Sea of Change: St Louis Fed President Pimps the "Mid-Cycle Adjustment" Thesis

St. Louis Fed's James Bullard says "interest rates are in the right neighborhood". The bond market strongly disagrees.

Please consider a Sea Change in U.S. Monetary Policy by James Bullard.

Key Themes

  1. "Starting in January 2019, the Federal Open Market Committee (FOMC) made significant adjustments to the path of U.S. monetary policy."
  2. "These changes were made in anticipation of slower growth in the U.S. economy during 2019 and also in anticipation of continued uncertainty regarding global trading arrangements."
  3. "While additional policy action may be desirable, the long and variable lags in the effects of monetary policy suggest that the effects of previous actions are only now beginning to impact macroeconomic outcomes."
  4. "Meanwhile, inflation pressures remain muted, and a more meaningful inversion of the yield curve continues to threaten."

Bullet point three is the most interesting one.

Bullard has been one of the biggest doves on the Fed, but suddenly he adopted a wait-and-see attitude.

No doubt he is attempting to contain a bond market that expects three to four more rate cuts.

Bullard's Minimal Success

Chart from CME Fedwatch with my "was" anecdotes.

Even if we attribute today's move entirely to Bullard, a risky proposition, his speech accomplished little of his clear intent.

Fed GDP Projections

No Recession Through 2022

The median Fed projection is no recession as far as the eye can see.

Anyone believe that?

BS "Partial Inversion" Explanation

Yield Curve Spreads

Bullard says "The 10-year yield remains above the two-year yield, likely because markets are anticipating future policy moves by the FOMC, and so we are not seeing an intensification of the yield curve inversion so far."

What a sorry joke.

Mike "Mish" Shedlock

Comments (11)
No. 1-11
Stuki
Stuki

If interest rates were in the right neighborhood, Gold would persistently trade in the neighborhood of $20/oz. The simple fact that it doesn't, is proof positive they are not.

Bronco
Bronco

Bullard says "The 10-year yield remains above the two-year yield, likely because markets are anticipating future policy moves by the FOMC, and so we are not seeing an intensification of the yield curve inversion so far."

...

Really?

Getting there.

Spread on July 1st ... +25 bps Spread yesterday ... +16 bps Spread today ... +13 bps

Greggg
Greggg

Next they will be calling it an inverted rate hike. The world of upside down people.

Bam_Man
Bam_Man

The Bull-tard has spoken once again. He is a pathetic, cartoonish caricature of what a Central Bank figure ought to be - and perhaps was, once upon a time. The days of Central Bank credibility are over.

Gasmire
Gasmire

My dog has been licking her paws lately. The last time she did that Lehman Bros went tits-up.

Bronco
Bronco

Yield curve collapsing overnight.

2yr down 4bps ... 10yr down 9 bps ... 30yr down 10 bps ...

Matt3
Matt3

And if the 10 year goes below the 2 year, big deal. Most of the recession predictors don't work very well. Furthermore, we are in a new world of MMT. Historical references for monetary policy in a world of negative interest rates just don't make sense. Maybe the upside down world will last another year or maybe 50 years. Went to a presentation by Lacy Hunt. He said we are in a cycle that could last a short time or 100 years. It will end by no one knows when.

Tony Bennett
Tony Bennett

Mr Bullard ... Mr James Bullard ... please pick up white courtesy phone in lobby ...

Bring_The_Logic
Bring_The_Logic

While additional policy action may be desirable, the long and variable lags in the effects of monetary policy suggest that the effects of previous actions are only now beginning to impact macroeconomic outcomes."

Keep in mind that most loans for small and mid-size businesses are not easily or quickly refinanced - add the SBA guarantee and all options for refinancing are off the table.

AWC
AWC

The biggest “Sea Change” I see here is a continuation of a headlong rush towards a centrally planned economic system, aka, MMT, where eventually recessions will become optional, their occurrence being a matter of political expediency.

“Bond Market?” Ha! Who would believe in the credibility of Securities Markets that post $15 trillion into negative yields?

Time to get real, and understand we have entered the brave new world of a centrally planned and controlled economic realm. We will play the game, at least until the planners lose it, or be washed away. We are likely in the early stages of this “Sea Change,” so it may be a good idea to plan on many years of this Neo New Deal, possibly even generations.

Next up? Massive fiscal spending such as high rise housing for the homeless, and bridges to get to them, high speed rails, universal basic income fiascos, etc. All chocked up to GDP “growth.”

Casual_Observer
Casual_Observer

The Fed would be better off if they just said they will never raise or lower interest rates again. The market would then go on about its business. The whole idea of trying to continually stimulate debt is going end in tears.