Minneapolis Fed's Kocherlakota: "Fed Funds Rate May Need To Rise 75 bps By End Of 2011"

Tyler Durden's picture

Minneapolis Fed's Kocherlakota, who is not scheduled to speak today, and who in the past has exhibited both hawkish and dovish tendencies is on the wire, saying the the Fed Funds rate may need to rise 75 bps by late 2011. He is also quoted as saying that QE2 boosted inflation expectations more than he anticipated (oh look, another confirmation of Fed ineptitude but only in retrospect), and that higher short-term rates certainly possible in late 2011. In other words, the hawks in the Fed are once again getting very vocal... Just like in March of 2010, and before the market tanked, opening the door for QE2, and when all the hawks kept their mouths shut.

From MarketWatch:

Narayana Kocherlakota, in an interview with Dow Jones Newswires and The
Wall Street Journal, said that if the U.S. economy grows at about 3%
this year, as he expects, and underlying inflation ticks higher, as he
expects, then the Fed will end its $600 billion bond-buying program as
planned in June.

He expects core inflation (inflation excluding volatile food and energy
prices) will rise from about 0.8% late last year, when the Fed launched
its bond-buying to about 1.3% by year end, he said. As a result, lifting
the Fed's target for short-term interest rates by more than half a
percentage point late this year is "certainly possible." He noted that
the often-cited Taylor Rule, named for the Stanford University professor
who devised it, would in that circumstance call for a
¾-percentage-point increase in rates.

"If you consider monetary policy was appropriate at the end of
2010...and then you see core inflation go up by 50 basis points over the
course of 2011..the usual response that we know from 20 years of
thinking about monetary policy (or even more) is to raise the target
rate by even more than that increase in observed inflation," he said.
"So that means you should be raising the target rate by more than 50
basis points."

The Fed dropped its short-term interest-rate target nearly to zero in
December 2008 during the financial crisis, and promised to keep it there
for "an extended period." Trading in futures suggests markets
anticipate a Fed increase to 0.5% early in 2012.

Mr. Kocherlakota is one of the five regional Fed presidents with a vote
on monetary policy this year, along with the Washington-based Fed
governors. He is a swing voter on the Fed's policy committee, who isn't
clearly aligned either with hawkish Fed officials who tend to favor
tighter credit or dovish members who tend to favor looser credit

Two other regional Fed presidents with votes—Charles Plosser of
Philadelphia and Richard Fisher of Dallas—have expressed concerns about
inflation and suggested they would favor raising rates in the near

The Minneapolis Fed president, a former academic, said he expects a
"pretty big upward movement" in core inflation—that is inflation
excluding volatile food and energy—which he considers the best predictor
of where overall inflation is.

Mr. Kocherlakota also said that the Fed's second-round of bond buying,
known as QE2 for "quantitative easing," was more potent than he
anticipated when he and other Fed officials launched it last year. It
raised near-term inflation expectations, then dangerously low in his
view, by more than he anticipated, measured by financial market

Mr. Kocherlakota said when the Fed decides to tighten monetary policy,
he favors raising short-term interest rates over selling assets by the
Fed's portfolio, primarily because the Fed has a firmer understanding of
how interest rates affect the economy.

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spartan117's picture

I think it was a last second attempt to beat the PMs down for the quarter.  Managed to shave a few bucks off gold in seconds.

redpill's picture

Either that or Blythe was just slamming the close per usual.

MarketTruth's picture

Must by Blythe because if the Fed raises rates their balance sheet goes to the dumper.

101 years and counting's picture

Thats why the Fed created that new line item on its balance sheet: "Pass loss onto Treasury, thoroughly fucking the taxpayers"

ghostfaceinvestah's picture

Yup, more misdirection, they are printing billions a day, and their first move is to raise rates?  Pure, complete, bullshit.

Bay of Pigs's picture

Trotting out these useless hacks shows how utterly ridiculous the situation has become. Jawboning is all they have left, and it isn't going to work.


Bicycle Repairman's picture

Utter, complete, ridiculous bullshit.  Mission accomplished for about 1/2 a day.  This clown will be faded in a NY minute.

Cinfultreat's picture

I seriously want to beat the crap out of your perpetual junkers........don't stop Turd!!!!!!!

Tulli's picture

Off topic, please excuse me:

President of Portugal accepts the resignation of the government and dissolves parliament, schedules elections for June 5th.

The present government will remain in office with only "current management" capabilities. Earlier today, the Portuguese minister of finance declared that a government which has resigned does not have constitutional power to accept a bailout.

Furthermore, he also stated a "current management" government does not have constitutional authority to approve additional austerity measures, which means that the stated "deficit control goals" are to be broken, and nobody will be in a position to guess the final account deficit. Blame for this will be given to nobody, as it was the fault of "the process". Fantastic, for those fond of Kafka.

After the election, a new government will only take office by late June / early July, provided that no coalition is needed.

Consequence: there will be no bailout of Portugal before late summer. The question now is how in the world will the country fund its pressing financial needs between now and then.

Nobody dares to guess.

Declaration from the President here: http://www.presidencia.pt/?idc=22&idi=52597

Cash_is_Trash's picture

And you can't expect the Germans to foot every bill.

Viva Nigel Farage

Tulli's picture


Actually, if you look under the surface, what the Portuguese regime is saying is that "for formal reasons" they will not drink the kool aid.

Believe it or not, they are telling the bankers that they will not accept more austerity in order to make payments.

Therefore, in reality, Portugal is defaulting already, albeit doing it in a way that saves face.

By the time summer arrives, bankers will be more than happy to accept softer terms, just to be get their money back.

After Iceland, this is the second show of bravery from a regime. Expect the Portuguese bonds to crash even further, and the PSI index to crash, but no austerity.

Late trading in the EUR / USD is showing the initial knee-jerk reaction.

Now, what will a debilitated Merkel do?

Tom Servo's picture

I'll wager my FRN's on an IMF / ECB combined "we don't give a fuck what your laws are" and shove a bailout / austerity package down their throat anyway. 


I hope Portugal (and Ireland)  extends the middle finger to the IMF and ECB, but i'm from Missouri, so I'll believe it when i see it.

snakeboat's picture

It's just too bad we can't vote him in as President...

vote_libertarian_party's picture



They will have QE3 at $200B a month.  The exact opposite of raising rates.

Cash_is_Trash's picture

That's 275 days away.

By then even Volckeresque rates won't soak up liquidity and tame inflation.

malek's picture

275 days? Yeah, that should match with QE5...

pendragon's picture

bring on the bear...

hambone's picture

The bear is dead (this from a guy who can't force himself to buy equities...I have a money mngmt lady do it for me and I hate her and all the bullshit but I'm not going down as an economic martyr).

Money must go somewhere - always. 

Cash - not so much.

Bonds - not so much at these yields.

Commodities / ags - yup, will adjust nicely for inflation

Stocks - yup, will adjust nicely for inflation even if it is all bullshit accounting, smoke, duct tape, blah blah. 

Money must go somewhere...traditional safe havens of dollar and T's are ridiculous at this time.  They will bounce some as bills must be paid in dollars but the bounce will only be short cause everybody knows you don't put your "money" into dollar / T's without significant debasement.

Stocks / ags / PM's / commodities to the moon...otherwise known as hyperinflation.

A Man without Qualities's picture

this money must go somewhere argument is actually total crap, because money in the broad sense is debt, and therefore those buying stocks on margin (i.e. many if not most) will simply repay the borrowing and the "money" simply no longer exists.

hambone's picture

You are correct if we were in a closed end monetary system...however in a fiat gone wild system more money "digital credits" can perpetually be cranked on one side to PD's (for trading, not lending) than money dying in lower loan origination, bankruptcy, loan repayment on the other.  Absent Fed we have $5T in T's annually and no natural buyer...rates would skyrocket, money be yanked from all "risk assets" to safe bond returns, yada yada.  Deflation.  But everybody knows long as current Fed / Admin / Wall St. run this show there will be free money for those closest to the digital printer, there will not be a failed T auction.  Ultimately hyperinflation.

Also forgot my beloved RE / CRE - hmmmm...not making any more but w/ peak debt, peak population coming, peak energy, likely negative taxation (mortgage interest?, $500k tax free gains?) and need for better LTV....hmmmm

bingaling's picture

This time its different. The dollar may no longer be considered safe .

Jrsurf00's picture

Anyone got any new good short ideas? Looking to get net negative on market exposure

Id fight Gandhi's picture

Take out the momos


Pure momo plays nothing more.

Jrsurf00's picture

word, i can sympathize with contrarian momentum bets, but whats going to be the catalyst to break these stocks? For Lulu they will definitely suffer from tighter margins as commodities continue to rise, but nflx seems to be cutting costs in their business model. Valuation is insane, but i just dont see a major near term mean reverting catalyst.


Do you know of any borrowable chinese frauds? seems all of the frauds that get posted are impossible to borrow in 5 minutes after the post.

redpill's picture

That is until Turbotax Tim and Uhhhbama conference call Benny in and let him know the Treasury will be insolvent overnight if he increases the interest they have to pay on the debt.

IBelieveInMagic's picture

That's hardly a problem -- all the interest paid by Treasury on monetized Treasuries is returned to the Treasury by the Feds after some nominal reduction...

tmosley's picture

Yeah, and all the heroin addicts in the world will stop shooting up at the same time.

AccreditedEYE's picture

Just like in March of 2010, and before the market tanked, opening the door for QE2, and when all the hawks kept their mouths shut.

So true... market performance from 1st Q.10 is practically identical too. We closed 1st Q 10 up 5.39% on the S&P, up 4.82% on the DJIA and up 5.68% on the Nazz. Groundhog Day indeed. 

redpill's picture

Oh, and we're going to reduce our dependency on foreign oil, stop global warming, and get excellent and inexpensive government healthcare this year, too.  Promise!


economessed's picture

But wait!  If you vote now, we'll throw in a promise to reduce spending and decrease the Federal deficit by 2018.  I'll also shut Guantanamo, get the lobbyists out of my cabinet, and roll-back the Bush tax cuts on the wealthiest 1%.  Plus I promise to make you younger and better looking.

Racer's picture

Another classic of not seeing it coming like sub-prime is well contained type classics.



Silver Surfer 1985's picture

Am I the only one who would like to organise a protest at a FOMC meeting this year? For example, the one in September on the 21st. Let these central planners know that at least a few people are outraged at what they are doing at the Fed. Sure a protest to the voting members wouldn't do much, however it would put them 'on notice' that people have wised up to their plans. Perhaps it would start a moment to truly end the Fed and expedite their demise.

Its just that many of us complain about what they are doing and understand its detrimental consequences to the US, but there is no concrete action. Just a thought. Ridicule will be appreciated as well, but I'm serious.

Cleanclog's picture

Why wait until September and after Jackson Hole?  

Get a twitter, FB, ZH all sorts of social media campaign going now, swelling and become relentless. 


Cdad's picture

The fuel for your protest is already waiting.  It is NOT the case that all of America is watching Dancing with the Stars.  As a percentage of the population, way fewer of them are watching TV at all...because they are online.

Now some of them are surfing porn, and others are shopping for sweaters...but the Internet was/is a game changer.  Do you call a broker if you want an opinion on shares of a company?  Or do you ping Yahoo finance and have all the basics in about 15 minutes?

It is my opinion that the Fed is looking at its last days...because folks are no longer getting news through the Dan Rather filter...oh, and because the freakin' Republic is broke and very near collapsing...too...but...point stands.

Tyler...what is your best unique visitor count during any one week?  With Twitter and Facebook and all that other shit you people do...how quickly could it be leveraged?  Everything anyone needs to make it happen is at your very fingertips.

My revolution against the bankers and the politicians is already well engaged...mine being the revolution of not spending money.  Yep...I think that is the best starting place to rid the world of bankers.  There are more steps to it than that, but that is where my war begins.  I know brother CogDis is with me...and probably quite of few of the brotherhood.

Yep...the clock is so ticking...and is about to be accelerated by a factor of ten if our brave Speaker of the House signs that ridiculous compromise bill...for $50 billion in spending cuts....LOL!

Hello giant martini...

Silver Surfer 1985's picture

Cdad, understood and agreed! Its just that a well-promoted and advertised to the MSM protest would shock these controlling bitchez like none other. Sometimes what is required is physically see the 'revolutionairies', if you will. I was one of those in Sept 12, 2009. His majesty BHO was promptly scheduled to fly to Minnesota that weekend. Just shows how the powers that be are frightened of people showing their discontent publicly. BTW, I too am basically debt free, with exception of residence and recent new vehicle (couldn't help it last Fall). Great idea you have though. Thanks!

Cdad's picture

Understood and agreed back at you, silver.

I hear Jackson Hole is lovely in the summer [if the Fed lasts that long].  I'm familiar with the Buffalo/Sheridan area...very nice.  I'd join in that fun. 

Get Tyler to mass print some ZH T-shirts, signs with "End The Fed" on them, ZH symbol on the bottom, peacefully demonstrate, PA system, speeches, facts and figures, interviews with the press.  I get it.  I agree.  Organizing it will never be easier than now with ye old Internet at your finger tips.

In the meantime, shut down personal spending.  Food, gas, rent.  Lose the car payment if you can.  Grow a garden.  Learn to can food [you would be surprised how good canning food feels]  Ferment :).  Work by contract...for cash if you can.  Reject Hollywood in all of its forms.  Keep precious metals.  Live simply and quietly.  Read.  Prepare.

With or without your protest rally, silver...America is about to enter a period of tremendous stress and change.

Now...if I could just quit spending on giant bottles of vodka  :(

Silver Surfer 1985's picture

Yep, I prefer the Polish Vodka to Russian or Finnish ones. The potato base of the Polish Vodka is superb when chilled in the freezer for hours. I do prefer a great XO though; a bad habit from living in France for years and reminiscing about French girlfriends past........... You da man cdad

Cleanclog's picture

Watch the munis try to roll over VRBOs with no letters of credit.  75 basis point.  Aoooga.

TruthInSunshine's picture

That's so nice that he "underestimated the inflationary expectations QE2" has brought about.

He has 15 minutes to get the genie back in the bottle, right Bernank?


Racer's picture

"you called? Sorry I have been busy shooting and killing all these pheasants that were bothering the banks"

hambone's picture

Only gun Bernank would ever be on the end of is the one he places in his own mouth...let's just hope he has more courage than Madoff to end it once he is exposed.

Milton Waddams's picture

How does the Fed Funds carry any significance when the banking system is swamped in a trillion plus of excess reserves?

LOL at 75 basis points. A huge signal to anyone paying attention to the research that comes out of the Fed.

GNandGL's picture

Exactly.  The banks have no need to borrow from each other over night when they sit on over a trillion in excess reserves.  The Fed can announce an intention to raise the Fed Funds rate target but their actual ability to move the rate is zilch.

jkruffin's picture

One thing that is guaranteed out of all of this scam, is when they start to pull the TRILLIONS in fiat out of the system and begin raising rates so drastically,  the fantasy ride on Wall Street is going to look like a nuclear financial bomb exploded.  The S&P will be left with a huge crater to fill.