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The remarks below were delivered by Hedgeye CEO Keith McCullough as part of an update to our macro team's #GlobalDeflation theme at Asset Allocation 2015: Liquidity, a conference hosted by The Boston Security Analysts Society. He was asked how he expects the Fed to dance its way through the next 6-12 months.

McCullough: Plan for Uncertainty - 34


In the past, six or seven years ago, I would mistakenly start with what the Fed should do, versus what the Fed could do. Of course, these are two very different things.

I’m not Janet Yellen, I never want to be Janet Yellen. And she doesn’t want to be me. What she could do here is raise rates, with the deflationary force and global growth slowing at the same time. That would be a huge policy mistake.

What the Fed is effectively trying to do—and this is the core of central planning—is promise you, my mom, my dad, and the whole world, certainty. That’s not possible. So whatever their plan is, I’m not buying it. I don’t think you can plan certainty with respect to things like economic gravity.

So, what would I plan for? I’d plan for uncertainty.

McCullough: Plan for Uncertainty - dollar cartoon 07.02.2014

And I think the most uncertain thing you could have right now is not only how the Fed reacts to their inability to forecast accurately, but also, how they act in the moment.

Again, I think if Janet Yellen is sitting there, raising rates into what I think is going to be a sub-1% CPI and deflation rolling out like it did between September and January, that could be a very nasty thing that she will have to address in Jackson Hole later this year.

Don’t forget, we have only had one Jackson Hole in the last four, where we didn’t have to get a big central plan from the Fed.

It’s going to be an interesting dance to watch. 

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