It isn't until you get to the last third of your post do you begin to fall off the tracks, in my opinion. First, I had a nice chuckle when you said that the Fed's view is backed up by past experience and a vast body of economic research and studies. That's quite amusing. This forum allows 10,000 characters per post, and I wouldn't be able to post all of the prediction FAILs and missed bubbles, housing crises, etc. All the things the Fed is paid to foresee with their vast experience and data. Yet, run-of-the-mill traders and economists see things clearer than they do. When I say "a little deflation", I'm referring to the natural business cycle. The cycle that has been interrupted by massive central bank and government meddling. If the cycle were allowed to auto correct, and interest rates were not artificially altered, and bubbles weren't allowed to be created - or were deflated when spotted - we'd have short periods of deflation before growth took off again. But they don't. They try to go against the laws of nature until the walls come crashing down and real deflation is a risk. They only exacerbate this, they don't prevent it or mitigate it. The US is a nation of borrowers and spenders because we have essentially punished those fiscally responsible (savers) and rewarded all those who took risky bets with high leverage. We've enabled the behavior and the economy we are stuck with in no different manner than a parent enables poor child behavior. So why should we be shocked when people go all-in on leverage, borrow to the hilt and just walk away when everything comes crashing down? Why should we be surprised when pension funds - who have relied on good, stable rates to provide returns have no choice but to throw their money into the casino to get some yield? Who enables all this? Your precious Fed and your beloved Big, Bloated Government. The Us flirted briefly with deflation in late 2008 as a result of a decade or so of bad Fed/Government practice and bubble creation. Then, they compounded their error by not letting the market clear itself. The result is that deflation is coming no matter what they do. And they know it.
10-year yield falls to 20-month low on deflation worries, GDP By Joseph Adinolfi Published: Jan 30, 2015 10:47 a.m. ET "30-year yield hits all-time low "U.S. GDP was a weaker than expected in the fourth quarter, driving flows into Treasurys. "NEW YORK (MarketWatch) — The 10-year yield fell to its lowest level since May 2013 Friday as month-end buying, worries about deflation in Europe and a weaker-than-expected reading on fourth-quarter gross domestic product growth drove investors into the safety of the bond market. "The yield on the 10-year Treasury TMUBMUSD10Y, -4.38% was down 7.3 basis points to 1.680%, according to Tradeweb, while the yield on the 30-year Treasury hit an all-time low, down 7.5 basis points to 2.243%. "A provisional reading on the eurozone’s rate of inflation in January slipped further into negative territory early Friday, driving investors into European and U.S. debt. The market’s worries about deflation and lagging growth were further stoked by a weak reading on U.S. gross domestic product growth. "U.S. GDP grew by 2.6% in the fourth quarter, down from 5% in the third quarter, according to a preliminary government estimate released by the Commerce Department. Economists surveyed by MarketWatch had predicted 3.2% growth. "The yield on the German 10-year bund TMBMKDE-10Y, -15.45% was 1.5 basis points lower to 0.341%. "Treasury yields have been pushing lower since the new year began, as negative yields in Europe and worries about the global economy sinking into deflation increase the appeal of U.S. debt as a haven for investors." http://www.marketwatch.com/story/10...month-low-on-deflation-worries-gdp-2015-01-30
I'd pretty much go hide in the forest or a cave real soon. It will be the End of Days with real Zombies roaming the cities and on the subway.
This statement: The moment prices fall below the magical, mystically created 2%, Central Bankers are on the airwaves about pushing loose monetary policy, printing more money and keeping emergency measures in place... in particular, is completely out of touch with reality, and what is going on at the moment. It is what one expects from someone whose mind has become fixated on a false reality, and consequently their perceptions become filtered and distorted so as to convince themselves that the reality is what it is not. What is actually happening is that the U.S. economy is recovering, and in no small part due to the extraordinary actions of the Fed and Treasury. Now that there are signs that the economy is on the mend, albeit slowly, there has been anticipation that the Fed will, before too long, begin, ever so gradually, to tighten. We were subjected to endless predictions of QE leading to out of control hyperinflation. When it was clear that there would be no hyperinflation, we were subjected to claims that QE had actually accomplished nothing. The absurdity of this assertion is clear. Anyone, other than a lunatic, would presume it is not with the goal of accomplishing nothing that other Central Banks are now following in the Fed's footsteps. Finally, with the U.S. economy on the mend, we are being subjected to ridiculous claims that the Fed has no way to exit without ruining the economy and bankrupting the nation. I suspect we will never hear the end from the Jekyll Island conspiracy nuts, or amateur economists who haven't a clue how the Fed operates and are absolutely convinced that the Fed is nothing but a branch of Chase J.P Morgan. In anticipation of rising interest rates, the Forex markets have bid up the dollar, because markets, in the normal course of events, react in anticipation rather than after the fact. The dollar has been strengthening, even though the Fed has not yet begun to tighten. Other central banks have decided to take steps toward QE and monetary easing. The reaction in the Forex markets has further fueled strengthening of the dollar vis a vis other currencies. A stronger dollar along with weak wages will quite naturally lead to low inflation. That is what we see in the U.S. economy. The Fed has not, however reacted as the poster I have quoted said they do, but on the contrary has adopted a conservative wait and watch approach. They have delayed for the time being any significant tightening, and in the meantime the inflation rate has rebounded some. This is consistent with higher employment and further economic recovery. The Fed, as always, maintains a watchful stance with regard to any danger of the economy slipping into deflation and would of course take action, if needed, to prevent deflation. In the meantime we can expect both very slowly rising inflation, further recovery and some additional strengthening of the dollar, which as a fiat currency is always relative to what other currencies are doing. At some point, devaluation in the currencies of trading partners will slow and stabilize. The U.S., equity markets having already been through 6 years of strong recovery, will quite naturally slow their advance, and in fact they appear, at present, to be putting in a top, which may take many months. In the early phases of QE we saw a weakening of the currency and a consequent rise in equity prices. We should see, for a while, the effect of a recovering economy tempered with a strong dollar lead to a more or less level market, to slightly up or down depending on whether the economy or dollar strength is the more important factor. The longer range market bias, other than at times of crisis, is always up, driven by both psychology and inflation. U.S. monetary policy is presently in limbo waiting on further macro economic development, but eventual Fed tightening is widely-anticipated. The reality is that there is simply no justification in the actions of the present U.S. Fed under Janet Yellen for a remark such as "the moment prices fall below the magical, mystically created 2%, Central Bankers are on the airwaves about pushing loose monetary policy, printing more money and keeping emergency measures in place." Yes, occasionally an incautious Fed branch bank President sends reporters scurrying by suggesting what actions the Fed might take in this or that hypothetical scenario. But there is no truth to any remark that suggests the Fed will do anything in the "moment", except, of course, under the most extraordinary circumstances. If the Fed can be criticized for their speed of decision making, it is for moving too slowly rather than too rapidly. There is nothing magical nor mystical about the Fed's 2% target. Secondly the Fed and Treasury are not keeping emergency measures in place. Even though recent inflation, as measured by the Fed, has been a little below their 2% target, they are waiting and watching, meanwhile the macro economy is moving in the intended direction, as are inflation estimates. The U.S. economy's inertia may be likened to that of a giant oil tanker, and the Fed to a fleet of tugs pushing and pulling to reposition the tanker. Patience is always needed when waiting on a giant economy to reposition itself.
It is? Talk about lack of hold on reality. Please tell me - what is recovering in the US Economy? What metrics do you look at when you do your voodoo dance? No, not really. We have some nice consolation prizes for you, though. QE certainly accomplished something, it's silly to say it hasn't. First, it goosed the stock market quite well. Second (although in tandem with the first result) it made the rich, richer and widened the gap between the haves and have-nots. Lastly (but certainly not least), it penalized savers and those who rely on fixed income. So to say QE did nothing is quite silly, I agree! Well done, Fed! Yeah, because other major central banks have engaged on unprecedented QE. It's a race to the bottom, sport. The Fed has paused in it's accommodation and currencies reflect that. With the notable exception that there are almost no food price declines at all (for the consumer), just energy (gas). Thanks, QE! It is? Is that why there was such an earthquake in financial markets with Friday's job data as the entire world repriced the idea that maybe, just maybe, the Fed might actually hike in the next year? There is no justification, on this we agree. That hasn't stopped Fed officials like Bullard or Kocherlakota, Dudley, etc. for calling for more easing whenever the stock market dips slightly. Oh wait, that's right, they care about inflation. My bad. Prices that aren't falling (and aren't rising) need more QE. Do you even listen to the Fed speeches? Ah, you do listen. Never mind that the market takes each speaker at their word to help determine future Fed direction. Must be more of that Yellen "transparency". So near zero rates 6 years after a crisis is normal operations, then? LOL! Princeton academics and Fed Cheerleaders everywhere applaud this shameless plug of yours, Piezoe. Bravo!
Here's a link to a Bloomberg article on the Fed: bloomberg.com/news/articles/2015-02-09/powell-says-audit-bill-is-misguided-threat-to-fed-independence and the front page of Bloomberg today featured a video interview with Fed Governor Powell. Very informative.