When then-President-Elect Joe Biden nominated Janet Yellen to be his Treasury secretary last month, the markets rejoiced. The former Federal Reserve chair was a known quantity, and investors hate uncertainty – they knew what they were getting. Even better, they liked what they were getting—a monetary dove who favors low-interest rates and supports an interventionist government and Fed. While she wouldn't be on the Fed in her new role, she still holds the same views.
Moreover, since she is Jerome Powell's immediate predecessor, and they both worked together on the Fed for several years, it was pretty much a given that the two will work closely and harmoniously together for the good of the country, as the times demand.
But the markets were also relieved that Biden did not bow to the so-called progressives on the extreme left of his party and pick someone more to their liking, instead choosing someone with safe, relatively moderate views that both parties could support – as indeed they did, by an 84-15 Senate vote. In other words, Biden wanted – and the markets demanded – an adult in the room, and that's what they got with Yellen.
For the better part of the past four years, we've had to listen to the chattering classes defending the sanctity of the independence of the Federal Reserve. President Trump was routinely lambasted for constantly criticizing Jerome Powell, while several of his other nominees to the Fed, such as Herman Cain and Steven Moore, were deemed to be too cozy to Trump to warrant consideration. Both of them withdrew their nominations for other reasons, but it appeared that their nominations were DOA. For the same reason, the confirmation of the "controversial" Judy Shelton looks like it is going to die on the vine because she's been portrayed as Trump's lackey.
Yet now we have the prospect of Janet Yellen, the former chair of the Fed, being nominated as Joe Biden's Secretary of the Treasury. If nothing else, that will basically put the nail in the coffin of the notion of Fed independence. Does anyone seriously doubt that the Treasury and the Fed will be joined at the hip when the two most recent Fed chairs head those two agencies?
Yet that prospect probably won't be an impediment to her being confirmed by the Senate—on the contrary. The markets greeted Yellen's nomination with absolute euphoria, as well they should. The prospect of the Treasury and the Fed working more closely together in a time of crisis is certainly a reason for optimism. And it's certainly good for my portfolio, so I'm not complaining. But lost in all of the jubilation is that the idea of Fed independence has gone by the wayside, and nobody seems to give a hoot.
This is certainly not a bad thing. The whole idea of Fed independence was always suspect. The Fed is no more independent than the FBI or the Energy Department. It's just another branch of the government that arguably should always work in tandem with the Treasury for the betterment of the U.S. economy and usually does. Yet someone created this fiction that the Fed is somehow the moral equivalent of the Supreme Court and above politics. Continue reading "Is Fed "Independence" Dead?"→
Once again Janet Yellen, the chairwoman of the Federal Reserve, gave the market yet another easy money "fix". Easy money is the drug of choice for this market and has been for the past six years. Can the insanity of printing more and more money keep going on and on, or will the market have to go into rehab and kick its easy money dependency? Only time will tell. Eventually someone, and that means all of us, will have to pay the piper.
As of today, many stocks, including the major indices, remain locked in broad trading ranges. This could all change as we come to the end the first quarter and move into April. Continue reading "Apple's Secret Weapon"→
After a wild day in the markets yesterday, Mario Draghi, president of the European Central Bank, was at center stage this morning. What he said was almost incomprehensible to most people, including me. The clear takeaway was that European interest rates will not be going higher anytime soon. He was also asked what instruments the ECB have left to fight the current impasse in the markets. His answer was classic mumbo-jumbo Central Bank talk and did not address the question at hand.
It seems to this observer that the ECB and the Fed are literally out of ammo and have no clue what to do next. Fed chairwoman Janet Yellen's decision to raise interest rates here in the United States was, in my opinion, too late to have the desired effect. Should the markets head south as it looks like they may be doing, does the Federal Reserve have a backup plan or do they move rates back down again to stimulate the economy with another QE? Continue reading "The Head Of The ECB Speaks - What Did He Say?"→
At long last, the market finally got their long awaited Federal Reserve rate increase. Yesterday, the Fed hiked the Fed Funds rate by 25 basis points, from 0.25% to 0.5%. The Fed's famously watched "dot plot" revealed that most members expect at least four rate hikes in 2016. And investors? If interest rate swaps are any indication, then investors expect no more than two rate hikes next year.