Yesterday, in an impassioned appeal to the hearts and minds of Americans everywhere, Minneapolis Fed Neel Kashkari said that the Fed is “here to serve Main Street” the same main street which currencly has $8.4 trillion in savings accounts currently earning exactly 0% in interest. Yet it wasn’t Main Street but Wall Street that the Fed listened to once again last Wednesday, May 4, when the Fed’s Advisory Council which comprises of 12 bankers such as James Gorman, Richard Holbrook, and John Stumpf, advised the Fed on how to conduct future monetary policy.
This is what the Fed’s non-Main Street advisors said about “the current stance of monetary policy.”
U.S. economic recovery remains fragile, and downside risks to the economy are still present. Provided the data improve, the Council believes one or two well-timed and well-communicated increases in the federal funds rate between now and year-end would be prudent to accomplish the Fed’s mandates, enhance central bank credibility, and create policy latitude in the event of an unexpected economic downturn.
The Fed responded appropriately to recent stress in the financial markets by providing additional monetary accommodation that has supported a rebound in global credit and equity markets. Financial markets have exhibited a moderate recovery rate, although economic growth remains fairly muted.
Investors see the stance of U.S. monetary policy as relatively restrictive. This is reflected by below-target inflation expectations, higher forward interest rates, and a very strong dollar, the latter being a major drag on the U.S. economy. They foresee slower real growth, lower inflation, and a lower trajectory for the federal funds rate than the FOMC’s projections suggest.
Council members are apprehensive about the interplay between the domestic and global economies. It is not clear whether the U.S. economy will foster stronger growth in the rest of the world or whether weaker growth in the rest of the world will slow the U.S. economy.
Council members also recognize that negative interest rates at the European Central Bank, the Bank of Japan, and other central banks continue to exert downward pressure on U.S. interest rates.
One Council member expressed concern that a shift toward a neutral policy stance may not provide sufficient support for an economy struggling to achieve the Fed’s growth projections. GDP growth for the first quarter of 2016 may be close to zero, and the year-over-year growth rate may fall below 2%. Moreover, nominal GDP growth may not be adequate to service the heavy U.S. and global debt overhang.
To sum up: not surprisingly Wall Street believes that the Fed, which started off the hear with expectations for 4 rate hikes can “enhance credibility” by hiking as “much” as one more time in 2016, and notes that “financial markets have exhibited a moderate recovery rate, although economic growth remains fairly muted” and that while everyone else was content with the level of the S&P, one, just one, member said that “nominal GDP growth may not be adequate to service the heavy U.S. and global debt overhang.“
But with the S&P 2% below all time highs, it’s best to be on the safe side and to just keep blowing bubbles. After all if there is another crash, everyone now knows just who will bail out the bankers on the Advisory Council.
via http://ift.tt/1ZCeeUx Tyler Durden