In his speech in Jackson hole fed Chairman Janet Yellen spoke not only about possible increase of rates, but also about the possible expansion of the asset repurchase program. Bond market guru bill gross criticized any form of QE, saying that the economy Yellen will never be functioning normally.
To start or to expand the program of quantitative easing is like “to give the ailing economy a Walker or a wheelchair,” wrote bill gross in a letter to its customers. It should be noted, Mr. gross has long been a critic of the cash infusion, rightly stating that there is no real benefit, other than the growth in the value of stock of assets they carry.
Gross repeatedly lamented the policy of the Bank of Japan, ECB and Swiss Central Bank low rates, and now negative, and the printing press. Indeed, we see that in addition to the growth of financial markets there are no problems in these countries are not solved.
Bill gross said that if the fed decides to launch QE, it will give the start to the emergence of new bubbles, thus simply substituting the ailing economy wheelchair. “If monetary policy will continue in the same spirit, the US economy will not be able to function normally,” said gross.
However, it should be noted that Yellen did not focus on the possibility of launching a program of quantitative easing, but only noted that such a tool is in the Arsenal of the regulator. Was it a hint? Hard to say, but the main theme of her remarks was a probability of a rate hike.
Ms. Yellen once again reiterated that the macroeconomic data provide all the more reason for an early tightening of monetary policy. The market in any case have focused on this. As a consequence, strengthened the dollar, and the assessment by market expectations of higher interest rates on the Federal reserve meeting September 21, increased from 15% to 42%.
Their opinion about the speech, Yellen expressed and a former colleague of gross Mohamed El-Erian. He is confident that in the event of a release of positive data on the labor market the fed will resist raising rates at the September meeting.
Recall, the most complete report on the labor market comes every first Friday of the month. Data for August will be published on 2 September.
Mohamed El-Erian
“If there is indeed a strong report on the labor market, such as employment growth of more than 200 thousand high wage growth, then it will be very difficult to refuse the rate hike in September, well by December for sure.
Note, the forecast statistics for August looks quite optimistic. Analysts expect growth in the number of jobs on 175 thousand, as well as reducing the unemployment rate to 4.8%.
A policy error of the Federal reserve?
You can talk about the growth rates and the growth of the economy, but the largest volume market in the world tells a different story.
Immediately after Yellen’s speech the difference in yields on 30-year and 2-year treasuries fell to 143 basis points, which means only one thing: traders in the debt market do not share the faith of the head of the fed in economic growth.
By the way, so flat the yield curve has not been since 2007
