Sept 16. Summers drops bid to become Fed Chairman
–Markets exploded as Summers withdrew his name from consideration for Fed chair. Ten year rallied over a point, green eurodollars were 18 higher, blues up 23 before settling back. Mini-SP’s rose over 20 handles to new highs. Mimosas all around at the opening of the FOMC meeting…
–Though Yellen is the frontrunner, a modest tapering is still likely to be initiated as improvement in the federal deficit requires less bond issuance. However, there is probably much less uncertainty about potentially large changes in the future course of monetary policy. And economic headwinds are still apparent for the second half, as reflected by the plunge in Consumer Sentiment Friday (expected 82, 76.8 actual). A Gallup poll notes the same: ”Americans’ trust and confidence in the federal government’s ability to solve problems internationally as well as domestically has fallen to historic lows this year,” Gallup said. “There are a number of possible explanations for this loss of confidence: controversy surrounding potential U.S. action in Syria, an enduring low assessment of the state of the economy, or low levels of confidence in Congress.” I would add that uncertainty about Obamacare is becoming a much greater issue as well, as companies from IBM to Trader Joe’s announce healthcare benefits changes, and unions become more vocal in demanding modifications. While decreased confidence doesn’t necessarily translate into lower spending, several retailers have recently warned about 2H sluggishness, and sequential drops in revolving consumer credit are another warning flag.
