Explaining All The Facts

St. Louis Fed President James Bullard was in New York last week, making a presentation to the US Monetary Policy Forum. A well-known dove, speaking to CNBC while attending the conference, as a current voting member of the FOMC Bullard announced his dissenting view to the last “rate hike.” He was not eligible to vote in December, rotating into this situation at the beginning of this year just in time for this new dovish tilt.

I thought at the December meeting, myself I thought it was a step too far. I argued against that move. We did get a bad reaction in financial markets. I think the market started to think we were too hawkish, might cause a recession.

That’s the thing with these doves, they never explain this huge contradiction. Monetary policy is the center of the universe for these people, the central bank could not be more central. To them, it explains everything even though it can’t.

Since rate cuts and QE were so powerful, how in the world can anyone be so dovish after all this time and so much of it? The world wouldn’t seem to need more of it if it worked at all like it has been advertised. Not only that, if it is so effective how can just 250 bps of “rate hikes” (spread out over three years!) be sufficient to bring about very real fears over a recession?

For Bullard, that is the main issue currently; the rate hikes, not QT. Though everyone is talking about balance sheet normalization, for the St. Louis branch this is a minor bit of fine tuning. The subject of his presentation in New York was how QT isn’t really QT.

The funny thing is, Bullard comes awfully close to acknowledging the truth about monetary policy. It isn’t money printing; it isn’t even money. He makes the argument that QE’s powerful effects were instead accomplished via expectations. I could not agree more. Or, as former Dallas Fed President Richard Fisher admitted in early 2013, a monetary head fake.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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