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Jackson Hole 2016: Federal Reserve’s new Tower of ‘Babble’

Written By | Aug 26, 2016

WASHINGTON, August 26, 2016 – Federal Reserve Chair Janet Yellen’s much ballyhooed reading of America’s economic tea leaves transpired this morning at the annual Federal Reserve confab, held each year at taxpayer expense in posh Jackson Hole, Wyoming. The oracle’s pronouncement: Interest rate hikes are on the horizon. Whenever.

In other words, Yellen’s profound utterances Friday morning amounted to about what the Maven thought they’d be: a big, fat nothingburger, signifying nothing, or at least not very much. Making the public theatrics even more absurd, Yellen’s warm-up act—a tag team consisting of Fed Vice Chair Stanley Fischer, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester—either augmented or contradicted Yellen’s remarks as the Fed continues on its long-term enterprise to build an all-new Tower of Babble in Washington, as if that city needed another one.

According to CNBC online, which took the morning off from its 24/7 anti-Trump onslaught (sans proofreaders),

“The U.S. economy has strengthen[ed], with strong jobs data in the last three months, Fischer told ‘Squawk Alley,’ as investors look ahead to next Friday’s government release of the August employment report.”

But stop the presses!

“St. Louis Fed President James Bullard told CNBC’s ‘Squawk Box’ that next month might be a good time to raise rates. But he refused to give a firm timetable.”

Atta boy, Jim, thanks for clearing things up for us little guys. But wait… There’s more:

“Cleveland Fed President Loretta Mester, who favors a gradual rate raise, said later on the program the central bank’s Sept. 20-21 meeting is “live,” meaning a move could happen.”

In other words, a “gradual” interest rate increase could happen right away. Thanks for clearing all this stuff up, O Great Financial Wizards.

If you think the Maven is being overly sarcastic here, consider how Friday morning’s stock market action has been reacting as of the noon hour EDT. Stocks opened down before climbing steadily upward, with the Dow Jones Industrials up a modest 75 points or so just prior to the release of Yellen’s remarks at 10 a.m. EDT.

Minutes before the clock struck 10, however, the Dow dropped rapidly to flatline indicating that, as usual, “They” somehow had magically gotten the remarks early and were jumping to sell on what was considered to be relatively bad news: interest rate hikes are on the way.

But then, a quick reassessment by the Negative Nellies reversed that trend again, and up went the Dow again, back to its earlier positive perch. That is, until traders (or their machines) decided to take things back down again. As of 12:30 p.m. EDT, the Dow is off some 65 points (- 0.33 percent), with the S&P and NASDAQ off by similar percentages. It’s like Trading Tourette Syndrome.

In the midst of the Fed’s apparently itchy trigger finger, however, we get this contradictory news via Reuters:

“Gross [U.S.] domestic product expanded at a 1.1 percent annual rate, the Commerce Department said on Friday in its second estimate of GDP. That was slightly down from the 1.2 percent rate reported last month.

“The revision also reflected more imports than previously estimated as well as weak spending by state and local governments. The economy grew at a 0.8 percent pace in the first quarter. It grew 1.0 percent in the first half of 2016.”

In other words, virtually zero growth in the American economy continues apace. Companies continue to eat their seed corn via virtually free Federal Reserve money used for stock buybacks, even as the average citizen sees life passing by with zero chance for “hope and change.”

The current whirling dervish of market action, government inaction, Fed confusion and growing social unrest reminds us of that old carnival wheel of fortune pitch: “Round and round and round she goes, and where she stops, nobody knows.”

The current Fed doesn’t know what it’s doing. In fact, the nation’s central bank has been relatively clueless for years. Nothing is conforming to the predictions generated by their internal economic models. That fact alone in a rational world would mean they need to adjust their bloody models already or create new ones. But that’s too much work and they’re not up to this kind of intellectual challenge.

Worse, such a reassessment might take some serious creative, out-of-the-box thinking or might even involve the abandonment of Keynesian economics, which for this Fed would be akin to the Ayatollah Khamenei converting to Roman Catholicism. It would also mean the Fed would have to admit they’ve gone about things all wrong. For years. Such an admission is a career-ending no-no in official Washington.

But if you look at the Fed’s recent dismal record since the central bank’s 2007-2009 financial rescue mission, their “tools” and successive actions have failed to help the average American working stiff one iota. At the same time, they’ve made bankers and Wall Street bigwigs buckets of money, helping them to become rich beyond avarice off taxpayer money. So where’s our return on investment?

Is it any wonder that the seemingly counter-intuitive campaigns of Donald Trump and Bernie Sanders materialized this election year? The average, beleaguered, taxpaying citizen is fed up to here with the coastal elites who’ve made their lives miserable for nearly a decade now.

Left, right and anywhere in between, increasingly furious voters are looking for someone, anyone to win the presidency who will come into town in January carrying a big sledgehammer for smashing America’s sclerotic and self-absorbed political bureaucracy.

Meanwhile, the Fed continues to dither, having finally failed the American people after roughly 75 years or so of successfully keeping the fiscal thieves and wolves at bay. Now, they no longer bother. They seem to be satisfied with the economy’s current state of terminal entropy.

Today’s Fed has failed because that institution, like most of official Washington, no longer has any connection with the average American citizen. They, like the politicians and the crony capitalists who keep them in power, have made too much money and have held too much power for too long. Consequently, the 2016 edition of the Fed can’t see what’s going on right under its collective nose. Like the politicians who appoint them, the Fed’s movers and shakers have no notion of what it’s like to be un- or under-employed, under-housed, under-insured, hopeless and desperate out there in America’s Flyover Country.

If the Establishment candidate for President wins the White House this November, the Maven predicts that socially, culturally and fiscally, the worst is yet to come. What can’t go on, won’t go on.

What we’re really trying to say is, today is a bad day for placing bets on stocks.

Trading diary

Dear diary will get precisely no entries today. The energy and (oddly) the financial sectors are tentatively looking good, since both groups’ recent performance in the averages has mirrored the title and lyrics of that vintage song “I’ve Been Down So Long (It Looks Like Up to Me.)”

At least it looks that way from here. So let’s come back Monday to see if we can find any bargains or investigate going short. Have a good weekend.

Terry Ponick

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17