Monetary Tightening Lite 2.0: Accommodative Monetary Tightening

The ideology of the day is… hike rates.

Bullion.Directory precious metals analysis 15 April, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics

St. Louis Federal Reserve Bank President James Bullard is again on the hawkish side, but he has changed his stance on monetary tighten several times within the last year. He has also been attributed to saving the S&P 500 from its first ten percent correction in years last October when he said QE3 should be extended. Markets were sinking, at the time, as the Fed “ended” quantitative easing.

Bullard now cites that lower unemployment and stronger economic data is why the Fed must raise rates off the lower bound. Unfortunately, NY Fed Bank President William Dudley, among many Fed critics, said the 200,000-plus per month in job additions over the last 12 months were not the result of a stronger economy. In fact, this year’s economic data has been atrocious, leading some to debate whether the US could be heading into a recession.

“Now may be a good time to begin normalizing US monetary policy so that it is set appropriately for an improving economy over the next two years,” said Bullard at the Hyman Minksy conference (Reuters). He said the policy, while tightening, should be rather accommodating.

The real reason some Fed officials want to hike rates due to the empty toolbox that sits battered in the Eccles Building. There are no measures left to be taken to soften the next coming recession. If the Fed were to cut rates from their current ZIRP policy, the US would resemble something seen throughout Europe: negative rates. They would be forced to get real creative.

Bullard’s monetary tightening lite 2.0 is only supporting Dudley’s statements that the Fed is not data dependent but market dependent.

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