Economic Snapshot
Yesterday, Fed minutes show that Fed Chair Janet Yellen is on a mission to convince the market that a rate hike is on the table for June.
Today, New York Fed president William C. Dudley gave an Economic Press Briefing on the state of the U.S. economy.
Let’s take a look at the briefing and the “Economic Snapshot” data the Fed presented.
Dudley Comments
When asked about the trajectory for the monetary policy stance, I always point out that it is data dependent.
While market analysts readily have access to economic and financial data, this access is not widely available to everyone. To help fill this information gap, for the past year we have been making available on our website a monthly publication called U.S. Economy in a Snapshot. This publication contains a set of key data charts as well as commentary by our staff economists. The purpose is to provide interested readers easy access to clear and concise presentations of important economic information. The associated commentary provides some pertinent observations one might draw from the data.
Our goal is to provide information that helps households and businesses follow the data along with the Fed. If people know more about how the economy is performing and how that is likely to influence our actions, this should make it easier for us to achieve our twin objectives.
U.S. Economy in a Snapshot Overview
- Real consumer spending was flat in March and its growth slowed further during the first quarter of 2016. However, April light-weight vehicle sales rebounded from a weak March reading and the April retail sales report was strong.
- Business fixed investment declined for a second consecutive quarter, while there were tentative signs of stabilization in the manufacturing sector.
- The general tone of the housing data in April suggests the sector remained on a very gradual uptrend.
- Payroll growth slowed in April, and the unemployment rate was unchanged. The labor force participation rate and the employment-population ratio both declined. Wage growth remains subdued despite a relatively steady improvement in labor market conditions.
- After some firming in previous months, inflation softened modestly in March, signaling continued slow progress toward the FOMC’s longer-term objective. Financial asset price fluctuations generally were fairly subdued. The yen appreciated after the Bank of Japan decided on April 28 to leave its policy stance unchanged.
Little of that signals a need to hike so let’s dive into some snapshot details.
GDP Below Potential
Slowdown in Labor Market Improvement
Inflation Softens, Below Fed Objective
GDP Growth 3.9%, 2.0%, 1.4%, 0.5% Last Four Quarters
Manufacturing Hope
Consumer Spending Flat, Income Robust
Retail Sales (Excluding Autos, Gas, Building Materials)
Business Investment Remains Sluggish
Nonresidential Investment Still Falling
Housing Flat
Spending Expectations Decline
Data Dependent? Really?
There are 16 pages of charts in the report. Very little of it remotely suggests a rate hike.
The 10 first charts above are the first 10 charts in the report. The last chart above is the last chart in the report.
I did not have to go out of my way to pick poor charts. The report is primarily poor charts.
Should the Fed Hike?
I do not pretend to know where interest rates should be.
The Fed is even more clueless because they don’t know either, but they believe they do.
So, I am not arguing the Fed should not hike. Rather I present the case the Fed has no idea what the hell they are doing.
Serial bubbles of rising amplitude over time is proof enough. The income inequality that has the Fed and Democrats up in arms is a direct result of poor Fed actions coupled with horrendous Congressional actions.
The solution is to get rid of the Fed, get rid Davis Bacon and all the prevailing wage laws, and be thankful that innovation lowers costs of living.
Instead, we have to deal with and listen to a bunch of central planning fools prove they have no idea what they are doing with clueless acts to produce inflation then deal with the consequences when they do.
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It’s asset deflation not CPI deflation that central banks ought to fear. Even the BIS agrees with that statement. For discussion please see Historical Perspective on CPI Deflations: How Damaging are They?
My January 20, post Deflation Bonanza! (And the Fool’s Mission to Stop It) has a good synopsis.
And my Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.
Mike “Mish” Shedlock
They are desperate to get off the “zero bound” (SEVEN years into a so-called “economic recovery”) so they will be able to cut rates again when the next recession (and financial crisis) hits.
Serial policy errors of greater and greater magnitude over time. (to paraphrase Mish)
The Federal Reserve is not looking towards cutting the only 3 interest rates they set – none of which matter a hoot in the US economy – but to RAISING THOSE RATES back up to the normal levels of around 5.00% to 5.50%.
This data says let’s wait and see what’s going on for a few more moths. 🙂
I think they fear they can’t wait. If they raise later in the year and it turns the economy down it could hurt the election chances for whoever they are hoping for. But waitasec..they are independent?!.
But we are on to them!!!!!!
“Greatest Depression EVAH!!!!!!!!!!!!!!”
Yes, moth based analysis is the way it will go. It beats all their other approaches.
Personally, I think they decide what to do when they get there and follow the panic of the moment. Their reasoning is less fact based than an accurate guess of how many fairies can dance on the head of a pin.
And, yes, rates need to rise so people can earn interest on their savings and spend it, causing inflation and economic growth and, possibly, quality investment and job growth.
The only 3 interest rates that the Federal Reserve sets have NOTHING WHATSOEVER to do with the interest rates that banks pay on savings accounts and time deposits.
.
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” When asked about the trajectory for the monetary policy stance,
I always point out that it is data dependent. ”
Data = see what China wants us to do.
We have to wait and see what China will do with yuan.
Because of their NPL’s and repercussions from dumping steel and
other commodities
China is in a real bind.
The source said China’s economic growth has been stable and “within expectations,” but warned of emerging problems such as a real estate bubble, industrial overcapacity, rising non-performing loans, local government debt and financial market risks.
” According to the authoritative figure, the country should make deleveraging a priority, and the “fantasy” of stimulating the economy through monetary easing should be dropped. The country needs to be proactive in dealing with rising bad loans, rather than hiding them. ”
http://www.chinadaily.com.cn/china/2016-05/09/content_25166638.htm
.
.
For the past 10 years China has been on an unprecedented and egregious WILD MONEY PRINTING SPREE and has increased their money supply to around $30 trillion from little more than $2 trillion and that is what is causing the renminbi (RMB / yuan) to become worthless.
I really don’t know what difference you think it makes whatever the Federal Reserve raises the only 3 interest rates it sets as NONE OF THEM MATTER A HOOT IN THE US ECONOMY and it really wouldn’t matter if the Federal Reserve raise thew widely watched Federal Funds Rate which only affects INTERBANK BORROWING FOR LIQUIDITY PURPOSES to 1000% as that is practically never even used these days as the BANKS ARE AWASH IN VAST EXCESS LIQUIDITY and have no need whatsoever to borrow from each other.
All interest rates that do matter in the US economy are KEYED OFF THE YIELDS (INTEREST RATES) ON US TREASURIES and that is the way it has always been in the US for the past 100+ years.
Watch multifamily housing starts over the next 2 years. Multifamily also includes transitional housing for new migrants. The new projects are in the planning stages and will be coming on line with the purchases of housing start permits.
Increasing the interest rate will increase the value of the dollar. The Chinese Yuan is tied to the dollar so Chinese exports become more expensive. Chinese revenues decline making it harder to pay internal debt.
Very dangerous calculations here. This is a direction the Fed should never have walked down.
That certainly is not a problem created by the Federal Reserve and is the way it always has been. The Federal Reserve should NEVER HAVE LOWERED THE FEDERAL FUNDS RATE FROM 5.00% starting in August 2007 and need to get it right back up to that level ASAP.
For the past 10 years China has been on an unprecedented and egregious WILD MONEY PRINTING SPREE and has increased their money supply to around $30 trillion from little more than $2 trillion and that is what is causing the renminbi (RMB / yuan) to become worthless.
How you doing, Socalbeachdude?
Just fine, Billy!
“88 months of ZIRP didn’t do it, but JUST ONE MORE QUARTER of it WILL.”
Prima facie idiocy… “theory induced blindness.”
There is no “ZIRP” at all in the real world in the US and credit card interest rates are at record high levels and corporate borrowing rates are at around 8.5%. Mortgage rates are around 3% to 4%. All interest rates that do matter in the US economy are set by the yields on US Treasuries in the $13 trillion a year US Treasuries market.
By the way, banks in the US do not borrow money to lend money and the Federal Funds Rate at which they borrow from each other is rarely even used. The Federal Discount Rate which is the rate of interest at which banks borrow from the Federal Reserve directly is virtually never used these days. The only other interest rate set by the Federal Reserve is IOER which is Interest On Excess Reserves which is what banks are paid by the Federal Reserve on the around $2.6 trillion in their excess reserves accounts inside the Federal Reserve and which doubled on December 16, 2015 from 0.25% to 0.50%. Banks get all of their money to lend from CUSTOMER DEPOSITS and demand is so low presently that the outstanding loans to customer deposits ratio is at a record low 67%.
How much pressure is the status of pension funds across the country providing to the Fed? From what I am reading out there, a pension tsunami is coming and we aren’t ready for it.
Maybe the whole purpose of ZIRP us to kill off pensions. Or at least cut the amount of wealth flowing to the working class elderly to leave more for our heroic bankers.
The pension fund issues have nothing to do with the Federal Reserve. There is no “ZIRP” at all in the US and never was. Bankers don’t give a hoot what the nominal rate of interest is, but only care about the SPREAD BETWEEN WHAT THEY PAY DEPOSITORS AND WHAT THEY CHARGE BORROWERS and that is simply the way banking workers. The reason that interest rates have plunged to record lows is because the DEMAND FOR BORROWING FROM QUALIFIED BORROWERS HAS PLUMMETED and the customer borrowing versus customer deposits ratio has reached a RECORD LOW RATIO OF 67% and banks certainly are not going to pay deposits much money at all regardless of what the Federal Reserve does or doesn’t do with the only 3 interest rates they set when the demand for borrowing is so low and when the banks are AWASH IN VAST EXCESS DEPOSITS.
We are all diabetics now, and our only source of nutrition is Fed refined sugar. We are slowly losing circulation to our extremities and they are rotting away, along with our “vision” yet Fed sugar is “delivered” regularly, so there is little need to worry about “growth” or even mobility in our economy. So here we set…waiting for things to get better, while hungering for another ration of “sugar”.
Any even slightly cognizant person can see that while our stock shilling economic master minds are telling us of how promising our stock investments are, and how deluded those who tell us of their overvaluation are, they shrink and shake violently at ANY suggestion that the Fed might take the sugar bowl away. It is sad. It is no different than those addicted to drugs will claim their independence of them and then become violent when they are threatened or taken away. The financial instrument “salesmen” cannot afford any doubts and will denigrate anyone who would suggest there is any reason to doubt “the market”.
“”thou protest too much”” has never said more than today.
Where do you come up with such utter nonsense? The Federal Reserve is MERELY A CENTRAL BANK and a very conservative one at that. There is no “punch bowl” or “sugar bowl” at all from the Federal Reserve to banks or anyone else. BANKS GET THEIR FUNDS TO LEND FROM CUSTOMER DEPOSITS and the Federal Reserve only sets 3 interest rates – none of which matter at all to the US economy.
The only 3 rates that the Federal Reserve is involved with setting are:
1) Federal Discount Rate – currently 1.00%
2) Federal Funds Rate (which it influences) – currently the range of 0.25% to 0.50%
3) Federal Reserve IOER (Interest On Excess Reserves) – current 0.50%
The ONLY applicability of the Federal Funds Rate is INTERBANK BORROWING to clear nightly transaction balances which is now practically NEVER UTILIZED as the banks are awash in trillions of dollars of EXCESS RESERVES and have no need to borrow from each other.
Methinks thou dost protest too much.
– The FED is indeed “Data Dependent” and when developments continue as they’re doing in the last days then I DO expect a rate hike in june of this year. “Mish” is simply looking at the wrong charts. when it comes to ratehikes or ratecuts then the FED DOES have a clue of they’re doing.
– The FED fears both falling asset price & falling CPI. Anyone who has a GOOD understanding of the economy knows why. But that’s what austrian school idiots fail to understand. However, Keynsians (e.g. Steve Keen) DO have a clue why falling prices are so dangerous.
The elephant in the room is inflation. They have to hike, because they know it has been manipulated the last 8 years…
“…when it comes to ratehikes or ratecuts then the FED DOES have a clue of they’re doing…”
You’ll have to PROVE this statement, because the post-Volker Fed has in-turn caused & amplified multiple asset bubbles w/ poorly reasoned & poorly timed rate hikes/cuts. IOW, the prima facie evidence exposes a clueless Fed, just as Mish posits here.
And it goes w/o saying that attempting to eliminate the natural business cycle by forcing inflation everywhere 100% of the time is sheer idiocy…. but that’s exactly what the Keynesian Fed is trying to do. And they will fail… predictably.
– In 2005 (2006 ??) Alan Greenspan was asked why he left the FED’s fund rate so low for such a long time (from 2001 up to say 2004). Greenspan responded by saying: it was NOT we who did that. it ‘s was a force called Mr. Market. (I don’t recall the precise words.).
– Anyone who overlays the chart of the 3 month t-bill rate with the FED’s fund rate can see that the FED followed (with a lag !!!) the 3 month T-bill rate. See e.g the timeframe from 2006 up to now. In the 4th quarter of 2015 the 3 month T-bill rate went above 0.25% and then – surprise, surprise – the FED raised rates. I saw it coming.
The idea the Fed follows the market is BS.
The Fed has so distorted the market and so many people attempt to game it for financial benefit.
Fed Uncertainty Principle
https://mishtalk.com/2016/04/26/uncertain-measures-of-uncertainty/
Not a good comparison. Flight to safety of treasuries should RAISE interests on the rest… unless of course someone artificially lowers them.
Minutes show the Fed was concerned about the economy overheating and the need to hike more in 2000 right before the recession and stock market crash.
Fed is totally clueless.
Mish
@Mish:
– Is “The FED follows the market (rates)” BS ? Didn’t you even BOTHER to look at the charts (from say 2006 until now) ? Yes, in some regards the FED is clueless but that doesn’t mean that they don’t follow market rates when it comes to the FED’s fund rate.
– Refering to one of your own articles is not a credible source.
– Any one who looked at the Dow Theory could have know that that the US was about to slow down in the early 2000s. Dow Theory gave a “warning shot across the bow” in very late 1999.
I have seen more charts than you can imagine. I also seem to have a better memory than you.
Please do a search for “a pace that is likely to be measured”. Greenspan said precisely what he would do.
The long end of the curve sold off far faster. But in the end, Greeenspan said precisely what he would do.
And he did. Slowly hiking rates into a bubble, then a recession. So .. you stand corrected – not me.
Your apology is accepted in advance.
As for my blog Fed Uncertainty Principle – please check the date. Then please see what I said. Then tell me what happened.
Finally, please apologize a second time.
The Fed is not PAID to be timely or accurate.They are paid to keep the casino running and their benefactors well off.
You are 100% correct, Willy2, that the FEDERAL RESERVE SIMPLY MATCHES THE FEDERAL FUNDS RATE TO THE YIELD ON THE 3 MONTH US TREASURY RATE and that has been the case for the entire 100 years of operation of the Federal Reserve.
Obviously, the Federal Reserve will continue to TIGHTEN as it has been doing for the past year and will raise the only 3 interest rates that they set – not that it matters a hoot – on December 16, 2015.
The Federal Reserve these days has nothing left that it can do except to push on limp noodles and there’s not much result with that.
The Federal Reserve DOES NOT SET ANY INTEREST RATES THAT MATTER IN THE US ECONOMY NOR DOES IT EVEN INFLUENCE INTEREST RATES IN THE US ECONOMY TO ANY SIGNIFICANT EXTENT AT ALL.
Changes in the Federal Funds Rate ALWAYS MATCH THE YIELD ON 3 YEAR US TREASURIES WHICH ARE THE KEY INTEREST RATE THAT ALWAYS LEADS WHERE THE FEDERAL RESERVE SETS THE FEDERAL FUNDS RATE and as Sandy Greenlyn stated recently over on MarketWatch, “It’s interesting how few people understand that the Fed funds rate chases the market-driven 3M T-Bill exactly and they have never deviated at all.”
Open market operations are TOMO (Temporary) and POMO (Permanent) and were ESSENTIALLY RENDERED IRRELEVANT AND USELESS WITH THE FEDERAL RESERVE VERSIONS OF QE which were POMO ON STEROIDS.
The BANKS ARE NOW SO AWASH IN VAST EXCESS RESERVES as a result of selling securities to the Federal Reserve with QE that the banks in the US now have MORE THAN $3.5 TRILLION IN EXCESS RESERVES compared to the historical norm of around $25 billion in excess reserves in their accounts at the Federal Reserve.
The Federal Discount Rate only applies to member banks BORROWING DIRECTLY FROM THE FEDERAL RESERVE AT THE FEDERAL DISCOUNT RATE which is presently 1.00% which is 200% of the top 0.50% range of the Federal Funds Rate at which banks can borrow from each other.
Banks can only borrow with the Federal Discount Rate on a fully collateralized basis for very short terms (typically overnight) STRICTLY FOR LIQUIDITY PURPOSES and THEY LITERALLY NEVER BORROW FROM THE FEDERAL RESERVE DIRECTLY as that has always carried a sigma and is now 300% of the cost for them to borrow from each other at the Federal Funds Rate. The Federal Reserve Discount Window has always been a LAST RESORT BORROWING MECHANISM for banks with sudden severe liquidity problem and has rarely ever been utilized hardly at all.
RESERVE REQUIREMENTS are also TOTALLY IRRELEVANT THESE DAYS as banks are AWASH WITH VAST HUMONGOUS EXCESS RESERVES FAR IN EXCESS OF WHAT THEY ARE REQUIRED TO MAINTAIN AS RESERVES AGAINST DEMAND DEPOSITS. There are NO RESERVE REQUIREMENTS APPLICABLE TO TIME DEPOSITS.
The current loans outstanding utilization rate against customer deposits at banks is a RECORD LOW 67% and the maximum amount banks could lend if there were demand assuming a 3% reserve requirement would be 97%.
Banks presently have MORE THAN $3.5 TRILLION IN EXCESS RESERVES in their excess reserves accounts at the Federal Reserve, so the “reserves requirement tool is also TOTALLY IRRELEVANT.
Essentially, the FEDERAL RESERVE HAS NO TOOLS WHATSOEVER IN THEIR “TOOL BOX” AT ALL ANYMORE.
Mish, the Federal Reserve has NOTHING WHATSOEVER to do with the stock markets. What has grossly distorted the stock markets since 2009 is one thing and that is MASSIVE CORPORATE BUYBACKS by companies of their own shares and nothing else at all.
“Keynsians (e.g. Steve Keen) DO have a clue why falling prices are so dangerous.”
Of course they do, they upset their calculations… you know, the ones we have forced on us.
Danger – goods are getting cheaper and Keynesians have been and are in charge, yes.
– Falling (consumer) prices are dangerous because it means that corporate profits will “shrink”. (Never looked at what happened here in the US & Canada in the socalled “Oilpatch” ?? (Texas & Alberta ??)) And shrinking corporate profits leads to (more) lay offs. And that in turn shrinks the ability for consumers to spend. Then a vicious cycle of shrinking employment and shrinking demand starts to emerge. And on the back of that a vicious credit defaults cycle starts to emerge as well.
Sounds like someone didn’t do their homework , no ?
A little bit overoptimistic on the results ring a bell ?
Of course , if you re-adjust the ‘value’ of the money itself , everything goes just right in return ?
If there was not enough money we would all be wondering around wild eyed hunting crickets ?
People , societies , have a right to organize, be organized , follow along as they want , wish for or choose . Who knows , the whole of the sum may turn out better than the sum of the whole , we won’t know , BUT you are only to fool yourself in thinking that you KNOW BETTER than the individual part when making the relevant adjustments , and it is apolagistic if not outright deceitful to suggest that what you claim to have avoided is better than something which was never allowed to happened !
It defies logic and condemns you to repeat the same errors , if they exist , perpetually .
I have not met anyone yet who I would consider big enough to take on that kind of responsibility .
Have you ?
Pretty much correct, Willy2, and it is simply the correct policy to GET TARGET INTEREST RATES BACK TO NORMAL LEVELS OF 5.00% to 5.50% for the Federal Funds Rate (interbank borrowing) and Federal Discount Rate (bank borrowing directly from the Federal Reserve) respectively where they were back in August 2007 ASAP without any further diddling or delay.
– When I look at a number of other charts then I see things that strongly suggest that interest rates (both long term & short term) have reached their lowest point and are on their way to go (much) higher. and the FED WILL follow.
Rates are going lower … much lower.
Any move higher in rates will be met – with force – by declining housing (and refinance) sector.
Path of least resistance is lower rates.
See you at 10yr note yield @ 1%
– Well. We’ll have to watch the charts. Won’t we ?
– Nope. When I see the current rate structure setup continue and would get extended then my bets are firmly on rising rates. Especially for the 30y & 10y. But it’s too complicated to elaborate on that in this limited amount of space.
–” Well. We’ll have to watch the charts. Won’t we ?”
Absolutely.
My favorite is the 30 year chart … and rates have declined the whole way … the bottom is NOT in.
ZIRP/ NIRP/QE is disinflationary … deflationary when asset bubbles start to burst (we’re at the onset).
Treasuries will do VERY WELL in the coming deflationary bust.
Nope. For the little that it matters, the ONLY 3 RATES SET BY THE FEDERAL RESERVE ARE GOING MUCH HIGHER and rapidly headed back to where they were in August 2007 when the Federal Funds Rate was 5.00% and the Federal Discount Rate was 5.25%. As I said, though, it really doesn’t matter a hoot as to what the Federal Reserve does with those interest rates as ALL INTEREST RATES THAT DO MATTER TO THE US ECONOMY ARE SET BY THE YIELDS IN THE US TREASURIES MARKETS which are also headed much higher with the 10 year US Treasury moving rather rapidly back up to around 3.00% rather than its current 1.86%.
– What A LOT OF people fail to understand is that rising interest rates is the ULTIMATE deflationary force.
Keep believing that and invest accordingly.
I need people like you to trade my bonds with.
The fundamental problem is that the Fed targets inflation or deflation. Stability requires that modest amounts of either should be ignored and only the extreme cases cause action. They are both natural processes with many causes besides monetary causes.
Extreme weather (good or bad) can cause large price swings in food commodities. Also fiscal policies like government price supports can cause food price increases independent of any Fed activity. Then there is the constant march of technology.
We need to bring back Glass-Steagall as both commercial banking and central banking should be dull occupations requiring little concern.
… and bring back the ban on banks being allowed to play in the commodities markets.
People used to understand that their security was in saving and preparing for bad times. Now we have economists….and economists work for whom??? Banks and government? And who’s interest are THEY protecting?
At some point our survival will revert to the mean…meaning that we will again understand our security lies in one ONE pair of hands…our own. NOT our government and NOT our financial planner. We think we can pay someone to actually put our interests before their own. Really?
REALLY???
For the state by its nature claims sovereignty, the right to an unlimited development of power, determined only by self-interest. It is by nature anarchistic.
(Christian Lous Lange)
“Look at the orators in our republics; as long as they are poor, both state and people can only praise their uprightness; but once they are fattened on the public funds, they conceive a hatred for justice, plan intrigues against the people and attack the democracy.”
(Aristophanes, Plutus)
A society that is all self-interest and no comradeship is not a society at all. But a society that is all comradeship and no self-interest is also not a society; it is a sect – or, on the largest scale, totalitarianism.
(Meir Soloveichik)
Self-interest makes some people blind, and others sharp-sighted. (Francois de La Rochefoucauld)
The land self-interest groans from shore to shore,
For fear that plenty should attain the poor.
(Lord Byron)
Yes, we most certainly do need to bring back the very simple and straightforward 34 page Glass Steagall Act and totally abolish and repeal the 1) Gramm Leach Bliley “Financial Services Modernization Act of 1999” and the 2) inane and very stupid Dodd Frank Act of 2010, and Donald Trump has already said he will get rid of the Dodd Frank Act when he is elected President.
Does anyone even question WHY anyone should need to buy stocks or any other financial instrument in order to be secure in their economic circumstances. Is it even a question as to WHY we are FORCED to place our labor and assets in this casino…a casino that we have no part in its rules or their enforcement or even accurate data? We are told we are STUPID if we do not, and OUR government, that institution that is supposed to be by and for US, is instrumental in legitimizing it.
What a damned scam it is and all we do is ruminate on how to win at a fixed game….really.
I suppose we deserve it, right?
With so many dependent upon it now, its not like we can change it, as far too many would wail their hearts out if the casino ever closed. They might have to do something productive for a change and God knows that will never sell.
There is a pecking order guide to the risk involved in these assorted casino instruments that so many have been “forced” into. It’s called Exter’s Pyramid. Might want to google it, while there is still time.
I understand Exter’s theories and largely agree with them. The problem is that no one else seems to and persists in buying into the valueless assets that so many believe will yield them the greatest returns. The greed that drives some creates this mess where the rest of us must either suffer the consequences or get in on the world destroying game.
Nobody is “forced” to buy anything, and many of us are perfectly happy to keep hundreds of thousands or millions in savings accounts presently yielding 0.000000000000000000000000001% at major banks such as JPMC.
Rates up? Rates lower?
After a 32 year down slide, are the odds on lower or higher rates going forward?
The reason I see very small Fed baby steps up is, if they wait too long and are compelled to raise faster, they risk the biggest bond market crash ever, resulting in the dreaded deflation they so fear. They can print, but they can’t print the $90 trillion hole that would leave, fast enough to fill it. Especially when it cascades into derivatives, and on into equities and real estate.
Think Shrub Bush when questioned about what would happen if the TARP bailout didn’t happen,,,’This suckers going down.’ Now, put that scenario on steroids after QE after QE after QE.
Inventories / Sales says we’re in – or will be shortly – in a recession.
Outside of a possible quarter point in june / july FOMC won’t be raising rates for a long time.
Coupled with as long as yuan pegged to $US China will be pressuring for no rate rise.
This “sucker’s indeed going down” as to the speculative bets placed on commodities, bonds, and stocks.
Rate hike odds spike across board after Fed minutes – CNBC
http://www.cnbc.com/2016/05/18/rate-hike-odds-spike-across-the-board-after-fed-minutes.html
Dudley Says June-July Fed Hike Reasonable
The Federal Reserve is moving closer to raising interest rates at one of its next two meetings and the fact this message is getting through to financial markets is welcome news, said New York Fed President William Dudley.
http://www.bloomberg.com/news/articles/2016-05-19/dudley-says-june-july-fed-hike-reasonable-unless-economy-wobbles
Yellen’s Folly
So Yellen says the US Economy is on “solid” footing.
Well, then why are policy rates at emergency levels?
That’s simple: Rates have not been determined by economic factors for the last several years, since at least 2010-2011.
The problem is that Yellen knows that asset prices (most-particularly stocks, bonds and houses) are all at ridiculously high levels as a consequence of all the leverage in the system that has been taken with borrowed money.
What she doesn’t know is how much the bond, stock and housing markets will contract when rates go up; the difference in a borrowed rate of 5% -> 5.25% is small, but the leverage difference of a rate going from 0.1% -> 0.25% is enormous.
The consumer will see almost nothing from such a change. Likewise, the home-buyer will see almost nothing in terms of impact. But the home builder, who was borrowing funds at 0.5% to buy back stock, will see their carrying costs go up 50% which they may not have.
This is the trap that Yellen finds herself in; she knows there are plenty of over-levered institutions out there with this sort of borrowing pattern but she’s not sure exactly where and who they are, nor can she find a good way to identify them and quantify their balance sheet carrying capacity.
The counter-balancing problem, however, is that fixed-income laddered bond portfolios have been and are being murdered and those portfolios comprise the asset base of pension funds and insurance companies.
https://market-ticker.org/akcs-www?post=230716
Second, IT DOESN’T MATTER A HOOT WHAT THE FEDERAL RESERVE DOES WITH ANY OF THE THREE INTEREST RATES THEY SET as all interest rates that matter in the US economy are SET IN THE US TREASURIES MARKETS.
The only 3 rates that the Federal Reserve is involved with setting are:
1) Federal Discount Rate – currently 1.00%
2) Federal Funds Rate (which it influences) – currently the range of 0.25% to 0.50%
3) Federal Reserve IOER (Interest On Excess Reserves) – current 0.50%
The ONLY applicability of the Federal Funds Rate is INTERBANK BORROWING to clear nightly transaction balances which is now practically NEVER UTILIZED as the banks are awash in trillions of dollars of EXCESS RESERVES and have no need to borrow from each other.
As to interest rates on savings accounts, BANKS ARE AWASH WITH EXCESS CUSTOMER DEPOSITS AT A TIME WHEN DEMAND FOR BORROWING IS VERY LOW which is why interest on savings rates is so low and that is not likely to change much.
There was indeed be a rate increase on December 16, 2015 by the Federal Reserve, not that it matters the slightest bit of a hoot, and there will be a series of about 4 interest rate hike in 2016.
The only 3 interest rates set by the Federal Reserve have NOTHING WHATSOEVER TO DO WITH THE INTEREST RATES ON THE US GOVERNMENT DEBT as those yields (interest rates) are all set in the $12.8 trillion a year US Treasuries market and have nothing to do with the Federal Reserve.
You keep repeating this stuff like a yoga mantra but it is clearly not giving you any tranquility. Maybe you need to start chanting Serenity Now!
Definitely, you need to start learning about the Federal Reserve and comprehending exactly what I have very clearly stated.
The only data the Fed depends on is the S&P 500.
The Federal Reserve couldn’t give a hoot about the S&P 500 which has been fueled to absurdly excessive levels due to CORPORATE BUYBACKS and which is headed towards huge plunges as revenues and earnings continue to plummet. Please go buy a clue somewhere.
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