Tags: fed | economy | rates | china

Fed Decision Makers Don't Seem to Fear a Policy Trap

Fed Decision Makers Don't Seem to Fear a Policy Trap

(Dollar Photo Club)

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Monday, 08 August 2016 08:18 AM Current | Bio | Archive

Federal Reserve Board Governor and FOMC member Jerome Powell gave some interesting comments, especially for investors, to the Financial Times on a range of subjects that are taken into consideration in defining the Fed’s policy path: “With inflation below target, I think we can be patient (in raising rates).”

Regarding "secular stagnation" he said: “I am more worried about it than I was. The probability of an era of weaker growth, lower potential growth, for a longer period of time - that worries me more than it used to.”

He also said regarding the gradual decline in Fed policymakers’ estimates for the long-term federal funds rate: “I don’t think that process is over. The median estimate on the committee is 3 per cent for the long-term federal funds rate. It could be lower than that, in my view.”

When asked if his preconditions for a rate hike could be met as soon as the Fed's September meeting, he stated: “In particular, I need to see two really good employment reports. And then it is a conversation. I wouldn't be pounding the table saying we really need to raise rates.”

Notwithstanding we got on Friday the 70th straight month of job growth and hourly earnings increased by 2.6 percent on a yearly basis, to me it still looks like, at least until now, very few of the decision makers seem to think that the Fed could be at risk of creating a policy trap for itself by waiting too long before starting, albeit very slowly, its long way to normalization of its policy rates.

 

Anyway, market expectations for a first rate hike in December have now risen to 46.7 percent. Expect a Fed rate hike in March of next year.

 

The latest economic news out of China was, once again, disappointing. Exports in July fell 4.4 percent year-on-year (y/y) while imports dropped 12.5 percent y/y.

Notwithstanding uncertainties abound in today’s world, today is once again a broad based “risk off” day.

In this context and especially for investors who have gold on their radar screen, recently Japan provided us with some interesting facts about Japanese gold buying this year.

History has taught us that Japanese retail investors are very good when it comes to choosing the right moments for buying or selling gold “against” the Japanese yen.

During recent months, we have seen a sharp surge in demand for gold in Japan. The Nikkei newspaper informed that Tanaka Kikinzoku Kogyo K.K., which is Japan’s largest bullion retailer, had seen its gold sales rising by 30 percent to 15 metric tons y/y during the first half of this year.

A the same time, the Tokyo Commodity Exchange saw the average of gold contracts rising by 20 percent in June and by 45 percent year-on-year.

I don’t know if the Japanese will be taking a “buy-and-hold” attitude for the gold they bought recently. But what is clear to me is that the Japanese retail investor is obviously loosing his/her faith in their central bank’s monetary policy.

In this context, it might be wise for many investors, especially here in the West, to ask themselves how well they read their own markets and currencies. Investors must search their souls to determine if they think the markets as well as currencies are prone for a sudden change of direction because the Fed changes its dovish attitude one day, and that day will come. The change would of course put upward pressure on the dollar and downward pressure on the euro, the yen, the Chinese yuan and so many other currencies, or for whatever other reason that goes from economics to geopolitics.

Talking about markets for a moment and when we take a look to a very, very long-term chart of the markets and going from Genoa over Holland, Great Britain and finally the U.S. we could ask ourselves if markets will continue to go up and up without experiencing a serious reversal at some time.

About the Japanese yen, I have doubt whatsoever its path will reverse in the not so far future and most likely it will be "forced" to reverse.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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HansParisis
I don’t know if the Japanese will be taking a “buy-and-hold” attitude for the gold they bought recently. But what is clear to me is that the Japanese retail investor is obviously loosing his/her faith in their central bank’s monetary policy.
fed, economy, rates, china
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2016-18-08
Monday, 08 August 2016 08:18 AM
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