WAS YELLEN HAWKISH OR DOVISH?

There were a lot of self congratulatory notes by the Fed during Yellen's speech but let's focus on the three:

"We want to do everything to head off a financial crisis."
"With gains, hike in coming months may be appropriate."
"Don't have typical scope to cut rates in case of shock."

While the talk of raising rates sounds hawkish, the concern of a major financial crisis happening is pretty much in the minds of the Fed and they are afraid they have no more tools in their arsenal to head of a potential crisis, thus the need to raise rates - which is all dovish to me.

But it does seem like a self fulfilling prophecy.

The Fed is fearful of a lack of tools to battle a coming financial crisis.
Raises interest rates.
US$ spiked and exports hurt.
Earnings form multinationals hurt.
Companies who borrowed in share buybacks now have higher finance costs
More layoffs and reduce spending
Economy tanks further
Fed comes to the rescue with more easing

So will there be any normalisation in interest rates? If we follow the cycle above - apparently not. There won't be any normalisation if the Fed continues to prop up over leveraged banks, businesses and institutions. Only when these are allowed to fail would there be reallocations of capital.

Since Yellen also touched on the impressive job numbers and improving economy, here are some charts to ponder (Source: Zerohedge):





The problem with the market is that it looks at the present but always forgoes the past. So despite the lower revisions, the market just ignores it.

Then in the week we have falling PMIs from manufacturing (50.5) and services (51.2).

And if job numbers were so good why are states reporting a fall in income tax revenue by 9.8%?

Oh yeah! The economy is great and strong.