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The Fed Will Raise Rates in March 2015
By EconMatters
March or June?
The big question for financial markets is whether the Fed will raise rates in March or June, it used to be Whether it would be June or September of 2015, and I think as the data gets better in the second half of the year, and QE ends in October, the timeline could be moved up even further, say January of 2015 for the first rate hike.
Read More >>> The Fed Needs to Raise Rates Now!
Data Dependent creates box for the Fed
For example, what happens to expectations if besides the consistent 200k plus employment reports each month we get a 350k number? What kind of pressure will this put on the Fed to move on rates, especially sense QE has ended in October? I think there is a distinct possibility over the next five months that we have a 350k plus employment report, and the Fed line about changing data and data dependent comes into play. In this case they set the bar for moving sooner or later, and the bar would be surpassed with a 350k employment report.
Read More >> Stellar Econ Data This Week
5.9% or 350k – which comes first?
Also what happens if the unemployment rate drops to 5.9% over the next 4 months, this key psychological rate number being below 6% is real close to approximating full employment by historical standards, and they are still sitting at zero percent in the fed funds rate? The questions and pressure just from their academic peers in the economics community for not addressing this change in data would be immense to say the least from a credibility standpoint.
I would estimate that there is a 40% chance that one of these two data measures in an outsized employment number of 350k plus, and/or a 5.9% reading on the headline unemployment rate comes to fruition that puts considerable pressure of the Fed to move up the first rate hike, or they have some serious explaining to do.
QE Ends in October
Things are going to be completely different when QE ends in October, they can no longer pacify markets with this kind of ‘tightening’ and financial markets are going to start re-pricing all on their own, in a sense telling the Fed where they will be going. This is what markets do, as investors try to front run Central Bank actions. And given how many participants have to switch directions, rates are going to start moving up in the second half of the year on any good economic data in the form of robust GDP reports, 250k plus employmentreports, and a drop in the headline unemployment rate.
Housing & Retail Sales
The second quarter earnings were better than expected, and if housing and retail sales start helping even a little bit, the bond market is going to start pricing in rate rises on the long end of the curve, which is where all the yield chasers have been hiding out. And once some key technical levels are breached to the upside regarding yields, the amount of stop hits and closing of positions is going to add further fuel to the rising yield momentum in the bond market as this is an extremely crowded trade, and they haven`t began to lose money off of very low yield levels. Once bond managers start to lose money in their portfolios as technical levels of resistance fail, selling begets more selling in these bond funds, and a 3% 10-year yield is here sooner than many complacent investors realize.
Read More >>> Negative Real Rates Show Yield Trade in Bubble Territory
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Re-pricing of Bond Markets
Therefore, watch for above trend economic data that comes out over the next four months; this is the key driver for forcing the Fed`s hand on ‘data dependent’ rate hikes. And if the economic data continues to move in the direction that it is currently moving I expect the Fed to raise rates by March of 2015, and this date isn`t currently priced into the bond market.
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Yield becomes a Four Letter Word
The future fund flows out of the bond market, especially at the long end of the curve over the next four months as the economic data comes in hotter each month, given the size of portfolio reallocation, is going to be staggering to watch as the realization that the Fed has to move on rates by March, and not June of 2015. Savvy investors can piggy back on this market dislocation when ‘Yield’ becomes a euphemism for ‘Sell’, as anything even remotely resembling a yield play will be sold with a vengeance over the next four to six months as the rate hike cycle begins in the United States. Read More >>> Bond Kings to be Dethroned in Second Half of the Year
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Raise rates in March 2015?
I'm sure the Fed can fabricate something like raising rates by 10 bp (and announce to do further baby steps every half year) but at the same time open some new backdoor lending facility to their buddies to cushion the effect...
Does such a thing count a a REAL rate increase?
No, and we will never get a real rate increase before the final demise of the US Dollar.
this does not matter . . . up or down so what.... there is not one engineer out there that can not stop the leak at the Fukushima Nuke Power Plant in Japan . . . the Pacific Ocean is Dead . . . the fish are Dead... the EPA is not doing their job... it is a world concern , , not just Japan . .
Another worthless article on zerohedge. what does that make 99 out of the last 100?
this site and Mish's are now so unbelievably bad,it's well.... unbelievable.
Y'all take care cause I have signed off from both sites. Best wishes to all in the future.
Like Japan did for 30 years, what's their rate now?
How can the Fed possibly raise rates when .gov is preparing for war and Obama finally breaks 120 on the links.
Haven't they been saying the same thing back in 2009 about 2010?
Wow, this guy is throwing numbers out there like a car salesman talking fuel economy. You know, that fuel economy of a car driving on flat lands and never stopping or accelerating with absolutely no winds and also the cleanest fuel and the cleanest fuel filter etc.
5.9% unemployment rate and 200,000 new jobs or maybe 350,000 jobs
What a load of hogwash! We're going into fall / winter and employment will slow down again. The global economy is nearly grinding to a halt and American companies are supposed to keep hiring Americans to do what exactly?
The Fed will raise rates when their masters demand more flesh. Since when has the ability to pay debt ever bothered the moneychangers? Argentina can't repay its debt. They don't give a shit and go for the jugular. Greece, Spain or Italy couldn't repay their debts. The ECB had to step in and make everyone nearly whole.
If the FED comes out and says the economy is doing great than that is their view and it suits their purpose. Everyone else be damned. Now when are we finally getting rid of the debt diktat?
What a porn to spin that interest rate shall rise/fall on US domestic data ? There are global creditors who are quite comfortable with the dollar value for where it is while they sort out their own mess.
Fund flows to US$ that prop it status quo is a bonus to no pressure on their currencies to rise causing more of their internal inflations while they soft land with deflations.
Whatever Fed does is cosmetics in 2014. Only real impact to US economy comes cautiously for the better if Euro collapse out of exhausation. Then a new paradigm for reset for US interest rate.
Exactly If the Fed raises rates watch out below! Money will come pouring out of developing markets and will we have another round of currency crises. And since Europe is far more levered to their old colonial interests -- well if you think their banks are insolvent now... Go for it Janet and see how long that lasts.
Like another poster said "didn't they try this before?"
I'm getting bored with this topic. By March ISIS will be calling the shots anyway, so wtf.
The hilarious thing is, the Fed can raise rates.
That does NOT mean that anyone will see a CD rate above 1% for a 3+ year term, or 1/10 of 1% anytime soon if they do.
All that will happen is borrowing costs (student loan, mortgage, credit card, etc) will continue to rise is all for anyone not part of the club.
Savers, if there are any left at this point in the game, will continue to be ground to dust.
QE will end?
As long as you don't count mysterious hundreds of billions of treasuries bought in Belgium.
Treasury funding is about $600 billion this year, down about 20% from 2013. If 2015 funding is again $600 B or less, then the market will be just fine and rates will not increase. 2016 is when funding requirements ballon and rates will increase. 2015 spx 2500.
If it is common knowledge that the Fed "must" raise rates, why is the 10yr yield sliding. Is "Belgium" buying up all the slack as QE unwinds.
Some claim they are buying up the USTs through Belgium using the estimated $20 to $30T swap line the US set up with the ECB. Neither had to account the trillions because - as the story goes - they were merely trading like for like. Off balance sheet. Magic money to keep the debt party going.
Rates are poised to fall further according to this analysis
http://www.goldsqueeze.com/technical-analysis
Ignoring the effects of the 3% 10 year is a mistake. Problems like that are what led the Fed to take it's current course of action. Now we are to believe they will let the US government collapse because their phony numbers are finally lookin good? The Fed will/must continue to keep US gov debt sustainable. The must keep the derivative market intact.
Unless the derivative market can now handle a +3% 10 year they will/must manipulate something or all the big banks will go bust...which they can't/won't let happen.
I believe the Fed has arrived at the point where they are damned if they do or don't.
They can talk about the future but I think the future is already here. This will be an interesting Fall. The French will be back from their August break and the whole world will engaged. All the pieces are in place. Everyone but the USA has currency swap agreements in place (hmmm why did they all go through all that effort?) and when inflation pops up it will be Katy bar the door let's get out of the dollar.
If interest rates are too low the dollar becomes weak and unattractive for central banks and private investors to hold. If rates rise the US government has to borrow more from the Fed (to pay for additional interest) and this debt monetization is being closely watched.
I see the end game nearing.
Come 2015, 2016, 201.... the Fed will do whatever is best for the Fed, which is in part dependent on where the herd is at that time.
"Everyone but the USA has currency swap agreements in place"
Wrong. See http://www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm
In particular this:
"In May 2010, the FOMC announced that in response to the re-emergence of strains in short-term U.S. dollar funding markets it had authorized dollar liquidity swap lines with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank. In October 2013, the Federal Reserve and these central banks announced that their existing temporary liquidity swap arrangements--including the dollar liquidity swap lines--would be converted to standing arrangements that will remain in place until further notice."
And this:
"In November 2011, the Federal Reserve announced that it had authorized temporary foreign-currency liquidity swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. These arrangements were established to provide the Federal Reserve with the capacity to offer liquidity to U.S. institutions in currencies of the counterparty central banks (that is, in Canadian dollars, sterling, yen, euros, and Swiss francs). [...] In October 2013, the Federal Reserve and these central banks announced that their liquidity swap arrangements would be converted to standing arrangements that will remain in place until further notice."
No they won't.
This would destroy the government and wreck the empire.
The Odds favor some significant stock market correction as Corp. Stock purchases declining. Its likely that by next year they will start increasing QE again. We may need a mini-crisis over junk bonds if everyone heads for the exits.
Conax
I agree but I thought they could never end QE...in fact I still don't believe they can EVER end some form of 'help'. They may do it in a different way but this falls apart in a deflationary mess if they stop...and no fiat currency ever ends in deflation. Politics demands 'mo money' and that is always what we will get. Hyperinflation is a surety not just because of history but because of human nature.
The fact that the S&P is hitting record highs just as the fed is winding down QE tells me that they aren't winding it down at all. They are lying about it. How many treasuries has belgium bought lately?
Yeah, people that conduct war for profit have no compunction about telling a few little white lies. Lip service isn't action. I pay attention to their actions, to what actually happens.
Looks like QE-4evuh from here. This close to midterm elections the lies fly in all directions anyhow.
They will not raise rates. In fact they will have to reup QE. We know that the EU Cenral Bank through tiny Belgium continued a proxy QE for the US Central Bank. So, there was no taper. Don't believe me.?! Just check the recent Fed audit. Oh.......!
Tuco
whatever they do, they will have reason to qe and or lower in fall of 2015 methinks, although what they do and what they say may not be the same.
Wow! We're going to get to 2015? How optimistic is that?
LOL hollowing! Thanks for that one!
Amazing what can be done with FRAUD and carnival performers.
Rate increase and an end of QE may happen but it won't last. The U.S. can not afford to have interest on its debt above roughly zero.
If you can talk that yield back up so that I can reload, I will subscribe to all of your stuff!
A lot of ifs....
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