My Fancy-Schmancy “Fed Hawk-o-Meter.” And the Fed Says It’ll be “Patient” with Rate Cuts, Even at “Low Inflation”

The Fed introduces a new thingy about “patient” to tamp down on the clamorers on Wall Street.

For the minutes of the FOMC meeting on April 30 and May 1, my fancy-schmancy Fed Hawk-o-Meter more than retraced the spike of the prior meeting, falling 19% from 26 to 21, and is now in the lower range of the red-line zone, indicating that rate hikes are not imminent, but that a rate cut remains off the table. This was confirmed by the use of “patient approach” to cutting rates:

My Fed Hawk-o-Meter checks the minutes of the Fed’s meetings for signs that the Fed sees the economy as very strong and overheating and that rates should rise; or that the economy is strong but not strong enough to raise rates further; or that the economy is spiraling down to where rates need to be cut.

The Hawk-o-Meter quantifies and visualizes what the Fed wants to communicate to the markets by counting how often “strong,” “strongly,” and “stronger” appear in the minutes to describe the current economy in the US. In the minutes of the April 30 – May 1 meeting, released this afternoon, those words appear in this sense 21 times.

To iron out the volatility in the “data,” so to speak, and to clarify the trends, I converted the chart to a three-meeting moving average. By December already, the Fed started backing off its hawkish stance conveyed during the meetings last August, September, and November. Despite the recent drops, the Hawk-o-Meter remains in red-line territory:

The average frequency per meeting minutes of “strong,” “strongly,” and “stronger” between January 2012 and December 2017 was 7.4 times. The 21 mentions in the April-May meeting minutes represented an increase of 184% from the pre-redline average.

“Strong,” “strongly,” and “stronger” appeared in phrases like these:

  • “Labor market conditions remained strong…”
  • “Total nonfarm payroll employment recorded a strong gain in March…”
  • “A relatively strong increase in defense purchases was offset by a decline in nondefense purchases…”
  • “In response to strong first-quarter earnings at some of the largest U.S. banks…”
  • “Issuance of corporate bonds was strong…”
  • “A number of participants mentioned that they had marked up their projections for real GDP growth, reflecting, in part, the strong first-quarter reading.”
  • “With the strong jobs market, rising incomes, and upbeat consumer sentiment…”
  • “Participants agreed that labor market conditions remained strong.”
  • “Increases in bank capital in current circumstances with solid economic growth and strong profits….”

I weeded out two false positives:

The words “strong,” “strongly,” and “stronger” actually appear 23 times in the minutes, but in two instances, they were used in a context that made them “false positives.” The first was used in the sense of slowing down from a strong pace; and the second described a technical issue in the discussion of the maturity composition of its Treasury securities portfolio. Those two were deducted from the tally:

  • “…suggested that GDP growth in the near term would likely moderate from its strong pace of last year.
  • “…the estimates of the effect of a move to a shorter-maturity portfolio composition on the long-run neutral federal funds rate are subject to substantial uncertainty and are based on a number of strong modeling assumptions.

 “Patient” about rate cuts.

“Patient” was inducted into the minutes of the December meeting with one mention: “The Committee could afford to be patient about further policy firming.” In the January-meeting minutes, “patient” was plastered 13 times all over the minutes. But in the March-meeting minutes, “patient” was cut to seven mentions. In the April-May-meeting minutes, patient appeared eight times. But one of those was to describe being “patient” about rate cuts:

Many participants viewed the recent dip in PCE inflation as likely to be transitory, and participants generally anticipated that a patient approach to policy adjustments was likely to be consistent with…

In other words, Dear Market, stop clamoring for a rate cut just because PCE inflation is below 2%. It’s not going to happen.

According to my fancy-schmancy Fed Hawk-o-Meter, the Fed is trying to tell the markets via these minutes that rate hikes are not imminent and that rate cuts are off the table. There was no “U-Turn,” as the clamorers on Wall Street had clamored for – meaning turning around and going the opposite way. Instead, the rate hikes came to a stop, but might eventually restart; and the QE unwind, after continuing full blast through April, is on schedule to slow down this month and will come to a smooth stop by September. No U-turn either.

Wall Street hype artists and QE mongers would be deeply disappointed. Read...  Fed Launches ‘Rate Peg Instead of QE’ Trial Balloon for Next Crisis

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  38 comments for “My Fancy-Schmancy “Fed Hawk-o-Meter.” And the Fed Says It’ll be “Patient” with Rate Cuts, Even at “Low Inflation”

  1. Old dog
    May 22, 2019 at 8:46 pm

    It appears that Trump believes that the SP500 is to the American economy what the Nielsen ratings are for TV shows’ popularity.

    If that’s so, I’d suspect that the White House will continue pressuring the Fed to force a rate cut or two (or three or four) before the 2020 election, just so that the SP500 makes new highs. Trump believes that Powell owes him for the Fed’s chairmanship. Powell most likely disagrees but will he buckle?

    • Unamused
      May 22, 2019 at 11:52 pm

      Powell most likely disagrees but will he buckle?

      Yes.

      Powell is doing a salvage operation and knows the game is already lost, so it doesn’t matter what he does. He’ll get blamed either way, so he may as well capitulate and take the path of least resistance.

      The Biggest Loser thinks it will help him, but it won’t. His track record in finance clearly shows that his judgement is impaired and that he can only win, sometimes, by skirting the rules, and interest rates aren’t a decisive factor anymore. ETTD. This isn’t something he can bully his way through, but that’s really all he’s ever had.

      • Insta
        May 23, 2019 at 10:17 am

        I read ‘the Biggest Loser’ as the Biggest Bully, it does seem fitting.

      • Bart
        May 23, 2019 at 11:10 am

        Is it even realistic to continue to drive up the S&P 500 through Nov of 2020? Buybacks still running at or nearly all time high. Does anyone thing this is sustainable because I do not. To me it looks like the bottom 80 – 90% are running on fumes. If the S&P continues to run until Nov ’20 then there is going to be significant $ going into the Direxon inverse ETFs.

    • Ppp
      May 23, 2019 at 10:19 am

      Just look at long bond futures if you think the Feds won’t lower. Through the roof.

      • Ppp
        May 23, 2019 at 11:53 am

        Oh, and one other thing. This nonsense about whether China will weaponize its Treasuries. China needs dollars and sells in order to get dollars. Period.

        We are all in the Eurodollar game. And on that subject, EFF over IOER for yet another day. When will the market stop paying attention to the Fed and US govt? These entities are no longer in control, and will never be in control again.

        Prepare for a long march, comrades.

  2. Spyrder
    May 22, 2019 at 8:55 pm

    Excellent Summary

  3. Double D
    May 22, 2019 at 9:39 pm

    Watch how fast they change their stance when things start deteriorating rapidly. Right now is the calm before the storm. The Dollar is getting stronger currently at 98 & well off it’s lows in 2/18 at 83.02. I think it’ll test it’s high of 103.82 set in 1/17 before the year is out. Deflation will start to accelerate & there is nothing the FED or any CB can do to stop the coming avalanche.

  4. Memento mori
    May 22, 2019 at 11:30 pm

    I think Wolf unconsciously wants rates to be higher.
    Prediction abhors the slightest bias.
    Given how Powell made his U-turn recently and the current zeitgeist I would say that if ever the stock market goes below 20k, the 10 year will quickly go below 1% , QEn in full swing and maybe we will have negative rates . And its not a very far fetched prediction.

    • sillyMe
      May 22, 2019 at 11:44 pm

      That’s a big “IF”

      Mr flip-flop ( name cannot be said ), all he has to do is mea-culpa on Huawei, and repent to China saying that he went over-board on tariffs, and the stock market will go north of 30k when all party’s declare a truce, and deliver a new ‘trade agreement’.

      We all want higher rates, especially ‘savers’

      Who doesn’t want rates higher?

      The only people I know he want low rates are people sitting on ton’s of debt, and those people are never the long term winners.

      Gov debt will be washed away by inflation, as always.

    • Eamonn Harter
      May 23, 2019 at 12:01 am

      I consciously want rates to be higher, much higher. And I want stocks and real estate to be much cheaper, with an economy based on goods production and technology, not asset price inflation and rent-seeking skims. The Fed has painted itself into a corner and it can’t get out without causing another financial crash.

    • May 23, 2019 at 12:47 am

      Memento mori,

      I got several tickets for illegal U-Turns in my younger years. So I know exactly what they are. You go south on 10th Street. At the next intersection, you whip your car around and go north. That’s a U-Turn. Coming to a smooth stop at the traffic light is NOT a U-Turn. Rolling straight through the intersection without stopping is not a U-Turn either.

      To do a U-Turn the Fed would need to CUT rates and restart QE. It has done neither. It said today that rate cuts are not on the table, and the QE Unwind is still going on. So to describe what the Fed has done so far as U-Turn is simply wrong, and you guys need to come to grips with that :-]

      • Memento mori
        May 23, 2019 at 9:16 am

        There were minimum 2 sure rate hikes for 2019 by the Fed’s own prediction in December and QE was on autopilot if I remember.
        Powell met with Trump, the markets went lower and the mood went from tightening into easing with QE to be stopped very soon.
        Maybe not a u turn in the literal sense, but investment is a forward looking process and in the current environment it looks like the future holds more QE and lower interest rates, not the opposite. Time will tell.

      • wkevinw
        May 23, 2019 at 10:26 am

        Fed behavior is very interesting.

        It is hard to know whether they really believe what they say or are just good liars (put simply for those of us with simple minds).

        With the www and its perfect memory of printed and video statements of Fed chairs (just as an example), taking their public statements seriously has become impossible. There are so many videos of Greenspan, Bernanke and Yellen making colossally incorrect statements about the economy, it has actually discredited their whole profession.

        Anyway, when the bear market does come, is it really a policy error or part of the path they know they must follow.

        I don’t know… (can they really be as stupid as they seem?- they did really well in school…at good schools…)

      • May 23, 2019 at 3:10 pm

        The Fed, as per Yellen and supported by Powell is in a tracking mode. They are ready to move either way.

    • akiddy111
      May 23, 2019 at 10:05 am

      Thank you.

      We have a choice : We can read what Jay Powell has to say or we can watch the 10 year yield. Of course we all know that the 10 year takes it’s marching orders from the S&P 500.

      The 10 year sits at 2.33% this morning..

      In summary. Market Forces (eventually) tell the S&P 500 what to do and the S&P 500 tells the 10 year what to do. And they ALL tell Jay Powell what to do.

      And Jay Powell can say things….. and that is very nice.

  5. mrfancypants
    May 22, 2019 at 11:35 pm

    Watch what they do not what they say,
    Google “10 yr t-bill”, and you will see they’re paying 2.4% on a 6mo, but less farther out
    CD’s are barely paying 2.4% on 6mo
    Thus Gov is now grabbing the ‘savings’ money from the few in the public that have saving’s and using that money, and taking it away from the banks.
    Six months out, some think it has something to do with the next debt ceiling cap
    Treasury needs money, and doesn’t seem to care about private banks and their access to ‘savings’.

  6. ZeroBrain
    May 23, 2019 at 12:14 am

    Contemplate for a moment how insane and artificial the markets must be for intelligent people to be *counting words* to determine what assets prices and market action will be in the future. The world we’ve built for ourselves is ridiculous from top to bottom.

    • May 23, 2019 at 12:53 am

      Earlier today, I just spent an hour talking with Chris Martenson on “Off the Cuff” (it will be behind their paywall) about this very thing :-]

    • shannon
      May 23, 2019 at 3:35 am

      Modern AI, or so called “Artificial Intelligence”, is nothing more of such, the ‘sentiment’ behind AI Robot’s that ‘beat’ the stock market do nothing more than count words.

      “There is nothing new under the sun”.

      Thus what Wolf is doing, is nothing more than one Google does on a larger scale, its just that Google/Facebook sweep up everything on the planet, and Wolf is just sweeping fed-minutes.

      In summary trillions (USD) of world GDP are spent on ‘counting words’, think about that in context of what all our global tech is really doing.

    • Rowen
      May 23, 2019 at 3:37 am

      Wait, were you around during the Greenspan Briefcase Thickness Watch?

      • d
        May 23, 2019 at 4:21 am

        Beat me to it.

        Those who dont remember that, or know of it, have long freight-cars of learning to do.

      • May 23, 2019 at 8:22 am

        I thought it was a briefcase-in-left-hand-or-right-hand thing?

  7. Paulo
    May 23, 2019 at 7:59 am

    No worries about the Fed, it’s still infrastructure week for another 36 hours. Add on 2 Trillion debt, with no way to pay for it. The right wants borrowed money to fund private interests to do the work, (gotta divvy up those profits), and the left wants borrowed money to just cut the cheques and be done with it. User fees vrs raising taxes. But the durn Chinese are paying those immense tariffs thanks to the Trade War……oh, wait a minute. Oh, forget about that one. Then there’s Iran. Just send 120K troops to teach them a lesson that the US can do what it wants, because it’s in everyone’s interests to ….. oh, well nevermind. And then all the stellar new trade deals soon to be signed….oh, I forgot nothing has gone through or been ratified. Yet. And then that new disaster relief bill is going to get signed…oh, maybe and probably not. Well, how about that debt ceiling due in September? You know the one…..it requires a bipartisan ageement to raise RAISE the borrowing limits to further fund Govt or automatic cuts roll in. Let’s borrow more money, that’ll fix things for sure.

    The FED is the least of anyone’s worries right now. Be thankful it’s slow and steady as she goes with the rate freeze and roll offs; at least something is calm besides the weather :-). Otherwise, somebody will have to call in the Space Force to handle things, or maybe go to the moon. Oh…….

    No, the Fed looks pretty sane right now. It’s just too bad they don’t have any room to manuever when the Economy and Market tanks.

    The spinning top is being played with by children, and it’s starting to wobble. (Double entendre, intended).

    • Em
      May 23, 2019 at 9:06 am

      Nice X-ray picture you provided!

    • IslandTeal
      May 23, 2019 at 9:16 am

      P… Good observations. Keep all the the tops spinning and throw in more so that the Muppets do not know where to look just don’t care too. Memorial Day sales on everything will keep them busy. Iran is a bad sign, as again we send in our troops to fix nothing……

      • Brant Lee
        May 25, 2019 at 11:13 am

        Why NOT throw another trillion at the Middle East?

    • Mary
      May 23, 2019 at 1:59 pm

      Smart, funny, scary as hell.

    • Dale
      May 23, 2019 at 6:46 pm

      Almost every corporate bond, not to mention the EU’s continued existence, prove there is effectively infinite demand for debt of any quality at any interest rate. The problems will start when that is no longer the case.

  8. Anom
    May 23, 2019 at 8:19 am

    Look at this from the Fed’s position. Property taxes can’t be allowed to drop (bankrupts Cities, counties, and States). A significant amount of debt can’t be written off (bankrupts primary dealers and more). Inflation is the answer. Tariffs and boarder control are required to implement inflation. The choice is between automation (charities shipping food and clothing to impoverished nations to get people to stay-in-place) or police state (paramilitary enforcing the will of their leaders). These two systems are competing in various degrees of implementation. I want automation but I’m talking my book.

  9. robt
    May 23, 2019 at 11:28 am

    Analyze this:
    “The natural tendency is for interest rates to still go up a bit. I don’t really know how much a bit is, and what the timing might be,” Poloz said in an interview with BNN Bloomberg.
    And:
    ‘I would frown upon it’: Poloz on calls to loosen mortgage rules.
    (Is frowning a reluctant acceptance of a necessary action, or a No?)

    Stephen Poloz, Bank of Canada, out-Greenspanning the Greenspan!

  10. Pl’n’l
    May 23, 2019 at 11:34 am

    Trying to second guess second guessers is futile. What the Fed means by “Patient” is, “We don’t have any idea what we are doing, so we are just going to wing it.”

  11. DR DOOM
    May 23, 2019 at 12:43 pm

    All that’s missing from the fed head is a shaman ritual mask and chicken entrails to divine the future and thus bestow his prophecy on us , while we huddle in our insular enclaves. The only way we pay back 22T+ is massive inflation and WAR. An old true story.

    • Rowen
      May 23, 2019 at 3:16 pm

      nah, according to my Laugher (sic) Curve, if we reduce taxes all the way to zero, we’ll have infinite revenue!

  12. WES
    May 23, 2019 at 2:00 pm

    Wolf: How is your super duper Zombie meter coming?

  13. May 24, 2019 at 2:46 am

    I think you can use the “stronger” count scale in relation to the US dollar.
    Right now, it reads that the US dollar will continue strengthening.

    At some point we’ll see the “stronger” level drop and the “weakening” or “slowing” level rise. Then we can look for the time for gold, base commodities & emerging markets as the dollar weakens.
    To be safe though, I’d wait till after the first rate cut to make the switch.

Comments are closed.