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Why A Fed Rate Hike Will Almost Certainly Lead To A Recession
It was back in March when we were delighted to report that we had finally solved "The Mystery Of America's Missing Wage Growth" - "mystery" because while those employees in positions of power had been abusing the availability heuristic for years, and extrapolating their own wage growth to the broader population, the reality was what we had said 5 years ago: there is simply no notable wage growth for the vast majority of the US population, period, and certainly none even remotely close to the Fed's preferred threshold of 4.5% to justify a "mission accomplished" banner.
As per our findings, this was easily explained: there was indeed a surge in wages... for supervisory workers: bosses, managers, shift leaders and the like, while non-supervisory workers had been getting the short end of the stick since 2008. The problem: non-supervisory workers account for 82% of all workers, and unless their wages also rebound, there is no hope that the US economy can even grow at anything resembling historical levels ever again.
Unfortunately, with the bulk of US labor growth focused on such sectors as bartenders and waiters, whose ranks have increase in 64 of the past 65 months...
... there simply can not be broad wage growth period.
So what does this mean for wage growth? Well, the headline number as we showed earlier is going nowhere:
But if the above is bad, it gets much worse when looking at the ugly truth which few dare to touch, and which is revealed when looking at average hourly earnings of production and non-supervisory workers (table B-8). The chart below shows why a Fed rate hike hike in the coming months virtually assures a recession: in July, wages for non-supervisory workers failed to rise once again, increasing by a paltry 1.8% Y/Y after peaking at 2.0% in late 2014. Worse, the current trend suggest the record lows of 1.3% will be revisited in the coming months.
And while a Fed rate hike would guarantee that wages, or as they are better known in corporate America "variable costs" for 4 out of 5 workers tumble as corporations hunker down in an attempt to preserve margins in a rising interest rate environment, not everyone will be screwed: while wages for 82% of US workers are rapidly sliding once more, supervisors have rarely had it better.
In fact, in July average hourly earnings for this group soared from 2.3% Y/Y in June to 3.5% in July, just shy of the recent all time high of 3.9% in April, and the record highs hit in 2012.
It is these 18% of US workers that have benefited from the surge in the stock market. Everyone else: toug luck, and it is about to get even tougher when Yellen starts the rate-hikes cycle, because if middle-America though it had it bad with 7 years of ZIRP and QE which while benefiting the 1% did not directly harm the 99%, then just wait for the real pain once corporations slam wages for "everyone else", the moment the Fed begins rising rates, however transitory. The good news is that any such rate hike cycle will be all too brief, and lead inevitably to QE4, 5 and so on.
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We are in a recession/depression now if you use accurate inflation data
There is no real growth. Inflation is adjusted lower to create a fake growth
Let's not forget that the Chapwood Index for 2014 was 9.7% and official CPI in the land of the free was only 0.8%. So the Nominal GDP of 5.6% for 2014 becomes real GDP of -4.1%.
The revised real GDP for years 2011 to 2013 worked out to -6.2%, -6.5%, -6.5% respectively. So we were in depression in all those years.
What is the Chapwood Index?
"The Chapwood Index reflects the true cost-of-living increase in America. Updated and released twice a year, it reports the unadjusted actual cost and price fluctuation of the top 500 items on which Americans spend their after-tax dollars in the 50 largest cities in the nation."
http://www.zerohedge.com/news/2015-05-29/inaccurate-statistics-and-threa...
Rate hike? I'll believe it when I see it. Its the boy that's cried wolf now.
A recession may be exactly what they want, with a good crisis they will be able to implement the policies that they really want.
He did get eaten by the wolf.
Interest rate hike is to defend the USD, not anything to do with the economy.
All of the FedRes power is derived only from the USD, and power is never let go lightly.
USD is currently at multi-year highs.
The US has lost its production base and this will lead to years of subpar growth and from time to time to a recession. But as long as international investors still believe in the USD, we don't have to worry.
Numbers can be very accurate, or the world's biggest lie and it's pretty obvious which is the FED's preference. The mega-banks and Wall St. know the truth, but raw greed overcomes all......
Fixed it for you
I thought we were in a global depression?
we are going into one yes, but not quite there yet
just doing the circles around the drain right now
be great if she raises rates 25 bps and the yield on the US 10-year goes lower. thats when the strategists/economists/portfoliomanagers heads really explode.
The fed will hike rates in September by 0.5% so they can lower them again after the holidays, maybe by 0.25%. Rinse and repeat.
We are already in a recession.
Fed simply sets overnight lending rate between banks, it doesn't set short term treasury rates. It FOLLOWS short term treasurys in order to make sure the banks can make vig.
yes, and all of these bullshit paper/digital games are becoming less relevant every day.
We're screwed no matter what and the only thing we need to know is how long till it all falls apart. I expect another QE more than a hike since by this Fall things will start to become obvious to the sheep and the FED will need to do the most useless thing possible...again.......
Thanks to "mark to fantasy" accounting everywhere, nothing as it seems. QE has in fact NOT stopped in 'merica and freshly printed/created money/digits continues to flow into the bankers/financiers pockets and the "financial sector" (paper-pushing sector) to the tune of some 4+ trillion per year... ...you know, to "save us all".
no one is buying any of the bullshit anymore. Fuck em, fuck right to hell.
get long black markets, sharecropping, and guillotines, beat the rush.
Everybody knows they won't do it.
The only thing they'll do is give a excuse, blame the weather and aliens why they "will do it next time".
Nobody has to explain to me how you give excuses to avoid something for forever and ever.
I've never put a trashcan out my entire life. Just like my laundry, it just happens.
So ur packratting garbage now? One aisle per room or is there room to grow??
How long have we been waiting for the mythical rate rise? 5 years? I think its too late now.
ZH seems to be buying into the maninstream BS more than ever. Afraid of losing relevance in a world gone totally bizarre or just losing it? It does not matter one bit if the Fed does or does not raise rates. It's all smokescreen for the failure of fiat. That failure is currently in progress and will get worse no matter what the Fed does. Charts have little meaning anymore. The time to prepare is getting short.
Indeed. Lots of marginal articles appearing here at ZH now. This one was a complete waste of time, and I am dumber for having read it.
I totally agree.Every story needs to be about gold manipulation and Jade Helm. These are all that matter.
We are in a fucking depression now and we have been in one since 2000. It's just been masked over by trillions in debt, SNAP, and , section 8 housing. I don't understand why people don't get that.
But but ... GOLD IS BEING TOTALLY MANIPULATED! ITS A CONSPIRACY FIAT IS DEAD THE FED AND THE ZIONIST CABAL ARE MANIPUATING GOLD ... AND ALIENS! 9-11 WAS A HOAX AND GOLD IS JPMOOOOORGAN.
Aw fuck it. I'm tired.
Talk of a rate hike is all that will ever happen. SMH Will these talking heads never learn?
How to spend less time on analyzing markets and increase profts https://www.youtube.com/watch?v=tLsVDnp26VM
If massive rate cuts didn't lead to growth, why will an increase lead to recession?
yes! the 'ole yell[er]in of the 'greenbernank lineage', known only as a`Federal `Private'`Preservation' Bank[y?] , must be reserved at all cost of runaway inflation. the economy is overheating...
oh my,... just thinking about the M&A's and cowabunga a foreign made`shoe would fit a ?Catipillar`TerexDeer?
Oh...the horror...taking free money from the TBTF banks....maybe the TBTF banks need a lesson in reality. If they fuck-up...let them fail.
They will raise the rate by a measly .25%, while backdooring another $250 billion a month of unsterilized bond issuance.
Seems obvious to me.
Each and every day the Fed waits, there is an improved chance that something (unexpected) will happen to allow them to call it off.
Didn't realize we climbed out of the recession in the first place. I don't use the Chapwood index... I use my chapped-ass index.
My household gross income is over 2x what my parent's was 25yrs ago. I live in an older, smaller home... drive used cars... don't own a boat... don't own any other property... shop at budget grocery stores... buy non-name brand clothes... buy used bikes for kids... buy used tools, etc.
My chapped-ass index tells me those controlling/manipulating the purchasing power of our currency are fucking me in the ass daily while the cost of generic petroleum jelly (can't afford Vaseline) continues to go up.
Fuck you FED bitchez!
You sound just like some kind of communist. No wonder you are doing poor. You need to grab this Capitalism thing with both hands and feet, pinko. You know, with your feet like a chimp, just hang on and ride that greedy motherfucker. Thgat's the Amerikan way you don't like greed then get your pink behind to Cube, they'll love you there. Or maybe Puerto Rico I hear they got some juice now.
Nah just kidding. I'm just the same way as you. Let's have a beer. The PBR is on me.
If raising rates by a mere 25 basis points vaults us back into a recession, then that's exactly what we should do.
We're already in a depression. You mean a rate hike will push us over the cliff.
What fucking difference is a small rare hike going to make for the bottom 80%??? There's nowhere left to cut down here. People are making do with the minimum our semi-functional economy backed by the welfare state will support. The only people falling off a cliff Will be the top 19% that resides below the 1% that makes up "The Big Club". Those 19% are the Realtors, Luxury Item brokers and other sycophants who falsely believe they are insulated. Once the top 1% pull back slightly on spending in advance of FED largesse these middle men of little real value/skill Will be decimated. They can see what the rest of us down here have been living with since 2008 (2000 for some of us).
Mission Accomplished??? Only if the 1889 book "The Great Red Dragon" was right in stating that the goal of the financial sociopaths was "to own the earth in fee-simple." If they raise interest rates in these times, it will be proof to me that the old book was right. If loans backed by title are defaulted, THEY get the title. Just like THEY got Greece. And THEY get to create their own "money."
The only thing they're going to hike is the rate of printing.
At one time, industrial society created a lot of wealth. Now it destroys it. And it wouldn't matter if 535 Ron Pauls were in Congress.
Musta be a great place to dine. The service must be really exceptional and served by the worlds exceptional people.
WHy A FEd rate hike will NOT BE ABLE TO HIDE the discrepancy between the asset pumped economy and the commodity deflated; aka salary deflated; real economy.
Salariescannot rise if capital has no return and debt drowns real growth. The only real consequence is Greek type chaos and that leads to war and world impoverishment, not the contrary.
Jade Helm is in the air.
Jade : A strain of Ebola?
<--------FED rate hike will manifest
<--------FED rate hike will not manifest