Bits and Pieces, by Tim Duy: Just a handful of observations from the day:
1.) Dallas Federal Reserve President Richard Fisher offered-up one of his typically colorful speeches. As should surprise no one, he is in favor of tapering at the next FOMC meeting. His choice of words was interesting:
The challenge now facing the FOMC is that of deciding when to begin dialing back (or as the financial press is fond of reporting: “tapering”) the amount of additional security purchases. In his press conference following our June FOMC meeting, speaking on behalf of the Committee, Chairman Bernanke made clear the parameters for dialing back and eventually ending the QE program. Should the economy continue to improve along the lines then envisioned by Committee, the market could anticipate our slowing the rate of purchases later this year, with an eye toward curtailing new purchases as the unemployment rate broaches 7 percent and prospects for solid job gains remain promising...
...Having stated this quite clearly, and with the unemployment rate having come down to 7.4 percent, I would say that the Committee is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months.
It sounds as if Fisher takes seriously Bernanke's 7% marker regarding the end of balance sheet expansion. Also note that he is not saying that he thinks the FOMC should taper. He is saying they "are closer to execution mode," which sounds like an opinion from an insider. Moreover, he is also suggesting that the data doesn't need to get better to taper; it just doesn't need to get any worse.
Then again, perhaps Fisher is just taking away the parts of the FOMC meeting that support his own position. After all, he has long desired to curtail asset purchases and can now finally see that time is soon at hand.
2.) The lackluster employment report was surrounded by more encouraging data. First, the manufacturing PMI came in ahead of expectations, and today we learned that its nonmanufacturing cousin did as well:
Evidence that activity is picking up as the impact of fiscal contraction wanes? Or just a one-month bounce? Could be either, but the Fed will get another look at these numbers before the September meeting, so they don't have to decide just yet.
3.) St. Louis Federal Reserve President James Bullard made a very important point that I should have highlighted Friday before I forgot: Having a press conference only every other FOMC meeting is quite frankly ridiculous. Bullard, via Reuters:
"September versus December, as if there was no meeting in October," he said, referring to two upcoming meetings that will be followed by press conferences with Fed Chairman Ben Bernanke...
..."I want the committee to have a press conference at every meeting, so that every meeting looks, ex ante, identical. And this would give the committee the freedom to make a move or not make a move at a particular meeting," said Bullard, a voting member of the committee this year.
We are all acting as if the Fed could not possibly make a policy move in October because there is no press conference. Are we really down to only four policy-eligible meetings a year? If that's truly the case, why even bother having a meeting? And while we are at it, why not release the projections at every meeting as well? I hope Bullard grabs this one by the tail and doesn't let go. Either have an identical meeting every six weeks, or give us all a rest and just admit that there is no point to having more than four meetings a year.
4.) The Liberty Street Economics blog has a post on the recent bond market selloff, in which the authors conclude:
Our findings, reported in the chart below, suggest that nearly all of the recent increase in yields can be explained by a rising term premium.
Federal Reserve Chairman Ben Bernanke's June press conference perhaps popped a small bond bubble in represented by an unusally low term premium. This might explain why rates remain stuboornly above 2.5% despite a seemingly more dovish stance among Fed speakers since that press conference. It might simply be difficult to unwind that increase in the term premium.
To give credit where credit is due, Joe Gagnon pointed out the term premium issue in an email, but I never had a chance to follow up.
5.) Since you are all thoughtful readers, I know that you all are following Bill McBride's Septaper posts which stand in opposition to my posts. At least this is what I concluded from the Wall Street Journal this morning. One thing is for sure - either McBride is taking the FOMC forecasts to literally, or I am not taking them literally enough. Or, if October is an option, maybe a little of both.
That's it; I think I should probably work on getting the kids into bed.