Gold is trading modestly higher after dipping to new 5-week lows in overseas trading. The yellow metal has caught a bit of a bid as the dollar retreats from its recent 6-week high and December rate hike expectations edge lower.
Fed funds futures now show December rate hike probability of 76%, down from 81% yesterday. Nonetheless, FedSpeak today continues to tow the ‘gradual rate hikes are appropriate’ party line.
Stanley Fischer, on his way out the door essentially, said the importance of reversing temporary policy stimulus measures should not be “underestimated.” Realize that those “temporary” measures have been ongoing for about a decade. Rates will remain well below what was previously considered normal and the balance sheet will remain massive for some time to come, even if the normalization goes off exactly as planned.
Maybe investors are re-reading Janet Yellen’s speech from earlier in the week and realizing it’s not as hawkish as their initial interpretation. Yellen admits that her and her colleagues may have been “misjudged” the labor market and inflation. One traders said it was an admission that the Fed is clueless!
In the very same speech, she said that gradual rate hikes remains appropriate, but also said “achieving our 2 percent inflation goal over the medium term may require a more accommodative stance of monetary policy.” Which is it? Because it can’t be both . . .
“QE didn’t work, and Janet knew it was unlikely to work, from the start,” said John Mauldin in his introduction to an article entitled Low Inflation Is No “Mystery”
So forgive us for asking, but after unprecedented expansion of banking reserves and the Fed balance sheet, with little inflation, is it really a “mystery?” Or, is it proof of what we believed all along: QE didn’t work? — Brian S. Wesbury & Robert Stein of First Trust
It seems to me that forging down the same policy path that has failed to yield the desired results is ill-advised. That goes for the start of QE and it will likely to be true for the unwind of QE as well. Damned if you do and damned if you don’t.
Geopolitical tensions seem to have eased somewhat as China ramped-up pressure on North Korea. All North Korean firms and joint ventures in China must close within the next several months.
With even their closest ally aligning with the U.S. and dialing up the santions, the hope is that the DPRK will back down. Whether they do or not, remains to be seen and South Korea is still expecting more missile tests and perhaps another nuclear test in October.