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By Tyler Durden

It appears the complete decoupling from economic reality of the so-called US equity 'market', combined with the collapse in a data-dependent Fed's credibility – topics we have extensively covered – has reached the mainstream.

Micro-economy? Earnings expectations… Nope!

Bullard-economy… Yep!

Excerpted from Barron's – Is it a bull market or a bear market? Or maybe just a Bullard market?

That is, as in James Bullard, the president of the Federal Reserve Bank of St. Louis. Not only is he among the voters this year on the policy setting Federal Open Market Committee, he is also perhaps the most vocal member of the panel's adjunct, the Federal Open Mouth Committee.

…

In his habit of speaking early and often, Bullard has developed a nearly unequaled ability to move markets, which was on display last week. In various appearances, he suggested that the central bank's next interest-rate increase could come as soon as the FOMC's meeting on April 26 and 27.

…

Bullard's point last week was that the conditions that let the FOMC make its long-awaited initial increase in its short-term interest-rate target in December — to 0.25%-0.5%, 25 basis points (a quarter-percentage point) above the near-zero level where it had been held for seven years since the dark days of the financial crisis — were present. That is, unemployment had met the Fed's target, at just under 5%, while inflation was closing in on the central bank's goal of 2%.

But that was far different from what the St. Louis Fed chief was saying just last month

• On Feb. 17, he contended in a speech that it would be “unwise to continue a normalization strategy” — read, rate hikes — while inflation expectations were declining.
• So, in five weeks, Bullard has gone from arguing to hold off on higher interest rates, as the FOMC opted to do at the March 15 and 16 meeting, to putting them on the table as soon as next month.

What has changed so radically in that span?

The market-based measure of inflation forecasts did advance. According to the St. Louis Fed's own charting, five-year forward inflation expectations ( derived from the spread on Treasury inflation protected securities, or TIPS, versus regular Treasury notes) did tick up to 172 basis points on Wednesday, when Bullard made his comments to the New York Association for Business Economics. They had been at 152 basis points on Feb. 17, when he cautioned against rate hikes.

That's a mere 20-basis-point uptick over that span, and 30 basis points from the low touched on Feb. 11. Arguably, what has really changed since then has been the stock market, which rallied sharply, with the Standard & Poor's 500 index jumping more than 12% above its February low to last week's peak. After Bullard made his comments on Wednesday, stocks retreated in tandem with a renewed slide in crude-oil prices and …read more

Source: It’s Not The Economy, Stupid; Barron’s Admits "It’s A Bullard Market"

    

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Posted March 26th, 2016 in Uncategorized.