We can now close the case on who leaked that confidential, market-moving data to Medley global back in 2012: it was Richmond Fed’s Jeffrey Lacker, who previously was expected to retire in October, and is resigning immediately.
In a statement, Lacker confirms he revealed confidential FOMC information to Medley Global and that he lied to the Fed’s general counsel on at least two occasions. His full statement is below:
Statement Of Dr. Jeffrey Lacker
During the past 13 years it has been my privilege to serve as President of the Federal Reserve Bank of Richmond. It has also been an honor to contribute to the development of our nation’s monetary policy as a member of the Federal Reserve’s Federal Open Market Committee (“FOMC”).
While transparency of the monetary policy process is important, equally important are the confidentiality policies that protect the internal deliberations of the FOMC and ensure the integrity of our financial markets. The Federal Reserve’s confidentiality policies seek to guide participants in maintaining the balance between transparency and confidentiality. The FOMC has had in place for many years two specific policies relating to confidentiality. the FOMC Policy on External Communications of Committee Participants (the “External Communications Policy-) and the Program for Security of FOMC Information (the “Information Security Policy”).
In 2012, my conduct was inconsistent with those important confidentiality policies. Specifically, on October 2, 2012, I spoke by phone with an analyst (“the Analyst”) concerning the September 2012 meeting of the FOMC. The Analyst authors reports on Federal Reserve matters on behalf of Medley Global Advisors (“Medley’). Medley publishes macro-economic policy intelligence for institutions such as hedge funds and asset managers and is owned by the Financial Times Limited.
Two rate hikes since last year have weakened the dollar. Why is that, and what’s ahead for dollar, currencies & gold? And while we are at it, we’ll chime in on what may be in store for the stock market…
The chart above shows the S&P 500, the price of gold and the U.S. dollar index since the beginning of 2016. The year 2016 started with a rout in the equity markets which was soon forgotten, allowing the multi-year bull market to continue. After last November’s election we have had the onset of what some refer to as the Trump rally. Volatility in the stock market has come down to what may be historic lows. Of late, many trading days appear to start on a down note, although late day rallies (possibly due to retail money flowing into index funds) are quite common.
Where do stocks go from here? Of late, we have heard outspoken money manager Jeff Gundlach suggests that bear markets only happen if the economy turns down; and that his indicators suggest that there’s no recession in sight. We agree that bear markets are more commonly associated with recessions, but with due respect to Mr. Gundlach, the October 1987 crash is a notable exception. The 1987 crash was an environment that suffered mostly from valuations that had gotten too high; an environment where nothing could possibly go wrong: the concept of “portfolio insurance” was en vogue at the time. Without going into detail of how portfolio insurance worked, let it be said that it relied on market liquidity. The market took a serious nosedive when the linkage between the S&P futures markets and their underlying stocks broke down.
Following Yellen’s speech which did not throw any curve balls to this week’s sharply revised, hawkish narrative by her FOMC peers, a March rate hike – according to Goldman – appears to be in the books. In a note moments ago by Goldman’s Jan Hatzius, the investment bank said that the bottom line is that “Fed Chair Yellen said today that a rate increase at the March FOMC meeting “would likely be appropriate”, as long as incoming data continue to confirm officials’ outlook. We see this as a strong signal for action at the upcoming meeting, and have raised our subjective odds of a hike to 95%.”
Goldman’s key points:
1. In remarks this afternoon, Fed Chair Yellen indicated a readiness to raise the funds rate at the FOMC’s March 14-15 meeting in fairly explicit language. She said that as long as “employment and inflation are continuing to evolve in line with” officials’ expectations, “a further adjustment of the federal funds rate would likely be appropriate”. As a result, we now see a hike at the March meeting as close to a done deal, and have raised our subjective probability to 95%.
2. The remainder of Chair Yellen’s speech focused on the Fed’s post-crisis monetary policy strategy in general, and did not discuss incoming data in much detail. However, given constructive comments about current economic conditions from many Fed officials this week—including from Vice Chair Fischer at today’s US Monetary Policy Forum—we think committee members will see recent news as consistent with their outlook, and therefore supportive of further tightening. At this stage, the February employment report—to be released next Friday—may have more bearing on the committee’s guidance about action after the March meeting than on its decision whether to hike this month.
Stocks jumped to new record highs and the Dow shot past 20,600 on Wednesday after more reports showed the U.S. economy continues to strengthen.
The Dow Jones industrial average climbed 107 points, up 0.5% to a new closing high of 20,611.86.
Also building upon their record highs set in the previous session were the S&P 500 and Nasdaq composite, up 0.5% to 2349.25 and 0.6% to 5819.44, respectively.
The encouraging data could push the Federal Reserve to raise interest rates more aggressively from the record lows marked during the Great Recession.
Wednesday’s economic reports give the Federal Reserve more encouragement to raise interest rates, and economists said the possibility is increasing that it may happen at the central bank’s next meeting in March. Retailers had stronger sales in January than economists expected, and inflation at the consumer level was the highest in years. Consumer prices rose 2.5% in January from a year earlier, the highest rate since March 2012.
Fed Chair Janet Yellen said in testimony before a Congressional committee that the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases in interest rates, echoing her comments from a day earlier. The central bank raised rates in December for just the second time in a decade, after keeping rates at nearly zero to help lift the economy out of the Great Recession.
This morning, Minneapolis Fed Chairman Neel Kashkari penned an essay “Why I Voted to Keep Rates Steady” in which the former Goldmanite says that while core inflation “seems to be moving up somewhat, it is doing so slowly, if at all.” He adds that “financial markets are guessing about what fiscal and regulatory actions the new Congress and the Trump administration will enact. We don’t know what those will be, so I don’t think we should put too much weight on these recent market moves yet.”
Repeating a on often heard lament about the lack of rising wages, Kashkari points out that “the cost of labor isn’t showing signs of building inflationary pressures that are ready to take off and push inflation above the Fed’s target” and adds that “it seems unlikely that the United States will experience a surge of inflation while the rest of the developed world suffers from low inflation.”
With a December rate rise pretty much in the books, investors will turn their attention to signals about future moves when the Federal Reserve meets next week.
Here’s what to watch in the coming days.
Markets have in recent weeks priced in a 100 per cent chance that the Fed lifts interest rates for the first time in a year, by 25 basis points, when it meets next week. But investors will look beyond the rate decision to the summary of economic projections, particularly the so-called dot plot of interest-rate projections, and Fed chair Janet Yellen’s press conference as they try to guess at future rate rises.
“We do not expect a change in the dot plot from the September meeting,” Michelle Meyer, economist at Bank of America, said. “That said, the risks are asymmetric in that there is a better chance of a move higher than lower in the trajectory.”
And with central banks around the world now expecting the baton to pass from monetary to fiscal policy, investors will also watch for her remarks on proposals ranging from tax reform to deregulation. “It is too early for the Fed to change its outlook based on Donald Trump,” Alan Levenson, Chief Economist at T. Rowe Price, said. “The Fed won’t talk about Mr Trump and fiscal policy and not just during the press conference, but also during the meeting, [as] that could show up in transcripts.”
Instead, most expect Ms Yellen’s Congressional testimony from November to serve as a blueprint. She is expected to urge lawmakers to focus on boosting productivity and to note the importance of regulatory reforms in helping stave off another financial crisis.
Not even the threat of an interest rate hike next week from the Federal Reserve could derail the U.S. stock market’s record-setting run as Wall Street posted its best five days since the presidential election and doubled down on its bet of better times ahead under new political leadership at the White House.
The bullish vibe on Wall Street is best illustrated by the blue chip Dow Jones industrial average, which surged nearly 600 points, or 3.1%, on its way to posting a fresh all-time high on each trading day of the just-ended week.
The Dow, which is up 13.4% this year, is now within 243 points of Dow 20,000, a milestone few imagined was possible at the bottom of the bear market back on March 9, 2009, when the Dow fell to 6,547.05.
The Standard & Poor’s 500 index, Nasdaq composite and small-stock Russell 2000 also finished the week at record levels.
The big gains came even though Wall Street is pricing in a nearly 100% chance of an interest rate hike from the Federal Reserve Wednesday, its final meeting of the year. Wall Street is expecting a quarter of a percentage point rise by the Fed, which would mark the U.S. central bank’s first rate hike of 2016, despite forecasts at the start of the year for three or four hikes.
Following the Fed’s meeting Wednesday, Wall Street’s attention will turn to its policy statement, its updated projections for the economy, inflation and future rate hikes, as well as Fed chair Janet Yellen’s comments during a press conference with reporters.
The big run-up in stock prices, up to this point, has been based mainly on hopes that Trump’s policies will boost economic growth as well as corporate sales and profits
The Federal Reserve could raise U.S. interest rates “relatively soon” if economic data keeps pointing to an improving labor market and rising inflation, Fed Chair Janet Yellen said on Thursday in a clear hint the U.S. central bank could hike next month.
Yellen said Fed policymakers at their meeting earlier in November judged that the case for a rate hike had strengthened.
“Such an increase could well become appropriate relatively soon,” Yellen said in prepared remarks that were her first public comments since the United States elected Republican Donald Trump to be the country’s next president.
Yellen, who was to deliver the remarks to lawmakers at 10 a.m. (1500 GMT) on Thursday, said the economy appeared on track to grow moderately, which would help bring about full employment and push inflation up and toward the Fed’s 2 percent target.
As we reported first thing this morning, one of the burning questions troubling Wall Street at this moment, is whether president elect Donald Trump plans on reshuffling the Fed, eliminating its so-called “independent” and perhaps going so far as firing or “requesting” Janet Yellen’s resignation.
To be sure, there has been sufficient animosity between Trump and the Fed chair: recall that in early September, Trump accusedthe Fed of “keeping the rates artificially low so the economy doesn’t go down so that Obama can say that he did a good job. They’re keeping the rates artificially low so that Obama can go out and play golf in January and say that he did a good job. It’s a very false economy. We have a bad economy, everybody understands that but it’s a false economy. The only reason the rates are low is so that he can leave office and he can say, ‘See I told you.'”
Trump’s allegation made it all the way to the September FOMC meeting during which Hilsenrath asked if it is true that the Fed is keeping interest rates intentionally low for the Obama administration. Yellen responded as follows: “I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy. We are trying to decide what the best policy is to foster price stability and maximum employment and to manage the variety of risks that we see is affecting the outlook. We do not discuss politics at our meetings and we do not take politics into account in our decisions.”
Additionally, on several occasions Trump has hinted – if not outright stated – that Yellen should resign. Which is why, as we noted in our earlier post this morning, both JPM and Goldman Sachs had to chime in and address the question, with both major banks suggesting that Yellen would easily coast through the end of her term, if not longer.
With the US economy bouncing back in the third quarter, investors turn their attention to the Federal Reserve’s monetary policy meeting and the latest US jobs report.
Here’s what to watch in the coming days.
With the uncertainty surrounding the fast approaching US presidential election, the Federal Reserve is expected to sit pat when it meets next week, despite fresh data that show the US economic recovery remains on track.
Economists expect the Fed on Wednesday will leave interest rates unchanged and federal fund futures currently imply just a 17 per cent chance of move in November. There will be no press conference with Fed chair Janet Yellen after the statement. Again economists suggest there are two areas of focus in the statement, namely comments on the balance of risks and forward policy guidance.
“The November 2nd FOMC meeting should be considered a placeholder meeting,” Michelle Meyer, economist at Bank of America, said. “If the Fed is successful, the meeting will likely come and go without much action in the markets.”
She added: “We think the Fed’s objective is to signal that a hike is highly likely in December but that the path thereafter will be extraordinarily shallow. The market is pricing in a 70 per cent chance of a December hike, which the Fed is likely to perceive as appropriate.”