLD BESTIDEAS, ITS CONTRIBUTORS AND ELAZAR ADVISORS, LLC HARMLESS