Dots Before Your Eyes

Now that the Employment report is out and the 4th "most important data set" in a row has failed to stir the hoped for market chaos....lets move on to something more important.

The Fed is ready to update the Blue Dot projections that caused a minor stir (and a few gaffaws) and thus an immediate retreat by Fed officials. As Beckner writes today:

     If anything, their forecasts seem likely to be a less optimistic than the ones contained in the FOMC's March Summary of Economic Projections, when the "central tendency" was for growth of 2.8% to 3.0% in 2014; 3.0% to 3.2% in 2015, and 2.5% to 3.0% in 2016.

     Fed officials have not hidden their anxiety over the relative softness of housing, as well as the tentative pace of business investment.

     Since the recession ended, GDP growth has averaged little more than 2%, leading to a growing suspicion the economy has settled into a subpar trend.

     So, the May jobs data, which did not wildly differ from expectations or recent trends, seem unlikely to significantly alter the debate as the FOMC prepares for the mid-year Monetary Policy Report to Congress.

Some background- Beckner was the conduit during the Greenspan "1 man, 1 voice" period for the Fed. Connecting to the Fed Presidents, Beckner could "leak" info, usually bearish/hawkish, that could not find a platform under Greenspan. His tape bomb popularity led to the knighting of Greg Ip and then Jon Hilsenrath as the Chairman's mouthpiece.

The Blue Dot projections will most likely be adjusted softer, the downplaying of their significance was a mistake in our opinion. Better than FG, the blue dots helped lay the ground work for "why" instead of a single focus on "when." Data cluster variance, higher or lower, from the central tendency would provide valuable feedback loop to policy makers. As it stands now, Officials lean toward tamping down bond market participant pricing of policy traction.

Clearly, the Taper Tantrum a year ago startled the Fed and cast a chill on housing only Idina Menzel could love. The Yellen Fed operates under 2 characteristics we find disturbing.

1) Markets are not to be trusted.

2) A new lower STRUCTURAL (where have I heard this story before?) path to US growth is upon us.

My take is #1 is foolishness and #2 is unacceptable when breaking a structural trap is possible.

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