Credit Bubble Bulletin

Credit Bubble Bulletin 2018-10-30T12:00:02+00:00

Presented by Doug Noland

Weekly Commentary

January 4, 2019: Global Markets’ Plumbing Problem

“Goldilocks with a capital ‘J’,” exclaimed an enthusiastic Bloomberg Television analyst. The Dow was up 747 points in Friday trading (more than erasing Thursday’s 660-point drubbing) on the back of a stellar jobs report and market-soothing comments from Fed Chairman “Jay” Powell.

December non-farm payrolls surged 312,000. The strongest job gains since February blew away both estimates (184k) and November job creation (revised up 21k to 176k). Manufacturing jobs jumped 32,000 (3-month gain 88k), the biggest increase since December 2017’s 39,000. Average Hourly Earnings rose a stronger-than-expected 0.4% for the month (high since August), pushing y-o-y gains to 3.2%, near the high going back to April 2009.

Just 90 minutes following the jobs report, Chairman Powell joined Janet Yellen and Ben Bernanke for a panel discussion at an American Economic Association meeting in Atlanta. Powell’s comments were not expected to be policy focused (his post-FOMC press conference only two weeks ago). But the Fed Chairman immediately pulled out some prepared comments, perhaps crafted over the previous 24 hours (of rapidly deteriorating global market conditions).

Chairman Powell: “Financial markets have been sending different signals – signals of concern about downside risks, about slowing global growth particularly related to China, about ongoing trade negotiations, about – let’s call – general policy uncertainty coming out of Washington, among other factors. You do have this difference between, on the one hand, strong data, and some tension between financial markets that are signaling concern and downside risks. And the question is, within those contrasting set of factors, how should we think about the outlook and how should we think about monetary policy going forward. When we get conflicting signals, as is not infrequently the case, policy is very much about risk management. And I’ll offer a couple thoughts on that… First, as always, there is no preset path for policy. And particularly, with the muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves. But we’re always prepared to shift the stance of policy and to shift it significantly if necessary, in order to promote our statutory goals of maximum employment and stable prices. And I’d like to point to a recent example when the committee did just that in early 2016… As many of you will recall, in December 2015 when we lifted off from the zero bound, the median FOMC participant expected four rate increases for 2016. But very early in the year, in 2016, financial conditions tightened quite sharply and under Janet’s leadership, the committee nimbly – and I would say flexibly – adjusted our expected rate path. We did eventually raise rates a full year later in December 2016. Meanwhile, the economy weathered a soft patch in the first half of 2016 and then got back on track. And gradual policy normalization resumed. No one knows whether this year will be like 2016, but what I do know is that we will be prepared to adjust policy quickly and flexibly and to use all of our tools to support the economy should that be appropriate to keep the expansion on track, to keep the labor market strong and to keep inflation near 2%.” (more…)

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