The debate is on. Now intensified perhaps by Bank of England Governor Mark Carney's sudden conversion from dove to hawk, it's no longer just about reducing the Fed's balance sheet but how soon, how fast and how far will interest rates get hiked?
Add to that the dilemma of which should come first, the balance sheet chicken or the interest rate egg, steadily reducing the current $4.5 trillion to something a lot less spooky or cranking up the interest rate hiking machine?
In a recent interview economist Alan Blinder, a former Fed vice chairman under Greenspan, when asked about Yellen's statements and a possible developing disagreement among current Fed board members, in defense of Yellen's position, said:
She’s going to try do everything she can to not make that happen. The thoughts I’ve just been expressing to you are not unknown to Janet Yellen. She’s going to try to do everything she can do to keep the lid on. But the fact is there are serious disagreements among the Fed, and without naming names, there are a number of people on the FOMC that don’t hesitate to go public with their disagreements.
One doesn't have to be a rocket chemist to know which side Blinder is taking. Nor is his comment a screaming endorsement for more transparency.
There's apparently bubbling trouble in Fed paradise and that can't--given the uncertainty it might send to investors--be good for anyone let alone markets.
Stated another way, trouble in Fed paradise could mean: "Hello volatility!"
No comments:
Post a Comment