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After hearing Janet Yellen speak at the Federal Reserve press conference earlier this week it is abundantly
evident that the Fed has no clue what they are doing at this point. Here’s why.
The above comments are edited excerpts from an article* by EconMatters (economatters.com) entitled The Fed Just Lost Any Shred of Credibility on Inflation.
The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (sample here) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
The article goes on to say in further edited excerpts:
Yellen is basically my grandmother in charge of the Federal Reserve. She is completely incompetent and the exact worse person for what we are now entering in the inflation era! At the press conference she
- called the overheating inflation in the economy “noise” [even though it] is now showing up even in the watered down indexes used to track it by the Fed, and already above their target of 2% on a year over year basis and rising. (Wait until you see the next two month`s CPI reports on a spike in gasoline prices as we enter the summer driving season)…
- saw no signs of a bubble in equity prices [even] after a 35% appreciation followed by what looks like another 10% plus year of appreciation in the cards for 2014.
It is one thing to be dovish, but when one goes out of their way to mis-characterize the data to such an extreme that it makes one lose any credibility just to justify a given monetary policy, that is when the proverbial shit hits the fan!I tried to give Yellen the benefit of the doubt:
- Perhaps she is just trying to talk down the market to keep rates low for as long as possible.
- Maybe the hot inflation data will recede a slight bit;
but even with the strategy of dropping the tightening monetary bomb all at once versus slowly raising market expectations in an incremental fashion, she still will be setting markets up for a huge disastrous exit event the longer she prolongs the inevitable.
After listening to her talk in the press conference I am not even sure she is a qualified economist, moreover it is apparent she has no formal timeline for unwinding, and she cannot even properly understand basic economic relationships that any first year econ major has down pat after mid-terms!
A look at the inflation data…[shows] an upward trend for 2014, and an unsettling trend [at that] given that the GDP was actually negative for the first quarter.
- What happens to inflation when GDP prints a 4 handle later this year?
- What happens to inflation when the strongest part of the year from a consumption and GDP standpoint comes gushing into the CPI Reports?
- Didn’t Yellen think that UPS and Fed-Ex recently raising their pricing policy to now cover size of packages from a volume standpoint versus strictly weight had anything to do with inflation?
- If you have analysts who track these types of pricing pressures, and you can run forward models, why set yourself up to fail miserably in the future? It’s called managing expectations!
Yellen:
- has set herself up to fail by stubbornly refusing to acknowledge even near-term inflation levels, let alone future inflation pressures that will be much higher than her targeted forecast! These are basic corporate level CEO skills that any competent person in a management role understands, and it is unsettling that she doesn’t get this basic concept, and is managing the most powerful corporate board in the world!
- has got to be the most dovish Fed chairperson in the history of the institution going into the most important policy initiative withdrawal phase ever to be recorded since the inception of the Federal Reserve!
- will probably step down in a year at this rate, as she obviously was the wrong person for the job! President Obama should have chosen Larry Summers for the position, and now this is really going to cause the entire monetary experiment to blow up. It is looking more and more like a foregone conclusion.
We are now going to have to resurrect Paul Volcker`s spirit to the Federal Reserve to dig us out this inflation mess once inflation…”noise” gets so unbearable that Yellen is forced to embarrassingly resign by the President as the bond market takes matters into its own hands!
With Yellen’s increasingly dovish incompetence being on full display for market participants instead of the U.S. merely entering an elevated inflation period, we now realize that Yellen and the Federal Reserve are so far behind the inflation curve, and many other market implication curves, that we probably are staring at a 35% chance of a Hyper-Inflationary period by the time the Federal Reserve realizes that “noise” is actually real inflation!
The surprising thing is that she backed herself into a corner on the data. I expect the inflation and employment data to keep coming in much hotter, and well ahead of the Fed`s own forecasts, yet Yellen didn’t even leave herself any real wiggle room. With each new data point she and the Fed are going to look…[that much more] out of touch, and well behind the curve, and that it is going to be shockingly laughable. If the sky is cloudy gray, and you keep saying that the sky is clear blue, people are going to stop listening to what you have to say, it’s called losing credibility, and the entire institution needs all the credibility…[it] can muster at this most difficult time – the unwinding phase!
Conclusion
The loss of credibility is worse by far than the actual policy decisions at this point, and after listening to Janet Yellen`s press conference, I am not sure she is a rational, logical, empirical thinking human being with her ridiculous comments regarding the stock market and inflation. She seems borderline senescent and incapable at best, and there is no doubt she is completely over her head at the Fed in this powerful position. I cannot wait to hear the Fed minutes of this latest Fed Meeting!
There is no hope for an elegant exit now from this monetary experiment. Inflation will be at 4.5% before they even start raising rates! The bond market will be so far ahead of the Federal Reserve in terms of bond vigilantism that they are what will bring the Fed to finally realize that they have lost control of financial markets, and then it is endgame for interest rates!…
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://www.econmatters.com/2014/06/the-fed-just-lost-any-shred-of.html (© EconMatters All Rights Reserved)
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