Madame Chair spoke again today and finally floated a view over the marketplace we fully endorse : She'll adjust official funding rates when Mr. Market tells her, not the other way around.
Rather than join "the bond market is manipulated by the Fed," and "the stock market is just addicted to free money" ranters, we have argued (for some time) that the primary missing ingredient to Fed action has been the prevailing term structure of rates. We put it this way, "Show me the place in color coded Eurodollars that is demanding the Fed to act?" Crickets.
The Fed's aggressively easy stance in 2011 and 2012 are the foundation of the expansion. The more recent readings of sluggishness align with the NEUTRAL policy stance of 2013 and 2014. Policy lags of 9 to 18 months are fairly common historically. I'm of the opinion the Yellen Fed would like to know if Mr. Market is up to doing the heavy lifting, as opposed to the plethora of participants mapping their course the other way around. (i.e. the Fed will raise rates on X date at Y time by Z much and it'll be bullish)
So, on this Memorial Day we not only remember our fallen service men and women but take a minute to reflect on something encouraging, a return to the way things used to be.