Without disclosing in any way that its frequent economics commentator Larry Kudlow is an outspoken partisan supporting the candidacy of Donald Trump--who has repeatedly said the U.S. economy is headed for a serious recession--CNBC put him on air for an hour on May 27, during and after Federal reserve Chair Janet Yellen's much anticipated comments on a summer quarter-point interest rate increase at Harvard, to both trumpet his own prediction of an impending recession and, on that premise, immediately trash Yellen's view that a gradual and cautious rate increase "in the coming months, would probably be appropriate."
Predictably, the bond market and the Dow Jones average both fell quickly on CNBC's one-sided call, bringing quick profits to short hedge funds using high frequency trading to move quickly in and out of the market. I watched as another CNBC commentator, the Tea Party's Rick Santelli (who, as usual, shouted down the one guest who dared disagree with him), jumped on the "recession-is-coming-thanks-to-the-Fed's-mistake" bandwagon. Steve Leisman (who, as usual, tried to deliver a more factually balanced read of both the economy and the Fed's potential summer policy move) was given some air time, but CNBC's co-moderators--Fed-haters Melissa Lee and Brian Sullivan--stepped in to push their own bias by echoing both Kudlow's and Santelli's take on the economy and the Fed's supposed fecklessness. The Friday stock market quickly recovered--it has seen this CNBC game before--but by then some quick intra-day profits were made on those who took CNBC's scare scenario without a grain of salt.
All in all, just another day at the office for CNBC, the Fox News of the economy. The network knows where Kudlow and Santelli stand on the Fed, on the economy and on politics, yet it chose to book them to surround Yellen's remarks and allowed others who disagreed with their dire predictions of market and economic doom to be shouted down or cut off. It had been playing this "talk-the-market-down" game in the days leading up to the Yellen statement with guests like Jeffrey Gundlach, who phoned in to describe the incipient stock rally as a "dead money" short squeeze! This is the CNBC pattern whenever the market threatens to approach or exceed its previous high-water marks, which is an important market-testing benchmark for certain kinds of hedge fund trading strategies.
The Fed's interest rate policy intentions (and gyrations) have been well telegraphed by a number of Reserve Board speakers--a major topic on the network since the start of the year, when the Fed's December 2015 policy projection for 2016 sparked a deep market selloff that did not turn around until February 11 (when JP Morgan CEO Jamie Dimon, ostentatiously, personally bought $25 millions' worth of his own bank's stock).
Like other media outlets favorable to the Trump candidacy, such as Rupert Murdoch's Wall Street Journal, CNBC emphasized that the Fed continued to project four rate increases in 2016 (a policy the stock and bond market was bound to consider excessive given widely accepted--and ultimately correct--predictions of sub-1 percent GDP growth in the first quarter of the year due to international financial conditions). But CNBC did not make clear that the basis for that conclusion included the projection of seven non-voting participants in the Fed's rate-setting body, and not simply the ten voting members.
CNBC and similarly biased media also did not disclose that all the non-voters are Fed regional bank presidents, who are selected by boards of directors comprised mainly of executives of their region's commercial banks, whose own interests favor a Fed increase to boost their institutions' profits from loans at higher rates. But only a couple a few such regional Fed Presidents sit on the voting committee at any one time, on a partially rotating basis.
During the course of the debate about any forthcoming rate increases in 2016, it became clear, at least into the spring Fed meetings, that the case for four increases this year had fallen of its own weight. The stock market headed upwards in a gradual recovery (along with the price of oil, which at least in part is a reflection of potential growth in economic activity). Along the way, however, the Fed has shown some clear divisions about just how many interest rate increases, short of four, that the economy can tolerate (or that the economy justifies). As it happens, the balance has been fairly even, with several non-voters pushing for more increases, as well as at least three voting members also showing comfort with one or more beginning in the summer.
But meanwhile, CNBC has been also touting the views of another Trump supporter and confidant, the activist investor Carl Icahn, who has been critical of the Fed no matter what it has done on rates and who has been confidently predicting--every quarter for the past year--an economic and market breakdown of serious proportions.
Sure enough, when Icahn made his latest "stopped clock" prediction of recession and market calamity in April, the stock market again temporarily reversed its upward trend toward new highs and swooned for about three weeks, as Warren Buffett took issue with Icahn's predictions (including, to its credit, on CNBC) and bought Apple stock that Icahn had also panned.
No doubt Icahn will call in to his CNBC friends around the end of the current quarter to point out how Armageddon awaits because the Fed has made yet another mistake in June (whether they raise rates or not!) and all projections of 2 percent-plus GDP growth are rigged. Even Rick Santelli has been left sputtering by the Atlanta Fed's latest GDP tracking projections--projecting as high as a 2.9 percent growth for Q2 2016. When the Atlanta projections showed below 1 percent growth, I have watched as Santelli was quick to praise them as foreshadowing doom, but on his May 27 appearance all he could do was essentially say that the 2.9 percent projections were not persuasive to bond traders.
In terms of actual facts, it became clear Chair Yellen said "nothing new" in her May 27 Harvard remarks. The stock market took only a couple of hours to discard the earlier CNBC story line that she was both hawkish and wrong in terms of clearly advocating for, or promising, a rate rise in June, and actually ended the day higher than before she spoke!
Much more important in terms of real clues on rate policy going forward will be her next formal speech on the economy on June 6; and that speech happens to be just three days after the June 3 announcement of May employment data by the Bureau of Labor Statistics. Such actual data, rather than CNBC guests' doom-mongering, will make far more real difference to a "data dependent"--not "date-dependent"--Fed in reaching its June decision about interest rates. The other important data in front of the June Fed meeting will be the latest polls (or, better yet, London bookmaker odds) on the chance of Great Britain voting on June 23 to withdraw from the European Community. Trump is promoting a "pro-exit" vote, so it will be interesting to see whether CNBC jumps on that bandwagon in the run-up to the Fed's June meeting.