Tags: Fed | Investor | Mantra Boring | Exciting

Fed's New Investor Mantra: 'Boring Is the New Exciting'

Fed's New Investor Mantra: 'Boring Is the New Exciting'
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Monday, 26 June 2017 11:18 AM Current | Bio | Archive

San Francisco Fed President John Williams gave interesting prepared remarks in Sidney, Australia, that read: “We’ve fully recovered from the recession … Today, the U.S. unemployment rate is 4.3 percent – meaning that we’ve not only reached the full employment mark, we’ve exceeded it by a fair amount … inflation has been running somewhat below the Fed’s goal of 2 percent for the past few years … some special transitory factors have been pulling inflation down. But with some of these factors now waning and with the economy doing well, I expect we’ll reach our 2 percent goal sometime next year.”

He concluded: “Our goal, therefore, is to foster sustainable growth. This requires keeping our economy in the Goldilocks zone: not too hot, not too cold. It also necessitates bringing both conventional and unconventional monetary policy back to normal … our process has been widely telegraphed and it will continue to be gradual, predictable and transparent … my new mantra is: 'Boring is the new exciting.'"

Evans’ speech is in fact a common theme for the Fed, which looks through the short-term noise in data to focus on the longer-term trends.

So, interest rates should continue their upward trend, albeit slowly, and notwithstanding that some Fed officials have argued for a pause in the rate-hiking campaign to wait for clearer signs that inflation is indeed headed higher.

Also, the Fed will start to “grow into” its balance sheet over the coming months and could reach the levels we had in 2008 somewhere in 2020/2021 under the condition that the actual positive environment remains in place, which remains, of course, to be seen.

All this is of course extremely important to all investors, especially as Evans' expectations go completely against the market expectations at present.

Maybe it’s good to keep in mind that the Fed’s policy is currently being set with the aim of influencing the economy in early 2019.

In U.S. politics, the Senate Republican healthcare bill that needs to pass before the July 4 recess remains of the front burner, keeping in mind that McConnell needs to satisfy the ideological poles of his conference: Ted Cruz et al. on the right, and Dean Heller & Co. in the middle.

A vote to proceed will likely happen on Wednesday, and McConnell needs a majority of senators and if McConnell hasn't lined up 50 votes on the bill itself, there's a chance the procedural vote could fail.

If all that goes well for the Republicans we could expect the Democrats to present a ton of amendments on Thursday keeping in mind the bill has a 20-hour time limit on consideration.

Besides all that, the Congressional Budget Office will release its score for the Senate's healthcare bill early this week.

It will be interesting to see what comes out.

Over in the Middle East and because it has a bearing on those investment decisions that have to be taken over the near future, Qatar revealed that its colleagues in the Gulf Cooperation Council (GCC) Saudi Arabia, Egypt, the United Arab Emirates (UAE) and Bahrain have presented on June 5 a 13-points list of demands that had to be complied with within 10 days and that includes, amongst other things, shutting down the Al Jazeera network and closing down a Turkish military base.

The issue for investors is the tension this is stoking in the Gulf region and beyond.

The United States, which has a large military presence in Qatar has expressed concern and the Turkish President Erdogan has already said the call to withdraw Turkish forces was disrespectful and that Doha — which described the demands as unreasonable — was taking the right approach.

Any escalation of tensions in the region raises questions about the security of oil and gas supplies and capital flows “out” of the U.S.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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Maybe it’s good to keep in mind that the Fed’s policy is currently being set with the aim of influencing the economy in early 2019.
Fed, Investor, Mantra Boring, Exciting
Monday, 26 June 2017 11:18 AM
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