Policy Reversal Slowly Underway at the Federal Reserve

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A subtle shift to begin reversing the Federal Reserve’s extremely accommodative monetary policy could commence at the April 27 FOMC meeting when for the first time in the central bank’s history the Chairman will conduct a press briefing following the release of the statement.

Raising interest rates is the destination but the Fed will want to make its fuel go further by traveling at a slow pace because as Atlanta FRB president Dennis Lockhart remarked last month, “Contrary to popular opinion, Federal Reserve officials do actually eat and fill up their gas tanks.”

The journey begins with the Fed allowing the $600 billion Treasury purchase program (“QE2”) to conclude in June as scheduled. Now the path becomes less defined than before as the Fed is no longer willing to commit to a specific itinerary, preferring to be flexible with regard to the amount of maturing securities on its balance sheet to be reinvested. This will allow the Fed to gradually reduce its balance sheet over time without the direct sale of any Treasuries or mortgages.

The Fed will depart the interstate for the back roads now so cell phone service could get spotty. Although the Fed’s balance sheet will gradually be reduced on a week by week basis, a poor connection might cause the market to draw the wrong conclusion if there’s an increase in the balance sheet due to unexpected obstacles that require taking a detour back to the highway if the Fed needs to quickly react to market conditions.

Fed Chairman Bernanke’s July 21, 2010 remark that “the economic outlook remains unusually uncertain” described the energies of the major planetary alignments occurring then. Although the economy appeared to be improving after nearly two years of massive fiscal and monetary stimulus, a confluence of major planetary alignments (Jupiter opposing Saturn and conjoining Uranus, Saturn opposing Uranus, and Jupiter and Saturn squaring Pluto) at the beginning of cardinal (action-oriented) signs presented conflicting signals. At issue was whether the economy could expand (Jupiter) fast enough (Aries) to overcome shocks (Uranus) like the “flash crash” and the sovereign debt (Pluto) crisis in Europe which raised fears (Saturn) that underlying economic conditions remained weak.

As I explained in a post at the time: “Planets entering cardinal*(initiating) signs tend to bring changes in Fed policy as cardinal signs indicate a new direction has begun. The slower the planet’s orbit, the greater and more profound these changes will be as they signify a longer term trend. The Fed is particularly affected by planets transiting the beginning of cardinal signs as its natal Pluto (secrets), Sun (self-identity/the Chairman), and Midheaven (reputation) are in the beginning degrees of cardinal signs.”

Pluto in Capricorn was transiting these positions in the Fed’s chart in late 2008 when the Fed lowered interest rates to effectively zero and offered special lending facilities to banks and other institutions. As Jupiter, Saturn, and Uranus transited these placements in the Fed’s chart during July and August 2010, the Fed decided to err on the side of caution (Saturn) by taking new and unconventional actions (Uranus) to expand (Jupiter) its balance sheet since it could not take interest rates any lower. On the day Uranus in Aries exactly squared the Fed’s natal Pluto, the Fed announced it would reinvest the proceeds from maturing mortgage securities to purchase Treasuries. As Jupiter in Aries squared the Fed’s Sun, Chairman Bernanke signaled to Wall St. and PIMCO the Fed was preparing to do their bidding by signaling another round of quantitative easing was on the way. The Bernanke Put was firmly in place. Stocks and commodities had already made strong gains in anticipation of the Fed’s November 3 announcement to purchase $600 billion in Treasuries by June 2011, as Saturn’s cautious energies gave way to the influence of Jupiter conjoining Uranus through early 2011.

In an effort to increase the Fed’s transparency, Bernanke explained at the time that “higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending” as the $600 billion in Treasury purchases would be the equivalent of the Fed lowering interest rates 0.75%, which could be thought of as the fed funds rate in negative territory.

The Fed does not consider the Treasury purchases to be “QE2” or “printing money” because it claims it is investing liabilities (excess reserves) on its balance sheet. Whether the Fed is telling the truth or has actually created new money would require a thorough audit of monetary policy.

In a 2009 post I warned that with Jupiter conjoining Uranus (mid 2010–early 2011) that inflation would unexpectedly rise. The Fed has stated that “an accommodative stance of policy with low interest rates is necessary to help promote a stronger pace of economic recovery and to help ensure that underlying inflation does not move even lower over the medium term.” The majority of companies and individuals who were able to borrow and refinance have already done so by this point which means that monetary policy has reached the point where it is mostly causing more harm than good.

As Jupiter and Uranus re-entered Aries followed by a lineup of faster moving planets in Aries, Fed policy has overheated speculation in commodities despite an abundance of supply.(2) There’s no need for a government investigation into the role of speculation in causing high gas prices. The Fed wanted to stimulate inflation (Jupiter), claiming it feared deflation (Saturn) which has caused the price for fuel, food, and other necessities to sharply spike (Uranus). Monetary policy has weakened the dollar which makes buying oil and other commodities denominated in dollars cheaper. The purpose of ultra low interest rates is to encourage risk taking which investors are even more motivated to do when there’s a plethora of planets in the fire element (Aries)!

The Fed constantly refers to its “dual mandate” which defines “stable prices” as core (excluding food and energy) inflation at about 2%.(3) With the Moon (public; food) ruling the Fed’s chart and Mars in Cancer conjoining the Fed’s Ascendant which represents the nation’s initial impression of the Fed, the public is easily angered when they feel the Fed dismisses their most basic needs in favor of what Wall Street wants. (Cancer’s ruler the Moon is in the sector of the Fed’s chart ruling speculation.)

Between March 2011 and January 2012, Uranus in Aries squares those three key positions in the Fed’s natal chart (Midheaven, Pluto, and the Sun) described earlier. Uranus is the planetary energy of rebellion and revolution. With Uranus in Aries, people are not going to be placated by what an authority figure says and are easily angered if they know what they’re being told is untrue.

On the day when most of the world’s attention was focused on the earthquake/tsunami in Japan and as Uranus was once again squaring the Fed’s natal Pluto, NY FRB president William Dudley had his 21st century Marie Antoinette sort of moment after giving a speech before the Queens, NY Chamber of Commerce.(4) When a member in the audience asked Dudley “When was the last time, sir, you went grocery shopping?” Dudley responded that "Today you can buy an iPad2 that costs the same as an iPad1 that's twice as powerful." To which a member of the audience grumbled, "I can't eat an iPad.” How Dudley could have been the former chief economist at Goldman Sachs and not understand as I explained in a previous post that by its very nature technology is deflationary!

And the audience comprised of what I would call “real” business people knows whether the Fed cares to acknowledge or not that it IS inflationary when a 64 ounce carton of orange juice is reduced to 59 ounces even if the price remains the same.(5) And notice when the Fed describes these elevated prices as “transitory” that prices never fall back to where they were before their big move up. The Fed focuses on core inflation (excluding food and energy prices), even though food and energy have only shown “volatility” in the upward direction.

We have stagflation minus 1970s wage/price spiral as prices for consumers and companies are rising without the higher wages and employment needed to support it. Companies that benefited from monetary policy are now being harmed by it as they are finding it difficult to completely pass costs through which is an impediment to business expansion and hiring. Consumers hurt by higher food and fuel prices are forced to curtail and/or eliminate discretionary spending which dampens economic growth. Many are forced to dip into their savings (which thanks to the Fed has been earning no interest) just to get by. Pension funds are hurting now and because many of these funds have speculated in risky assets, gold and other commodities, they will be hurt when the Fed begins to tighten.

Uranus exactly conjoined the Fed’s Midheaven and squared the Fed’s Pluto and Sun from mid-March to mid-April. In a post written last November I predicted that among the “unexpected shockwaves” that there “could be a rebellion coming from within the Fed.”

The most vocal member of the FOMC has been Philadelphia FRB president Charles Plosser. In a March 25 speech, Plosser presented his strategy for the “normalization” of monetary policy which combines selling off assets (starting with mortgage securities) and raising interest rates which in an 18 month timeframe would bring the fed funds rate up to 3.5%.

Minneapolis FRB president and current voting member Narayana Kocherlakota said March 31 that a 0.75% rise in the fed funds rate was “certainly possible” late this year to control inflation. And Dallas FRB president Richard Fisher who is also a voting member this year, told CNBC March 22 “there is no more need for quantitative easing” as “the Fed has done enough to pour liquidity into the markets.” Fisher also noted “price pressures from imported goods, particularly China.” (Well of course there is, since a weaker dollar exports inflation which in turn gets re-imported back into the U.S. when U.S. companies manufacture their products abroad.)

All of the Fed’s regional bank presidents are heard at FOMC meetings even if it’s not their year to vote. St. Louis FRB president James Bullard who was a voting member last year who pushed for QE2 so badly, now wants the Fed to end QE2 $100 billion short of its $600 billion target! And on the first full day of Mercury retrograde, Richmond FRB president Jeffrey Lacker said the Fed should “reconsider” QE2 now.

Another shocker for the Fed came on March 21 as the Sun conjoined Uranus in Aries when the Supreme Court rejected the Fed’s appeal, allowing a lower court ruling to let stand that ruled in favor of Bloomberg’s FOIA lawsuit to force the Fed to turn over the documents revealing the details of who borrowed from the discount window in 2008.(6)

Chairman Bernanke appointed Vice Chairman Janet Yellen to be in charge of developing the Fed’s communication strategy. Because the public got upset with the Fed’s focus on “core” inflation, the Fed now refers to core as “underlying” inflation which the Fed at its March 15 meeting according to Chicago FRB president (and voting member) Charles Evans considered “the current level of underlying inflation to be too low.”

On March 24 the Fed announced the Chairman will hold press briefings four times a year starting after the April 27 FOMC meeting. The Fed hopes these press briefings will help to ensure “accountability and increasing public understanding.”

The Full Moon is the time of the month your message can attract the greatest amount of public attention. The April 17 Full Moon in Libra squared the Fed’s natal Neptune in Cancer located in the sector of the Fed’s chart representing the public’s initial impression of the Fed. It is unlikely the Fed’s press briefing will give the public a clearer picture of what the Fed is really doing. The Fed needs to understand that it’s not that the public doesn’t understand the message; it’s that the public disagrees with what the Fed is saying!

On April 18 the Fed announced it redesigned the FAQ on its website. Reading it together with taking what the Fed says at face value presents a completely confusing (Neptune!) picture of what the Fed claims it’s trying to accomplish. (And the Fed’s YouTube channel is hardly the public’s definition of “transparency.” Besides it’s far more fun to watch Omid Malekan’s video with those adorable bears explaining quantitative easing!)

Questions that I think Chairman Bernanke should be asked:

1. Be specific, what goods and services does the Fed think should cost more and by how much?

2. If businesses can’t raise or completely pass through prices but their costs are rising, how does that create more jobs?

3. If Inflation expectations “remain well anchored,” why has the spread between the coupon rates of Treasury bonds and TIPS widened?

4. Since the Fed has previously stated it considers this second round of quantitative easing to be a success then why are wages still stagnant?

5. How can the Fed want to simultaneously increase inflation yet be satisfied that inflation is “well anchored”? (The Fed tells us everything is okay because inflation expectations are well anchored, yet at the same time everything is not okay because inflation expectations are well anchored when they should be increasing. WTF?!)

The Full Moon in Libra squaring the Fed’s Neptune together with the Moon (public) in Neptune-ruled Pisces April 27 indicates that the Chairman Bernanke will be asked about high gas prices and could be questioned whether the Fed thinks commodities such as oil are in a bubble.

The Sun rules the chart for the press briefing and along with Jupiter is located in the sector of the chart representing higher education. The Fed Chairman will revert back to being the Princeton professor. The Sun in Taurus is harmonizing with Pluto April 27, an alignment that occurred at the time Chairman Bernanke gave his Jackson Hole speech that boosted market confidence that the Fed would purchase more government debt. Now the Fed Chairman must instill confidence (Sun/Leo) that the economy and the stock market can prosper without it. The Ascendant in the final degree of Leo indicates a transition is about to get underway from monetary policy that has been ultra accommodative to one that gradually leads up to a tightening in rates to narrow the gap between U.S. interest rates and the major foreign central banks.

Neptune ruling the sector of the press briefing chart ruling interest rates indicates that the Fed will allow its record $2.69 trillion balance sheet to gradually “dissolve” as the securities mature. Uranus often indicates reversals. Venus and Uranus are in this sector and their exact conjunction April 22 conjoined the Fed’s Midheaven and squared the Fed’s Sun and Pluto indicating the Fed will begin to reverse its ultra accommodative policies.

Venus rules money and banking and exactly squares Pluto (loans; debt) April 27. Venus in Aries indicates a change in policy is underway. Venus in Aries’ opposite sign Libra squared Pluto at the August 10, 2010 meeting when the Fed announced it would reinvest maturing mortgage securities by purchasing Treasuries. Venus in Aries squaring Pluto now indicates a new policy direction has begun which begins with the Fed not purchasing any more government debt after QE2 is completed.

Venus conjoined Saturn in Libra August 8 and now Venus is opposing Saturn (exact April 30) which indicates the size of the Fed’s balance sheet is about to peak. Venus in the sector of debt/interest rates in a “T-square” shaped pattern opposing Saturn in the sector ruling the money supply and the banking system and squaring Pluto in the sector ruling the stock market/speculation indicates that it is time for the Fed to gradually tighten policy. Mercury opposing Saturn reflects that the Fed will delay dropping the “extended period” from the statement until after Washington has raised the debt limit.

Venus is important as it reflects the Fed’s reputation (rules the Midheaven) of the press briefing chart as Taurus rules this sector. Jupiter will enter Taurus June 4 for the next year which can epitomize Wall Street’s “sell in May and go away” because as an Earth sign, Taurus likes tangible profits and is not anywhere near as enthusiastic for risk-taking as Jupiter in Aries. Jupiter in Taurus makes the cycle of Venus all the more important. Venus shifted from being an evening star to a morning star when the Fed announced QE2 on November 3. Since the Sun rules speculation, the time each year that Venus appears in the early morning sky ahead of the Sun tends to correspond to when the major indices are at their highest level for the year.

Venus will be setting as a morning star in July which happens to correspond to the time after QE2 ends and after the Fed’s June 22 FOMC meeting/press briefing that could signal that the projected timeframe that the Fed begins to tighten rates is likely to occur sooner than the market is currently projecting.

(1)Mercury (communication; commerce March 9-May 15), Sun (self-identity; speculation March 20-April 20), Mars (action April 2-May 11), New Moon (April 3), Venus (money/assets April 21-May 15). Although the Sun and Moon are the “lights” and not planets, they are classified as such for simplicity.

(2) See my post which proves the jump in oil prices occurred before the protests erupted in the Middle East.

(3) See this post for a planetary interpretation of the dual mandate.

(4) The president of the New York Fed is a permanent member of the FOMC. I have not been able to locate Dudley's birth date except that he was born in 1952. As described in my post about the opposition, this was the last time Jupiter in Aries opposed Saturn in Libra. And like then (but in a completely different context), the Fed is engaging in fiscal policy. The populist expression, “let them eat cake” has been falsely attributed to the French queen.

(5)This is MUST see video! (Fast forward the video to about the 30 minute mark to skip Dudley’s speech and go straight to the juicy stuff in the Q&A.) Being a woman it was gratifying to hear men speak who clearly understand the true cost of grocery items! :-)

(6)The Financial regulatory reform bill (Dodd-Frank) required the Fed to disclose the details last year of its emergency lending programs instituted during the financial crisis.

Federal Reserve: December 23, 1913 6:02 PM EST Washington, DC
First Federal Reserve Press Briefing: April 27, 2011 2:15 PM EDT Washington, DC

1 comment:

Anonymous said...

excellent, thoughtful summary of the astrological and economic processes in action at this time, really appreciate this blog and look forward to more insight, especially into major transits coming next year concerning Jupiter and Saturn...