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Hilsenrath Warns: Fed's "Vote Of Confidence In US Economy" Means Mid-2015 Rate Hike Possibility

Tyler Durden's picture




 

When no lessor man that WSJ's Jon Hilsenrath struggles to find anything dovish among the rubble of the QE-ending FOMC statement, it appears the dovish observers have something to worry about...

Via WSJ's Jon Hilsenrath,

The Federal Reserve on Wednesday said it would stop its long-running bond purchase program at the end of October, ending a historic experiment that has stirred intense debate about its effects in markets even though the central bank said it accomplished its main goal of reducing unemployment.

At the same time, the Fed upgraded its assessment of the job market’s performance while pointing to some short-term downside risks on inflation. It stuck to an assurance that short-term interest rates will remain near zero for a “considerable time.”

Taken together, the moves mark a vote of confidence by the Fed in the U.S. economy, which appears to have grown at a pace near 3% or more in the third quarter. That’s a much better performance than rivals in Japan and Europe and a hopeful sign for the world economy when growth in China appears to be flagging.

Pointing to “solid job gains” and a falling unemployment rate, the Fed said a range of labor market indicators suggest that labor market slack is “gradually diminishing.” In the process it struck from the statement an earlier assessment that labor market slack was substantial, a phrase investors have been watching closely for signs the Fed is becoming more confident about the economy.

“The Committee judged that there has been substantial improvement in the outlook for the labor market since the inception of its current asset purchase program,” the Fed said. “Moreover, the committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in the context of price stability.”

If all goes as they plan, officials will turn their attention in the months ahead to discussions about when to start raising short-term interest rates and how to signal those moves to the public before they happen. Many expect to move on rates by the middle of 2015. Fed officials stuck to an assurance that rates will remain near zero for a “considerable time,” a strong suggesting that their thinking about the timing of rate increases hasn’t changed much.

Yet plenty could go wrong and force the Fed to tear up the plan. Twice before officials declared the Fed would stop bond-buying, only to restart the effort later when growth, hiring and inflation appeared to sag. The Fed’s rate assurance included a new qualifier: If the job market improves more quickly than expected or inflation rises, rate hikes could come sooner, and vice versa.

The Fed did point in its statement to news risks on the inflation front, noting that inflation expectations had softened in Treasury Inflation Protected Securities markets. Officials also pointed to downward moves in energy prices, but said they they didn’t expect downward pressure on inflation to last.

The Fed launched the latest round of bond purchases in September 2012, when it said it would buy $40 billion a month of mortgage bonds and keep going until it saw substantial improvement in the job market. It expanded the purchases to $85 billion a month of Treasury bonds in December 2012 and gradually began phasing the program out in January.

Its legacy likely will be a subject of hot debate on Wall Street, academia and central banking for decades to come. Critics of the Fed for years have argued it risked stoking inflation, devaluation of the dollar and market distortions. Officials hoped to suppress interest rates and push investors into risky assets, and in turn spur borrowing, spending, investment, growth and hiring.

The worst fears about bond buying - or “quantitative easing,” as it is often described - clearly have not come to pass. A wide range of indicators point to it. For instance, Inflation, as measured by the Commerce Department’s personal consumption expenditure price index, has been unchanged at 1.5% since September 2012. Meantime the dollar, as measured by the Fed’s broad dollar index, is up 6.7% in value compared to the world’s other currencies.

Yet demonstrations of its benefits are elusive. Though the jobless rate has declined from 8.1% before the latest program was launched to 5.9% in September, this is in part due to people leaving the work force and the ranks of those counted as unemployed. Job growth was 2.2 million in the twelve months before the Fed launched the new round of bond buying in September 2012, and 2.6 million in the last 12 months, but it is hard to prove the faster growth comes from the Fed’s efforts and not other factors.

The Fed said it would continue for now its practice of using proceeds from maturing securities to buy other securities in order to keep its portfolio at the same overall size.

St. Louis Fed president James Bullard said before the meeting the Fed should consider continuing the program because inflation expectations had fallen of late. But several other Fed officials have suggested in recent weeks they would only consider restarting the program, but only if the economy seriously falters.

Minneapolis Fed President Narayana Kocherlakota dissented. He wanted the Fed to continue bond purchases and to pledge to keep rates low more assertively.

 

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Wed, 10/29/2014 - 14:17 | 5390756 LawsofPhysics
LawsofPhysics's picture

In a word, bullshit.

Wed, 10/29/2014 - 14:19 | 5390768 wallstreetapost...
wallstreetaposteriori's picture

All fixed!!!?

Wed, 10/29/2014 - 14:27 | 5390814 casey13
casey13's picture

Yes they just like Japan will never be able to raise rates again.

Wed, 10/29/2014 - 14:40 | 5390880 ejmoosa
ejmoosa's picture

The Central Banks need to get out of the rate setting business.  If they did, then the rates will adjust themselves to supply and demand of money.

If there is no demand then the rates will stay low.

In the US we know there IS demand for money.  The Federal Government needs this money to fuel it's spending.  That's why the Federal Reserve is keeping rates low.  Not for me to get a better loan and save a few dollars.  It is for the Federal Government to borrow trillions of dollars and save billions on interest.

But it cannot go on forever.  The US government is consuming dollars at a faster rate each and every day.

Wed, 10/29/2014 - 14:51 | 5390931 SeattleBruce
SeattleBruce's picture

'Pointing to “solid job gains”'

Yeah, doesn't this just sound peachy?  Dude, why can't I pay my rent/mortgage/heat/lights/water bill?  Mom, what would you say if the girl, the dog and I moved home for a few months?  We'll just be in the basement - no big deal.  Mr. Yellen, Hilsenrath and Hillary Clinton said we'd be OK in the long run.  Wait, what else have I heard about the long run...can't quite put my finger on it....

Wed, 10/29/2014 - 14:56 | 5390948 SeattleBruce
SeattleBruce's picture

"That's why the Federal Reserve is keeping rates low.  Not for me to get a better loan and save a few dollars.  It is for the Federal Government to borrow trillions of dollars and save billions on interest."

In fact, the USG could not keep the most massive ponzi ever afloat otherwise.  1/3 to 1/4 of their spending comes through deficit spending - and so interest rates must remain low 'for a considerable period'.  Equal to forever til the cards topple.  Do they really have control of this runaway train?

Wed, 10/29/2014 - 15:05 | 5390973 ejmoosa
ejmoosa's picture

The Fed has a sail in the air and believes it controls the wind.  The government has a boat in the water and thinks it commands the seas.  Together they think they are sailing into paradise.

Neither are prepared for the waterfall that lies just beyond the next curve in the river.

Their delusion is nearly complete.

Wed, 10/29/2014 - 15:18 | 5391023 insanelysane
insanelysane's picture

Rates will be kept low at all costs.  Rates will only rise if something external to the current system forces them up.

Wed, 10/29/2014 - 18:36 | 5391630 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Rates will only rise if something external to the current system forces them up.

...cough... exponential mathematics ...cough...

Wed, 10/29/2014 - 15:18 | 5391024 SheepDog-One
SheepDog-One's picture

Fed paddling us into a Cat 5 Shiticane in a rubber dingy named 'Ol Ironsides'....it's fucking ridiculous.

Wed, 10/29/2014 - 18:54 | 5391664 TheFourthStooge-ing
TheFourthStooge-ing's picture

Listen Bubs, hear that? Sounds of the whispering winds of shit.

http://www.youtube.com/watch?v=OQufxG1GcAk&t=88s

Beware, my friend. Shit winds are a coming.

Wed, 10/29/2014 - 15:22 | 5391042 SheepDog-One
SheepDog-One's picture

Luckily for Japan, they had us to support them for years, I don't know who is going to support us.....Belgium?

Wed, 10/29/2014 - 14:21 | 5390773 slaughterer
slaughterer's picture

Devolved to insanity at this point.  Maybe worse than insanity, whatever that is.  

Wed, 10/29/2014 - 15:20 | 5391030 insanelysane
insanelysane's picture

Rationally and clearly following the wrong belief system; see up is down, gravity is myth, Keynes know how economics works...

Wed, 10/29/2014 - 15:26 | 5391055 SheepDog-One
SheepDog-One's picture

What's worse than insanity at this point could be reality....it's like that old saying 'Just because you're paranoid does Not mean everyone is NOT out to get you!'

Wed, 10/29/2014 - 14:21 | 5390777 Eireann go Brach
Eireann go Brach's picture

This guy needs to be fucked by a pair of donkeys in the arse!

Wed, 10/29/2014 - 14:29 | 5390829 Al Huxley
Al Huxley's picture

Again?  Today?  I thought that was on Thursday nights.

Wed, 10/29/2014 - 14:22 | 5390784 Gringo Viejo
Gringo Viejo's picture

"KEEP HOPE ALIVE!"

............Jesse Shakedown Jackson

Wed, 10/29/2014 - 15:11 | 5390997 Berspankme
Berspankme's picture

92 million not in job market of which over 50 million are not retired= little slack?????  Fuck You Fed

Wed, 10/29/2014 - 14:20 | 5390763 buzzsaw99
buzzsaw99's picture

what a pack of assholes

from finance.yahoo.com:

The number of billionaires has more than doubled to 1,645 since the financial crisis...

Wed, 10/29/2014 - 14:21 | 5390775 Honey Badger
Honey Badger's picture

The Fed may hike rates in mid 2015, but it won't be because of their confidence in the economy.  They don't give a shit about the economy, their motives lie elsewhere.

Wed, 10/29/2014 - 14:31 | 5390845 walküre
walküre's picture

squeezing blood from stones is how they roll

Wed, 10/29/2014 - 14:22 | 5390779 JustObserving
JustObserving's picture

The Fed is hoping that if it pretends that the US economy is strong, then the economy will recover.  That will not happen and we will get more QE soon enough.

Thu, 10/30/2014 - 04:04 | 5392661 LostandFound
LostandFound's picture

Indeed Sir, in fact what makes the FED's position impossible, is the fact that they are in fact claiming that they have fixed the Economy and achieved there mandates. So when the SHTF, how are they going to explain to the public that QE 4 is not appropriate?

The real economy and the financial market cannot stand on its own two feet, this will become apparent in time, however the manipulation of the figures will get more and more extreme before the confidence is lost and the real market doesnt buy it anymore.

The FED is the great deceiver, but for how long can they polish a turd? 

Wed, 10/29/2014 - 14:21 | 5390783 Jameson18
Jameson18's picture

Does the FED not have google. http://www.dailyjobcuts.com

Wed, 10/29/2014 - 15:14 | 5391008 SheepDog-One
SheepDog-One's picture

WallSt central bankster jobs are the only 'jobs' the Fed is concerns about other than blowjobs.

Wed, 10/29/2014 - 14:22 | 5390788 NEOSERF
NEOSERF's picture

8 months out to any economist is a lifetime.  He could tell you the world would end and would have as much chance of that being right as any guess on the economy.  Joke.

Wed, 10/29/2014 - 14:23 | 5390791 ebworthen
ebworthen's picture

Why not raise rates right now?

Why not pay savers to save? 

Isn't that the true source of "capital"?

Paper Ponzi!

Wed, 10/29/2014 - 14:33 | 5390857 dracos_ghost
dracos_ghost's picture

+1.

Except we're in the age of the New Capitalism(aka sovereign wealth funds aka gubmint stupidity). The .govs around the world need to sap every last drop of wealth from people via sovereign debt, not create any wealth.

Wed, 10/29/2014 - 16:04 | 5391194 ejmoosa
ejmoosa's picture

Savings is the antithesis of consumption.  That's the only game in town.

Wed, 10/29/2014 - 14:40 | 5390875 Consuelo
Consuelo's picture

It matters not (here domestically) whether they start or stop the program, raise rates in June, etc.   What matters is China and Singapore exchanging vows in something other than $USD wedding gowns.   Or Poland shifting the bulk of its military asset allocation to the border of Eastern Ukraine.   Or this winter in Ukraine.   Or Christophe de Margarie's untimely rendezvous with a snow plow - on Russian territory.   Or the continual physical demand and shipment of gold and silver outta here.  What's that line in the Doobie Bros. song, China Grove: 'They just keep on lookin' to the East..."

Wed, 10/29/2014 - 14:47 | 5390912 nobodysfool
nobodysfool's picture

I'll have some of what the FEDs are smoking in those meetings....pass it this way please.

Wed, 10/29/2014 - 15:11 | 5390987 SheepDog-One
SheepDog-One's picture

These people are all out of their fucking minds. I'm betting before 2 weeks pass some little thing will happen and they'll all be screaming to launch QE4....for fucks sakes.

Wed, 10/29/2014 - 15:35 | 5391094 Vooter
Vooter's picture

The Fed can say whatever the fuck they want, but nothing will change reality. Pass the lipstick, please...

Wed, 10/29/2014 - 15:47 | 5391138 PTR
PTR's picture

As relayed by an "elite insider," once rates go up, that's when everything begins to unwind (according to the plan, which is to replace the petrodollar with SDRs for international settlements, and the implementation of a cashless society/economy is to begin.)

I forget the name of the guy with this "inside" contact (wasn't Celante.)  It was one of those links that beforeitsnews.com had.  He said "the queue is when they talk about raising rates, that's when it all begins."

So watch out for talk of interest rates around that blood moon next year...

 

[Apologies.  The sarc machine was leaking there...]

Wed, 10/29/2014 - 16:05 | 5391192 Squid Viscous
Squid Viscous's picture

someone needs to kill this little prick...

Thu, 10/30/2014 - 12:52 | 5394286 sandhillexit
sandhillexit's picture

I guess they don't talk to anyone outside the echo chamber.  

Cash doesn't have a signature.  It's a freedom we shouldn't hand over so easily.  Heck its easier to budget when you use cash.  I watched a small business guy buy $1000 in goods at Costco yesterday, with cash.  Retro.  I think I'll see how my household does, cash only, from now until New Year's.  

Thu, 10/30/2014 - 18:17 | 5395710 rex-lacrymarum
rex-lacrymarum's picture

The worst fears about bond buying - or “quantitative easing,” as it is often described - clearly have not come to pass.

Apparently Hilsenrath has never heard the term 'lag'. 

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