Dudley sur les risques : un peu de vrai, un peu de propagande

Le Vice Président de la Fed, Dudley s’en va. Donc il va pouvoir dire de temps à autre un peu plus de choses intéressantes voire même dire quelques vérités. 

Hier dans une intervention à New York, intitulée « The Outlook for the US Economy in 2018 and Beyond », il n’a pas caché son inquiétude. Il pense qu’il y a un risque réel de surchauffe ces prochaines années; et ce qui l’inquiète, c’est la valorisation des actifs financiers. Il n’hésite pas à les caractériser comme élevée.  Mais il ajoute, ce qui n’étonnera personne car c’est exactement la position de Yellen dans son dernier discours, qu’une baisse significative des Bourses n’aurait pas l’effet destructeur qu’elle a eu il y a une dizaines d’année. La raison on le sait c’est le fait que la Fed considère qu’il n’y a pas … trop de dettes dans le système! 

Nous ne souscrivons pas à cette vue car d’une part nous pensons que le leverage dans le système est beaucoup plus important que ce que pensent  Dudley et Yellen, car les dérivés sont une forme de  leverage et d’autre part une chute de 20% des marchés déclencherait une réaction en  chaine de type atomique par le biais de la montée du risque de défaillance et de désolvabilisation. 

Il n’est absolument pas sur que cette fois le fameux risk-on/risk-off se mette en place et que les investisseurs se ruent sur les obligations et valeurs du Trésor car c’est précisément ce secteur qui est en super bulle! Et tout le monde le sait. 

Selon ZH:

In today’s most anticipated Fed speech, outgoing NY Fed president Bill Dudley delivered keynote remarks at a SIFMA event in New York, titled « The Outlook for the US Economy in 2018 and Beyond », in which he warned bluntly that the prospect of U.S. economic overheating « is a real risk over the next few years » and cautioned that one area he is « slightly worried about is financial market asset valuations, which I would characterize as elevated. »

But before algos read too much into it and decide to sell on yet another « irrational exuberance » moment, the head of the most important regional Fed immediately hedged that even a « significant » market drop would not have the « destructive impact » we saw a decade ago, to wit:

I am also less worried because the financial system today is much more resilient and robust than it was a decade ago. Thus, even if financial asset prices were to decline significantly—which presumably would occur if the economic outlook were to deteriorate—I don’t think such declines would have the destructive impact we saw a decade ago.


He then reverted back to rates, saying that « I will continue to advocate for gradually removing monetary policy accommodation. As I see it, the case for doing so remains strong. »

The reason for that is the same one Bank of America highlighted earlier: namely that « financial conditions today are easier than when we started to remove monetary policy accommodation. » Which is precisely what Goldman warned nearly a year ago, when it said that it appeared that Yellen had lost control of the market.

Sure enough, to Dudley, « this suggests that the Federal Reserve may have to press harder on the brakes at some point over the next few years. If that happens, the risk of a hard landing will increase. »

Dudley wasn’t done, and realizing he has little to lose by telling the truth, now that he is on his way out, said that « the second risk is the long-term fiscal position of the United States. » I.e. US debt.

Still, he said that « the economy is likely to continue to grow at an above-trend pace, which should lead to a tighter labor market and faster wage growth. » and anticipated the tight labor market would generate wage gains and price inflation. Even if inflation does not reach objective, « that might not be a serious problem » as long as the economy « were to continue to perform well in other respects. »

He continues to expect inflation to return to target over the medium term, and transitory factors to move through the inflation data. « I would be much more concerned if low inflation outcomes were contributing to a decline in inflation expectations. »

He anticipated that the economy « will be getting an extra boost in 2018 and 2019 from the recently enacted tax legislation » which could lead to overheating. In which case, it would be necessary for the Fed to « press harder on the brakes » and that “while the recently passed Tax Cuts and Jobs Act of 2017 likely will provide additional support to growth over the near term, it will come at a cost. »

He added that the tax packed « will increase the nation’s longer-term fiscal burden, which is already facing other pressures, such as higher debt service costs and entitlement spending as the baby-boom generation retires. »

Stocks, predictably, have not responded one bit to Dudley’s surprisingly blunt warning.

* * *

Separately, Dudley echoed the Fed’s recent mantra that the flattening yield curve is not a worrisome sign, upgrade his GDP growth view for 2018 from 2.5% to 2.75%, and said that he sees inflation rising to target in the medium term whil unemployment falls below 4%.

« We should expect the yield curve to be flatter than normal in the current environment. »

Naturally, Dudley did not see a recession signal at present, and reassured his audience that the « financial system today is much more resilient and robust than it was a decade ago. »

To sum up Dudley’s statement:

I am optimistic about the near-term economic outlook and the likelihood that the FOMC will be able to make progress this year in pushing inflation up toward its 2 percent objective. The economy has considerable forward momentum, monetary policy is still accommodative, financial conditions are easy, and fiscal policy is set to provide a boost. But, there are some significant storm clouds over the longer term. If the labor market tightens much further, it will be harder to slow the economy to a sustainable pace, avoiding overheating and an eventual economic downturn. Another important issue is the need to get the country’s fiscal house in order for the long run. The longer that task is deferred, the greater the risk for financial markets and the economy, and the harder it will be for the Federal Reserve to keep the economy on an even keel.

His full speech can be found here.


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