Bullard: Recessions not Necessary Any More

Uberdove Jim Bullard does it again — upending the rules of economics and, more importantly, calming the markets.

“We should always plan for the worse and hope for the best. I think the idea that you’re inevitably going to have a recession just because you’ve had an expansion for a while is not really right.”

Put simply, “inevitably” means at some point in the future.  Is he really suggesting that we’ll never have a recession?

“I think the yield curve issue is one that is sending a signal to us about, well, maybe the whole structure of rates is just lower today, maybe we should just react to data and not plan to try to get rates up to such a high level that they match what we’ve seen in the 2000s or the 1990s.”

Translation: we’re flattening the curve in order to build in some headroom for the next time we rescue markets, but forget about a return to normalcy.  The only thing he’s really worried about…

“I have been worried that we don’t overdo normalization.”

Normal is by definition the natural state of things.  How can you overdo a natural state?

Futures bounced nearly 10 points on his comments — leaving the H&S Pattern we’ve been watching and which the latest VIX crush negated in the dust. He momentarily dropped his poker face when acknowledging US dollar strength, which of course has been instrumental in supporting stocks.

Given that central banks control currencies, interest rates, and many futures and equity markets and government data providers have joined the goal-seeking brigade, I see his statements as a measure of confidence in their ability to keep all those plates spinning.

It’s certainly worked well so far.  But, what happens when it doesn’t any more?

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