Yellen Finishes 2014 with a Win

They said the Fed couldn’t taper without massive market dislocations. They said the Fed was “trapped” and “backed into the corner” and “behind the curve” or that there no longer was a curve anyway – just endless helpings of stimulus and no benefit accruing to the economy whatsoever.

In the meantime, the FOMC has now removed itself from new bond-buying operations completely as its current portfolio begins to slowly wind itself down over time. Employment is strong and we’re starting to see quarterly GDP releases with a 4-handle in front of them. Inflationary pressures are nowhere on the horizon for the time being, with Bank of America Merrill Lynch’s economists saying the risk is lower, not higher, for prices throughout the economy. They see core PCE hovering around 1.4% next year with the risks being to the downside.

Ethan Harris writes about Yellen’s year-end victory and the three key things we can take away from the Fed’s final performance of 2014:

Turning to the Fed, we think the latest directive and press conference confirms three key calls. First, they would much rather go too late rather than too early. Hence Yellen acknowledged that they expect to slightly overshoot full employment and she all but ruled out a hike in January or March. Second, the Fed is getting increasingly worried about missing the inflation target, but they are not ready to admit it; instead, they are “closely monitoring” inflation. Third, the Fed clearly wants to avoid shocking the markets. This is why Yellen has repeatedly downplayed shifts in forecasts and language. This talk therapy was taken to a new level this week when they substituted “patient” for “considerable time” and then said they mean the same thing!

All of this underscores a key aspect of Fed watching. Trying to forecast the exact language change in the FOMC directive is a bit of a fool’s errand. Instead, look for the Fed to change policy in a way that only slowly and modestly tightens financial conditions. By this metric, the latest meeting was a success: they got rid of “considerable time” with only a modest rise in interest rates and a surge in the stock market.

Over the last two days, since the Fed’s press conference, the S&P 500 has gained 4.5%. The Dow rallied over 400 points yesterday after a monster day on Wednesday. It was the biggest two-day rally for stocks since November 2011 at the end of the Euro Crisis panic.

Amazing how far we’ve come – disinflation being the bigger issue than jobs growth. In Janet Yellen’s mind, this has got to be a clear win.

Source:

The ghost of disinflations past
Bank of America Merrill Lynch – December 19th 2014

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. DevOps commented on Dec 09

    … [Trackback]

    […] Here you will find 51523 additional Info on that Topic: thereformedbroker.com/2014/12/19/yellen-finishes-2014-with-a-win/ […]

  2. best cosplay wigs commented on Dec 29

    … [Trackback]

    […] Info on that Topic: thereformedbroker.com/2014/12/19/yellen-finishes-2014-with-a-win/ […]

  3. fucking a doll commented on Dec 31

    … [Trackback]

    […] There you can find 24515 more Information to that Topic: thereformedbroker.com/2014/12/19/yellen-finishes-2014-with-a-win/ […]

  4. CI CI services commented on Feb 07

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2014/12/19/yellen-finishes-2014-with-a-win/ […]