“Is the Fed confusing the market?”


That is how Bob Pisani’ latest CNBC column begins, to which our logical response is “what market” – This is what Bob says:

It was a beautiful narrative: the FOMC last week clearly reflected a dovish tone, implying two rate hikes in 2016, while modestly upgrading the state of the economy. Only Esther George of Kansas City, a hawk, dissented.


But that narrative is starting to change, for reasons that are confusing the market.This morning James Bullard, head of the St. Louis Fed and an FOMC voter, implied in an interview that an April rate hike was possible. He joins Patrick Harker from Philadelphia Fed, a hawk and nonvoter, who also said April was on the table. Charles Evans and Dennis Lockhart, while both nonvoters, also made hawkish comments recently.


This has only become more relevant now that Bullard, who is a voting member and perceived to be a centrist, has come out and implied the Fed may be getting behind the curve.


Bullard appeared to have an immediate effect on currency and commodity markets this morning: the dollar strengthened, and commodities dropped, with copper down 1.8 percent, gold down 2.5 percent, oil down 3 percent. Perhaps more importantly, the dollar index has been up four days in a row. It has now retraced 60 percent of the loss it saw in the days immediately following the FOMC meeting, when the dollar index dropped a stunning 2.3 percent in two days.


Bob’s conclusion:

What happened? It’s possible the Fed has seen the market reaction and become alarmed by the complacency. It’s true, the probabilities for even a June rate hike—let alone April–declined dramatically in the face of the Fed meeting. That may have alarmed the Fed, and so some members may feel the need to keep the markets more alert.

Why is all of this relevant? Because it is nearly a carbon-copy of what none other than one of the Fed’s favorite journalists, Steve Liesman, said last week when he dared to ask Yellen if the Fed has lost credibility:

Madam Chair, as you know, inflation has gone up the last two months. We had another strong jobs report. The tracking forecasts for GDP have returned to two percent. And yet the Fed stands pat while it’s in a process of what it said at launch in December was a process of normalization…. Does the Fed have a credibility problem in the sense that it says it will do one thing under certain conditions, but doesn’t end up doing it?

Recall what we said one week ago:

if the Fed can not make a favorable impression on those who are paid to at least pretend that they “get it”, what about the rest of the market.  Worst of all, since the Fed peddles only in faith and “perpetuating the narrative” du jour, in this case one that the Fed has credibility despite not doing what it has explicitly said it would do, how long until it is not just Liesman, but everyone else, who openly admits that the Fed’s emperor is fully naked.”

Today we got one answer when one of the other people who are paid to pretend all is well, Bob Pisani, openly dared to question the status quo regime.

Which is concerning, not so much because the Fed may be having a “mini-revolt” on her hands within the Fed as Liesman asked – Yellen can easily ignore any opposing voices; the far bigger revolt is when the paid propaganda, such as Liesman and Bob, openly start asking questions. It is that lack of faith that is most troubling to Yellen, as it is this close from admitting the Fed emperor has been naked all along…