FED credibility

[NYEXPAT]

Came across a good opinion piece today on the Feds lack of credibility. Different than "FED caved to Trump" pieces and it is more "FED caved to Wall Street" but with a medical/opioid crisis slant.

https://www.marketwatch.com/story/this-is-the-year-when-the-federal-reserves-credibility-finally-died-2019-01-31

 

[CaptTom]

Interesting take. Not sure what it means for me. Continued high stock prices help my 401k. Low inflation helps with my fixed pension. Low interest hurts my CDs, while high interest is OK because I have no debts.

I get the general sense that the Fed (not an acronym by the way, it's an abbreviation, so no all-caps) has run out of ammunition if there's another downturn, which I think is the gist of the article.

 

[gstillson]

Interesting take. Not sure what it means for me. Continued high stock prices help my 401k. Low inflation helps with my fixed pension. Low interest hurts my CDs, while high interest is OK because I have no debts.

I get the general sense that the Fed (not an acronym by the way, it's an abbreviation, so no all-caps) has run out of ammunition if there's another downturn, which I think is the gist of the article.

Debatable if the high stock prices actually help your 401K long term, unless you are doing a lot of trading. Companies tend to buy back stock during times of lower earnings and easy money (low interest rates) and with high stock prices they are generally buying back at the highs. Any dividends being paid you that are reinvested are also buying in at the highs.

I would rather my 401K be filled wth companies with low stock prices, strong earnings and good balance sheets.

 

[Sunset]

Debatable if the high stock prices actually help your 401K long term, unless you are doing a lot of trading. Companies tend to buy back stock during times of lower earnings and easy money (low interest rates) and with high stock prices they are generally buying back at the highs. Any dividends being paid you that are reinvested are also buying in at the highs.

I would rather my 401K be filled wth companies with low stock prices, strong earnings and good balance sheets.

Actually I notice companies tend to buy back stocks most often when the stock price is high. Because they have lots of cash/borrowing ability at that time, when stock prices are low, it's because of recession or low earnings, and then companies stop buying back shares as they are trying to preserve their cash.

 

[GravitySucks]

Click bait at its finest.
Fed said it would raise rates in 2018 and did. Fed said it expects to raise rates in 2019 with the caveat of if the situation continues to warrant. Fed now says the situation may warrant a halt on rate hikes. I
Somehow this means their credibility is gone.

 

[GravitySucks]

Actually I notice companies tend to buy back stocks most often when the stock price is high. Because they have lots of cash/borrowing ability at that time, when stock prices are low, it's because of recession or low earnings, and then companies stop buying back shares as they are trying to preserve their cash.

This is a prime reason why is rather see returns via dividends.

 

[Spock]

Click bait at its finest.
Fed said it would raise rates in 2018 and did. Fed said it expects to raise rates in 2019 with the caveat of if the situation continues to warrant. Fed now says the situation may warrant a halt on rate hikes. I
Somehow this means their credibility is gone.

Not just "expects to raise in 2019", but expected to raise FOUR TIMES in 2019 and a few more in 2020. Got whiplash going from that to "maybe cut before they ever raise again" market expectations.

The other end of the stick is rolling off assets... not selling MBS and treasuries, still buying, just not buying as many new as they mature.


It goes from "auto-pilot" balance sheet reduction to hold-on-a-minute when Wall Street throws a taper-tantrum and SoT calls the plunge protection team while on vacation. The Fed is hostage to a creature of it's own creation.

 

[easysurfer]

Maybe just me, but I'm finding that Marketwatch is more and more like click bait.

For example, an article in the morning may say the market is going to tank. A few hours later an article will take the opposite view and say something like "How not to miss the still bull market."

 

[Beststash]

For me FED credibility seems to have taken a political turn. After the market took a significant drop the message from the FED seems to have dramatically changed. After all nothing goes up forever and while it seems that QE and the zero interest rate policy has caused an amazing recovery from the Great Recession it also seems to have created excesses in debt and I think it might be time to normalize before things get more out of hand.

 

[GravitySucks]

I have not been following the unwinding of the QE so won't comment.
On rising rates though, the last increase the chairman did say he expected further raises, but tempered that with depending on conditions. I did not see a promise of 4 raises through 2019 as we had for 2018.
If employment and inflation numbers follow last year I expect the same increases this year. If job numbers tank I expect a slow down in increases; if inflation rises I'll expect increases larger than last years.

 

[audreyh1]

Sorry, most MarketWatch articles are full of it.

The Fed has made big progress with both raising interest rates and the QE unwind. They've taken all the steps they said they would take in 2018. It's entirely reasonable for them to watch the economy including inflation more carefully. The Fed is traditionally data driven as they should be. It's tough because some economic data comes in way after the fact and they have to "steer" partially on projections.

They never "promised" 4 rate raises in 2019, but rather in the past have opined 2 or 3 might be possible. That is clearly subject to change depending on economic conditions.

I don't believe this Fed is any less credible than compared to 10 and 15 years ago.

 

[Montecfo]

I do not think the Fed has lost credibility. But I think Powell is just getting his legs under him. Communicating effectively about monetary policy is tricky.

I do not see the Fed as being "hostage" to the markets. But markets will respond to Fed actions. As well they should: interest rate direction is the most powerful influence on market returns over time.

I think the disconnect has been that economists have been "certain" that historically low unemployment rates would be inflationary. But for a variety of reasons, the unemployment rate is not directly linked to inflation in the manner that has held historically.

If is a tough environment. I think if the Fed remains data driven we stand the best chance of having favorable economic conditions for the longest time.

 

[audreyh1]

I do think each Fed Chair learns how to communicate with the markets at the start of their tenure. Although Yellen seemed to have it down pretty quick. I still remember some criticisms from her first press conference, but they seemed to go away shortly thereafter.

Talking (and blogging) bobbleheads seem to love parsing Fed speak ad infinitum. Lots of criticisms too. Endless bather time fillers.