Saturday, May 24, 2014

Jim Rickards forecasts the next FED moves

In this article in his hometown paper Jim Rickards lays out his forcast for the next year.  On his twitter account yesterday, Rickards says that in February of this year two Central Bankers he knows "gave me Yellen's playbook". So he uses this to project what he thinks the FED will do over the next year.

Basically, he says the July meeting of this summer will be the key meeting to determine if the FED will pause its QE tapering program. He says if they do not pause in July they will complete the tapering by the end of this year. If they do pause, they will likely reverse course and start a new QE program by early next year. He has been saying all year this is what he expects to happen. But I note in this article he seems less sure the FED will pause this summer.

He notes that whether the FED starts to reverse course in July or not, he still expects them to revert back to QE again sometime in 2015. So he essentially thinks the only difference will be the timing of when the FED starts up another new QE program next year. Here is a quote from the artice:

"The showdown comes in July. If the data between now and then are uniformly bad, the Fed will pause and then increase money printing in 2015. If the data are mixed, the Fed will finish the taper this year. But this does not alter the fact that the fundamental economy is weak and the taper is exacerbating the weakness. If the Fed does not pause in July, they will revert to money printing in 2015 to offset the weakness. Either way, look for QE4 in 2015."

This will be interesting to watch because someone has to be wrong here. The FED keeps sending out signals that they expect the economy to continue to recover so that they can end QE. They always leave open the door to reverse course, but they are clearly promoting the idea that a recovery is underway despite a very poor first quarter GDP number. They still are forecasting 3% or better GDP this quarter.

Rickards and others say the economy is not recovering and expect further weak GDP numbers to come (forcing the FED to pause its taper and eventually go back to more QE).

The markets seem to be taking the FED (and the financial media) at its word that a recovery is underway and will continue. Every economic number released these days is closely watched and debated. If a good number comes out, skeptics say the government has manipulated the numbers. If a bad number comes out, the FED and financial media say it is because of the bad weather this winter. It is obvious the markets react quickly and with a lot of volatility these days so managing expectations is very important.

With the weather no longer a factor, the 2nd quarter numbers will be huge in determining what happens next in the short term and we can expect markets to react strongly.

In terms of impact on monetary system change, if a recovery is really underway, we would not expect much to change. After all, if things are getting better, there is no crisis and no reason to make changes. It is our view that only in a major crisis would the public possibly be willing to accept major monetary system changes. You can't tell people everything is getting better and we are on the way to 3% plus GDP, but we need to make drastic changes that will directly negatively impact you at the same time.

By August, we should know how things will look for the short term based on what the FED does in July. The Q2 number for GDP will be watched by everyone.

1 comment:

  1. Yea they're probably going to keep things stable till after the election, then release the inflation wolves on us.