On Wednesday I noted that when it comes to financial conditions, the Fed has the green light they need to lean hawkish this month.
Of course they won’t hike, but there’s plenty of room for the expression of a tightening bias in the statement. Or at least if you’re talking in terms of stocks and the dollar. Here’s what I said yesterday:
The Fed is looking for a green light from financial conditions and that means rising stocks and an anchored dollar. Well they’ve gotten it this week. Post-2015 December hike we got a stronger dollar and plunging stocks. Post-2016 December hike we’ve got a falling dollar and record highs for equities.
Consider that as you read the latest from Bloomberg’s Richard Breslow below.
From Richard Breslow
Sometimes, when you write a daily commentary, you come in fully intending to write about one thing — and then the piece hijacks itself. Such was the case today. I can’t stop thinking about next week’s FOMC meeting. Which I realize is odd given that nothing is expected, virtually nothing priced in and no press conference. Not to mention, none of the big guns is currently scheduled to speak in the days after the event. This is meant to be one of those free-pass get-togethers.
- Still, I think it would be a mistake for investors to ignore it altogether. And an even bigger error for the committee to do so. It’s a golden opportunity to push the agenda of a strengthening economy, better inflation data and the need to face the fact that rates are going up
- They need to make good on the phrase “every meeting is live”, or it should be retired. I’m not suggesting that they must actually pull the trigger — they won’t — but really have no excuse not to put a big spotlight on March
- If they’re data, not forecast, dependent, the numbers are good enough. There are indeed lots of scary things out there both home and abroad, but they need to start acting on what they can touch and feel
- All of this makes me all the more interested in today’s claims numbers and tomorrow’s GDP and PCE. For me, they take on the added significance of being the last gatekeepers. Standing between more of the same talk tough and carry little stick and the board doing the courageous thing. Saying we will probably talk about the balance sheet sometime this year doesn’t fit that category
- Claims have been coming down. The recent improvement has, predictably, caused analysts to search for reasons why it’s an aberration. We’ll only know after the fact
- GDP may not look great versus historical boom times, but the print and its internals are expected to bear no resemblance to bad times
- The Fed harps on about the ill-effects of a too-strong dollar. Well, it’s lower than when they last raised rates. And has wiped out most of the Trump trend. Equities have been flying. No small thanks to hoped-for tax cuts and a still cautious central bank. Bond yields are higher. They’re supposed to be if things are going well. Sometimes that old economic textbook still can teach you a thing or two
- Incidentally, I was going to write about the Canadian dollar which looks really interesting against all of its natural crosses
