Has Yellen Become A Dove Again?

George Yacik - INO.com Contributor - Fed & Interest Rates


Janet Yellen’s equivocal remarks at last week’s semi-annual Congressional testimony certainly might make you believe that a rate hike at the Federal Reserve’s July 25-26 meeting is hardly a sure thing. Indeed, the odds of that happening are a lot less than 50-50. A lot less.

In her testimony, Yellen remained confident in her previous declarations that inflation would gradually rise to the Fed’s 2% target. “It’s premature to reach the judgment that we’re not on the path to 2% inflation over the next couple of years,” she said. But then she quickly hedged her bets. “We’re watching this very closely and stand ready to adjust our policy if it appears that the inflation undershoot will be persistent,” she said.

Based on the past several months’ worth of inflation statistics, one would have a tough time arguing that lower-than-expected inflation hasn’t become “persistent.” Last month’s consumer price index was unchanged from May and up only 1.6% versus a year earlier, the fourth straight decline by that measurement. That followed May’s personal-consumption expenditures index, the Fed’s preferred inflation measure, which fell 0.1%. The core index, which excludes food and energy, rose 0.1%, but just 1.4% on a year-to-year basis, well below the Fed’s target rate and lower than at the beginning of the year. Continue reading "Has Yellen Become A Dove Again?"

Should We Believe The 'Transitory' Story?

George Yacik - INO.com Contributor - Fed & Interest Rates


The bond market may have stopped listening to the Federal Reserve, but that doesn't mean we shouldn't know what the voting members of its monetary policy committee are thinking. What's clear is that they're not as united as they were at their last meeting just two weeks ago, when they voted nearly unanimously to raise interest rates by 25 basis points, with only Minneapolis Fed President Neel Kashkari voting against.

Now, no sooner was the vote cast, but it appears that it at least one member, maybe two, have misgivings about voting for the increase. At the very least, they're not as much in a hurry to raise rates again soon, if not until the end of this year, if not even later.

Still, as you would expect – or hope for – in a body of intelligent people, there's a strong difference of opinion on what the Fed should do next as it concerns interest rates. Continue reading "Should We Believe The 'Transitory' Story?"

Is The Spike In Bond Yields Trump's Fault?

George Yacik - INO.com Contributor - Fed & Interest Rates


Pretty much ever since Donald Trump threw his hat into the ring to run for president about 18 months ago, he’s been blamed for any number of things that have upset some people, no matter how preposterous.

He’s been blamed for recruiting Muslim fanatics to fight for ISIS. He’s been blamed for inciting violence at his own rallies, plus the riots that have followed his election. A middle school teacher in Berkeley, California - where else? - Blamed Trump after she had said she received an anonymous threat from neo-Nazis. I suppose if I spent enough time researching it I could find someone blaming Trump for killing Lincoln and Kennedy, the two World Wars and global warming - you just know he must have had something to do with that!

Now, since his stunning upset victory in the U.S. presidential election, bond yields have spiked to their highest levels since last January, and many people are putting the blame on him for that. Continue reading "Is The Spike In Bond Yields Trump's Fault?"

Chicken Little and the Bond Market

George Yacik - INO.com Contributor - Fed & Interest Rates


If you listen to some market observers, the record low yields in the Treasury bond market are warning us that the American economy is on the verge of falling into the same deflationary abyss of the euro zone and Japan. Like the Chicken Little story, if bond yields are falling, the sky must be falling, too.

With the yield on the 30-year T-bond hitting its lowest level ever last week, even lower than during the global financial crisis, they’re worried that if the Federal Reserve raises interest rates soon, we’ll shortly be back to the bad old days of 2008 and, even worse, 1929.

No less a figure than Paul Krugman, the New York Times’ economics commentator, wrote that the Swiss Central Bank’s move last week to decouple the franc from the free-falling euro is a portent of what could happen to us if we let our deflationary guard down. Continue reading "Chicken Little and the Bond Market"

Stocks Peak One Year After Bonds (History Set to Repeat?)

Financial parallels between the 1920s and today

By Elliott Wave International

When the financial media mentions the late 1920s, they usually mean the 1929 stock market top. But today's investors can also learn from what happened in 1928. That was the year that the bond market topped, while commodities peaked even sooner.

You can see this for yourself in a chart published in the September 2013 issue of Robert Prechter's Elliott Wave Theorist.

In the deflationary collapse of 1929-32, commodities fell
from lower peaks, not higher peaks; stocks fell
from all-time highs down to the bottom; and bond
prices fell from an all-time high a year earlier.

The Elliott Wave Theorist, July-August,
2013

These markets could see a similar outcome in the near future: Commodities peaked in 2008, while Treasury bonds topped in 2012. The high in the Dow Industrials remains December 31, 2013. Continue reading "Stocks Peak One Year After Bonds (History Set to Repeat?)"