Ladies and Gentlemen: Gridlock Is Good

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


One of the marvels of the continued bull market in stocks this year – and to a much lesser extent in bonds, too – is that it’s taking place in spite of what appears to be a tremendous amount of dysfunction and conflict within the federal government. But it’s perhaps more accurate to say that the bull market continues to motor on because of, rather than in spite of, the gridlock.

Leave it to the Republican Party to create government gridlock single-handedly – without any assistance from the opposition party. Here is a party that controls both houses of Congress and the presidency and yet still manages to screw things up.

Then again, maybe it’s wrong to think of Donald Trump as a Republican president. Rather, perhaps the correct way to think of Trump is as America’s first Third Party President, who just happened to use the machinery of the Republican Party to get elected, but is no more a Republican than Ross Perot was.

Quite clearly there are three active parties, or factions, in Washington, and all of them are aligned against each other – the Republicans, the Democrats, and the White House. Continue reading "Ladies and Gentlemen: Gridlock Is Good"

Don't Let The Headlines Fool You

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


Back in 1925 President Calvin Coolidge famously said, “The business of America is business.” Apparently, this is still true even if the current administration more closely resembles the Five Families rather than the worthy successors to Silent Cal.

Even as President Trump’s new communications director is “front-stabbing” his White House colleagues and Republicans in Congress can’t get anything done about health insurance reform except make themselves look foolish – and without any help from the Democrats – the economy seems to roll on regardless. Last week the Commerce Department reported that the American economy grew at an annual rate of 2.6% in the second quarter, the first full quarter of Donald Trump’s presidency. That was up sharply from the first quarter’s downwardly revised 1.2% rate and the second strongest rate in the past eight quarters.

That managed to happen thanks to some extent from the hope and anticipation of major health insurance and tax reform, not their actual enactment. Imagine what might happen if our lawmakers actually do what they’re supposed to be doing and those things become reality?

A more pertinent question for this column is: Is that growth rate strong enough to get the Federal Reserve back to raising interest rates again and start its “balance sheet normalization program,” i.e., trimming its $4.5 trillion securities portfolio? Continue reading "Don't Let The Headlines Fool You"

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?"

Put Your Money Where Your Mouth Is

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


Last week Federal Reserve Governor Jerome Powell joined the chorus of prominent industry leaders and government officials calling for reform of the American housing finance system, namely by reducing the government’s role in the business and bringing in more private capital.

Some questioned why Powell should speak on this subject, given that – as he told his American Enterprise Institute audience –the Fed “is not charged with designing or evaluating proposals for housing finance reform.” Still, he pointed out, “we are responsible for regulating and supervising banking institutions to ensure their safety and soundness, and more broadly for the stability of the financial system.” Besides, he noted, he was expressing his own personal views on the subject, not necessarily the Feds.

But what caught the attention of a lot of people, including myself, was the sense of urgency for reform that Powell claimed existed. Continue reading "Put Your Money Where Your Mouth Is"

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?"