Good day traders!
Why did central banks in the U.S. and U.K. choose to tie changes in monetary policy to that most capricious of statistics, the unemployment rate? One can only speculate, but both the Bank of England and the Fed have now backpedaled on that flawed policy.
Fed has set a target of 6.5% of unemployment rate before any change on the federal fund rates or interest rate could be made. Currently is stays at 6.6%, shy 0.1% above the target.
BOE on the other hand, has set the 7.0% of unemployment rate as its threshold. Currently it is hovering at 7.1%.
On Friday, Charles Plosser of the Philly Fed lashed out at the Fed’s use of forward guidance, saying the threshold has “lost its meaning.” And I believe the new Fed Chairwoman has something else in her mind. You can read it here: http://bit.ly/1hHEqZM.
Mr Carney showed us the way. He showed us how to not trust their own growth! Read here for more details: http://bit.ly/1lvyPJD
By setting and changing arbitrary levels as policy triggers, central banks risk their credibility. Since all policy changes are ‘data dependent’, it makes no sense to focus on a narrow set of statistics to the exclusion of all others.
There’s something about fundamental data that I want to share with you,
A trader pays attention to fundamentals but understands that it is buying and selling, not fundamentals, that determine the direction of the instrument traded. Fundamental indicators can lag, while buying and selling are real-time indicators.
This doesn’t mean that we ignore the fundamentals; on the contrary, we pay close attention to them. However, we are not blind to the market’s reaction to these fundamentals. If the reaction doesn’t match the data, pay attention – the market is trying to tell you something.
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