Fed Chairman Bernocchio will be testifying before Congress tomorrow and Thursday…he may or may not move markets but that’s not my point. It seems as if almost half of the voting Fed members are not in the same camp and in fact are close to if not actually 180 degrees opposed. THIS to my knowledge has never ever happened before. As far as I know, the Fed has almost always been a “united front” (even if misguided) and at most had 1, maybe 2 dissenters.
So the past is not present but you should understand that with almost half of the board not on the same page with a lame duck chairman who has probably no more than 6 months left, the conditions for a “mutiny” now exist. More QE, tapering QE or ending QE? It doesn’t really matter because no option will work but they must at least appear unified and “confident”…because this whole show is about confidence which is the only thing left.
Since the trial balloon of “tapering” caused such large volatility, you can pretty much bet that any such talk will be of the “don’t worry, it’s far in the future” variety. The markets clearly “spoke,” even a slowdown in monetizing will create a meltdown. So…don’t taper, don’t slow down and DON’T say anything that could cause confidence to buckle because any other course leads to a shutdown.
As mentioned before, it has all now boiled down to “confidence,” the problem is that those driving the bus are fighting over the gas, brakes and steering wheel. Not conducive to say the least when it comes to confidence. It will be quite interesting to see what is said after Thursday’s final testimony as 2 weeks ago we had Fed Governor Duke resign after the Bernocchio press conference. Will more testimony about “blowing money on the streets” cause further dissent? Will we hear statements from other governors contradictory to the Chairman’s? Will other Fed members change sides and sway power from the Bernocchio side? Will the markets take notice?
These are all legitimate questions; the answers will be interesting to watch as to direction and timing. As “confidence” is the only thing left holding the tent up. I would remind you that it can be broken quickly and by something seemingly innocuous or even meaningless. We live in a hyper fast computerized world, one that carries more financial leverage and less unencumbered collateral than ever before…do you really believe the end game will give anyone not already prepared the time to do so?