June 23, 2014

Whirlybird Janet has lived up to her name

On June 18, Whirlybird Janet (the successor to Helicopter Ben) lived up to her name, and in the process, she and the Fed are likely losing their credibility posthaste.
Janet Yellen
Not surprisingly, the FOMC statement was essentially consistent with previous comments.

    -The Fed dismissed signs of emerging inflation, citing that it was running below the committee's long-term objective (I suppose under the belief that food and energy is irrelevant to the Average Joe).
    -The Fed maintained the notion that it would keep the federal funds rate at current levels well after tapering ends.
    -2014 U.S. economic growth was brought down, owing to the inclement weather. The unemployment rate was taken down a few tenths of a percent (by year-end 2014).
    -Core PCE inflation was taken up a tad to between 1.5% and 1.6%.
    -The "dots" exhibited a higher expectation of GDP growth for 2015 and a bit lower for the long run rate.

The Fed did not lift inflation targets for 2014-2015.

Whirlybird Yellen failed to mention the pickup in inflation, which was made quite clear in a June 17 CPI release and abundantly clear to most consumers. While understandable and consistent with Yellen's dovish history (and why I nicknamed her Whirlybird), this is shortsighted, as the employment and inflation data fail to warrant a more dovish statement.

The Fed's errant economic forecasts have been well-documented.

Since 2009, the Fed's economic projections have substantially overstated domestic economic activity, failing to recognize the strength of the structural headwinds and the residual impact of the 2007-2009 Great Decession. (Note: Before 2009, the Fed's projections were spotty as well.)

Nevertheless (and surprising to me), investors and traders still take the Fed's forecasts as gospel. 

via theStreet http://www.thestreet.com/story/12752208/1/fed-losing-cred-bull-market-in-complacency-might-crack-best-of-kass.html