In today’s FOMC statement, the Fed made some useless noise about closely monitoring inflation.
The Fed also dropped concerns on global economic risks and gave no indication it might waver on last month’s projection it would hike twice this year.
The market expects no more than one hike, and not until November at the earliest.
Fed Tracker Changes
The Wall Street Journal’s Fed Statement Tracker highlights these changes.
Hooray – No Global Risks
There are a few more changes but the only significant change was the Fed dropped this statement: “However, global economic and financial developments continue to pose risks“.
Apparently, there are no global economic or financial risks.
CME Fedwatch June
CME Fedwatch November
The Fed still anticipates two hikes this year. The market says only one.
The first time the odds of a hike increase to over 50% is November, and even then just barely.
Those odds did shift today from 38.9% chance to a 53.5% chance.
Mike “Mish” Shedlock
Janet Yellen suffers senile dementia. Any change in her surroundings cause uncertainty and grave distress. She desperately clings to the status quo.
Everybody else uses the elevators to go up and down. The Fed has one that goes sideways and stalls. Maybe the fed should hire a consultant from Otis Elevator… I’ll bet they will find that there is too much money stuck in the shaft.
Fed’s George: Rate hike should be on the table
The U.S. central bank should “absolutely” consider raising interest rates at its policy meeting in the middle of March, said Kansas City Fed President Esther George on Tuesday.
“I think it should be a live question,” George said in an interview on Bloomberg Radio.
George, a leading hawk on the central bank and a voter on the Fed’s policy committee this year, said it was too soon to say whether the stock market selloff had “fundamentally” altered the outlook.
“We’re moving from extraordinary accommodation in this economy to something more neutral,” George said.
The Fed has said it would “do that in a very gradual fashion,” she said.
George said she remains worried about “inherent distortions that come from having these low rates.”
For instance, she said the market is having difficulty in pricing risk.
“Even as oil prices were falling, we saw money continue to flow into the oil sector,” George said.
While other central banks are experimenting with negative rates, George said it was not something that Fed officials were talking about.
http://www.marketwatch.com/story/feds-george-says-interest-rate-increase-should-be-on-the-table-in-march-2016-02-23
The only 3 interest rates set by the Federal Reserve interest rates have nothing to do with the interest rates paid by banks on savings accounts.
The Federal Reserve can and will do whatever it considers prudent with the only 3 interest rates they set.
The Federal Reserve only sets 3 interest rates, none of which matter at all in the US economy and those 3 interest rates should be immediately returned to around 5%. All interest rates that do matter in the US economy are set in the $13 trillion a year US Treasuries markets with the yields on US Treasuries and those rates are continuing to rise.
False
Plug in first of the year for comparison. Treasury rates lower now than January across the entire yield curve.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx
The Federal Reserve only sets 3 interest rates and none of them matter a hoot in the US economy. The Federal Funds Rate (the most widely watched) only applied to interbank borrowing strictly for liquidity purposes and is virtually never even used as the banks are awash in vast excess money for which there is little demand for borrowing. The Federal Discount Rate applies only to directly borrowing from the Federal Reserve for liquidity purposes and is in fact practically never used. The third rate, IOER (Interest on Excess Reserves) applies to the amount of interest that member banks earn on their excess reserves deposited inside the Federal Reserve in their excess reserves accounts there. IOER was recently DOUBLED on December 16, 2015 from 0.25% to 0.50% and affects more than $2.5 trillion in excess reserves.
The Federal Reserve will continue increasing the only 3 interest rates that they set with more hikes this year as they move towards a more normal 3% on the Federal Funds Rate between now and the end of 2017, not that it matters a hoot to the US economy. The Federal Reserve is also SHRINKING their balance sheet and will continue to do so this year and next.
False
Federal Reserve is not shrinking the balance sheet. Been neutral as they have been reinvesting principal payback.
Current balance sheet +$4 billion than January 7th’s
http://www.federalreserve.gov/releases/h41/
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Oh yeah,….. forgot to say Hi socalbeachdude …. been wondering when you’d show up.
FED is Full of IT . . . NO HIKES in 2016 or 2017 . . .
You do need to take into account, though, that in the middle of the statement they changed the word “however” to “but”.
It’s the details that matter.
Buy JI Case!
(just kidding, I have no idea if JI case exists any more. It was one of the mainstays of the Parker Brothers stock market game)
The best part is that whatever they do they have a perfect excuse: Think about it! They can print to bail out/ take over another ‘strategic sector’. In 2008, it was done in banking sector so why not using all those magical powers now to save energy? You see whether they paint a beautiful picture that economy is all dandy (lying to us) or they eventually admit that economy is in the gutter – Janet will save the world and cut rates + QE. Both ways they win http://independenttrader.org/was-the-last-euphoria-the-harbinger-of-rate…
This is fully rational and keeping with their self induced fantasy about the state of the economy. The stock market is in a similar but slightly different fantasy and only see one hike instead of two. As if any minor hike will do anything to affect the real economy.
So the market believes we will get one 25bps hike this year, after one 25bps hike last year. And then maybe another 25bps hike each year thereafter.
For once Bernanke was correct, when he was caught off-the-record saying that rates will not be normalized “in his lifetime”.
Normalize rates already. Enough with ripping off US consumers with inflation to bail out foreign bankers.