• UPDATE: FALSE SIGNAL: Corrected By NY Fed...50 Basis Point Cut NOT Necessarily Back On The Table

    July 18, 2019
    1

    UPDATE: Read the article below with narrowed eyes: after publication, a spokesperson from the NY Fed told two reporters--one being the WSJ's primary Fed watcher, Mr. Timiaros--that Fed President John Williams was merely giving an "academic commentary" based on his wealth of knowledge regarding monetary policy, and overeager interpreters--including yours truly--took it as a sign of a 50 bp cut. Proceed with care.

    Federal Reserve Bank President John C. Williams

    When Doves Cry, Markets Move

    Very dovish comments from Federal Reserve President John C. Williams rocked markets this afternoon. While prior consensus had been that the Fed would cut interest rates by 25 basis points, the likelihood of a 50 basis point cut--largely seen by the Street as all but dead--is back to even money.

    Williams' prepared comments from the New York Fed are here, titled "Living Life Near the ZLB," or zero lower bound. Within, he employs Fed Chairman Jerome Powell's "ounce-of-prevention" language, likening monetary policy near the ZLB to vaccinating your children. “It’s better to take preventative measures than to wait for disaster to unfold,” Williams states. The comment that the market is most focused on comes in the third section of his speech under the heading of Monetary Policy Near the ZLB (emphasis added): “don’t keep your powder dry—that is, move more quickly to add monetary stimulus than you otherwise might."

    He concludes with some key lessons, the first of which is to “take swift action when faced with adverse economic conditions.”

    Market Moves As A Result

    • The CME FedWatch Market Tool moved drastically from a 33% chance of a 50 bp cut to 50.7%, but began to retrace shortly thereafter
    • Eurodollar futures shot up to almost 98, the equivalent of pricing in a 41 bp cut
    • US Dollar Index (DXY) plunged below 96
    • The S&P 500 shot up from 2,986 to high of 2,998, closing at 2,995

    Clarida Comments Reinforce Message

    Federal Reserve Vice Chairman Richard Clarida comments later today confirmed the very dovish stance espoused by Williams. The Fed "shouldn't have to wait" for bad news to keep the economy on "an even keel," he said on Fox Business Network.

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    CDM Staff

    The mission at Creative Destruction Media is to be the catalyst for the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."
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    Wayne

    Call me a dumb contrarian if you want, but I personally would like to see a RISE in the medium term rates. Being someone who works in the investment advisory realm, I a gotta say, it's been incredibly difficult to help my senior retirees find anything all that secure with a decent interest rate. I know that Trump is all gung ho about wanting to puff out his chest and the economy is going good. though I do see some indication that the food and energy prices are rising putting more pressure on middle quintile and retirees. I get the whole global market deb thing and gotta also ask why the hell we borrow so much. Between fines and fees everything from cell phones to television, gas and cigarettes PLUS income taxes, well somewhere in the great ginormous govt, there's a spending problem.
    Anyway, perhaps the feds at some point down the road would or could consider a unique new way to look at interest rates and maybe think about a separate rate just for pensioners. With certain parameters like no more than $300,000 in the special rate fund, etc. These people worked their whole lives to save for their security, maybe they will spend it all before they die, maybe they will leave some behind. All I know is, I'd like to see fixed rate annuity rates going UP not down every other week. yes, I guess I do pine for the days of a normal yield curve.
    Do what you think is truly best.

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