Yellen’s Yelling



San Francisco Federal Reserve President Janet Yellen gave a speech in Idaho yesterday. You can read it at the San Francisco Federal Reserve site.

I prefer Doug Kass’ overview of Yellen’s speech:

1. Inflation most likely to move gradually lower.
2. Pause
prudent to allow for lags.
3. Less sanguine about labor costs than
month ago.
4. Must have bias towards further rate hikes.

5. Inflation remains uncomforably high.
6. Energy, low
savings also risks to growth.
7. Inflation may slow faster than
8. Cooling housing may damp consumer spending.
Need slowdown in growth underway.
10. Credibility requires we act
when necessary.

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  1. PAUL commented on Sep 8

    broadband – cell thru verison

    satellite – hughes

    sorry – roadrunner sucks – never is consistent

  2. AnderL commented on Sep 8

    Barry – post some breakfast commodity charts when you get a chance. Pork, Cattle, OJ, Oats, etc. Commodity run is in its final stages for this cycle. Energy and metals should underperform. Inflation should tick up as consumers get hit at the grocery store next year.

  3. jmf commented on Sep 8

    hello from germany

    i think the fed has already lost credibility.

    here i a quote from bernanke oktober 2005

    bernanke “There’s No Housing Bubble to Go Bust”

    one year later there is a senate hearing regarding the implikations of the bubble

    10 a.m.Banking, Housing, and Urban AffairsHousing and Transportation SubcommitteeEconomic Policy SubcommitteeTo hold joint hearings to examine the housingbubble and its implications for the economy.

    great call ben!

    here is a very good/funny video on interest only loans
    very very very good!

    have a nice weekend

  4. Larry Nusbaum commented on Sep 8

    Hey! My birthday is in Oktober! I plan to pop the “bubble” on the 22nd. Implikation: “it’s” coming”.

  5. Mr. Beach commented on Sep 8

    In the 70s, the Fed made a policy mistake of enormous proportions: they believed that a reduction of rates in the face of supply-shock driven inflation (oil) would ease the economy out of inflation. In other words, a gently slowing economy would reduce inflation and inflationary expectations. Instead we got something else entirely: stagflation.

    Now, we’re hearing very similar rhetoric: a slowing economy will ease inflationary pressures. Whaaaat? Is Bernanke wearing bell bottoms and dancing with Travolta?

    Low growth with persistently high inflation. That is the real bogeyman. If the Fed continues to pump money into an economy that is only producing asset-gains instead of income (new factories, new jobs, new companies, etc.), there will come a time where all that liquidity is going to suddenly chase the very things in the CPI.

    Low growth and persistently high inflation. Is this our future? Thoughts?

  6. metroplexual commented on Sep 8


    Happy birthday Oktober is a nice month to be Bjorn.

    1.Inflation most likely to move gradually lower.

    -wishful thinking?

    2.Pause prudent to allow for lags.

    -dont want this bubble thing popping or ARM to reset
    too high too soon before midterm elections

    3.Less sanguine about labor costs than month ago.

    -because wages have not kept up with inflation

    4.Must have bias towards further rate hikes.

    -because inflation is alive and well

    5.Inflation remains uncomforably high.

    -then raise rates!
    -anybody else kind of see contradiction in #2-5?

    6.Energy, low savings also risks to growth.

    -What else is new.

    7.Inflation may slow faster than expected.


    8.Cooling housing may damp consumer spending.

    -Yeah, but what is the alternative? Heat up housing and have savings rate even lower?

    9. Need slowdown in growth underway.

    -I thought this was a wonderful economy? Only fueled by MEW.

    10. Credibility requires we act when necessary.

    -Too late!

  7. Mr. Flibble commented on Sep 8

    Low growth and persistently high inflation…?

    I’m worried about that, too, but there is something that we didn’t have in the 1970s–a housing bubble popping and people unable to get rid of their houses without a massive cut in asking prices. In DC, where Congress had been spending like drunken prostitutes with a stolen credit card, the influx of federal dollars was used to pump up the price of property in the surrounding areas to something insane. But the wild government spending doesn’t seem enough to keep the party going anymore. Builders are having to lower prices where a year ago anyone asking for any sort of concession would have been laughed at. Here’s one illustration of how desperate things have gotten:

    In short, we have an area with federal money pouring in–but a sort of deflation taking place (hidden by so-called “40th anniversary” sales). Heck, even GM had to goose up their sales by giving “employee incentives.” Isn’t this essentially what deflation is? And cars and houses are a big portion of many people’s budgets.

  8. teddy commented on Sep 8

    Mr. Beach, I couldn’t agree more. The work of the Fed is far from over. I happen to like and respect the work of Fed Reserve Pres. Janet Yellen, but it was about 3 months ago that she was very worried about housing prices going down in her area. But you can’t have rising house prices AND RENTS in a non-inflationary environment. If oil prices go down further from here, how long will it take for them to go back up if they lower rates soon?

  9. commented on Sep 8

    That summary sounds fairly reasonable given what most people know about the economy, but some backup information would be nice.

  10. Alaskan Pete commented on Sep 8

    I don’t think anyone at this point can say whether inflation is peaking and due for a fall, or whether it will roll onwards and upwards. The picture is very complex and very muddy.

    Global money supplies are still growing rapidly and above rates of output growth, despite the rhetoric of concerted tightening by the central banks.

    China and India are rapidly growing but the extent of their reliance on the US consumer is hard to quantify. The key will be whether the slowing US economy has enough global repercussions on growth to offset the inflationary pressures.

    Yellen is right to favor a pause to assess the effects of the existing “firming in the pipe” (new erectile drug slogan?) and she is right to have a bias toward further tightening given that current CPI levels are above target.

    The FED is clearly hoping to see moderation, because any hope of a soft landing relies on the FED being able to aggressively ease into the slowdown. If the firming in the pipe does not begin to show real effects on inflation soon, and especially if inflation ticks upward, we’re in a heap of shit known as stagflation.

    For now, I’m sticking to my thesis of short term slagflation, medium term deflation. And watching the CRB, the base metals, and basic materials such as cement. Also have a keen eye on the transports and the banks. The August rally left the transports behind, and that non-confirmation, as well as the composition of the leadership of that rally, do not bode well for the market.

  11. doh! commented on Sep 8

    Yes Pete. It is interesting that Trannies can’t rally on lower fuel prices. Economic slowdown must be weighing heavier than cheaper gas and fuel can lift. Who cares if truck fuel is less if WMT and other retailers are ordering MUCH less, right? Not sure myself if fed funds rate really has any effect on oil prices. When oil prices get really high it is amazing how much more of the stuff we are able to find. Any snow or ice left up in Alaska Pete? Or did you already move to Oregon.

  12. BDG123 commented on Sep 8

    The Fed is run by people so it’s constantly making mistakes. The biggest mistake in the 1970s was monetizing the Federal debt. While that may be appealing today, so far that inflationary mistake has not happened.

  13. Mark commented on Sep 8

    A/P said:

    “For now, I’m sticking to my thesis of short term slagflation, medium term deflation. And watching the CRB, the base metals, and basic materials such as cement. Also have a keen eye on the transports and the banks. The August rally left the transports behind, and that non-confirmation, as well as the composition of the leadership of that rally, do not bode well for the market.”

    Those are really fine observations. The mid-term deflation call is predicated upon housing leading to a credit crunch? That is my view. I think all the crap in the lending industry has to be cleaned up and that the consumer does not bite on any further credit extensions.

  14. S commented on Sep 8

    Isn’t it scary the dollar denominated commodities (gold, silver, oil) are declining even though money supply is growing rapidly? And after Tuesday’s brief hiccup following the revision in unit labor costs, Treasury’s have rallied. And the dollar is 1%-2% stronger relative to the Euro.

    Anybody else interpret this action as the markets embracing a deflation trade?

  15. Estragon commented on Sep 8

    S – My guess is there were too many spec USD shorts, and they got caught leaning the wrong way. I also wouldn’t be surprised if a can of wupass gets opened on the spec treasury longs with next weeks CPI.

  16. DBLWYO commented on Sep 8

    Bravo – now that’s a thoughtful and constructive exchange of comments that build on one another. Almost a collaboative forum. What’s next – we build a Wiki around Barry’s blog ? :).

    Thank you all – that was very helpful. And I was tickled to see such reasonable and balanced response in contrast to some of the conspriacy theory stuff floating around out there about the disingenous and Goebelisian Prof. Yellen.

  17. wr commented on Sep 8


  18. teddy commented on Sep 8

    BDG23, you keep on insisting that there was no inflation the last 2 years, but in fact, it was similar to the 70’s except for wages . Wall Street and the Fed have been in denial. If there is no recession, then China’s projected wage increases and the yuan appreciation will probably lead to the US importing inflation.

  19. alex commented on Sep 8

    Barry – That was not worth posting (and reading)…would have expected more substance…put some more meet to the bone…

  20. A Dash of Insight commented on Sep 8

    Consumer Guide to the Fed Speech Season

    Markets are always attentive to information about Fed policy, especially at potential turning points. During the week before Fed meetings and the few days afterward, there is a blackout period — no speeches on monetary policy. If it seems like

  21. BDG123 commented on Sep 9

    Well teddy,
    I said inflation was dead. I did not say there was no inflation. Go back and look at my posts six months ago. And, if you look at many data points, and I realize the data may be faulty, it looks pretty doggone hard to argue.

    Now, are you going to tell me all of those professionals in the bond market are just plain stupid? 4.7% long term rates? Unless we see a massive reversal and an assault on 7 or 8%, I’d say you have some explaining to do if you believe there is chronic inflation.

    Now, I don’t deny the parallels to the 1930s or 1970s and through simple analysis have argued parallels time and again……….but…………without wage inflation, you can kiss your 1970s hypothesis good bye. Wage inflation saved a housing fiasco in the 1970s. Wage inflation allowed the perpetuation and buildout of inflation. I don’t mean these bassackwards numbers coming out that productivity has slowed and employee costs are increasing. That doesn’t mean wages are rising. And, I’m not talking about total compensation either which bundles in healthcare, which is rising and has been rising since the beginning of man for very complex reasons. I’m talking wages. Sustained increases in wages. Now, I once surmised regardless of what everyone said we would see wage inflation. That was when no one on this board was accepting any such notion. But, I’ve change my mind for many reasons. I think we are allowed to do that. I could be wrong but so could you. And, the data supports me right now in many ways. Supports you not at all. At least not yet.

    It is not the 1970s and it is not the 1930s. It is different from both. Regardless of whether you hate the Fed or support the Fed or neither, the Fed’s policy is extremely different than during both periods and has been extremely different for the last twenty plus years. They learn a little, then they adjust their policies. Or so they think. Time will tell.

    So, you keep on shouting inflation and hopefully the bond market, which is not at the whim of ridiculous emotional swings every foolhardy know-it-all who is an “investor” in the equity markets. Maybe they’ll soon listen. Now, I’m not saying I am right but you give me a valid argument and outcome which takes into account falling housing, stagnant wages, the bond market, China’s end state, etc and I’ll be glad to have it. I’d love to have someone tell me exactly what is going on. I have a few ideas and so do other people but you cannot stick your head in the sand and just say it so. To the contrary, I could easily argue the current surroundings and why the long bond is under 5%. Not that they would be right but they glue more pieces together.

    And, don’t expect to import inflation from China. That’s an old argument that holds little merit. 50% of Chinese imports are from slave labor camps created by American companies to source goods. The minute wages go up, they prey on another society or another company. That is why Vietnam is gaining so much investment from Taiwanese and American firms which are pulling out of China. China’s a little like those children working in the British textile mills of time past. They have absolutely not control over their destiny in how their policy is unfolding. I think you’ll find an end state in China where so much malinvestment has taken place that there will come a point that selling product at any price will be more important than selling at a higher price. Chinese creditors are already at that “choice” in many respects right now. I wouldn’t be so sure the Yuan is going to affect anything. Is it going up 500%? Another 5% will mean nothing other than companies will be required to make it up via productivity or eating it.

    Now, if your government decides to totally annihilate the dollar through rampantly ridiculous policy, then we might get significant iand sustainable nflation. But, I don’t see that in any measures which would indeed validate that. And, I’m not talking about right wing, perma-bear Timothy McVey-esque commentary about the Fed or the government either. The Fed doesn’t always get it right but I don’t subsribe to such notions.

  22. blam commented on Sep 9

    The false growth of the last three years has been built on above average Personal Consumption Expenditures and residential construction.

    Fueled by MEW, which has ended.

    Below market foreign mercantilist subsidization of US debt.

    Below average corporate borrowing (less competition with government and consumer borrowing).

    Keynsian stimulus from government spending.

    Imports have swamped exports, industrial construction has been flat, and inventory buildup ( a major plus for the last GDP report) is increasing.

    Consumption expenditures appear wobbly and residential construction is falling, fast.

    The usual recessionary tools of monetary stimulation and fiscal spending have been used and abused and will go straight to inflation.

    The US appears at the start of a recession, probably official in the 4th quarter. At this point, don’t take any wooden nickels. Wall street is offering quite a few.

  23. teddy commented on Sep 9

    BDG123, you have been on the wrong blog site for a long time. Barry has discussed forever the huge rise in cost of essentials for living, yet you denied this reality and the explosion in commodity prices. Greenspan kept short term rates way BELOW THE RATE OF INFLATION AND close to WAGE PAY INCREASES for over 3 years and the ARMS thrived on it and this “fed’ inflation – pardon the pun. Now that both short and long rates are much higher than nominal wage increases and are at levels equal to the true inflation rate, this should slow down the rate of inflation, assuming the dollar is stable, the fed continues to promote debt creation and not printing press money, and outsourcing continues at its current rate.

  24. A Dash of Insight commented on May 7

    Consumer Guide to the Fed Speech Season

    Markets are always attentive to information about Fed policy, especially at potential turning points. During the week before Fed meetings and the few days afterward, there is a blackout period — no speeches on monetary policy. If it seems like

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