Golden Opportunity to Hike in 2014
The Fed had a golden opportunity to hike in 2014.
2nd quarter GDP rose at 4.0% annualized, 3rd quarter rose at 5.0% annualized, and 4th quarter rose at 2.3% annualized.
Instead the Fed was worried about growth, when growth was fine. Where the heck were the dissents for hikes in 2014?
Last Three Quarters
- 2nd Quarter 2016: 1.4%
- 1st Quarter 2016 : 0.8%
- 4th Quarter 2015: 0.9%
At the last FOMC meeting there were three dissents in favor of hikes.
Curiously, the Fed is no longer worried about growth. Instead, some members of the Fed are increasingly worrying over bubbles they have blown.
The Fed does not call them bubbles. They mask concerns by citing leverage as noted in Rate Hike Odds Rise Again: Fed Concerned About Corporate Leverage.
Too Late to Worry
By the time the Fed starts worrying about something, it’s far too late. The damage has already been done.
The Fed is not only late to the rate hike party, it blew numerous bubbles in the meantime.
Leverage Worries or Not …
Mike “Mish” Shedlock
Hilarious that the Fed is concerned’ about corporate leverage when that’s the whole point of low interest rates in the first place. Companies are simply doing what the Fed intended.
And I really don’t think hiking 25 basis points back in 2014 would have made any real difference Mish, the world is so indebted that it can’t sustain anywhere near the rates that were normal before 2008. When central banks can no longer push the bubble any larger when the next recession hits and they quickly reach zero, the bubble will pop.
My local government is the perfect example of what happens when central banks pile QE upon QE upon QE. Several projects proposed in the city where I live reflects what is happening across much of America. We should all be concerned at how financial restraint is being cast aside to create cookie-cutter cities and an illusion of growth.
This is a strong signal that crony capitalism has grown to where government and quasi-government entities have become the main engine of growth. My only fear is that in the end taxpayers will be presented with a bill for these boondoggles and the current exuberance. The article below gives examples of overreach in the city where I reside.
http://brucewilds.blogspot.com/2016/07/an-example-of-local-government-run-amuck.html
The FED’s minutes are pearls. That is the same pearls cows leave in the pasture.
It all depends on the market. That is the only indicator that the Fed goes by. All other indicators are just media feed.
It goes by the bond market. If the 10yr was yielding 15% you’d see the Fed raise rates big time. Until the bond market revolts I don’t see any meaningful rate hikes.
And if Japan is any guide, the bond market will never revolt.
… and neither will the corporations buying themselves back.
when the EU comes apart next year, all debt will be suspect, eventually even treasuries.
It won’t be allowed to come apart. Whatever it takes will be used, whatever, to keep it together.
oh, it will come apart….the refugee terrorist ensure that….the people of one country will demand to leave, like Brexit…..they will not be able to paper over a referendum….the EU is unsustainable.
“And if Japan is any guide, the bond market will never revolt.”
Don’t like to use the term “never” … but I agree.
$US is too strong as is … no consequence (near / mid term) to fire up the old QE machine, if necessary.
The housing market will be CRUSHED if rates on the long end rose much.
Bottom line, they’ll risk a (steep) drop in currency before allowing rates to rise.
At this point immaterial, however. Treasuries will be seen as safe haven when rest of globe collapses.
Treasury rates going lower. MUCH LOWER.
“It all depends on the market”
There is no market, at least none that the FOMC is not already controlling.
We could’ve had some price clarity and the vision of the future that comes with it had they installed a couple of hikes along the way, perhaps in 2014 as Mish suggests.
It all depends on the market
If the S&P rises to 3000 by December, then the FOMC might brave a 1/4% increase, although I think they’re too corrupt and cowardly to put the odds in that case at more than 25%. While the EU/ECB are buffoons supporting a socialist Utopia using printed money and bullying and the Japanese are simply inscrutable, the FOMC is the financing arm of socialized corruption that keeps the money flowing for its friends. If one member loses heart, another who is on the same page as those they want to please will step in.
The only way rates will rise is if somebody at the top has a plan to make a lot of money from it.
Who owns the FED? Some fools think it’s government owned and controlled.
I remember the power of the economic uplift from the recession of the 80’s coming off of 18% interest rates. The Obama-conomy is out of breath at these interest rates?
The Little Engine That Couldn’t
they will hike on Nov 3rd.
28 Oct will be the day of maximum power for the USD … after that … free falling until Feb 2017 at DXY 86.5 – 87.
You are a VERY CONFUSED person, KKK. A rate hike strengthens the dollar and weakens gold. Better get your head on straight before your (much smaller) brokerage account teaches you this lesson.
What is the bet?
My bet:
DXY > 100 before it gets anywhere near 90.
Although they are as political as can be, they won’t do it before the elections.
The war drums can be heard again, with the MSM villifying Russia
The genie has left the bottle. Now the intelligentsia argues how to put her back in again, knowing full well that’s an impossible task. Always looking into the rear view mirror. That’s no way to run any organization, let alone one that controls the lion’s share of the global economy.
We’re flying at 10,000 feet headed straight for the side of a mountain and the cockpit is empty.
Clueless.
Oh no, whatever they do is for their owners. Look at their dirty tricks aimed at destroying banks in the 1920s. Like a surgeon performing vivisection and needless amputations, they have ill intent. Th e job market is e latest fig leaf
TRUMP wins = rate hike in Dec
Clinton wins = no rate hike in Dec
Book it!
…although, I will throw out the additional theory, that if “She” wins, they’ll hike rates anyway in Dec.
Market will tank
…and “She” will come to the rescue in 2Q17 with massive govi spending to “save” ‘Merika
Rate hikes will not help anything. If it does, it will hurt something else. Debt is too high to withstand substantial rate hikes and minor hikes are just symbolic. The entire system is running on wishful thinking. It is just a matter of time until confidence in the system collapses and then it ends. Go to cash if you are smart.
“The entire system is running on wishful thinking. It is just a matter of time until confidence in the system collapses and then it ends. Go to cash if you are smart.”
Basically agree, but much of the entire world is now Japan (China even heading into Japan’s demographics problem because of their one child program) and look how long Japan has managed to get away with their monetary games. I suspect more of a ratchet downward over years with no clear bottom, something that’s much worse than a crash with its clear bottom for investors. Eventually, maybe, something will trigger a crash which, because of the previous duration of monetary games, will be horrendous.
@Winston, I have wondered whether globalization, dot com bubble, housing bubble and then central bank bubble (still underway) have helped Japan in a big way in managing for so long and provided it the cushion it needed. If that is the case, given the global demand deficit and high level of debt is it not likely that the way down could be faster than has been the case of Japan. Add in Brexit, EU break up, civil unrest, China demand, bad debts and re-orientation etc. that could all leave its own distinct mark, Japanese slow and steady downhill trip might be wishful thinking. Basically too many balls in the air this time and no Hercules around to carry the global load as US itself has an hollowed out middle class with no ability/interest to add debt.
LO-f’ing-L!
Rate hikes, WMDs, OJs real killers.
There all out there somewhere.
I’m with those who believe the Fed is completely politicized. I doubt anyone is going to cross Queen Hillary and raise rates. She is not going to give up deficit spending to buy votes and power, and she’s not going to stand by while her friends in the financial industry get crushed by the collapse of the bond and equity bubbles
No, it’s just more FedSpeak. The plan is to sound really tough and see markets raise long term US rates to perhaps 3% (boy I hope) via tough talk only. Then comes Lucy pulling the football from Charlie Brown in December once again.
This time I plan to put some $$ in a long term US bond fund, and perhaps some in high risk if rates rise substantially there, too. Then, after Lucy pulls the football and Charlie Brown falls flat again, I will earn perhaps 15 – 20 % capital gains over the coming few months as rates normalize back at pittance levels.
Unless Trump wins, then I’ll wait because rates will rise lots more after that.
Rates are going NOWHERE* anytime soon … no matter who wins.
*outside of possible quarter point move in november or december on short end.
“At the last FOMC meeting there were three dissents in favor of hikes.”
As expected all dissents from federal reserve regional bank presidents.
The governors voted lock step with Janet.
The presidents have a touch of independence as they are voted president by their bank’s board of directors.
Governors are appointed by POTUS (confirmed by Senate).
If a dissent ever came from a governor, that would indeed be a story.
I doubt they will act at all until inflation is on fire and as usual they will be behind the curve by a country mile. Forget employment rates as a measure. The little people will get it hard as necessities rise in price and that will be used as cover to begin to move. Debt will be paid back in much depreciated currency.
By then the markets will be higher and could have one last surge as rates start to take off.
Bust comes a little later.
The externals will determine the timing. External deflationary forces from China, Japan, EU will all have their influence and they are in control.
Printing misallocates capital, removing it from the system. Printing tricks the private sector into making the wrong mix of products for the market. Printing leads to a future banking crisis, and eventually a future banana republic. Printing confiscates goods from the majority, for redistribution to bankers and their allies (accounting for the popularity of printing with many bankers, and their economist allies).
Just stop printing already. Do it for the good of the country, and the people.