UBS’s Art Cashin has been musing a lot about the goings-on inside the Federal Reserve lately.
Last week, he suggested that Fed Governor Betsy Duke’s resignation from the FOMC was actually a bigger deal than it seemed, given that Duke “was said to be the key broker in setting up the current QE.”
“Could the FOMC have found some negative consequence caused by QE?” wrote Cashin in his morning note. “Might that have prompted discussion and an interest to wind down or exit despite a still non-robust economy?”
In his morning note today, Cashin seems to build a bit on this theory (emphasis added):
Among the several lapses in trading yesterday, there were several topics that popped up. Two of them really caught my attention.
One was a hypothesis that there may be a rebellion at the FOMC. By stringing together lots of little clues since the tapering talk first started, you could build a case that the wonderful consensus builder, Ben Bernanke, may have lost his consensus as he turns lame duck. We’ll try to get to that tomorrow.
We will also try to get to a research paper by Julio Rotemberg titled “Penitence after accusations of error: 100 Years of Monetary Policy at the U.S. Federal Reserve”. It was recently published for the NBER symposium “The First Hundred Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future”. It contains delightful little points like how some aggressive easing moves by the Fed in 1932 were halted as a failure since they only produced a huge jump in “excess free reserves” rather than a burst of bank lending. Talk about déjà vu all over again. Hopefully, tomorrow.
It will be interesting to see what Cashin has to say next.
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