Federal Reserve Chairman Janet Yellen and the FOMC’s economic projections sparked doubt among market participants about when the data-dependent U.S. central bank will finally start “normalizing” the federal-funds rates and how the Fed sees the strength of the U.S. economy.
Treasury Secretary Jack Lew
was more straight forward: “A strong dollar is good for the United States." (Please take notice, the trade weighted dollar
against the major currencies is still substantially below its historical highs of 2012 and 1985 while the relationship between the trade weighted dollar and growth has remained at “zero (!)” since the 1980s). Lew added we have reached a point where he could comfortably say we see ongoing growth … "the trajectory of growth is strong.”
In the meantime, it could be helpful to take notice full time jobs
are back to the level of August 2007 (120.8 million) and a “four-handle” unemployment number is fully in the cards before the end of the year. Meanwhile, wage growth
has remained practically stuck in neutral since the beginning of 2010. Please keep in mind the wage level is a lagging indicator and wages aren’t very helpful to predict inflation.
An interesting question for all long-term investors now becomes if the fed funds rate would remain at 0.00-0.25 percent for longer if that would help wages to grow at a faster pace than if fed funds would hike to 0.25-0.50 percent and thereafter continuous to rise slowly by small increments? (Editor's note: The federal funds rate is "the interest rate" at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis.)
Atlanta Fed President Dennis Lockhart said Friday: “I continue to believe that mid-year or a little later is appropriate timing for a rate hike. That would allow the June meeting to clearly be taken seriously as a meeting for the lift-off decision. I would add to that July ... And, of course, September ... I can’t be certain it is going to happen in those three months ... But I think it is realistic to assume that is the period in which we will be taking on this decision with a high likelihood of pulling the trigger.”
Besides that, St. Louis Fed President James Bullard said Monday he still expects the U.S. to grow by 3.0 percent this year and a strong dollar is not surprising at this point while low inflation is for an important part caused by low oil prices, which he considers as a “one time” causation.
He also hopes the Fed to return to a Fed funds’ normalized era as we have known in to 1980s-90s-2000s, nevertheless keeping in mind the Fed will only act when data allow it, but that could happen sooner than many expect now.
At the same occasion and commenting on Greece, Mr. Bullard said a “Grexit” would be much more manageable today than it was a couple of years ago, but Greece would anyway is facing a bleak future.
Let’s hope Monday’s visit of Greek Prime Minister Alexis Tsipras with German Chancellor Angela Merkel in Berlin will brighten more or less their damaged relationship and Greece’s overall relationship with the euro area institutions, which includes the IMF will switch to “much” better and Greece finally accepts it also has to comply by the eurozone and European Union rules, which will be key for moving forward in a positive direction.
In context of this, on Sunday, the Financial Times
referred to a letter Tsipras sent to Merkel a week ago, on March 15, wherein we read: “Given that Greece has no access to money markets, and also in view of the ‘spikes’ in our debt repayment obligations during the spring and summer . . . it ought to be clear that the ECB’s special restrictions when combined with disbursement delays would make it impossible for any government to service its debt ... With this letter, I am urging you not to allow a small cash flow issue, and a certain ‘institutional inertia’, to not turn into a large problem for Greece and for Europe.”
In short, understandable language: “Greece is in big trouble!”
As always, we’ll have to wait and see what comes out of that meeting in Berlin while hoping it doesn’t result in a catalyst for a “Grexident,” which stands for “Grexit” by accident. (Editor's Note: The Greek withdrawal from the eurozone is the potential discontinuation of the euro as the national currency of Greece and the resulting Greek exit from the eurozone monetary union.)
Already on Sunday, Spain’s Economy Minister Luis de Guindos said the eurozone
will not make any cash payment to Greece until it has passed and implemented all the reforms Athens agreed on in February.
It’s not only Germany that wants agreements to be respected!
If the eurozone institutions, together with the IMF, can’t come (let’s say within the next 10 days) to some kind of a “kick the can” agreement with Greece, markets could go wild once again.
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