Tags: jon hilsenrath | janet yellen | federal reserve | economy

WSJ Journalist Hilsenrath Explains Yellen and the Fed

By    |   Monday, 24 Mar 2014 10:49 AM

A day after the financial markets seemed to overreact to some remarks Federal Reserve Chair Janet Yellen made when she probably didn’t think she was saying anything, Jon Hilsenrath, chief economics correspondent for The Wall Street Journal appeared on C-SPAN’s Washington Journal to help explain what happened, in response to questions from host Pedro Echevarria and a handful of callers.

Hilsenrath is thought by some to be the brand-name analyst of Fed policy, perhaps even the Fed’s “official mouthpiece,” an extra channel for the Fed to communicate its ideas.

(For a dissenting view on this, follow this link to an article entitled “Remember Hilsenrath” by Tyler Durden, posted on Zero Hedge). Hilsenrath was also promoting an e-book entitled "Yellen and the Fed," produced by the WSJ staff.

That day’s edition carried an article by Hilsenrath and Victoria McGrane entitled “Yellen Debut Rattles Markets.”

Editor's Note: New Warning — Stocks on Verge of Major Collapse

During Yellen’s press conference Wednesday following the meeting of the Federal Open Market Committee (FOMC) and the issuance of its communiqué regarding monetary policy, she evidently let slip that once the Fed finishes its tapering of purchases of Treasury and mortgage-backed securities, the interval before the Fed would begin raising the federal-funds rate would be about six months.

Hilsenrath observed that this is only a couple months earlier than the markets would have expected, but the markets are “caught up” in this and likely to react strongly to any perceived change in policy, no matter how small.

A caller from Chicago reported that house prices in her neighborhood are rising at a rate that looks unsustainable, which one home owner seeing the price nearly double from $200,000 to near $400,000 after some modest repairs.

Hilsenrath responded that whereas traditionally people had bought houses primarily for residence, without expecting more than modest price appreciation, during the past 15 years, more home owners have come to see their houses as financial assets, and this view has been encouraged by Fed policies that have maintained low interest rates.

This writer will take the opportunity to summarize some observations that have been made in recent articles, namely that this writer has never thought the Fed would actually go through with the withdrawal of extraordinary support for the financial sector, concentrated in the TBTF banks and GSEs that caused the 2008 episode of the ongoing financial crisis, because Wall Street has become addicted to this support; that Wall Street is still holding out hope that the Fed will change its mind and call off the taper; and that if the markets reacted so strongly to a minor bobble by Yellen, a much more significant move could occur at any time if the Fed finds itself unable to execute the shallow glide path to higher rates that Yellen and her colleagues now envision.

The doves will get new ammunition if evidence shows that David Stockman is right in his warning that the Fed is powerless to move GDP growth above 2 percent; all it can do is maintain a speculative “carry trade” that benefits the TBTF banks and Wall Street.

(Archived video can be found here.)

Editor's Note: New Warning — Stocks on Verge of Major Collapse

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Robert-Feinberg
A day after the financial markets seemed to overreact to some remarks Federal Reserve Chair Janet Yellen made, Jon Hilsenrath, chief economics correspondent for The Wall Street Journal appeared on C-SPAN’s Washington Journal to help explain what happened.
jon hilsenrath,janet yellen,federal reserve,economy
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2014-49-24
Monday, 24 Mar 2014 10:49 AM
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