Esther George, president and chief executive officer of the Kansas City Fed says Continuing With Rate Rises Is ‘Necessary’.
She also claims weak economic data is “transient”.
Meanwhile, the market increasingly believes the economy is weakening and rate hikes are less likely.
Federal Reserve Bank of Kansas City President Esther George said on Tuesday the U.S. central bank needs to press forward with rate rises, adding it should also begin reducing its massive balance sheet later in the year.
She said both inflation and unemployment “are in range” of where the Fed would like to be, adding urgency to the need to push short-term borrowing costs higher. “The economy looks to be on solid footing,” Ms. George said, and “there is a sense that outcomes could actually be better than expected, rather than worse.” She added the prospect of greater government stimulus by way of taxation, regulatory and spending changes could also improve the outlook.
Ms. George added that it is important for the Fed to press forward with its increases and not be dissuaded by transient shifts in the economic data. “I am encouraged by the start of the normalization process and want to see it continue,” she said, explaining “resisting the temptation to react to near-term fluctuations in the data will be necessary.”
At the same time, given the Fed’s need to press forward with interest-rate rises, so too must its attention turn to its massive $4.5 trillion holdings of cash and securities, which grew rapidly in recent years as a result of the central bank’s efforts to stimulate growth in the economy in the wake of the financial crisis, the official said. Many Fed officials have expressed interest in starting to allow those holdings to shrink passively later in the year.
“I would support beginning the process of reducing the balance sheet this year,” Ms. George said. “The process should be on autopilot and not necessarily vary with moderate movements in the economic data,” in a view that also echoed that of her colleagues.
“I do not favor prolonging action for the purpose of allowing inflation to overshoot the 2% goal or to press labor markets into a condition where they are overheating,” Ms. George said. “Inflation that persistently deviates above or below the 2% objective would be cause for concern, but monetary policy need not react to temporary deviations” in the level of price pressures, she said.
Ms. George also said she doesn’t share her colleagues’ hopeful view about rising inflation. “I am not as enthusiastic or encouraged as some when I see inflation moving higher, especially when it has been driven by a sector like housing,” she said.
June Rate Hike Odds Sink
A few weeks ago, most forecasters (not me), considered a June rate hike a given. With weak retail spending and faltering housing starts, the odds of a hike in June are now under 50%.
The futures market believes the second and only subsequent hike this year will happen in September.
The CME odds of “no hike” are 50.4% in July dropping to 36.7% in September. But looking at the December futures, the market has still priced in only one more hike this year.
December Rate Hike Odds
One More Hike?
I doubt if there will be another hike this year, and the market is moving in that direction.
By the way, this is not a suggestion for the Fed to not hike, it is a prediction as to whether or not they will.
I do not know where interest rates should be, and clearly, neither do they. Fed policy has sponsored three major bubbles in the last 17 years.
Related Articles
- April 5: Don’t Worry Weakness is Transitory: Fed Expects a Second Quarter Rebound, Higher Equity Prices
- April 13: Econoday Parrot Squawks Again after Sentiment Rebounds to 17-Year High
- April 14: Retail Sales Unexpectedly Decline, Revisions Even Worse
- April 14: GDP Forecasts Dip Again: Forecasts Compared
- April 18: Thud: Housing Starts Plunge 6.8% as Sentiment Soars
The words for the day are, “transient”, “transitory” and “second-half recovery”.
Mike “Mish” Shedlock
Wow, all these years reading this site and I just saw for the first time that Mish was awarded best alternative financial website by CNBC. I had no idea this was a gay website… not that there is anything wrong with it.
I thought CNN and MSLGBT were the gay web sites. CNBC is still fake news though. they list Mish as “alternative”, so Mish must be right on. Another feather in the headdress.
MSLGBT
+1
Does this mean Mish has a “wide stance”, economically speaking?
I feel like I just stumbled into a fifth grade classroom. Gay jokes, really? What century are you people from?
Cum on Phil, we all know that you’re so gay, that if someone asked you to donate sperm, you could just fart in a cup.
They are so desperate to get as far off the Zero Bound as they can before the sputtering economy falls into full-blown recession that it’s almost comical.
The current “expansion” has certainly used most of the 9 lives … another (tiny) kick would not surprise … my only prediction – when “it” hits, it will have been worth the wait.
See everyone @ sub 1% on the 10yr yield.
Yeah, I’m thinking it’s going into recession anyway. Upping interest rates lets the Fed have an excuse for keeping them low in the future.
10 yr yield down 7 bps to 2.18.
The curve be a flattening …
Yeah 30 year down 7 basis points as is the 5 year, but the 3 month went up 1. Slowly happening.
The Nov 9-11 gap between 2.090% and 2.189% has finally started to fill.
After that, the Nov. 8-9 gap between 1.874% and 1.928% will be next.
Kaa-Ching!!!!
Well with record debt everywhere, govt. corporate, consumer(auto, credit card, mortgage, student) sovereign r emerging mkt debt, with equity leverage r margin debt, rising interest rates will make all this debt much harder to service. Ok this is going to sound crazy but I think the world needs a bank Holliday to right off this debt so that from the ashes of the worldwide financial collapse, we would be free to start all over again hopefully without a revolution or a war. There are many ways to accomplish this, all of which r extremely hard without riots and social upheaval all over the world. We should have done this back n 2008 but the corruption within the worldwide banking system was just too powerful to overcome.
Here:
https://www.youtube.com/watch?v=xnYZwxzxd9Y
Is a pretty good review of where we are now and where we are going and why.
“Let me be clear here, David, I’m not criticizing the Fed. The Fed didn’t have a choice… ” @(3:43)
Then McCulley points the finger at Tea Partiers as convenient scapegoats.
Here’s another idea : maybe Paul McCulley should receive a lion’s share of the blame for where the US economy is right now.
He was the brainchild of the “let’s start a housing bubble” back in 2003 or so when Paul Krugman was quoted as urging Greenspan to do exactly that. In the rare event of defending Krugman, all he was doing was carrying water for McCulkey’s nagnificently awful ideas. Also, his lets grow the poplulation so we can “grow the economy” stuff gets hard to digest after a while. Does he have any idea where he plans to employ everybody or will they all simply be consumers without any need for productivity?
I agree the analysis presented here is flawed. No mention of total private debt being too big. Not enough outrage over bailing out the banks but rather simply saying the Fed had no choice. Of course they had choices including busting up the too big to fail banks. Still I like the observation that the GOP talks a good game on deficits when out of power, and then discovers deficits don’t matter (Dick Cheney) when they’re in power. About this aspect and the inevitability of huge deficits coming soon I agree.
Awesome video even though it is incorrect. – but the illustrations are really good.
“I doubt if there will be another hike this year, and the market is moving in that direction.”
If market does not price in a rate hike you can bet your last penny it will not happen. If the Fed is going to hike in June then they are going to start jawboning in May and get the market to price in a rate hike. I for one am waiting for Dudley (or Bullard) to come out of the woodwork sometime in May. That is when we will get a better picture.
“Temporary?” What does that mean? All human life is temporary or transitory. Even a decade of the Great Depression was temporary. 100 Year Wars are transitory micro-seconds in geologic time. So all Ms. George’s jabbering and blabbering is just more meaningless top-of-the-head mindlessness from the Clueless FED Central Planning Politburo. Translation: If the numbers don’t roll our way, then the hell with the numbers; we will do what we want when we want because we have monopoly power and are accountable to no one but our fellow bankers.
Representing a political bankers’ bureaucracy, Ms. George is telegraphing that FED rate hikes will happen for political reasons. Trump having derailed Hillary, the political calculus screams higher interest rates. Ms. George is being (unintentionally) honest in acknowledging that the economic numbers are irrelevant, which is another way of saying fake or useless. Oddly refreshing, compared to “Gulf of Tonkin,” “Iraqi Weapons of Mass Destruction,” “Imminent Danger of Libyan Massacre,” and other War Party fakery.
Hi… Thanks for what you do.
I believe that “transient” is just another way of saying the economy will do through a weird somewhat stagnant period as it mentally/emotionally adjusts to the idea of changing interest rates. Questions related to how the economy will react, what will happen to housing prices, etc. are readily discussed in my world now.
I’m a commercial real estate guy in SoCal. I’ve long believed that rates were too low.
Thank you.
Congratulations. Well earned. It is clear you work hard to prepare these postings. Pity that most of the comments are scarily wrong, upended by prejudice against governments and the FED. If it was not for government funded research we would not have the world wide Web and instead we would be writing letters to each other. Agree, that the FED should stop being pro-active. I posed the question can the US economy hooked on cheap credit survive any significant rate rises. The answer is in, it cannot and when that realisation becomes widespread, a crash is probable.
“Kansas City Fed” LIES.