Wednesday, March 30, 2016

I think Janet Yellen is angry

For one, there were a number of Fed people who were spouting hawkish statements.  I think her extreme dovish statement was to slap them across their mouths.

Yellen wants to normalize rates in the worst way.  It is a burning desire.

As I have said, she needs a strong stock market to do this.  While futzing with rates seems to have everything to do with bond prices that is not true.  The wealth effect only comes from the stock market.  And the stock market wealth effect is believed to have the biggest macro economic impact.

When the stock market is strong, strong enough in her mind, she can raise rates for the negative reaction to have plenty of room on the down side.

I think she is angry that the economy and the stock market are not as good as she had hoped and had to defer raising rates in March.

But what a conundrum.

The economy isn’t strong and inflation is needed to mask this over and theoretically get people to start spending their savings.  But inflation puts pressure to raise rates which theoretically has a negative effect on the economy and induces people to save more.

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