iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
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Fed’s Kashkari Publishes Essay Explaining His Dissent, Chalking Up Yellen’s Decision Making to ‘Faith’

Serious question, how long until Neel is out at the Fed? Clearly, he’s an independent thinker, espousing views that are very popular on Wall Street. His outward resistance against the Yellen hegemony is both entertaining and refreshing. However, I am skeptical he’ll be able to keep it up without suffering heinous consequences.

In an essay published on Friday, Fed’s Kashkari explained why he dissented against another rate hike, basically calling Yellen a pavement ape thinker.

He categorized the Fed’s decision to raise rates as being ‘faith’ based, saying, “For me, deciding whether to raise rates or hold steady came down to a tension between faith and data. On one hand, intuitively, I am inclined to believe in the logic of the Phillips curve: A tight labor market should lead to competition for workers, which should lead to higher wages. Eventually, firms will have to pass some of those costs on to their customers, which should lead to higher inflation. That makes intuitive sense. That’s the faith part.”

Kashkari added, “Unfortunately, the data aren’t supporting this story, with the FOMC coming up short on its inflation target for many years in a row, and now with core inflation actually falling even as the labor market is tightening. If we base our outlook for inflation on these actual data, we shouldn’t have raised rates this week. Instead, we should have waited to see if the recent drop in inflation is transitory to ensure that we are fulfilling our inflation mandate.”

HAHAHAHAHAHA

Bug eyes tried to describe the downside of being patient, which of course is a scenario forged in fantasy land.

“So what’s the downside risk of waiting to see if the recent inflation moves are transitory? I can only think of one really concerning downside risk: a sudden, rapid unanchoring of inflation expectations. A slow drift upward of inflation expectations doesn’t concern me too much, because I believe the FOMC will respond and keep them in check.

The scenario to worry about is that somehow we break inflation expectations: We wake up one morning and instead of 2 percent, they jump to 4 percent. The FOMC would have to respond very powerfully to re-anchor them at 2 percent. I believe we would do what was necessary, but the short-term economic costs might be large.

Policymakers are concerned about this risk, but it is a risk based on faith in a sudden return of the Phillips curve and not a risk that we can detect in economic, financial or survey data. Because it is based on faith and not on data, it is a difficult risk to quantify.

The outcome that the current FOMC is so focused on avoiding, high inflation of the 1970s, may actually be leading us to repeat some of the same mistakes the FOMC made in the 1970s: a faith-based belief in the Phillips curve and an underappreciation of the role of expectations.”

In the 1970s, that faith led the Fed to keep rates too low, leading to very high inflation. Today, that same faith may be leading the committee to repeatedly (and erroneously) forecast increasing inflation, resulting in us raising rates too quickly and continuing to undershoot our inflation target.”

In all, Neel Kashkari mentioned ‘faith’ 8 times in his explanation for not going along with Yellen’s ruinous plan. Yellen’s Fed eternally BTFO.

Happy Father’s Day.

 

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11 comments

  1. it is showtime

    *****Whoever it is***** controlling the indexes are really, REALLY running out of ground

    Deutsche Bank: The market’s current metastability will lead to cataclysmic events
    The next leg is lower – Global excess liquidity collapses

    “Persistence of low volatility causes misallocation of capital. This is how complacency leads to buildup of risk – it is the avalanche waiting to happen.”
    zerohedge.com/news/2017-06-17/next-leg-clearly-lower-global-excess-liquidity-collapses
    zerohedge.com/news/2017-06-17/kocic-markets-current-metastability-will-lead-cataclysmic-events

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    • iflyjetzzz

      If the AMZN/WFM deal doesn’t give one flashbacks of 1999, I don’t know what will.

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  2. ericbakerbruce

    My guess would be that Yusuf Islam aka Cat Stevens, in someway monetarily supports Daesh.

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  3. sarcrilege

    All this is deception and make believe bullshit. The FED knows exactly what they are doing, how they are doing it and why…the FED is run by political agendas. The FED is tanking the economy and that’s it. The FED is a central bank and one cannot be a central planner unless one is an 100% pinko marxist bolshevik. Kashkari and all the other FED clowns are nothing more than members of Poliburo, that’s all.

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  4. dmfracer

    It is important to understand that after the legal shenanigans don’t get Trump impeached, those opppsed will use the economy against Trump. Plan accordingly with your trading and investing.

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  5. iflyjetzzz

    I have a hard time buying many conspiracy theories such as the one Sarcrilege posted. This time I agree.

    Not only did the Fed raise rates when the numbers didn’t support them, they also went so far as to say they’ll be shrinking the balance sheet. This is reverse QE and it’s going to tank the markets eventually. And yes, I think it’s politically motivated. Trump hates the Fed and this is the way that the Fed can screw Trump.

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  6. chuck bennett

    Neil is a friend of ours. MAGA

    Regards

    Chuck Bennett

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