The Fed hiked today, first quarter weakness aside and second quarter weakness aside. There was one dissent.
The only surprising thing in their boilerplate statement was a lack of the word “transitory”.
Derivations of “moderate” constitute the new buzz-word.
Spotlight on Moderate and Balanced
- Economic activity has been rising moderately so far this year.
- Job gains have moderated but have been solid, on average.
- Economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.
- Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
The Fed failed to mention weakness is transitory. There was no mention of retail sales, construction, housing or any of the other string of 18 poor hard data economic points in the second quarter.
Has the economy already transitioned from a first-quarter transitory weakness setup to a moderate, risk-balanced second-quarter setup?
The Dot Plot is from Federal Reserve Board and Federal Open Market Committee release economic projections from the June 13-14 FOMC meeting.
The dot plot is the interest rate expectation of Fed participants. Only one sees weakness as not being transitory.
For an 18-point synopsis of second-quarter weak data points, please see Yellen Still Clueless?
Mike “Mish” Shedlock.
The theme of optimism is apparent.
Remember they are “selling”.
There is only one more baby-step 25 bps rate hike planned for this year – and not until December.
If recent economic weakness proves not to be “transitory”, then the Fed will likely be EASING and into another QE program even before then.
Nikolai A Leeds said:
LOL The UE rate is 4.3% and claims have been under 300K for the longest stretch in history. There is also the holiday shopping season coming up which likely will be the best in terms of retail sales since 1999
Tony Bennett said:
“The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on required and excess reserve balances to 1.25 percent, effective June 15, 2017.”
Federal Reserve will be taking $billions that it was remitting to US Treasury (helping to offset deficit) and giving it to Wall Street banksters. Yippee.
Victor Adam Smith said:
No, Yellen is not clueless. She’s just carrying out her masters’ orders.
Not to worry, soon Yellen will hear those two famous words, “You’re Fired!
Medex Man said:
Raising Fed Funds to 2 – 2.5% (about level with CPI or a little above) is a requirement for Yellen (and Bernanke) to save face. The economy stinks now, and it will stink if rates are 0% or 2.5% — there is way too much debt for a functioning economy.
But keeping interest rates artificially low is and will continue to damage the economy, deplete the savings pool (what little is left of it) — and ultimately damage the tax base off of which Washington DC lives.
Yellen just wants to save face and leave — which is the best she can hope for now.
Joseph Constable said:
Something is wrong. Raising rates is supposed to make bond yields go up. It must be that the influence of inflation, rather in this case an expectation of low or declining inflation, is strong.
Nope. The market calls BS on the FED.
Medex Man said:
There hasn’t been any price discovery in Treasuries in years — one of many problems with the Fed manipulating bond prices.
Investors are scared and running for perceived “safety”. Whether Treasuries are safe or not for retirees facing spiraling health care costs many multiples higher than yields… is debatable. Investors are losing principal to health care inflation even if yields were to rise to match CPI.
Many investment committees have set allocations — requiring x% to be in Treasuries whether it makes sense or not. Anyone serving on a board recognizes that keeping a large Treasury allocation mandate is career insurance.
To a board member, the certainty of retirees (other people) losing out to rising health care costs is vastly safer than the board member risking a lucrative directorship
Fed playing catch up – Fed follows. Nothing to see here, I’ll now go back to playing video games.
Ron J said:
“The market calls BS on the FED.”
As far as there dot plot is concerned, one might as well use the dots on a dart board for predictions.