FOMC Preview: Desperate RHINOs (Again)

The FOMC had voted to taper the final purchasing levels of its third and fourth QE programs at the end of October 2014. Just two days later, the Bank of Japan’s policy committee would vote to expand theirs (already with the extra “Q”). The diverging outlooks punctuated a period of high uncertainty.

No more so than global asset markets. When Federal Reserve Chairman Janet Yellen appeared in front of the cameras the following policy meeting in December 2014, she did so with WTI in total freefall. Whatever anyone tried to make of it, the oil crash was rightly unnerving. These things just don’t happen like that, not during normal times.

On December 18, the front-month oil contract fell below $55 for the first time since 2009, the big one five years before. The 3-month calendar spread, that is the difference between the first contract on the board (effectively the spot price) and the one three months later, had just surpassed $1 in contango (a higher front-month price). Functioning oil markets in balance fundamentally, as would be the case with economic growth picking up, should have meant a backwardated oil futures curve not contango.

Yellen was undeterred, at least in public. We won’t know what she might’ve said in private discussions until the transcripts for 2014 are released in January or February 2020.  The Chairman reassured the public anyway.

From the standpoint of the U.S. and U.S. outlook, the decline we’ve seen in oil prices is likely to be, on net, a positive. It’s good for families, for households. It’s putting more money in their pockets.

This became the major talking point which would eventually define the galling cluelessness. The big, scary thing out there causing all this financial uncertainty, the oil crash, was really just this huge, misunderstood boost to an already great economic situation? Throughout early 2015, this apologue was repeated over and over and over as if it was, like the unemployment rate, some witch’s enchantment intended to ward off the evil economic spirits.

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Gary Anderson 4 months ago Contributor's comment

I think the Fed is lying about wanting growth. Former St Louis Fed VP, Stephen Williamson, said basically that the Fed was happy with slow growth.