ONE-TWENTY TWO - A collection of personal articles on financial markets including analysis you can use


Jun
21

Yellen’s Case for More Easing Primes Fed to Act Sooner Than Later

written by Dr. Duru
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(This is an excerpt from an article I originally published on Seeking Alpha on June 15, 2012. Click here to read the entire piece.)

{snip}…I decided to summarize the last two speeches from U.S. Federal Reserve Vice Chair Janet L. Yellen given her strong advocacy for pro-active intervention on behalf of the U.S. economy…{snip}… I expect any action to increase liquidity in global financial markets will heavily rely on increasing the availability (or even supply) of U.S. dollars.


Despite growing angst about Europe, the dollar index has failed to make further gains since hitting the QE2 reference price two weeks ago

Despite growing angst about Europe, the dollar index has failed to make further gains since hitting the QE2 reference price two weeks ago


{snip}


Is the market listening to Yellen? Her last two speeches have conveniently come at the end of sell-offs.

Is the market listening to Yellen? Her last two speeches have conveniently come at the end of sell-offs.


Source: FreeStockCharts.com

{snip}

In fact, Yellen insists that today’s accomodative policy is not loose enough, especially because of the constraint of the zero lower bound on (nominal) rates:

{snip}

Yellen’s speeches fascinate me because she describes in explicit, technical detail the specific machinery she uses to assess options for monetary policy…{snip}

Click image for a larger view:


Economic Outcomes of Simple Rules for Monetary Policy

Economic Outcomes of Simple Rules for Monetary Policy


Source: The Economic Outlook and Monetary Policy

Yellen’s attraction to the optimal control policy comes out of her concern, shared by Chair Ben Bernanke, that persistently high unemployment will eventually lead to long-term structural unemployment. {snip}

{snip}

{snip} Yellen cautioned that to-date economic forecasters have been overly optimistic about the strength of the recovery, and she worries that forecasts are once again too high. She also appeared more insistent on the need for further monetary action. She indicated that the balance of risks pointed toward a weaker economy and “…that a highly accommodative monetary policy will be needed for quite some time to help the economy mend.”

{snip}

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on June 15, 2012. Click here to read the entire piece.)

Full disclosure: net short U.S. dollar, long SDS

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