Much Ado About Nothing

Today, in a Bloomberg video entitled "The Three Most Important Things Janet Yellen Said", this was #2:

"In December and January, the committee judged that it could be patient in beginning to normalise the stance of monetary policy. That meant that we considered it unlikely that economic conditions would warrant an increase in the target range for the Federal Funds rate for at least the next couple of FOMC meetings.

While it's still the case that we consider it unlikely that economic conditions will warrant an increase in the target range at the April meeting, such an increase could be warranted at any later meeting depending on how the economy evolves.

Lemme emphasise again, that today's modification of the forward guidance should not be read as indicating that the committee has decided on the timing of the initial increase in the target range for the Federal Funds rate. In particular, this change does not mean that an increase will occur in June - although we can't rule that out..."

These words? The entire financial world was hanging on THESE WORDS?

What she in effect said was this:

"Interest rates could increase from zero at some point in the future"

Then she said this:

"Rates won't necessarily go up in June. But they might."

Anybody who found themselves surprised by either of these statements should perhaps seek employment in an alternative industry.

So why the violent reaction in just about every asset class to a series of ridiculous statements which, again, "stated the bleeding obvious"?

Ah... well therein lies the rub.

Those violent moves in currencies, stocks, bonds and commodities are the first signs of the markets finally reacquainting themselves with reality and the reality is this:

The credibility of the Federal Reserve is hanging by the thinnest of threads and, unfortunately, that credibility is the ONLY thing holding back the tidal wave set to swamp the world once not just the Fed, but its cohort around the world are seen for what they really are and the complete hopelessness of their current situation understood is understood by markets lulled into a false sense of complacency by six years of QE-fueled gains.

One thing I can guarantee you is that the credibility and trust that took several years of concerted action by central banks to build up will disappear in a matter of days.

 

Painted Into A Corner