FOMC Voting member Jerome Powell has spooked markets this morning (though a glance at stocks impotence would not tell you that) with his comments that a "September rate hike is now 50-50," and that "The Fed would like to test a rate rise as soon as September." FX markets are turmoiling with the USD surging and bond markets are seeing Bunds/TSYs sold aggressively. Stocks shrugged in their "huh?" way initially but tumbled as Powell confirms 'mechanical'-sounding 1% rise per year in rates if the economy continues to grow as expected.
Whatever one wishes to believe about the veracity of BLS statistics, one thing is certain: for some US states, the ill effects of the crisis on employment still linger some seven years later.
"... the immediate aftermath of such a non-payment will be to push bond yields up across the periphery. This rise in the fiscal risk premium (Exhibit 3) will of course be limited, because the ECB will likely accelerate QE, including via the Bundesbank. That will push rate differentials, especially longer-dated ones, against EUR/$. We estimate that the initial fiscal risk premium effect could be three big figures, while the subsequent QE effect could be worth around seven big figures"
Greek end hogame is at hand. US economy is gaining momentum--consumption, capex, and housing. Several equity markets are at cross-roads.
Why the Beveridge Curve has shifted..
As so often, Mr. Tsipras makes a number of fair points. However, it seems to us that everybody is skirting the main issues. Greece cannot become a “socialist Utopia”, unless its citizens are happy with being condemned to a hand-to-mouth existence for a long, long time indeed. Whether or not Greece defaults, the one thing the government will be unable to fund is the very socialism that is its basic ideology.
Ronald Reagan is surely rolling in his grave. He is credited for much that he didn’t actually accomplish on the economic front, but his most singular real victory - decisive repudiation of the Keynesian macro-economic policy model that had produced stagflationary havoc for more than a decade - overshadows all his fiscal failures and the urban legend that he actually tamed Big Government. Needless to say, however, that 35-years ago repudiation has now been itself completely repudiated by the keynesian apparatchiks who presently rule the Eccles Building. This week Janet Yellen was at it again, displaying outright contempt for the Gipper’s crowning achievement.
- WSJ urges Fed to blow uberest of all bubbles: Memo to Fed: Let the Economy Overheat (WSJ)
- Gunman at large after killing nine at black South Carolina church (Reuters)
- Nine Dead in Charleston Shooting Labeled a 'Hate Crime' (BBG)
- Hong Kong Votes Down Beijing-Backed Election Plan (WSJ)
- Greece Has Already Cost Investors $897 Billion This Year (BBG)
- Merkel Maintains Tough Stance on Greece as Deadline Looms (WSJ)
- Small U.S. frackers face extinction amid drilling drought (Reuters)
- Brian Williams to Stay at NBC, but Lester Holt Will Be Anchor (WSJ)
All those saying the Fed will never be able to raise rate are looking particularly smug this morning, because if the market needed a green light that despite all the constant posturing, pomp and rhetoric, the US economy is simply (never) ready for a rate hike, it got it late last night when Goldman is pushing back its forecast for the first Fed rate hike from September to December 2015 saying that "in large part this reflects the fact that seven FOMC participants are now projecting zero or one rate hike this year, a group that we believe includes Fed Chair Janet Yellen. We had viewed a clear signal for a September hike at the June meeting as close to a necessary condition for the FOMC to actually hike in September, but the committee did not lay that groundwork today."
The tension in the Eurosystem is getting unbearable...
"The Federal Reserve signaled it was moving toward interest rate increases in the months ahead now that signs of a dip in economic activity early in the year are waning," Fed mouthpiece Jon Hilsenrath writes.
As the war of words between Athens and Brussels reaches a fever pitch ahead of Thursday's Eurogroup meeting, the Bank of Greece has made a plea to both sides as capital controls and a "Lehman Weekend" loom. "A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. An exit from the euro would only compound the already adverse environment, as the ensuing acute exchange rate crisis would send inflation soaring.
With the Fed's June FOMC statement in just over 7 hours and a Yellen press conference to follow shortly, one in which nobody expects the Fed will announces its first rate-hiking cycle in nine years despite repeated clues by Yellen that not only is there froth in the market but that the Fed has no dry powder to contain the next crisis when it emerges (even though a rate hike will catalyze the next crisis), traders have chosen to ignore the chatter from Greece which is getting worse by the hour, and unlike recent days, have bought risk overnight based on one simple technical: of the five press conferences in ten Fed meetings held by Yellen as Chairman, the S&P finished higher 80% of the time.
The one most recurring laments coming out of peripheral European countries which boast near record youth unemployment, in most cases around the 50% area, is that the only reason why there is no growth is due to "evil austerity", imposed upon them by Germany and other frugal Northern Europe overseerers, who do not permit the rampant issuance of debt to fund domestic spending and fiscual stimulus programs. There is one problem with that: the peripheral European countries are not only issuing debt at a pace that is greater than the "pre-austerity" period, but these nations' debt to GDP ratios have never been higher!