Albert Edwards: This Is The Reason Why The Market Doesn’t Believe The Fed Any More
by Tyler Durden
ZeroHedge.com
Mar 16, 2017
While it was generally a quiet day in the market, an unexpected tension emerged today: first central banker incubator Goldman Sachs, and then RBC both made the case that Janet Yellen has not only failed to communicate what yesterday’s rate hike means, but that the Fed has effectively lose control of the market, by unleashing just the opposite reaction of what the Fed had intended: in fact, as Goldman explained, the response to the market was the equivalent of “almost one full cut in the federal funds rate.” In other words, instead of hiking, the market interpreted the Fed’s action as a rate cut, which according to Goldman will force the Fed to explain that the market was wrong, prompting even more volatility when the market’s inevitable cognitive dissonance hits.
But is it the market’s fault it no longer believes the Fed? Of course not, and as SocGen’s Albert Edwards notes, it is the “Fed’s lack of verbal assertiveness means the market still cannot bring itself to believe the Fed’s own projections for interest rate hikes.”
There are several factors at play here, not only the confusing dots (which as RBC pointed out moved in a hawkish fashion for 2017). As Edwards’ co-worker Kit Juckes summed up. “the Fed’s reluctance to send an aggressive tightening signal, instead preferring to again shuffle upwards its dots just slightly, has disappointed markets. But to be fair, the problem isn’t really with the famous dots. It’s with the market, which just doesn’t believe the Fed will tighten as fast as they say they plan to (see left-hand chart below). If the market took the FOMC at their word and discounted a 3% Fed Funds rate at the end of 2019 and beyond, then we’d probably have a 3% nominal 10-year Treasury yield by now.”
The Rest…HERE
