Atlanta Fed President Dennis Lockhart is once again yapping about multiple rate hikes this year.
“I wouldn’t rule out as many as two hikes” this year said Lockhart to reporters last week.
Kaleidoscope Eyes
Recall that Lockhart made a speech to the Rotary Club of Savannah on March 21 entitled Kaleidoscopic Context for Monetary Policy.
In his speech, Lockhart cited “sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April.”
I commented on his speech with my take called Kaleidoscope Eyes.
Fed Officials Confident About Rate Hikes
The Wall Street Journal reports Fed Officials Gain Confidence They Can Raise Rates This Year.
Policy makers at the central bank are almost certain to leave rates unchanged when they meet July 26-27, according to their public comments and interviews with officials.
But the message in their postmeeting policy statement could be that the economy is on a more solid footing than it seemed to be when officials last gathered in June, setting the stage for raising interest rates if economic data hold up in the months ahead.
In early June, traders on the Chicago Mercantile Exchange put a probability of greater than 60% on the bank raising short-term rates by at least a quarter percentage point as soon as September, according to the CME. But that chance dropped sharply after a weak May jobs report and the June 23 Brexit vote, standing at just 12% on Monday before rising to 18% on Tuesday.
Atlanta Fed President Dennis Lockhart, a centrist at the central bank whose views often represent a middle ground among officials, told reporters last week it remains likely the Fed will raise rates this year, adding, “I wouldn’t rule out as many as two” increases.
“We should be looking toward removing accommodation,” Robert Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview last week at the Official Monetary and Financial Institutions Forum. “We just should do it in a patient, gradual way.”
Low Hike Expectations
It’s rather amusing the things that happen every time rate hike odds get above 50%.
Another Lockhart Flashback
Undaunted by the miserable failure of his March “Kaleidoscope Eyes” prediction, on May 9, Dennis Lockhart was back at it with a “Keeps Faith in Strong Recovery” prediction.
Strong Recovery?
Pray tell, what constitutes a “strong recovery” these days?
- 4th quarter 2015 GDP was 1.4%
- 1st quarter 2016 GDP was 1.1%
- 2nd quarter 2016 GDP estimates range from 1% (Markit) to as high as 2.4% (Fed Models)
The Atlanta Fed GDPNow model estimates 2.4% and the New York Fed Nowcast estimates 2.2%. For details, please see GDPNow and Nowcast Forecasts Tick Up 0.1 Percent; Diving Into Interesting Details.
Markit chief economist Chris Williamson had some interesting comments following the last Markit US Services PMI report.
- “Rebound, what rebound? The final PMI numbers confirm the earlier flash PMI signal that the pace of US economic growth remained subdued in the second quarter.”
- “While volatile official GDP numbers are widely expected to show a rebound from a lacklustre start to the year, the PMIs suggest the underlying malaise has not gone away. The surveys point to an annualized pace of economic growth of just 1% in the second quarter.”
For more details and comments from Williamson please see PMI Services Essentially Flat, Non-Manufacturing ISM Jumps Huge.
The Hikes are Coming!
With odds of a hike by September at roughly 25%, the Fed trots out Lockhart once again in an attempt to convince the market that “The hikes are coming! The hikes are coming!”
Shut Up and Do It
The Fed is captive to the markets. It will not hike unless it can first convince the market first.
Mike “Mish” Shedlock
They are going to have to raise them so they can cut them!
Exactly right. They gotta get some ammo, because they will need it.
(But reading your post gave me a terrible flashback to a raspy voice saying, “We have to pass the bill to find out what is in the bill…”)
My physician ordered me to submit a stool sample to the lab for analysis.
Just like ObamaCare, I needed first to pass my stool sample before I could find out what was in it!
Central banks worldwide have painted themselves in a corner. Rates will not go up now or anytime in the near or midterm future.
“I wouldn’t rule out as many as two hikes” this year said Lockhart to reporters last week.
Translation: yap yap yap yap yap yapyapyap yap
Nothing will change.
However, disagree on necessity of rate hikes. They ARE necessary.
Yes, traditional econ theory says hiking rates in a punk economy is bad. However, traditional economics never considered zero and negative rates. These abominations are the cause of the punk economy. Positive rates would give savers spending money and would have worked to ration capital to productive activities much much better. The world would be much better off had then never went so low and/or stayed there.
Fixing the problem will probably cause massive asset repricing, causing lots of people to loose money. Sorry. I didn’t make the abnormal environment that gave these gains and don’t feel like subsidizing it any longer by making no money on my savings. Both 401k savers and screaming baby rich people ring-fence the continuation of low rates. The former are cannon fodder and the later are establishment beneficiaries. It’s against the rules to cause them discomfort. Obama won’t permit it, neither will the Fed whisperers who suggest how to behave. (FOMC independence … what joke!. )
Completely agree.
I would only add that current monetary policy (QE/ZIRP/NIRP) has allowed the massive debt overhang to get even massiver. Until the debt issue dealt with there will be no sustained inflation*.
*in countries whose currencies are considered “reserve”.
Deflation on tap
Agree you can’t fix a debt problem with more debt.
Couldn’t care less about corporations that can’t afford to pay back what they borrowed for buybacks. The people who benefited from it are wealthy now. Bankruptcies will clear in the market. Debt holders dumb enough to go along will learn an expensive lesson. (Never loan money to someone who can’t legally print enough to pay you back.)
Most ordinary people are already clear on the concept of too much debt.
Governments will just have to figure out how to stop living on the credit card. But they sill have the printing press as a last resort. (except the Eurozone, which is another flaw in the design. Somebody actually has to pay for their goofball excessiveness.)
“The Fed is captive to the markets. It will not hike unless it can first convince the market first.”
Federal Reserve has zero credibility.
Everyone knows any decision not completely market friendly will be walked, er, run backed.
When the Feds want to defend the dollar, I think they will, rates will go up regardless of how sh#*y the overall world and United States economy might be. I believe the worst is yet to come, only a war will get things to change and not for the better in the long run.
Just my opinion and in the long run we will know for sure.
Defending the dollar?
Stronger = more expensive exports and bargain imports. Cheap imports = screaming labor markets and politicians yapping about unfair trade.
Weaker = less expensive exports for foreigners to buy and more expensive imports for us. But politicians have to defend ‘weak dollar’ which sounds puss*. I like being subsidized by foreigners.
Everybody else also wants their currency to be weak to promote exports. It’s a world wide race to the bottom that destroys savers, credible investment, and gdp over time.
Best if they just did nothing except provide liquidity in the case of bank runs, but only very short term. Maintaining long term historical interest rates is best since they seemed to work well, historically.
However, being captives of profilers and fraudsters, any crank theory that offers free prosperity for nothing is something they will forever be dumb enough to support.
“Pray tell, what constitutes a “strong recovery” these days?”
Friday July 29th the BEA releases initial Q2 GDP … along with MULTI YEAR revisions.
Got popcorn?
The Fed has no control over rates anymore. Treasury rates are lower today than they were the last time the Fed hiked the FFR. All of this talk is just to act relevant so that idiot stock brokers move in the direction the Fed wants to hurd them.
The economy is on as solid a foundation as it will ever be. They age of solidly rising and self-reinforcing wages, demand and investment are over. Forever.
They still ultimately have control. Anyone with a printing press set up to run the world’s reserve currency does. it’s just that we have come full circle by now, back to the social structure and dynamics of the Feudal era. The difference only being the source of the Feudal Lords’ power, wealth and status.
Back then, it was hereditary privilege. Now, it is tied to ownership and control of “asset markets.” So, just as preserving “the stability of society, and preventing chaos and looting in the streets” back then was code for doing whatever necessary to keep the Feudals’ control unchallenged; nowadays, preventing the same means propping up asset markets. And just as, back then, the onus was on finding ever more nooks and crannies of serfs’ lives to subjugate to Feudal privilege, today the onus is on financializing ever greater parts of people’s lives.
Meaning, the Fed technically can control rates, but you’d never know the difference, since their mandate is simply interpreted as doing what the “market” wants. Meaning, what “market participants” collectively wants. Which again, means, what the 1%ers want. Anything else will lead to temporary chaos, as there will inevitably be skirmishes related to the re-redistribution of an entire multi hundred year society’s worth of wealth that has been stolen by a few toffs at the top.
After all, those Antebellum plantations did look prettier and more peaceful, when the niggers were properly encouraged to “look for peaceful solutions to their grievances,” instead of “taking the law into their own hands” and turning to revolts and stuff. Not to mention the damage a revolt may cause to mai poppeti vaijues…..
Wealth was not stolen. Serfs willingly traded their wealth for hula hoops, sugar water, fries, and liberal arts degrees.
I’m using “stolen” in an economic operational sense. Not really a moral one.
If George Soros borrows a fortune to buy a stock at a valuation that would be completely unsupportable in a free, non-rigged economy, but the Fed and government turns around and makes it even more rigged than before (negative rates, Hail Mary QEs, Debt Jubilees….) so he makes out like a robber baron, he’s not really doing anything morally wrong.
Which is probably how many/most 1%ers made their fortunes. Not necessarily by some grand personal moral failure, but rather by happening to be amongst those favored by our ongoing and accelerating process of societal failure. I seriously doubt Trump is some sort of evil incarnate. He just happened to graduate college into a New York real estate family right at the time Nixon went off gold, which turned American into a financial lootocracy, with New York as it’s gilded center. Which in no way makes being in the business of building towers in New York some sort of moral offense.
Economically, though; the funds are still ill begotten. The fact that Trump and Soros didn’t “do anything wrong”, doesn’t prevent the outsized influence and power their piles of ultimately, in an economic sense, stolen funds, from being the bane of America as anyone who cares fondly remembers her. And America will never turn away from sliding ever further down into a sinkhole so deep; more and more people will realize Shariastan is actually an improvement; until the machinery that turned her into nothing more than the crassest of lootocracies is not just slowed, nor even stopped; but flat out reversed.
Jesus Christ….put up a chart of the S&P vs. rate hike talk-up and rate hike talk-down…the correlation is something like 97%.
When the market gets too lofty The Fed knocks it down with talks of a hike, then when it collapses right before the “live meeting” they back away and put the floor in.
Wash…rinse,,,,repeat
Anyone who hasn’t figured this out yet probably shouldn’t be wasting their time doing “market analysis.”
It’s all being traded algorithmically.
There is nothing for the Fed to say to change attitudes as attitudes are secondary to whatever the quants have taught the algorithm to do. They brought a fifteen percent sell off to a smart stop just as Q1 closed trading.
A major run up here post-Brexit vote, for no real reason. We sit here at all-time highs in the major US indices despite the worst calendar year start in stock market history. Why? I guess that’s what eight years of less than 3.0% growth is supposed to make happen. Who knew?
In CB models inflating a shrinking economy counts as ‘growth’. I predict the global economy will ‘grow’ into infinitesimalinty and beyond in the coming years.
It’s already happening. Formerly poor people in the periphery have had so much ‘growth’ they are able to afford travel to Europe and North America – millions and millions of them.
I can’t wait to see what wonders come next. Soon we ourselves with have had enough ‘growth’ that we can migrate to …say…oblivion?
They are just trying to “talk down” what is looking more and more like a runaway stock market.
When the bubbles they have created become glaringly obvious, they have to “SAY something”.
Of course, they will DO nothing. And everyone knows that, which makes the entire thing such a farce.
We know the Fed is no longer data dependent, unless they are keeping track of which group has the biggest guns and the most ammo. Lockhart must think the savers, pensioners, and insurance funds have intercepted CIA weapons supply lines through Mexico.
We also know that more govt spending and debt monetization does not add to GDP, so the current anti-establishment movement will grow into increased civil unrest, which means more people will seek to protect themselves with weapons. The Fed will not know where the pitchforks are coming from.
As I have stated many times, the Fed will raise rates for one reason – to combat its reputation as a serial bubble blower, which is now out of its control due to flows from Europe, Turkey, China, and other trouble spots. When they do raise rates it will only excellerate the flows into dollar-based assets, which will blow up the dollar-based debts around the world. Financial reforms will be forced on the Fed and other CBs in two yrs. In this climate I would rather have a president with debt restructuring experience.
Can’t wait for an additional 0.25% on my savings, I’m planning a vacation to the Bahamas as we speak.
“I wouldn’t rule out as many as two hikes” this year said Lockhart to reporters last week.
Empty words, devoid of any meaning.
Mish, once again yapping that doing the same thing over and over again –stealing from a dwindling savings pool to benefit the status quo– is somehow going to yield different results
Insanity
With rates this low, the FED should be selling to lock in profits and avoid insolvency. Selling should naturally get rates up to the point the FED can openly announce rate hikes.
Just stop printing. Its easy.
Mish,
This part of your post;
“Atlanta Fed President Dennis Lockhart: “I wouldn’t rule out as many as two Hikes”
Mish: Shut up already. If you want to do it, just do it!”
Reminded me of that famous scene involving Tuco Ramirez (Elli Wallach) from The Good, The Bad & The Ugly:
One Armed Man: “I’ve been looking for you for 8 months. Whenever I should have had a gun in my right hand, I thought of you. Now I find you in exactly the position that suits me. I had lots of time to learn to shoot with my left.”
[Tuco kills him with the gun he has hidden in the foam]
Tuco: “When you have to shoot, shoot. Don’t talk.”