Friday, October 7, 2016

Fed Vice Chair Fischer A Raging Dove

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*The Fed Vice Chair's speech yesterday was full of "rates low forever" type commentary.
*He paints a gloomy outlook for the economy and he really admits there is not way out.
*Our only hope is fiscal policy which seems to be currently pulling back on globalization.
*Asset values may get support from low rates but the fundamentals seem to be deteriorating, from his view.




Fed Vice Chair Stanley Fischer gave a speech yesterday. He's a raging dove. He wants to see inflation before they hike. This is a new developing more dovish position. He expects economic stagnation for a long time to come. That may support asset values (NYSEARCA:IWM)(NYSEARCA:SPY) but it creates a growing underlying fundamental risk to the economy and markets over time.
Whites Of Their Eyes Inflation
Fed Chair Yellen said at her recent press conference,
"I'm not in favor of a "whites of their eyes" sort of approach. We need to operate based on forecasts."
She was saying that while they are waiting to see more inflation she implied they do not need to see 2% inflation itself before they raise rates.
The Fed Vice Chair Stanley though yesterday implied they are waiting for the "whites of their eyes."
"The central bank should raise the interest rate if inflation is above target and reduce the interest rate if inflation is below target."
That is an incredibly dovish comment. It means that the Fed will not move if it were up to the Fed Vice Chair until they see greater than 2% inflation. 2% inflation is no longer the target even though it is the Fed's congressional mandate. He now wants to see greater than 2% before he does anything. We'll say it again, that is incredibly dovish.
Here's that trend.

PCE Annual (%)JanFebMarAprMayJunJulAug
PCE price index real yoy1.71.71.61.61.61.61.61.7

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