Authored by Raul Ilargi Meijer via The Automatic Earth blog,
You would think, certainly if you were as naive and innocent as I am, that when you get offered the job of Chair of the Federal Reserve, you must be sure, before accepting, that you have the credentials and the knowledge required. If you don’t, it looks as if you don’t take the job seriously. Janet Yellen, who’s been Chair since January 2014, doesn’t seem to agree.
Something appears to be off. After two consecutive admissions by Janet Yellen that the Fed has lost its grasp on the "mystery" of inflation, the market no longer appears eager to chase the direction of every Fed proclamation, especially the recent, hawkish ones. And, as Bloomberg's Mark Cudmore writes this morning, "whether it’s because the Fed has lost credibility or just because Yellen is viewed as a lame duck approaching the end of her term, it doesn’t matter - U.S. rates and the dollar show investors aren’t buying what she’s selling."
Update: In her prepared remarks, Yellen crucially said,
“A more important issue from a policy standpoint is that some key assumptions underlying the baseline outlook could be wrong in ways that imply that inflation will remain low for longer than currently projected.”
As Bloomberg explains, she is stating a bit more clearly than before that the FOMC doesn’t have a handle on why inflation is low and acknowledging that it may last longer than they predict.
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Two weeks ago, Goldman's clients were so worried about an imminent crash, the investment bank's chief equity strategist, David Kostin enumerated no less than 7 reasons why, as Goldman itself admitted, "the question every client asks: Is an equity correction imminent?” As a reminder, the reasons - summarized - were the following:
The Fed wants us to believe that it remains hawkish, that it will begin the process of unwinding its $4.5 trillion balance sheet next month and that it will hike rates again this year.
The markets aren’t buying it, even for a second.
The top performing asset class after the Fed concluded its announcement on Wednesday was… TREASURIES: the asset class that should DROP hard if the Fed intends to raise rates.