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The Fed Is Either Too Late Or Too Early; But Certainly Not Just Right
Submitted by Roger Thomas via Valuewalk.com,
If market economists have the Fed right, in about 60 days from now Janet Yellen, chairwoman of the Federal Reserve, will announce the first Federal Reserve rate hike in about 9 years.
With the first rate hike pending, an obvious question is - Does the Fed have the timing right?
If you're looking at year-over-year growth in Retail Sales, Industrial Production, and Capacity Utilization, the answer is a clear no.
Here's a look.
Retail Sales vs Fed tightening cycles
The following graphic is a look at year-over-year growth in Retail Sales overlaid with the Federal Funds target interest rate.
Fascinatingly, all four of the previous four Fed tightening cycles occurred when Retail Sales were either accelerating or about flat.
This is interesting because Retail Sales in 2015 have been deteriorating all year. Overall, Retail Sales growth peaked in August 2014, and since then have consistently experienced a decline in year-over-year growth.
In the first tightening cycle shown, March 1988 to March 1989, Retail Sales floating about flat, neither decelerating or accelerating.
In the mid-90s (January 1995 to February 1995), Retail Sales were clearly accelerating.
In the late 1990s, Retail Sales were on a clear upward trend.
Lastly, in the most recent tightening cycle, from April 2004 to August 2006, Retail Sales were also clearly on an accelerating trajectory.
This goes to show that there's a first time for everything. Raising rates when Retail has been weakening for around a year.
Industrial Production
Here's a look at the Industrial Production picture.
Overall,the picture is pretty similar to the Retail Sales picture.
In three out of the four instances, the Fed raised rates when Industrial Production was either accelerating or at least not decelerating.
The sole exception to this observation was the 1988/1989 tightening cycle.
During this period, the Fed decided to raise rates even though Industrial Production was decelerating.
Unsurprisingly, Industrial Production continuously decelerated throughout the Fed's tightening cycle.
This downward is similar to what we might see for the remainder of 2015 and first half of 2016 if the Fed first starts raising rates in September 2015.
Interesting, Industrial Production growth is not far from going negative, so the Fed will more than likely impose a very short tightening cycle.
Capacity Utilization
Here's a look at the Capacity Utilization picture.
As with Industrial Production, Capacity Utilization was, in most cases, accelerating or at least not decelerating when the Fed decided to start raising rates.
The sole exception, as with Industrial Production, occurred in the late 1980s.
The most interesting observation from this graphic is that year-over-year growth in Industrial Production is negative.
It would be quite amazing for the Fed to raise rates when Capacity Utilization is lower than it was at this time last year.
Perhaps there's a first time for everything (i.e. raise rates before the economy deteriorates too much, because the Fed certainly can't raise rates).
Conclusion
Overall, if one considers Retail Sales, Industrial Production, and Capacity Utilization as reliable indicators on the state of the U.S. economy, then the Fed is either way too late or way too early for a rate hike. Ms. Yellen's Fed certainly does not have the time just right.
If the Fed does raise the Fed's target interest rate in September, it would be coming at a time when year-over-year growth in Retail Sales, Industrial Production, and Capacity Utilization are all decelerating.
Greenspan understood the first derivative, but apparently Ms. Yellen does not.
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RELAX! ..the end has been near forever. Calming footage leaked amazingly by the NSA: http://philiacband.com/propaganda.html
(NSFW)
Another way of looking at it . . .
https://research.stlouisfed.org/fred2/graph/?g=1teE
Lower highs and lower lows. This is what happens when you run out of carpet space to sweep the debt under.
The Fed is trapped by it's own ignorance and there will be hell to pay by all, the markets look ready to break out judging by the action on the QQQ last week and go parabolic, yet interest rates are near 0 and the world has entered recession.
Whatever the Fed decides to do at this point will bring financial chaos next year IMHO. Hedge accordingly.
Those graphs are missing the electoral cycle. Time is getting tight for the Fed to raise rates, then the economy to totter, then the Fed to "get to work" with QE4 just in time to save the day and get everyone elected.
Please, no more charts or discussions about the FED doing anything other than propping banks and the kleptoligarchy while impoverishing citizens.
INTENTIONALLY AND WITH MALICE.
Over the past 70 years or so, the western world has forgotten chaos. That's an entire generation. The cycle is the same. War followed by peace followed by greed followed debts leading up to war again. Same story different actor's
The ONLY reason the fed wants to raise interest rates is so they'll have a little bit of ammo left when shit really hits the fan in the next 12-18 months. To think that the entire worlds capital markets went baserk over one word 'patience', imagine what's going to happen when interest rates actually start to rise. The toxic malinvetments that have been hiding under ZIRP all these years will be brought to light and it won't be pretty.
high inventory / sales looks & quacks like a recession duck
No clue. The FED keeps giving out free money. Banks and business don't need organic growth, just stock buy-backs to keep the CEOs happy. The FED should take away this free money so that shitty businesses go bankrupt and the strong ones thrive.
Enough already. Pay me to do chart porn and pontificate if rates will rise or QE4ever is just around the bend. Its FED fund rates we're talking about and if a .25 or .5 percent is going to kill this fake economy then we're fucked. Its that simple!! No need for all this chart or numbers or non GAAP or fake accounting gimmicks.
Its nice to see how the Tyler's take money from Jim Cramer. Whores will be whores.
Since low interest rates never create intrinsic growth or recovery, then the only good time to raise rates to market level is immediately.
Sorry
Fed is doing a great job...
Another billionaire bankstah created!!!! Nothing wrong with that! They are making our economy hummmmmmm. Hmmmmmm.
Captain Kangaroo is going to be in for a big surprise if she does decide to raise rates. Bernanke was right when he stated that he will never see normalized interest rates in his lifetime.
That's because he created a "New" normal.
F Federally
U Underwritten
B Bank
A Acquisition
R Relief
The Fed is an illegal organization of criminals.
There, fixed it for ya.
Grimaldus
The Fed has been just right as far as making billions for those it was intended to help for a long time now. As far as the average American, well ESAD is their policy.
Can't find the Constitutional authorization for a private fifth-column cabal to be permitted to utter anything other than gold and silver as money, and to set interest rates.
Must be I'm missing something.
Liberty is a demand. Tyranny is submission..
Guillotine the Fed. Audit the heads.
Until someone can come up with a chart to show the Fed’s ability to create “windows”, “levers” and “desks” there is no representation as to how the Fed can “handle” a situation. The ability is endless.
Until someone can come up with a chart to show the Fed’s limited ability to create “money”, “leverage”, “assets”, “price”, “value” and “time”; there is no representation as to how the Fed can “handle” a crisis. There is no limit.
Until someone can come up with a chart to show the Fed’s inability to create, wars, insurgences, police actions, clandestine operations, economic warfare, war materials, hunger, asset bubbles and bankruptcy; there is no representation as to how the Fed can “manage” a nation. There is no inability.
To summarize: endless, limitless, ability!
Most of the world understands this.
American’s --- not so much.
What are the similarities to the late 80's/early 90's? Bank(S&L) bailouts. If the banks have enough reserves , they will raise rates to boost their bottom line. The economy is not their biggest concern.
Instead of raising rates in September, the Fed will announce QE4. Shortly thereafter China will announce they have 10,000+ tons of gold so they can be heavily weighted in the IMF's SDR. China might even try a gold backed Yuan. Then it will be show and tell time for the Fed and its empty gold vaults, and that I think is when TSHTF for the USA.