Tags: fed | yellen | stop | signal | move

Fed's Yellen Proves to Be Master of 'Stop, Signal, Move'

Fed's Yellen Proves to Be Master of 'Stop, Signal, Move'
(Susan Walsh/AP)

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Thursday, 14 December 2017 07:46 AM Current | Bio | Archive

When Fed Chair Janet Yellen gave her remarks at the press conference after the central bank had decided to raise rates by a quarter of a point, I couldn’t help it thinking back at the United Kingdom in the early 1970s (when I was still young) and when any young economist who wanted to cycle to school had to have their cycling proficiency certificate.

The key mantra that cyclists had to repeat was the safety procedure: “Stop, signal, move.”

 Yellen should have been awarded an honorary cycling proficiency certificate:

  • The Fed stopped its monetary tightening,
  • The Fed signaled it would tighten again,
  • And yesterday, it moved to tighten.

This was fully anticipated, which is rather the point.

There was the odd tweak and change to the forecast outlook, but not so that financial markets pay really attention too any of that.

The internal fence consensus of 3 rate hikes in 2018 was reiterated.

This does not seem to have yet filtered into investor thinking, at least not completely.

The Bank of England (BoE) is up next and is not expected to change anything in terms of policy. The emergency rate cut has been reversed while Bank of England Governor Carney has to rediscover the lost art of “letter writing” and explain why inflation is above target to the Chancellor

Investors should better take care, this is not going to change anything.

The UK inflation data is noisy, and the noise has burst the numbers up a little. The expectation is for some degree of moderation in UK inflation in 2018, where the UK will be defying international inflation trends that are pointing upwards.

The British government has had a quick reminder of the sovereignty of Parliaments. UK laws are enacted by the Queen’s most excellent majesty by and with the advice of the law spiritual and temporal and commons in this present Parliament assembled. The government doesn’t get a mention. Thus, Parliament has asserted its right to decide on the final terms of the UK’s divorce from the European Union (EU).

In reality, this doesn’t change very much. It’s a “Deal or No Deal” situation, but it will surely create a bit of noise.

The European Central Bank (ECB) also graces us with a policy decision today.

The issue is not the policy today as such. No change is expected by anybody but the tone of the comments that are likely to come from ECB President Draghi.

ECB President Draghi still seems to be struggling with an addiction to easing, and a dovish hint or two may creep into the rhetoric at the press conference.

The question for investors is whether that dovish rhetoric is actually “actionable”. Whether the inevitable move to zero (0) bond buying by the ECB could be postponed much longer.

Some kind of decision on “that” tightening needs to be taken before the current money printing operation concludes in September of 2018.

On the data front today, there are some final consumer price inflation (CPI) from various “provinces” of the Euro area empire. These are unlikely to distract investors.

The Anglo-Saxons are showing us the health of their consumers with retail sales data coming out of the United States and the UK. In both countries, real household incomes are almost certainly better than has been commonly reported, and in the UK, savings levels are also higher than officially reported.

So, there is perhaps some potential for support in the data today.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Fed Chief Janet Yellen proved to be a triple threat since the central bank stopped its monetary tightening, signaled it would tighten again and actually moved to hike rates.
fed, yellen, stop, signal, move
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2017-46-14
Thursday, 14 December 2017 07:46 AM
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