Federal Reserve Vice President Stanley Fischer made the headlines early this week with some comments at an IMF meeting underscoring concern the global economy is slowing, fueling speculation the timing of rate hikes will be pushed back. The yield on the US 2-year note dropped the most in more than a year on Tuesday to 0.37%, Fed Fund futures showed traders see now a reduced chance of a rate hike by September 2015 (less than 50% down from 74% on Oct 1st) according to Bloomberg. Late last year, Fischer who holds both US and Israeli citizenships, saw 2014 with optimism due to Europe's economic revival and alleviated concerns in emerging markets. But to some observers, this weekend Stanley Fischer even opened the door for more QE. This isn't suprising from Stanley Fischer, he is in the dovish camp at the Fed.
Widely credited in the media and the economists community for having spared Israel's economy the fallout of the 2008 crisis, the former Governor of the Bank of Israel is not without critics. He has been accused of fueling a housing bubble in Israel with an 80% jump in house prices since 2007 as mortgage debt increased in the same fashion. Nobel Prize winning economist Robert Shiller said that Fischer "failed" at preventing a housing bubble in Israel. Under Fischer's watch from 2005 to 2013 M1 money supply rose 250% in Israel and inflation increased dramatically which along with skyrocketing rents prompted the public to take to the streets in protestation.Stanley Fischer adheres to the New Keynesian school of economics which sees recessions as the result of market failures and favors government intervention to stabilize the economy and particularly money printing as a way to resolve an economic crisis. A school of thought some have called the Keynesian disease for its widespread acceptance among policy makers despite immoral aspects and potentially dire unintended consequences down the road.
My take : as stockmarkets threaten to collapse, and as crude oil crashes undermining the so-called "US energy boom" which was only made possible by (artificially) elevated oil prices, expect to feel very soon a sense of panic among central bankers and policy makers. By that I mean, just like when taper tantrum hit in summer 2013, a new round of confused statements and interventions designed to assuage markets and let the world know that more QE could even be in store if the markets don't behave . There will also be much talk about the horror of falling oil prices and the associated drop in the inflation rate, and there will be calls for continued accommodation. But this time, don't be so sure it will save the day for equities .
