Does anyone else feel like the Fed is blowing smoke? | Forex Factory

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Does anyone else feel like the Fed is blowing smoke?

  • #1
  • First Post: Jun 8, 2006 12:12am Jun 8, 2006 12:12am
It just seems strange to me that many of the Fed members are coming out this week taking a much firmer stance on inflation that past weeks.

I wouldn't be surprised if there was a rate increase in June but it just feels like they have other motives in coming out and making such blunt comments this week.

Does anyone else think that maybe the Fed is trying to keep the dollar from getting away from them?

Also, I wonder if central bank presidents communicate with each other behind closed doors in order to keep somewhat of a global balance. If that is the case, perhaps the Fed has information about the ECB interest rate announcement and wanted to drive value of the dollar up a bit to cushion it's fall.

What do you all think?
  • #2
  • Edited 11:37pm Jun 8, 2006 12:31am | Edited 11:37pm
I think that uncle Ben is not so cryptic as Mr. Greenspan. Folks just aren't used to all of this straight talk all in one sitting. Not so many tea leaves to read and all that.
Nolite dormiens pungere ursum. -- Latan Proverb.
  • #3
  • Jun 8, 2006 2:27am Jun 8, 2006 2:27am
I agree...lot of smoke in the room, but they cant smoke forever...
  • #4
  • Jun 8, 2006 8:37am Jun 8, 2006 8:37am
Bump.

I'm just wondering if others of you out there feel this way.
  • #5
  • Jun 8, 2006 8:44am Jun 8, 2006 8:44am
I believe Mr Bernake is still attempting to establish his credentials as an inflation fighter, something that was in question prior to his appointment. At this moment I believe that a rate hike will happen in June and very possibly in August. We need to keep in mind that the markets are not the Fed's primary interest. It's the economy they worry about.
The Fed is not a Govt. entity so I do not think they are subject to Govt. sunshine laws and so do probably meet in private on occasion.
In trading, there is no bullshit. You either make money or you don't.
  • #6
  • Jun 8, 2006 9:30am Jun 8, 2006 9:30am
Quoting mrgreen
I believe Mr Bernake is still attempting to establish his credentials as an inflation fighter, something that was in question prior to his appointment. At this moment I believe that a rate hike will happen in June and very possibly in August. We need to keep in mind that the markets are not the Fed's primary interest. It's the economy they worry about.
The Fed is not a Govt. entity so I do not think they are subject to Govt. sunshine laws and so do probably meet in private on occasion.
I'm not sure, I think the fed IS a government entity...they control the central bank of the US...not sure if it's a government payroll, but I'd be hard pressed to believe that any entity that helps control inflation is NOT a government entity.

As for interest rate hikes, I don't know if there are enough factors yet for the fed to consider raising the rate in june. While Bernanke wants to be known as an inflation fighter, he is wary about rattling domestic investors.

From a cyclical stand point, if the fed raises the rates too high or too quickly, medium sized investors move their money from the stock market to bonds or treasuries to help offset their risk. This forces companies to cut costs, which lead to stagnant wages and/or layoffs which hurts a good 20-30% of the working force (if not more). It also indirectly hurts an even greater majority (those not financially stable) as their investments in the stock market (which there are a larger number of retail investors in the stock market). Furthermore foreign investment in the stock market dries up. This is ends up cutting consumer spending, which hurts the GDP...which causes the fed to lower rates.

So, in my opinion, June will see a pause with a few more rate hikes this year...as early as August as you suggested. With the rate pause pretty much priced in to most commodities, I'd be surprised if Bernanke makes too much of a fuss. Core inflation is still extremely manageable at about 2.1% about .10% higher than the "comfort zone", so there is no reason why he couldn't make investors happy, since the general expectation is that there will be a few more rate hikes this year...he doesn't have to jump the gun, even while trying to establish his credibility.

That's just my opinion.
  • #7
  • Jun 8, 2006 9:58am Jun 8, 2006 9:58am
Quoting jimsasya

Also, I wonder if central bank presidents communicate with each other behind closed doors in order to keep somewhat of a global balance. If that is the case, perhaps the Fed has information about the ECB interest rate announcement and wanted to drive value of the dollar up a bit to cushion it's fall.

What do you all think?
Jim,
One didn't need to communicate with the ECB in order to figure out that they were going to up interest rates. ECB's adjustment of the interest rate really shouldn't come as a surprise to anyone at this point in time.
Also, aside from fighting inflation, the FED's current other concern is slowly driving the value of the dollar down in order to compensate for the ominous trade balance.
Best,
B.B
  • #8
  • Jun 8, 2006 2:07pm Jun 8, 2006 2:07pm
I stand corrected on my original thoughts on the Fed and the Sunshine Law. Per the PDF avail on their website, http://www.federalreserve.gov/
" The Federal Reserve System is considered to be an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive branch of government. The System is, however, subject to oversight by the U.S. Congress. The Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government; therefore, the description of the System as “independent within the government” is more accurate. "

Also is stated at http://www.federalreserve.gov/boardd...s/sunshine.htm

"Meetings of the Board of Governors, typically held twice a month, cover the regulatory, monetary policy, and other responsibilities of the central bank. The Board conducts its meetings in compliance with title 5, section 552b, of the U.S. Code, known as the Government in the Sunshine Act. The public is welcome to attend all meetings except those that the Board determines should be closed under legal exemptions defined in the Sunshine Act. "

Just like when trading I learn a lot when I'm wrong
In trading, there is no bullshit. You either make money or you don't.
  • #9
  • Jun 8, 2006 2:18pm Jun 8, 2006 2:18pm
Of course the Fed has lost control. They've had to raise interest rates for how many quarters in a row at this point? Greenspan could have stuck around for a few more months to be the longest serving Fed Chairman in history but he chose to opt out. Guess why? The increase volatility in the US Dollar due to being over leveraged is becoming more and more obvious week by week. Over the past two - three months the Fed has continually raised the rates yet the Dollar has managed to lose ground to the other majors. We are entering a period of deflation WITH rising interest rates.
  • #10
  • Jun 8, 2006 7:31pm Jun 8, 2006 7:31pm
Quoting mrmikal
I'm not sure, I think the fed IS a government entity...they control the central bank of the US...not sure if it's a government payroll, but I'd be hard pressed to believe that any entity that helps control inflation is NOT a government entity.
The "FED" is NOT a government entity. It is a private cartel of banks.

From Wikipedia:

"It is composed of a central Board of Governors in Washington, D.C., twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous member banks and other entities....


It includes a system of eight to twelve regional reserve banks, owned by its commercial member banks and supervised by the Federal Reserve Board. The board and its chairman are appointed by the president and approved by the Senate."

Quoting mrmikal
As for interest rate hikes, I don't know if there are enough factors yet for the fed to consider raising the rate in june. While Bernanke wants to be known as an inflation fighter, he is wary about rattling domestic investors.
The FED doesn't care about investors.

Quoting mrmikal
From a cyclical stand point, if the fed raises the rates too high or too quickly, medium sized investors move their money from the stock market to bonds or treasuries to help offset their risk. This forces companies to cut costs, which lead to stagnant wages and/or layoffs which hurts a good 20-30% of the working force (if not more). It also indirectly hurts an even greater majority (those not financially stable) as their investments in the stock market (which there are a larger number of retail investors in the stock market).
Wrong again. Lowered stock prices don't force companies to cut costs. The price of the stock of a company is basically irrelevent to the health or performance of a company. Rather, the stock price reflects the health and performance of a company.

Quoting mrmikal
Furthermore foreign investment in the stock market dries up. This is ends up cutting consumer spending, which hurts the GDP...which causes the fed to lower rates.
How does less speculation in the stock market cut consumer spending? When you buy a stock, you are not providing capitial to the company unless it's an IPO or the company is issuing new stock.


Quoting mrmikal
So, in my opinion, June will see a pause with a few more rate hikes this year...as early as August as you suggested. With the rate pause pretty much priced in to most commodities, I'd be surprised if Bernanke makes too much of a fuss. Core inflation is still extremely manageable at about 2.1% about .10% higher than the "comfort zone", so there is no reason why he couldn't make investors happy, since the general expectation is that there will be a few more rate hikes this year...he doesn't have to jump the gun, even while trying to establish his credibility.

That's just my opinion.
Ahh, the core rate which is totally irrelevent and manipulated. I guess if you don't have to eat, put gas in your car, go to the doctor, attend college, or buy a house, the core rate could be relevent to you.

http://www.financialsense.com/stormwatch/2005/0624.html

BTW, the core rate is running at a 3.6% annual rate now.

With Bernanke and Kohn's hawkish comments combined with the ECB's rate hike, I just don't see a pause in june. A .25% rate hike is in the bag with a .5% increase in the cards.
  • #11
  • Edited 8:27pm Jun 8, 2006 8:15pm | Edited 8:27pm
I think the fed is trying to pull a soft landing. They know that the housing/building economy fueled by record financing levels has pretty much come to an end. They know that retail spending financed by consumer debt can only last so long and that the negative savings rate is not sustainable.

I think the fed is doing everything it can to keep that all from unwinding into a big mess. If it means bopping things down or making announcements detrimental to certain markets at certain times, so be it.

Quote
Also, I wonder if central bank presidents communicate with each other behind closed doors in order to keep somewhat of a global balance.

From the Bank for International Settlement's website (http://www.bis.org):

"The BIS is a forum for discussion, policy analysis and information-sharing among central banks and within the international financial and supervisory community."

...

"Established on 17 May 1930, the BIS is the world's oldest international financial organisation."

...

"The most important meetings held at the BIS are the regular meetings of Governors and senior officials of member central banks. Held every two months in Basel, these gatherings provide an opportunity for participants to discuss the world economy and financial markets, and to exchange views on topical issues of central bank interest or concern."

...

"Other meetings of senior central bank officials focus on the conduct of monetary policy, the surveillance of international financial markets and central bank governance issues."
  • #12
  • Jun 8, 2006 11:49pm Jun 8, 2006 11:49pm
weimar ben,

Thanks for the correction...your information was useful.
  • #13
  • Last Post: Jun 9, 2006 12:47am Jun 9, 2006 12:47am
Quoting weimar ben
Wrong again. Lowered stock prices don't force companies to cut costs. The price of the stock of a company is basically irrelevent to the health or performance of a company. Rather, the stock price reflects the health and performance of a company.
This is not always true. Especially in smallcaps. A low stock price (or a falling stock price) can make it hard for a small company to raise capital for expansion. This can and has driven companies into bankruptcy.

Now imagine it being done on purpose through illegal means:

http://www.thesanitycheck.com
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