Some surveys suggest FED chairwoman, Yellen's leadership is the worst than previous chairmen. Actually core members without Yellen in the inner circle seem to argue own opinions. They are Stanley Fischer, vice president of FED, and Mr. Dudley, the NY FED president.
They are unfamiliar each other? Not at all. Hillsenrath suggests some evidences meaning their communications are very frequently. According to some people who know them, Ms. Yellen and Mr. Fischer have lunch every week and discuss the economy and strategy. Moreover, Mr. Dudley has often dialed to meetings with Ms. Yellen and Mr. Fischer and other senior staff members.
Nevertheless, they argue own views, so market has been very frustrated. For now, many participants call this as the uncertainty. Uncertainty is bad, because economic activities could be shrank on this. This is what Prime Minister in Indonesia has argued. So, Hillsenrath expresses this as there are three camps in FED, not one core circle.
Someone who argues clear signal of FED seems to want interest rate hike in December. They maybe believe U.S. economy is somewhat solid to increase rate more than zero and this could improve economic sentiments. They think rate hike could be positive news for risk assets including equity market rather than contracting markets.
On the other hand, we should think the rationale why FED core members are divided.
Nowotny, the member of ECB, said central banks were weak at defeating deflation because their arms were optimal for fighting inflation. That seems the fact. It's very difficult to handle the monetary policy for central bank members.
Recently, however, the main focus move toward really effective policy tools, not depending on QE further more. Many governors and central bankers argue fiscal policy is needed, even though detail plans are not suggested.
Today an opinion article is published on last page with Hillsenrath's article previously commented on first page in WSJ. That opinion article is named "The FED has hurt U.S. business investment"
Albeit Ben Bernanke said the problem was that the absence of compelling investment opportunities in the real economy and this led to accommodative monetary policy, the author critics it is only true in the economic text book.
Business investment in the real U.S. economy is very weak. Growth in nonresidential fixed investment remains substantially lower than the last six post-recession expansions. Many believe that today's lack of capital investment in America stems from a shortfall of global demand.
However, business investment depends on future demand, not current demand. Old QEs suggested too limited signs for boosting investment. Why have main street and Wall street diverged during this period?
Authors argue that is because; 1) corporate decision makers can't be certain about the consequences of QE's unwinding on the real economy. This means QE has the limit by descent. 2) Financial assets are considerably more liquid than real assets. 3) QE reduces volatility in the financial markets, not the real economy. Consequently, financial asset prices have been robust by QE. So, they argue these trends, if not reversed, threaten to harm the U.S. economy's growth prospects.
Ironically, FED QEs underpinned U.S. economy especially in residential sector which had deteriorated massively and was a main cause of the crisis, so other developed countries have followed FED to conduct QE instruments. But, for now, the efficiency from QE is not working any more, many start to argue.
(But, Draghi, the president of ECB, announced the possible increase of QE in light of both of size and end-date last week. Why? Is he real? He suggested lower inflation as a cause, but inflation is very linked in oil price. And ECB's QE leads weakness of Euro, so oil price should tumble. What is the real purpose of him?)
If not now, Ms. Yellen must have a leadership for global economy and financial markets. Maybe increase in FED funds rate could improve economic sentiment including business investments. In current environment, excluding ECB, oil price seems to be pushed higher toward next year. This should enhance headline inflation in global toward higher and the worries about deflation could be diminished. At the end of this year or start of next year will be appropriate timing to start tightening. If can't, global economy would be very gloomy as U.S. economy turned to recession with the burden of housing markets and equity market prices...
According to Barclays Investors Survey, many participants have already tilted deflation scenario under vague and non confident FED stance. If Ms. Yellen starts to act, the opportunity would be in upside surprise of economy which means short long-end tenor duration...
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