A Question Of Horizons (Or Something)

“We don’t want to jar markets or anything,” Jim Bullard told Bloomberg’s Michael McKee on Thursday.

Phew. There for a minute I was under the impression the Fed might chance an equity selloff, wider credit spreads and a bout of cross-asset volatility in the interest of expediting policy normalization. It’s good to know policymakers haven’t lost track of their stock stability mandate.

I’m kidding. And those aren’t even very good jokes. But Bullard’s comments were notable (and ironic) in the context of recent, similarly hawkish musings from Jim, some of which did, in fact, “jar markets.”

“I think we’re in a situation where we can taper,” he went on to tell McKee. “It’s time to end these emergency measures.”

No more making fun of “uber-dove” Jim, I suppose. Especially not when Jerome Powell was busy insisting, during a second day of testimony before US lawmakers, that “broad” inflation pressures aren’t showing up, even as he conceded that the recent rise in realized inflation is larger than he expected.

Honestly, the Senate has better things to do. Like figuring out how to modernize the US economy so capitalism doesn’t self-destruct, taking the rich, the poor and everyone in-between with it. Given how many times America (and lawmakers) have heard from Powell over the past 16 months, it’s not clear how much more “Jay” we really need, the mandatory nature of the semi-annual policy testimony notwithstanding. He was guaranteed to give the same set of answers he gave Wednesday.

In any event, demand is rebounding and supply can’t keep up, Powell attempted to explain. The Fed, he said, is still “evaluating” the proper time to taper asset purchases. Bullard (and Robert Kaplan, among others) pretty clearly thinks that time is now. But Powell doesn’t agree or, if he does, he has to pretend he doesn’t because having a seat at the table is something different from having the seat at the table. As to whether the Fed is comfortable with the situation illustrated in the simple figure (below), the answer is “of course we’re not comfortable.” (And yes, that’s a direct quote).

Powell assured Republicans that inflation won’t be allowed to spiral or otherwise remain unduly elevated for any sustained period, defined as “a very long time.” If there’s a problematic rise in inflation, the Fed “will react appropriately,” he said.

At this point, one almost gets the (somewhat disconcerting) impression that a part of Powell subconsciously hopes inflation will stay elevated for “too” long so he can channel Scarface and the man who was Fed chair during its theatrical release in 1983. Just picture it. Two years into Powell’s second term, the US is mired in another recession brought on by five consecutive rate hikes. Staffers begin to worry after hearing delirious shouts from behind his office door after the latest CPI report shows the US succumbed to deflation in the prior month. “I told you! No, but you wouldn’t listen. Look at you now.”

Bullard also told Bloomberg that in his view, the labor market has already met the “substantial progress” threshold. That’s especially notable. Much of the argument against tightening policy rests on the notion that the labor market is still far from meeting the criteria, even if consumption has exceeded pre-pandemic levels.

Bonds were bid again Thursday. 10-year yields fell below 1.30%. The bull-flattening impulse is entrenched, it seems.

Meanwhile, Jeff Gundlach’s visage materialized on CNBC Thursday afternoon. I’ve mostly sworn off Gundlach humor, but I decided to indulge.

Gundlach long ago mastered the art of recapping recent events in a cadence that suggests he’s delivering something akin to analysis. His chats with CNBC almost always amount to Jeff co-anchoring the network’s “Halftime Report” program with Scott Wapner, but somehow, Gundlach makes you believe he’s just told you something meaningful despite having purposefully avoided saying anything of substance. He pairs that with an uncanny penchant for obfuscation — he cloaks predictions in language so indeterminate as to virtually ensure he can never be wrong.

“Ultimately, the size of our deficits suggest that in the intermediate term — I don’t really think this year, exactly, but in the intermediate term — the dollar is going to fall pretty substantially,” he told Wapner on Thursday.

That has to be some kind of record for number of qualifiers crammed into one sentence. And I would know. I habitually qualify almost everything I say. But I’m not in Gundlach’s league.

“It’s a question of what your horizon is,” he went on to muse, adding that “in the short term, the dynamics have been and will continue to be in place for the dollar to be marginally or moderately stronger [but] in the longer term, I think the dollar [is] doomed.”

That’s classic Gundlach. It sounds very specific, and therefore incisive, but when you really parse it, it’s the opposite of specific. In fact, Gundlach’s take on the dollar Thursday was so vague that it could apply to human existence in general. That is: In the short term, the dynamics have been in place for us to get marginally or moderately stronger, but in the longer term, we’re doomed. I think.