When Will the Fed Act?
Given the massive swing in rate hike sentiment following the disastrous jobs report on June third, inquiring minds may be interested in how economists saw things about a month ago.
On May 12, the Wall Street Journal took a survey of economists on the question When Will the Fed Act?
About 31% of economists surveyed by The Wall Street Journal this month said the Fed will raise short-term interest rates at its June 14-15 meeting, while another 31% expected it to wait until September. Another 21% thought the Fed will next move at its July meeting. For the first time since February, June wasn’t the economists’ consensus pick for the next Fed rate increase.
In April, three quarters of respondents predicted the Fed would raise rates in June.
Those March and April surveys are downright amusing. In March, over 85% of economists expected a hike by June. No one thought the next move would be a cut.
In April, over 80% of economists thought there would be a hike by July.
Mike “Mish” Shedlock
That particular little gambling game you are referring betting on when the Federal Reserve will raise the only 3 interest rates they even set has NOTHING WHATSOEVER to do with the decisions made by the 12 member FOMC comprised of the 7 members from the BOG (Board Of Governors) and 5 Federal Reserve Regional bank heads.
The Federal Reserve will increase the only 3 interest rates it sets starting as early as a few days from now on the June 14-15, 2016 meeting of the FOMC or at the latest at their July 26-27, 2016 meeting of the 12 member FOMC. The Federal Reserve is working to get those 3 interest rates that they do set back up to around 3.00% by the end of 2017 and will keep gradually increasing those rates until that is achieved.
As Mike Tyson said, “everyone has a plan ’til they get punched in the mouth.”
“The Federal Reserve is working to get those 3 interest rates that they do set back up to around 3.00% by the end of 2017 and will keep gradually increasing those rates until that is achieved.”
They aren’t working very hard at it. In one day they went from hawkish to dovish, after saying that the June meeting was live.
“The Federal Reserve is working to get those 3 interest rates that they do set back up to around 3.00% by the end of 2017”
FOMC has 8 scheduled meetings a year. So, you are basically saying they will hike at every meeting for next year and half?
Don’t think so.
Besides, until China depegs, they will be very unhappy with any increase.
China has its own vast financial problems to worry about, and the Federal Reserve in the US certainly isn’t one of those problems.
As to depegging entirely from the US dollar, that would cause the Chinese renminbi (RMB / yuan) to totally collapse to NEARLY WORTHLESS which would create some really rather interesting problems for China and the world!
The amount of China’s “reserves” are only around $3.3 trillion which is only about 10% of the renminbi (RMB /yuan) currency they have printed overthe past 10 years. The PBOC expanded the local renminbi money supply from around $2.5 trillion to now nearly $30 trillion which is the most unprecedented expansion – and dilution / debasement – of currency ever done in the history of the world. That is the real problem. And it was all done ON THE BACK OF THE US DOLLAR to which the renminbi was and largely still is pegged even after the August 11, 2015 devaluation.
As to sovereign bonds, they are what they are which is not “certificates of confiscation” but rather promises by sovereign government to repay those instruments (which are essentially loans controlled by bond covenants) with interest (or not as the case may be). The 10 year US Treasury is currently right around 2.1772% annual interest and its 52 week high was 2.49%. The Federal Reserve expects it to be around 3.25% by the end of 2017.
China massively DEBASED ITS OWN CURRENCY which is what is causing the renminbi to come crashing down and what made it so vastly overvalued against the US dollar. Nobody did that but the PBOC and the Chinese government itself and then they used that to build vast useless “infrastructure” to prop up their GDP numbers which are at least 40% inflated based on that and built an enormous housing bubble based on debt and then desperately tried to create a huge stock market bubble with those funds using huge amounts of margin (loans) to retail speculators.
No wonder it is all coming crashing down inside China was at least $6 trillion of the more than $28 trillion in loans already totally bad and many trillions more with totally insufficient collateral. There is simply no way to prop up such an absurd and preposterous monetary and credit bubble as the PBOC and Chinese government created and that is why their whole bogus game is coming crashing down everywhere in China and we’re just now seeing the tip of that iceberg.
Do me a favour: take your life savings and bet on “over 1.5% by end 2017”. If you’re right, you make a fortune. Until then, you’re an armchair idiot.
And 100% of smug FinTwitter said April AND June hikes. I’m laughing watching all of them delete their tweets.
https://www.yahoo.com/news/yellen-faces-fine-balance-fed-rate-hike-job-110154868–business.html
We will get a rate hike as we start to look like Venezuela
Economists are as worthless as political forecasters. Especially university economists. Many of them are in somebody’s pocket.
Remember OldTimer, economists use data like drunks use a lamp post, not for illumination but for support
So democrat Janet Yellen, after deciding to not raise rates in June, will raise them in September right before Hillary Clinton’s fraud-lection?
I seriously doubt it.
Keynesian economics and the Fed have gutted the economy. It is a hollowed out shell of the free market it once was. We now live in a centrally planned, command economy, comrade. To the next 25 basis pt. rate hike: “What difference, at this point, does it make?” How can the Fed possibly “normalize” interest rates now? We’re very late in the business cycle. The economy is slowing down. This is intuitively obvious to the most casual observer. The Fed had their chance 2-3 yrs. ago, but did nothing (but blow more bubbles in housing, bonds, and stocks). The Fed jawbones, blusters and pontificates, when in reality, the entire hypothesis of Keynesian economics has failed. It was never about “helping” the economy, but rather benefiting the banks who own the Fed and promoting the progressive agenda. With slavery and free stuff for all. The free stuff has to be paid for somehow afterall. It’s amazing that as the economy declines and the debt piles up that people still listen to “the man behind the curtain” and hang on every word of Fed-speak. Our constitution never intended for the Fed to exist, but Congress was bought off and abdicated their responsibility for sound money. If you want to blame someone, blame Congress, and by association the American people. Someday they may wake up, but the clock is ticking and soon it may be too late.
“I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. … You are a den of vipers and thieves.” – Andrew Jackson, 1834, on closing the Second Bank of the United States; (unabridged form, extended citation)
“The last duty of a central banker is to tell the public the truth.” – Alan Blinder, former Vice Chairman of the Federal Reserve, 1994 on the PBS Nightly Business Report
“At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” – Fed chairman, Ben Bernanke, Congressional testimony, March, 2007
Keynesian economics and the Fed have gutted the economy. It is a hollowed out shell of the free market it once was. We now live in a centrally planned, command economy, comrade. To the next 25 basis pt. rate hike: “What difference, at this point, does it make?” How can the Fed possibly “normalize” interest rates now? We’re very late in the business cycle. The economy is slowing down. This is intuitively obvious to the most casual observer. The Fed had their chance 2-3 yrs. ago, but did nothing (but blow more bubbles in housing, bonds, and stocks).
Correct on all counts. If only Sissler would thing instead of yapping.
The only 3 interest rates set by the Federal Reserve have nothing to do with the US economy and at most these days are MERELY SYMBOLIC with no actual application whatsoever.
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 in the range of 0.25% to 0.50%
3) Federal Reserve IOER (Interest On Excess Reserves) – currently 0.50%
The only applicability of the Federal Discount Rate is direct borrowing by the banks from the Federal Reserve for liquidity purposes and then strictly only to clear transaction imbalances in the overnight Federal Reserve system. The only applicability of the Federal Funds Rate is to interbank borrowing for the very same purposes as the Federal Discount Rate. Both of those rates are practically NEVER UTILIZED THESE DAYS as the banks are awash in trillions of dollars of EXCESS RESERVES and have no need to borrow from each other, let alone from the Federal Reserve which has always carried a stigma in addition to a huge punitive penalty rate of up to 0.75% presently over the Federal Funds Rate.
The IOER (Interest On Excess Reserves) interest rate does have an immediate beneficial impact for banks as it is the interest paid to banks on their excess reserves accounts inside the Federal Reserve and those accounts now have more than $2.5+ trillion sitting in them, and banks were very fortunate to see the interest they received on those DOUBLE on December 16, 2016 from 0.25% to 0.50% and are urging the Federal Reserve to get that increased again by at least 0.25% to 0.50% without any further dawdling or delay as banks need increased income to help profitability this year.
“It was never about “helping” the economy, but rather benefiting the banks who own the Fed”
FR is cornered. Banks don’t want NIRP. But raising rates will hurt housing / refinancing (banks make big coin here) / China (obviously US leaders care about them).
They need to do what they should have done years ago. Damn the torpedoes, and raise rates*
*will lead to bad recession, but a lot of dead wood – courtesy of central bank bubble blowing – needs to be cleared.
False. The Federal Reserve only sets 3 interest rates and none of those have anything at all to do with the US economy or the mortgage interest rates which are keyed off the yields (interest rates) on 10 year US Treasuries.
You are forgetting the Federal Reserve’s balance sheet.
Of the $4.5 trillion, almost $2.5 trillion in treasury notes / bonds. The Federal Reserve could sell as much as needed to force the yield on the long end to rise.
There will be no rate rises for months due to:
1. The Fed under Yellen has no real plan and makes it’s decisions based on day-to-day economic news.
2. The Fed under Yellen doesn’t want to irritate Mr. Market.
3. The excuses not to raise rates are readily available. For example, the Brexit vote coming up.
4. Why end the easy money for government borrowing?
The only 3 interest rates set by the Federal Reserve have NOTHING WHATSOEVER to do with any of your 4 issues above. Hellllloooo?
Yeah, Hellllloooo back at you. The Fed sure is putting those “3 rates” under the microscope of the 4 instances I cited.
It’s also amusing how back in January the chicken little brigade was saying how “we have never had a year where the stock market fell as much as it has on its first four trading days..the crash is coming”. Or Mish’s weekly predictions since 2011 that we are in or are about to enter a recession.
I’m not one to much make economic calls or bury myself in stats, this article has a closer look at the definition of recession though:
http://www.economist.com/node/12207987
“Or Mish’s weekly predictions since 2011 that we are in or are about to enter a recession.”
With ZIRP for the last 8 years, we haven’t really gotten out of recession. Subtract debt and GDP has been negative. Everything is an illusion created by debt.
It’s a fair comment. Really rather innocuous. Surprising it gets so much reaction.
It’s all a matter of interpretation. I agree with Ron J., that we have more or less been in a recession the whole time. Statistics may be more political propaganda in the hands of government, and not measuring that which would be alarming (e.g. M3 is not longer measured; headline unemployment statistical calculations are different than the 1930s).
By all measures, the “recovery” since 2009 has not been the usual cyclic recovery, and more likely this should be classified as a mild depression (verboten call for political propaganda reasons). Hence, terms like “recession” may not be operative in the usual cyclical sense. It seems to me more like Jimmy Carter’s “malaise,” which was a poison term and no longer operative for public utterance. I’d liken the official statistics to elevator music. Mood elevators.
The US have been in the GRAND GLOBAL DEPRESSION ever since it first began in August 2007 and now that is intensifying with an extreme explosion of DEBT since then and will continue to get much worse over the coming years with some very serious repercussions. Interest rates across the board will SOAR UPWARDS as a result of that debt and massive defaults.
There are 3 components to interest rates.
Interest rates are comprised of:
1) real rate (typically around 3% historically)
2) inflation adjustment (now correctly at zero)
3) risk adjustment (now rising astronomically)
The risk of DEFAULT is higher than ever and will continue to rise.
D. Sisler,
Please start you own blog and stop wasting our time with nonsense.
I have found that they will not start their own blogs because they know that they do not have an audience. (Which may be telling.) They have to come play on other people’s blogs to get a reaction.
No different for me, regardless if I agree or not…
Not that Mike,
It is certainly easier to be critical than creative. I am sure no one would want to hear anything I have to say. Its ok to disgree. I just think D Sisler should refrain from jabs from the cheap seats.
I think we are on the same page. There was a character on another blog that I frequent that when asked why he didn’t just start his own blog rather than spend all of his time being contrary to the blog host, he basically said that no one would visit a blog he started and that the traffic here was too good to pass up.
I was drawing on that to say that D Sisler may be in the same boat (as I would likely be).
I do not mind contrary points of view, and I do not think that Mish does either, so long as they are polite and supported; not just slinging crap for the sake of slinging it.
It does appear that D Sisler seems to just be slinging at this point…
There was a claim by Larry Summers that the Fed doesn’t hike until futures odds hit 70%. The last time they didn’t was 1994 and it caused a bond market panic.
Odds don’t even exceed 70% in February 2017 at the moment.
http://www.businessinsider.com/fed-rate-hike-uncertainty-in-1994-2015-9
The 12 member FOMC that makes policy decisions including interest rates does not even consider such nonsense and couldn’t care less how certain speculative gamblers are better in the futures markets on that issue.
The way to build wealth, is definitely to ban import of fundamental building blocks of wealth building, while making up for it by handing more free money to banksters. Who can then engage in such productive activities as buying another semi productive company, replacing it’s competent managers with lawyers, so that the latter can prod Dear Democratically Elected Government to ban imports for their competitors as well. Making America even Greater!
Tim McVeigh / Enola Gay 2016
Fed’s Yellen sees rate hikes ahead, but few hints on when
Federal Reserve Chair Janet Yellen on Monday gave a largely upbeat assessment of the U.S. economic outlook and said interest rate hikes are coming but, in an omission that stood out to some investors, gave little sense of when.
http://www.reuters.com/article/us-usa-fed-yellen-idUSKCN0YS142
The upcoming Federal Reserve FOMC meetings at which the FOMC can decide to raise the only 3 interest rates they set are as follows:
June 14-15, 2016
July 26-27, 2016
September 20-21, 2016
November 1-2, 2016
December 13-14, 2016
https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
As of yesterday, Monday, June 6, 2016, there is a news embargo as to any further statements from the Federal Reserve on policy matters including interest rates until the Federal Reserve FOMC meets on June 14-15, 2016.
Back in the real world, as opposed to the fantasy land of Wall Street, most VOTERS are now looking at 25-60% increases in their health care premiums. Food costs are up 10-11%. Energy costs are generally tied to crude oil (directly or indirectly) — $50 oil this year versus $40 last winter (its about flat since last summer). College costs continue to climb several multiples faster than GDP or paychecks.
When voters go to the polls, how many Mish readers think the average US voter knows what CPI is?
How many US voters know how much their household expenses increased since last year?
How many US voters give a fart (censored!) about what some crooked Wall Street strategist thinks inflation should be “according to their models”?
Its one thing for the Clinton crime syndicate to get themselves elected. Governing once you get into office is a whole different matter.
When Medicare goes bankrupt in 2018 (that is the fail date according to Obama’s appointees, private sector estimates are sooner). The baby boomers are getting older, and they will require more healthcare — politics simply don’t matter.
At the same time, pensions are not properly funded. IRAs / 401Ks are not funded. Life insurance policies written with 6-7% interest rate assumptions have barely eked out half as much. The baby boomers are getting older, and they will require more healthcare — politics simply don’t matter.
The next president does not have the luxury of pretending any longer, and neither does the Fed. The political establishment obviously doesn’t like Trump or Sanders, but the status quo really is not an option. And time is not on their side.
Even the airheads on CNBC are starting to grasp this, ever so slowly.
One more note to all the Wall Street geniuses who are cheerleading for the Fed. If ZIRP continues, your careers are over:
http://asia.nikkei.com/Markets/Capital-Markets/BTMU-plans-to-quit-as-a-primary-dealer-of-Japanese-bonds
According to actual real world practitioners (not academics or media pundits) — there are many days when NO JGB BONDS TRADE. Not at a good price, not at a bad price, not at all. No trading means there is no need for traders, or salesman, or sales “strategists”
That Wall Street cheerleaders, is your future on Bernanke’s failed policies. Yeah, his dumb idea is failing exactly like the one he copied in Japan. Same dumb inputs, and sooner or later Morgan Stanley will do exactly what BT Mitsubishi did….