Ok, well Richard Breslow is still shouting about why the Fed should do something everyone knows the won’t do this week.
If you missed this a couple of days ago, you can read it here.
Monday’s missive from the former FX trader is dripping with Breslow-vian disdain, but today it’s aimed not so much at you, but at the Fed and, secondarily, at the White House.
As we wrote earlier today and last week, the Fed is now stuck in a situation where it’s clear that fiscal policy isn’t prepared to take the baton from monetary policy in terms of keeping the clown mobile on the road.
And so, they’re now facing two headwinds to normalization (policy gridlock and lackluster inflation), while only enjoying one tailwind (the labor market).
Read more below as Breslow speculates on whether Yellen is just trying to drive up ticket prices for Draghi’s Jackson Hole speech…
We all seem to be caught up in an endless loop of declaring we’re unhappy because there are so many other people ruining everything. But when asked what should we do, the decision loop points us back to “this stinks” rather than, “well if it were up to me”. Identifying complaints, we’re expert at. Coming up with solutions, not so much.
- With some legitimate justification from experience who wants to any longer be in the group making sacrifices when we know there’s always a bunch of other folks gaming the system in a “heads I win, tails I win” scenario. Make it pain-free, or go away
- It’s one thing if these discussions, or lack thereof, concern pizza versus burgers. It’s another if it’s about how we run the economy, or the country as a whole, for that matter. Gridlock or decision-making paralysis only works when things are basically fine anyway
- But at some point the powers that be need to understand that motion is progress, even if you allow for the possibility of missteps. This is something the Fed really needs to contemplate before heading into the Committee Room. The economy overall just isn’t in a crisis condition. But there are plenty of threats exacerbated by the old medicine
- You really have to wonder what possible benefit waiting another couple of months to timidly introduce a time line for balance sheet reduction or even execute another rate hike will achieve? It’s almost as if we are stuck in neutral because they don’t want to harm the excitement of Jackson Hole. Will ticket prices decline if they don’t get to premier the hottest release?
- So what has happened in the last month? Central bank credibility has taken two steps back with all the flip-flopping. Traders are forced to continue to chase risks they know are dangerous. Global PMIs are sagging from the optimistic levels they achieved earlier in the year. And don’t blame it on the lack of a fiscal agenda that was DOA a long time ago. Why invest in real things if the message is, let the band play on? Very little is being achieved by this timidity, which can’t be described as prudence
- I suspect that the members are as transfixed by political events as the rest of us. But, frankly, that sort of nausea shouldn’t be used as an excuse for their inaction. If they are waiting for Washington to sort itself out in addition to inflation being exactly where they want it, we’re in for a long haul. And if they really are terrified than we are owed that message as well. They bare their emotions on every other topic
- The ECB, BOJ, BOE are all chilling. The Fed should take that as comfort that they have others smoothing their way rather than as a cautionary tale