Good morning – As I said yesterday, the Federal Reserve’s latest meeting demonstrates beyond any doubt that Janet Yellen and her team don’t know what to do, or really what’s going on at all. Their “dot plot” showed a large reduction in estimates of future rate hikes … but they barely downgraded their GDP and unemployment forecasts. The statement and her press conference had a bunch of “on the one hand, things are getting better … but on the other hand, we have no idea why job growth is slowing” commentary. And there was basically no concrete forward guidance or confidence-inspiring talk.
Then overnight, the Bank of Japan’s “Quantitative Failure” problem got worse. Policymakers couldn’t or wouldn’t agree on any additional easing steps – with no cut in its benchmark interest rate, no change in its QE target, and no change in the composition of assets it would buy. The BOJ also admitted that despite its huge helping of so-called “easing” in the past several years, its inflation outlook deteriorated further.
Result: The Japanese yen exploded higher again. It’s now trading at its highest level since August 2014. Long bond futures are testing the panic spike high from February 11 (again), while gold is up around $20 an ounce to its highest since August 2014. We’re getting extended in many of these markets, of course. But if we get strong weekly closes here, it’s hard to argue with the technical strength.
