Says excess dovishness at the Federal Open Market Committee increases the risk of a major policy error at the Fed.
Bill Dudley is a past resident of the Federal Reserve Bank of New York (2009 to 2018) and is now at Princeton University’s Center for Economic Policy Studies.
Says Fed officials:
- anticipate that inflation will fall back close to 2% in 2022 … even as supply chain disruptions, energy costs and rising rents threaten to make the current price surge bigger and longer lasting than expected.
- And they expect inflation to keep decelerating in 2023 and 2024
- if inflation proves more persistent than anticipated and even accelerates as the economy pushes beyond full employment, they’ll have to tighten much more aggressively than they expect.
- The result could more resemble what happened from 2004 to 2006 – when the Fed raised its short-term interest-rate target by 4.25 percentage points, to 5.25% from 1%, with quarter-percentage-point increases in 17 consecutive policy-making meetings – than what they currently have pencilled in.
Dudley, Yellen and Fischer, all since departed from the Fed:
Founder of Pershing Square, hedge fund manager Bill Ackman speaking on Tuesday at the Financial Times’ Dealmakers conference
- markets once again have become too complacent about the coronavirus.
- is hedging his equity exposure with insurance against corporate defaults
- “We’re in a treacherous time generally and what’s fascinating is the same bet we put on eight months ago is available on the same terms as if there had never been a fire and on the probability that the world is going to be fine.”
(Ackman referring to his similar trade earlier in the year that paid off big time).
(This pic for a while back)
Taking a detour from the tech stock rout for just a moment, this on the much-touted Russian COVID-19 vaccine.
A group of international scientists say some of the published findings that appeared in the Lancet appeared improbable.
- flagged concerns over seemingly identical levels of antibodies in a number of study participants who were inoculated with the experimental vaccine
- This and other patterns in the data present “several different points of concern”
The link above has more. Is anyone surprised by this?
US Secretary of State Mike Pompeo with the latest in the slowly escalating tit for tat deteriorating relations with China
- “For years, the Chinese Communist Party has imposed significant barriers on American diplomats working inside the PRC [People’s Republic of China]”
Under the new restrictions
- senior Chinese diplomats will need approval from the State Department to visit American university campuses and meet with local government officials
- Approval will also be required for cultural events for more than 50 attendees happening outside the Chinese embassy or consular posts.
I expect more tit for tat ahead of the US election.
The Oracle of Omaha turns 90 today
Warren Buffet celebrates his 90th birthday today as the world’s sixth-richest man. At $82.1 billion, he’s done well for himself.
Around the age of 10, he read a book about how to make $1,000 and intuitively grasped the importance of time. In five years, $1,000 earning 10% would be worth more than $1,600; 10 years of 10% growth would turn it into nearly $2,600; in 25 years, it would amount to more than $10,800; in 50 years, it would compound to almost $117,400.
Today’s markets are as get-rich-quick as ever but the long game always wins.
This is the Abbott BinaxNOW™ COVID-19 Ag Card test
- The test delivers results in just 15 minutes
- no instrumentation required
The firm cite:
- demonstrated sensitivity of 97.1% and specificity of 98.5% in clinical study
- Company will ship tens of millions of tests in September, ramping to 50 million tests a month at the beginning of October
Note – not a vaccine, not a cure, not palliative. ‘Just’ a test.
But, rapid testing can enhance detection and subsequent isolation and help inprove the ‘R’ number (get it lower). So it is significant.
ps. This new test has been in the news, so its not a ‘breaking’ development.
The pressure is on
The US dollar has extended its gains as market participants get caught wrong-footed in a rebound after multi-month lows.
The dollar looked to be breaking down yesterday and today but stabled itself and is making a move to the upside. There are two near term factors to watch:
1) The 20-year auction
The US is selling $25B in 20-year bonds at the top of the hour. Last week there was a strong 10-year sale and a very weak 30-year sale so the bond market is off balance. A higher-than-anticipted yield could boost the dollar further.
2) The FOMC minutes
The Fed is a below-the-radar risk at the moment. The strong belief in markets is that they’re creeping towards doing more for the economy but an improvement in US virus cases, decent economic data, higher inflation and the stock market at record highs might make them slow their roll. If so, the dollar could climb further
Overall, this looks like a position-squaring squeeze in a quiet mid-August market to me but you can’t take anything for granted. If it spills over into a broad risk-off move, then the dollar could have a lot of room to run.
The EUR/USD chart to me looks like a retest of the range break before a further breakout but a close over 1.19 today would add confidence.
Likely more noise more than anything else
The market will be keenly eyeing the release of the July FOMC meeting minutes later today but it is unlikely to tell us much that we don’t already know at the moment.
The Fed has acknowledged that the economic situation is starting to worsen a little and cast a bit of a dark cloud over the outlook in 2H 2020, considering the fact that the virus situation was escalating rather rapidly across the US last month.
If anything, I would say the minutes should just reaffirm that sentiment and also highlight that the Fed will still do whatever it takes to bolster the economy.
Other than that, there may be room to look out for potential policy changes/tweaks – possibly on future communication – but that is unlikely to offer much as the longer-term plan remains in tact (still just be mindful of this space in any case).
While the market may be looking to the minutes for further suggestions, it is not likely to change the themes that we have been seeing so far to start the week.
The softer outlook may be a signal for equities to pause after hitting all-time highs but for the dollar, election uncertainty and the stalemate on stimulus talks have been factors
that are weighing on the currency; and those won’t be going away.
The dollar gave up on some key technical levels in trading yesterday but amid a tricky August so far, let’s see if sellers have the conviction to follow through ahead of the weekend.
Yonhap (South Korean media) cited a U.S. Department of the Army report, “North Korean tactics” published in July.
- “Estimates for North Korean nuclear weapons range from 20-60 bombs, with the capability to produce 6 new devices each year”
- “North Korea sought nuclear weapons because its leaders thought the threat of a nuclear attack would prevent other countries from contemplating a regime change”
ps. I am expecting something from NK today:
- North Korea says it will convene a high level meeting on Wednesday – matter of ‘crucial significance’
Kim’s ‘Mission accomplished’ grin: