With not much having changed in the economy and visibility no better since the last FOMC meeting, we shouldn’t expect anything new today. What I’m in search of from this Fed is if they think there is any speed limit to what they’re doing. Printing money and buying assets and cutting rates to zero is the global central bank response from those central banks that haven’t done it already and we’ve seen the results. It’s no vaccine to actual business activity. The question then is how much deeper do they get? How much of the markets do they want to become? What will be left of the US credit markets in terms of its signaling? How the heck are they going to get out of all this easing at some point? I’m sure we’ll hear about ‘forward guidance’ and the state of their thoughts on yield curve control. The WSJ yesterday said this on the latter, “Every dog of a bad policy idea has its day, but bad monetary policy ideas seem to get more than one. The latest idea whose time has come and gone and come again is yield curve control, which is shaping up to be one of the Federal Reserve’s next party tricks…No one should underestimate the risks this poses for the global economy.”
What I want to hear in particular is what their intentions are from here with their corporate bond purchases and Treasury and MBS QE. “Market functioning” we know was a BS argument on their part for explaining the reasoning for these purchases. It was all about yield suppression. Well now, the Fed risks creating ‘market disfunction’ the bigger they get as the BoJ and ECB have seen in killing their bond markets. Also, what’s their view on the US dollar, inflation and the rising rate of inflation expectations in both the TIPS market and in the confidence figures?
Mortgage applications, the one area of the actual economy that has gotten a boost from low rates (I can’t name any other), was little changed w/o/w. Purchases fell 1.5% after the prior week’s 1.8% gain but is still up a robust 21% y/o/y for the reasons we know. Refi’s were flat w/o/w but up 121% y/o/y. Mortgage rates held at record lows.
Vietnam is a growing manufacturing powerhouse as they gain share from China. They are still beholden though to global trade. Exports in July rose .3% y/o/y after 4 months of y/o/y declines but the estimate was up 3%. Exports of furniture and sports equipment/toys led the way with many of those products coming to the US. Imports fell by 2.9%, worse than the estimate of up 5%. Notwithstanding this data, Vietnam is a great growth story and will be in the decade to come.