As expected, the Fed saw that even the most minor of divisions in the minutes would cause heartache in the investing community and above all else the central bank is now about not disappointing markets. As has often been said in these pages the ONLY people who matter on the Fed are Bernanke, Yellen (VP) and Dudley (NY Fed). These are among the ultra doves, especially Yellen. Some of the regional Presidents, especially of the Dallas or Kansas City variety are hawks, but they are marginalized. Hood ornaments of sorts. Hence when "some members" raise concerns about asset bubbles and Fed policy, it really does matter which members they are since not all members are created equal.
Anyhow there is a FLURRY of stories in the media this morning walking back the minutes (AS EXPECTED). See here, here, and here for a sampling. Don't you worry everyone – the Fed has now stated it is targeting the stock market as a transmission mechanism of policy and the heroin shall remain available for "a long time" as Mr. Bullard told us this morning. Investors the country over who had the shakes for the two days now are getting their fix.
Bullard added, "Fed policy is very easy and it's going stay easy for a long time."
Stocks are of course gapping up in glee and trying to close the gap down from yesterday. As noted yesterday the nature of the buying after this short but intense selloff will be something to note. If that ascending channel is quickly recaptured it will be very similar to what happened in March 2012 when the market fell out of a similar channel for a few days before resuming a trend for another few weeks. If this buying is quickly sold off and the channel breaks anew (or stocks don't get back into the channel) in the coming week or two – then a different story. But 3 month rallies don't roll over immediately…. even if this is the intermediate top.
- "It is not an even discussion in the sense that these two sides on the committee do not have equal weight," said Dean Maki, chief economist at Barclay's Capital in New York. "Bernanke and Yellen are strong advocates of QE."
- Federal Reserve Chairman Ben S. Bernanke minimized concerns that the central bank’s easy monetary policy has spawned economically-risky asset bubbles in comments at a meeting with dealers and investors this month, according to three people with knowledge of the discussions.
- The Fed chairman brushed off the risks of asset bubbles in response to a presentation on the subject from the group, one person said. Among the concerns raised, according to this person, were rising farmland prices and the growth of mortgage real estate investment trusts. Falling yields on speculative- grade bonds also were mentioned as a potential concern, two people said.
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