The Mistake Everyone Is Making About Fed Rate Hikes

Tyler Durden's picture

Submitted by Lance Roberts via STA Wealth Management,

 

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gwar5's picture

Fed surrogates have been steadily walking back rate hikes. Look for a data drop to "unexpectedly" give them the excuse they need to surrender. No shortage of bad news out there. They control the data so they can do what they want. 

 

knukles's picture

Raising rates is just such bullshit.  If they do, they'll have to turn about and ease right after, for the economy (globally) just plain stinks.

philipat's picture

Agreed. The Fed two years ago should have started raising rates and told Congress "Back to you, there is only so much that can be done with monetary policy and we have done it. We now need structural reforms by Congress". By not doing so the Fed has already lost most of its credibility and put itself in a position to take all the blame when the SHTF. Congress will be at the front of the line pointing the finger. Couldn't happen to a nicer bunch of Guys and Gals.

1Q GDP as a result of the trade defecit is now going to be negative. 2Q GDP is already projected by the Atlanta Fed at 0.8% but that will be revised down because the inventory build in 1Q inflated GDP by 1.4% and now will be worked down in 2Q. The trade balnce is likely to worsen further in 2Q because of the latent effects of the strong dollar and higher oil prices.

So if the Fed now raises rates even by only 0.25% going immediately into a recession followed by an instantaneous reversal and QE4, they will destroy totally what little credibility that remains. Procrastination is a terrible thing?

Sanity Bear's picture

Not sure why anyone thinks the Fed is ever going to raise rates. Wasn't it clear where this path led when they embarked on it years ago? Realization of the actuality of economic damage done by previously artificially low rates, or perpetual zero rates, was the choice then - as it remains now. Think the former is a good bet?

CrazyCooter's picture

Queue Eee Fo Evah!

The only way the Fed could possibly fuck this up ANY WORSE is negative interest rates, which means they HAVE to do that precisely because it doesn't make a got damn lick of sense (unless you are an economissed).

Regards,

Cooter

new game's picture

take away 3.5 trillion of liquidity and tell me what we have for an economy?

if all the intervention was naut, we would be in a full recovery with businesses thriving with new players competitivly making decisions based on demand.

what we have is a faux command economy dependant of printing fiat and hopefull trickle down to the plebs. and when not enough gets to the plebs direct payments go to the FSA army to keep unrest from flaring up. same story as SA and china. transfere enough foriegn reserves back to a growing underclass and keep them walmart dependant.

how long can this go on? well, that is why we watch greece so closely, the template of failure, all playing on the weakness of humans dependant on a handout from a economy that is moving away from austrian priciples to a command artificially levitated fiat debt scheme. sure to fail as real wealth from labor is temporarily suplanted with fiat backed by faith. it has become a hollowed out dead tree ready to fall. a windy day could be the black swan arriving...

daveO's picture

Or by design.

http://redefininggod.com/nwo-schedule-of-implementation/

Funny how the tribe member didn't even mention the end of QE back in Oct. They really take us all for fools.

new game's picture

this article is pure shit because he doesn't address the creation of fiat vs labor creating real wealth. so all his charts and other gobb slob econ talk is meaningless. the tribe will never get to the core problem BECAUSE it is why they are wealthy by skim scaming the first touch of trillions of fiat. all bullshit talk without attacking the real enemy, the fed...

Carpenter1's picture

The FED has been crashing markets for decades, Bernanke admitted that the FED crashed the 1929 market. But like every bull before, investors are delirious after 5+ years of free money and in love with the FED.

So they're always caught off guard when the FED crashes it yet again, which they will do this time like they've done every other time.

bid the soldiers shoot's picture

 

Would you care to explain?

what little credibility that remains. 

Aside from opening the Fed on business days, turning on the lights and the heat when it's cold and the air conditioning when it's hot, what little credibility do you refer to? 

Boris Alatovkrap's picture

Central bankster is talk and talk in pretense of thought full analyst, but at end of day, is facing reality of duration mismatch. Interest rate hike is crush balance sheet of most bank as major asset class of housing is all lend long, borrow short.

As debtor is slave to creditor, creditor is slave to sleazy monetary policy.

philipat's picture

Welcome back Boris. A winter of skiing in Siberia?

Hohum's picture

As long as all debt increases faster than GDP, we're okay.  When it doesn't, we're not.  That's all you need to know.

Dre4dwolf's picture

Rates will be between negative 5% and positive 5% forever unless hyperinflation.

If hyperinflation you will see massive knee jerk 10% rates or something (wont happen since 90% of the population probably lives in poverty at this point anyway so most new printed money will go right back to the banks that issued it instantly anyway).

 

In order for the U.S. to ever see hyperinflation . . . the following would have to occur

-Total consumer debt would have to approach zero 

-Avg. Consumer Credit utilization would have to drop to like 1%

-Defaults on Credit would have to disappear

 

So basically in order for the U.S. to ever see hyper inflation (and therefore a rate hike) all consumer debt would almost have to be extinguished (payed off or liquidated) and THEN the consumers would have to have money left over.

 

So what are the odds that in the next 10 years there will be soooo much money around that you would pay off your credit cards, mortgage and student loans  + have money left over to the point where you "feel like you have toooo much money and must go spend it" . . . ?

 

 

We are heading for a deflationary crash and market turmoil, this is what the fed + member banks are combatting.

The only hedge for deflationary collapse is to 

-Pay down all  your debt (since the $$$$ you would be using to pay your debts would be rising in value) making it harder for you to pay your debts (so pay them off now or default now to get rid of it , it wont be worth paying back in future dollars)

-Holding CASH

-Holding some precious metals for when the markets start to collapse and the speculators get scared and start dumping their $$$ into metals....  $$$ that will be appreciating in value

 

Since most of the 1% probably are also heavily in-debt and invested in deflation sensitive assets (that will lose $$$value in deflationary environments) after the deflation starts to endanger the elite they will probably go hellicopter money mode on everyone.

At which point you should flip out of everything, and into metals and anything not-bank or cash related.

 

Just my 2cents which could be worth a quart deflation adjusted.

 

Think about it , we have had 50+ years of inflation, eventually we will see a long deflationary period . . .has to happen eventually.

daveO's picture

Deflation doesn't happen with counterfeiting CB's in place. Only inflation occurs in this environment. In 1933, they partially outlawed dollar abandonment by confiscating gold and then debased the dollar by 75%. They are now talking about blocking cash. So, they can steal bank deposits. It always boils down to theft. Deflation doesn't allow banskters to steal, so it won't be allowed.

They've been debasing(stealing) for centuries.

http://en.wikipedia.org/wiki/Denarius

Yen Cross's picture

 I'm looking at these oil(CL) charts, and oil is going to get whacked -A-moled hard  before the end of the week. The $usd is oversold, so even if the jobs numbers come in good, the CL longs are going to take a good shellacking.

ZH Snob's picture

a helicopter drop is more likely than a rate hike.  and we all know they would never release their QE to the public for the real fear of losing their iron grip on the velocity of money and as a consequence, hyperinflation.

ILLILLILLI's picture

It's tough to skim off the ass-end of a deal...

Fukushima Fricassee's picture
Fukushima Fricassee (not verified) May 5, 2015 9:11 PM

They will never raise rates, ever, period. The dollar will collapse into dust.

bid the soldiers shoot's picture

The main reason the Fed is talking about a rate hike, which they've been talking about for a few years, is to prove to the huddled masses that there really is a recovery.

That the contemplation of a rate hike is one of extreme gravitas.

Please, no smiling.

new game's picture

yup, faith based bullshit to levitate the dolla for another day. keep the faith bro, ha...

delivered's picture

A couple of points/thoughts to consider. First, unlike prior expansions and contractions where interest rates were the primary tool used by the Fed to deal with an overheating or too cool economy, QE (and blatant QE at that) was aggressively used by the Fed this time around and to a point of being in uncharted waters. And remember, QE ended basically in Q3 of 2014 so we are already 7+ months past this "change" in monetary policy. 

Second, I would agree with the article in that generally speaking, interest rates are raised to deal with excessive inflationary forces, an overheating economy, or to help the value of the soverign currency. Well the Fed doesn't have a worry on any of these fronts as inflation is subdued (at least stated inflation in order to keep entitlement payments under control), the economy is anything but overheating, and the USD has been the best horse in the glue factory for almost a year. So the question must be asked, why raise rates as under classical economic theory, there is nothing that would indicate a raise is necessary.

Well, I can think of a number of reasons as follows:

- In order to utilize rate decreases during the next downturn, the rates have to be raised to have some room for reduction. If not, you are left with negative rates being forced upon the system which for the US would truly be uncharted waters.

- The Fed simply needs to save face and raise rates because this is what they said they were going to do. 

- The market will raise rates with or without the Fed. That is, with the 10 year interest rate increasing recently, if the Fed doesn't raise and real market set rates take hold, they will look basically like idiots.

While the type of analysis presented in this article is interesting, we must all remember we are in completely uncharted waters with regards to the global CB monetary policies used over the past 8+ years. I'm not sure if the developed economies have ever experienced this type of environment where such "extreme" monetary policy strategies would be used. 

The real question that I think needs to be asked of our so called brightest economic minds is this. Let's go back ten years into 2005 and if you asked the economists what condition the world's economy would be in if outright QE and monetization of government debt combined with negative interests had to be used, my guess is that most would state that the economy would be failing and/or in a depression. Ask them today and their responses are most likely this is the new normal. 

The fact of the matter is that nobody has any idea what is going to happen at this stage given the complete lack of understanding of how complex, large, and far reaching the world's debt addicted economy has become. Only the slightest event now can create a massive wave of destruction the likes of which we've never seen. Or looking at it another way and from the words of Doctor Ian Malcolm played by Jeff Goldblum from the first Jurassic Park movie "You were so pre-occupied that you could do it that you forgot to ask whether you should do it" (or something like that). Well the CB's did it and now we're going to have to deal with financial hell once the forces of the market break free from their cages. 

 

daveO's picture

Deal with a collapse like the USSR, 1991.

Herodotus's picture

Once the collapse starts, it will be even more rapid than what happened to the USSR in 1991.  I expect that the Union will also meet a similar end with the various states going off on their own.

Md4's picture

An excellent post, well thought out.

I believe shortsighted corporate outsourcing for most of the last few decades is at the heart of all of this, and the current income crisis we are experiencing is the direct result. Easy credit of the last decade, especially in housing, was the cause of the 2008 crash, and as we have not recovered lost income, we have also not recovered real growth. The fact seems to be that the Fed and the government continues to pump these "assets", along with the stock market, because they have nothing else they can do.

There is no way all of these "great minds" were mystified about what happened, and why. They simply HAD to see what outsourcing had done to the middle class economy.

They've done what they've done because, in their minds, it "worked" before. It did not, and it isn't "working" now. Their denial, while palpable, is, and has been, all about ego. They can't admit failure because that would mean they are incompetent. It would also set off the "big one" everyone now fears. How else can anyone argue a DOW of 18k+ with half the country living paycheck to paycheck? With half the country on some form of public assistance? With a chronic monthly vigil over a job report that, whatever the number, still leaving Wall Street fretting over the next one? Or, with so many unemployed students, that their education loan debt is becoming a sub-crisis of its own?

You're quite right about having to raise rates; they can't, but have no choice. And they know it.

We are ready to collapse at almost any time.

If the powers that be can't finally at least be honest about it all, I fail to see how the world can ever really recover...

m

buzzsaw99's picture

it wouldn't take much of a hike and the "market" reaction would be immediate. in the same way if the 10y rate goes above the s&p dividend rate that would not be bullish either. there is no market, there is only the fed.

disabledvet's picture

It's just a confidence game at this point.

The point of charging the Banks 1/4 of 1% is simply to say "I believe in my own bullshit."

In other words there is a recovery.

Certainly in asset prices including the dollar there has been. And I mean EVERY ASSET CLASS THERE IS. Equities, debt, real estate...EVERY ONE IS AT AN ALL TIME HIGH RIGHT NOW.

I understand these are fucking Jews of course.

They wipe their ass with your country's money. You think McCain cares? The trade deficit only represents how price gouged we are getting because of these feckless fucks and their trillion dollar boondoggles.

Fuck the French too.

Bunch of fucking whores...

davidalan1's picture

If memory serves me and if Im not mistaken the Fucking fed has created this sheeit...Volcker not bad..

Magoo started the fuck up....after 911...panic moves all over the place, dropping rates like nobodies biz..then the whole housing booosheeeit..."every american needs a home"...drop, drop, drop rates somemore...save AIG, save fannie, freddie, save GM...oh lest we forget .Gov is NOT supposed to be involved with the private sector...I feel for the greastest generation that SAVED and has watched this horseshit go on for the last decade...but hey, Ally is paying almost one percent...lmao

 

 

lunaticfringe's picture

I am in awe that any author can attempt to make an apples to apples comparison. That comparison does not exist because ZIRP and QE are unprecedented. How can anyone try to look at historical averages to get a picture of this Frankenstein economy?

 

Know this. This country is bankrupt. So are it's banks. All debts are paid either by the lender or by the debtor. They can't raise rates beyond a nominal amount because somebody is going have to pay 18.2 trillion worth of soaring bond yields.

 

They of course will ask us to pay moar. We will at some point say- "fuck you." I'm already there. When everyone else says "fuck you" well, that's when this shit will get interesting. 

daveO's picture

I am in awe that any author can attempt to make an apples to apples comparison. 

He's tribal, or this;

http://www.youtube.com/watch?v=CvQ6aiTBWhc

g'kar's picture

"The Mistake Everyone Is Making About Fed Rate Hikes"

 

They may just raise them because they can. Megalomaniacs.

daveO's picture

It's cheaper than having a negative rate environment provoke an anti-FED, charter revoking, revolution on their hands. 

JoWazzoo's picture

It's different this time.  Every effing comparison to history or comparisons is pure BS.  Hell - even Techincal analysis is little more than useless.

All we can do is sit back and wait for everything to come unwound.  Which it will.  In the meantime be careful with shorts and Puts and get out fast.  As you can see the Zombies simply will NOT allow a bonadied correction.

 

Yeah it is stupid and it sucks.

 

WRT the referred to analaysis reminds me of the spinheads indicating on CNBS that historically EVERY time the Fed raised rates - stocks ALWAYS go up.

 

Of course we know by now that, regardless of anything Stocks go up.  Like they likely will do Wednesday.  A near full retracement would not surprise me at all.

BTW - FUCK the Fed very much.

TheReplacement's picture

Shipyard White IPA.  Bugger all else.

TrustbutVerify's picture

Raise by 5 basis points for a few months.  Watch for ramifications.  Start again, raising by 5 basis points per month for 2-3 months again.  

Surely, we can handle 5 basis points per months for 2-3 months.  Doing so would allow us to get past the bugaboo of it all. 

Atomizer's picture

The game changer is if nigger Obama can pass TPP. Then we all go into Negative Interest Rate Policy. Smell reality. 

I hope it happens, so the people supporting it lose everything. Don't want to be mean. We keep telling you to steer the ship wheel. 

 

Atomizer's picture

It's always been about full control of Central Banking protocol. The Jews we provide US taxpayer monies have been caught in boredom. 

I watched IDF killing many people on horseback. It was sickening, was on the beach. All these fucker want is US taxpayer financial aid. They forget, the country is only the size of New Jersey. 

Perhaps, our Airforce would drop a bomb on you and call it collateral damage? Think about it. Hypocrisy is only a paycheck away. 

contrarianstraighttalker's picture

If you look at yields in the great depression period you realize we have 20 more years to go until rates / yields are allowed to rise. Central banks won't allow it as Governments can't afford it. More on:

https://contrarianstraighttalker.wordpress.com/2015/05/06/why-us-yields-...

basho's picture

it's over.

no one will admit it.

helicopter ben singing the blues. no one understands me. wetting his diapers.

the fed i f*cked

the country is flat.

instead of fighting each other ala black and white, team up and flatten the bankers.

they've got all of you divided and fighting each other.

it doesn't matter how many guns you've got.

you've got to do it together.

get off your as*es

Crisnach's picture

Pronostico futuro Bono 10 años ZN 

Saludos

Jun Gajete

Billy Bob101's picture

Exactly what will compel the Fed to raise rates?

firewolfsblog's picture

But but but.... this morning the local presstitutes talked about how 3 levy referendums passed in some school districts, and that just shows you how good the economy must be.