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Is the U.S. Facing Disinflation?

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    Jefferies Managing Director David Zervos on Federal Reserve policies.

  • Duration 4:40
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Dallas fed president Richard Fisher on the monetary cliff we may be heading towards what we've been talking to investors about the coming fiscal cliff as well but one strategist says we have to focus our attention on the energy -- What is that -- -- observances chief market strategist and global head of fixed income strategy and economics at Jefferies and David.

Look I look at energy prices fallen off a cliff is a good thing if you say it's not why.

Well I think it's a good thing for airport certain cohorts in the economy but it's it's a signal and I think get -- look at this signal very carefully.

We've seen oil fall from a peak of 110 -- barrel down to.

The high seventies we've seen the ETF.

For energy stocks the -- drop eleven or 12% this year and this is in the midst of one of the greatest monetary policy.

Expansions of all time and if we're looking at a measure whether monetary policy is easy or -- eight.

We should be looking at whether all of this money that's being printed all these reserves that you discussed.

With out with Richard Fisher just -- a few minutes ago whether they're producing that that run for harder assets or commodities.

Or inflation and right now inflation is falling headline inflation now as.

Is is below 2%.

After being above all almost 4% last year and and I and I think we have to understand that there are significant risks to disinflation.

In an economy that is very overloaded with debt.

And and I think that's the sign that the energy market is telling us that hey wait a minute all this inflationary pressure that we talked about who's gonna generate or what I like to call.

Reflation -- pressure.

Is is dissipating David.

And that's a danger and let me just let me just make -- -- registration OK David let me -- -- Clinton and let me make sure I understand what you're suggesting are you suggesting that.

That the Fed print even more money than than the two point seven trillion that they already have I mean a lot of people say.

That'd be very dangerous and there's a lot of money sloshing around and our economy anyway it's not like we need more liquidity is it.

Well -- what I would say is the Fed has the Fed has a dual mandate and it's not heading either side of its mandate the trend on unemployment is not down and maybe small I didn't I don't know quickly -- the problem is with the mandates.

And not with the Fed maybe they shouldn't have a dual mandate.

-- -- -- -- Pathetic to that but when congress gives you a mandate and that's your job -- have a job to do we -- question whether the military is supposed to go in.

To Iraq and whether that was a mandate that was supposed to happen right -- when you're when you're an officer of the government in Europe federal employee you take your orders -- -- -- and the Fed has orders and those orders are to ensure maximum employment.

Without compromising.

Excessive in -- one -- president -- well is falling well what will.

About one thing that didn't get back to this issue of disinflation which is a slowdown in the rate of inflation.

People were pointing that finger at the Fed saying.

You're causing inflation when we started to have cotton prices skyrocketing and we had soft commodities going much higher we had oil at a 108 dollars a barrel now we don't really have those things in place.

So what do you also pointing the finger at the Fed is saying it's bad -- which is it David which is the good side of the goldilocks I don't know.

This -- look it's -- it -- there's a bit of a thankless ness to the job and and I think we have to look at the mandate you have to look with what their task to do.

And David's right you could say that we need to rethink that mandate.

But right now that's not the debate the debate is are we headed on the right path given the tools that we have and is the Fed doing what it's supposed to be doing and I would argue that.

Given what we see on the fiscal side given what we see on the energy side given what we see in the macroeconomic data given what we see in Europe.

That the Fed has an obligation given its mandate to act and it did act it acted with Operation Twist now.

Much like Richard Fisher I'm not a big fan of Operation Twist I think it's.

It's it's sort of a cop out when it comes to monetary policy I don't think that they really lower long term interest rates that much.

And I think they they have a a fairly strange channel with which they operate this portfolio balance channel that.

The -- likes to discuss.

But -- it's it's to me it's time for balance sheet expansion absolutely.

Well -- -- certainly stirring things up do it by the way I don't want to hear I have to make a correction I just got a note.

From Richard Fisher he says I did run for the senate as a Democrat 1994.

But I am not now a registered Democrat just clear the air here -- Correct the record -- to Republican.

I mean it's not independent are of that thank you very much David gonna -- it David thereabouts is to thank market strategy.

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