Wednesday – When Fed Doves Cry, The Market Flies

How can you just leave me standing?
Alone in a world so cold? (World so cold)
Maybe I’m just too demanding
Maybe you’re just like my mother
She’s never satisfied (She’s never satisfied)
This is what it sounds like
When doves cry

Janet Yellen could not have been more doveish yesterday.

In what was effectively a sharp rebuke of the recent speeches by Fed hawks, the Fed Chairwoman talked down the economy, pointed out global weakness and other potential dangers that will, if nothing else, keep the Fed on a very slow path towards raising rates.  Some Fed watchers thought Yellen’s message was murkier than usual and raised doubts about the central bank’s forecasts and monetary path.   

“Janet Yellen gave her audience limited lip service to ‘baseline’ projections and expectations for dual mandate improvement and rate normalization, but carpet-bombed her audience with possible downside caveats. In so doing, she created the distinct impression that she had little confidence in the Fed’s baseline outlook,” wrote Ward McCarthy, chief financial economist at Jefferies, in a note.

As Dave Fry notes:  “Fed Chair Janet Yellen has it both ways—she continues to suggest U.S. economic growth is “solid” but says global growth is weak (China) hence, raising interest rates will be measured or slow.  This is mana for bulls which then means bulls can play and so too can other markets. Since growth is slow, even in the U.S., this is the cover the Fed has to please Wall Street, voters and bulls.

“Who is she kidding?   No matter the contrived BS bulls now can assume the recent recovery rally was well-known by insiders on Wall Street.  We have some substantial positions in stocks since tape action is the discipline we must follow even as we rage against obvious dishonesty and the machine.  The assurance of lower interest rates also benefits commodities with commodities overall especially gold but not crude oil, at least this day.”