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Why Goldman Is Confident The Fed Will Wait To Hike Until December (At Least)
Confused if the Fed will hike rates in September, or December, or never? Don't worry, the Fed is just as confused, at least until NY Fed's Bill Dudley has his biweekly meeting with Goldman's chief economist Jan Hatzius at the Pound & Pence, where over a lobster club, the current Goldmanite tells the former Goldmanite what to do. Which, if the most recent note just released by Goldman is any indication, means that the Fed will sorely disappoint all the "Septemberists", as Janet Yellen will opt for a December rate hike instead.
From Goldman:
We're Still Decembrists
1. The economy continues to grow at a steady above-trend pace. Our current activity indicator (CAI) logged a healthy 3.0% gain in July, the top end of the 2.5-3% range seen for most of 2015. For once, the GDP data send a similar signal, as Q2 is likely to be revised up to around 3% and Q3 is tracking 2.4%. This growth pace should support continued healthy employment gains in the 200-225k range.
2. But we think there is still a ways to go before full employment. The best evidence is the stubborn weakness in hourly wage growth. With the employment cost index for Q2 and average hourly earnings for July in hand, our wage tracker stands at just 2.0%, far below the 3.5% rate we would expect if the economy were at full employment. To us, this reinforces the case for measuring the employment side of the Fed's dual mandate using broad measures of labor utilization. The employment/population ratio is still 4 percentage points below its level of early 2007, and we can explain only half of this shortfall with the aging of the US population. The wage data suggest that a significant portion of the other half may still represent cyclical labor market slack.
3. Admittedly, many Fed officials take a more optimistic view of the progress toward the employment side of the mandate. The July 29 FOMC statement indicated that only "some" further improvement was needed to meet the labor market criterion for funds rate liftoff. And Vice Chairman Fischer said on Monday that the economy was now at "nearly full employment." So why do we still expect liftoff to come in December rather than September?
4. The basic reason is that there are two criteria for liftoff, not just one. And while the two are not independent, it would be a mistake to overstate the strength of the link because the Phillips curve is so flat. This means that factors other than labor market improvement are potentially more important for the committee's confidence, including the actual wage and core price numbers, currency and commodity market developments, and inflation expectations. All of these are consistent with sustained below-target core inflation, even if the labor market continues to improve.
5. A more tangible reason to expect a late liftoff is that we think Chair Yellen sent a fairly clear signal in this direction back in June and early July. In particular, in her July 10 speech, she said that "unanticipated developments could delay or accelerate" the first hike. To us, this said clearly that her baseline expectation for this first hike was December, not September; after all, it was not really possible as of July 10 to "accelerate" a September baseline unless she meant to put a July hike on the table (not likely).
6. The question, then, is whether she and other members of the Fed leadership have seen any surprises that might cause them to change their mind. On the side of an earlier liftoff, core inflation is a tenth higher than it was a month ago (before revisions) and Greece seems to be on its way to resolution, at least for now. On the side of a later liftoff, wage growth has surprised materially on the downside and commodity prices have plummeted anew. On net, we think that information is at most neutral, if not a bit dovish at the margin.
Then again, considering that the vast bulk of Q4/Q1 GDP crushing snow falls right in December and January, we doubt the Fed will be so naive as to brave the elements and send the economy into a depression just when the ambient temperature drops to 20F or lower, and freezes the US economy for the third time in a row. Because nobody can ever anticipate winter's arrival...
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So, there will be at least a 0.25 rate hike in September, thanks GS.
Or next year. Never know.
Because, GS.
They'll be a market crash before there is a rate hike so there won't be a rate hike because if there was a rate hike then the markets would crash and then the Fed would be blamed for not knowing when to move rates.
THERE WILL NEVER BE A RATE HIKE. The dollar will be allowed to hyperinflate. All currencies will be allowed to hyperinflate.
"All currencies will be allowed to hyperinflate"-- fine, this will mean the death of all fiat and the central banks/financiers behind them.
Fucking awesome!!!!!
The funeral pyre will be truly awesome.....
NEVER.
"THERE WILL NEVER BE A RATE HIKE. The dollar will be allowed to hyperinflate. All currencies will be allowed to hyperinflate."
Dollar hedgemony is threatened. This is more important than stawks. Ergo the steep plunge in dollar denominated tangible assets, esp. oil / gold / commodities; this was/is an intentional and manufactured crash. They will readily crash any market at will to hold up king dollar. The steep rate hikes back in 2006 that precipitated the last crash is a perfect example; remember at the time, the Euro was a threat.
$DX 'hedge-mony' is threatened, Regardless of what the Fed does or doesn't do now. U.S. foreign policy has sealed that fate. The IMF snubbing China until 2016 only accelerates the threat, and is probably what they have planned for in any case.
X2 PF
This will get real serious fast, GS has definitely indicated that they are hoping to keep people asleep at the wheel right through any potential corrections. You can bet money on a rate increase this Sept but people will be really confused to see the US market continuing to go up at the same time.
Exactly. Gotta suck some muppets into the markets before Sep.
or -0.25% :)
Remember, the fed always does what nobody is thinking about.
In this case the Fed is doing exactly as GS tells them to do.
.0025 and a microgram of coal
Indeed. Muppets. Stopler'ed. These are Goldman-specific terms.
Yep, September it is.
The FED will do something just about the time the economy collapses and GS will be selling magic beans to help the sheep with their new prole lifestyle.....
They won't do shit. They jawbone markets higher.
In January this year, some douche nozzle that thinks he's an economist, was parroting the MSM line about rate hikes in May AND September. Rather thn just call him a dumbfuck, I offered to wager one oz of gold that they would do neither and I even gave him my email addy. In other words, put up or shut up.
Haven't heard from him since.
They're absolutely fucking desperate.
DavidC
A rise in rates rockets the USD - that simple. A rocketing USD smashes commodities harder (CRB at 14 year low - that's beyond 2009 low) and crushes S&P revenue and earnings.
Kinda goes against central banks bidding world markets.
But the Big Reset is exactly what's needed to get a real recovery going instead of this inflation futility
wanne see how the big reset button looks like?
https://sophosnews.files.wordpress.com/2013/12/launch-button-250.jpg
it looks like this x1000 http://hoosierecon.com/2015/03/07/total-cost-of-ferguson-riots/
Except perfectly inline with central banks being perenially behind the curve and unintentionally pro-cyclical, like always. So, stronger dollar and lower inflation, baby! Lower for longer!
Sounds great for anyone who's business has real commodity inputs!!!!
Fucking Bring it!!!!!
Exactly. They should have been raising rates in late '12-13. They missed that boat. It's all theatre for the plebes while all these bankrupt banks continue to mend their broken balance sheets. In year 7 now. All the FED was ever worried about was fixing banks while they blow smoke up the citizens ass about the economy.
"Because nobody can ever anticipate winter's arrival..."
No one can ever anticipate a rate hike as well.
DO NOT let my daughter see that picture of Santa. Scar the poor girl for life.
I am still a neverist.
december 2024 (maybe - data dependent)
Please please please don't start selling until we can get out of this market.
aint happnin.. FED is boxed into a lonely corner.. Ha haha
No confusion here....No rate increase!
What a fuckin' gravy train job..all I got's to do is say I might be doing someting next month,and then when the next month comes,decide not to do anything,but maybe do something in the month after that..I'm getting so sick of this shit..Amerikans so ignorant they can't tie their shoelaces,and these mofo's getting paid the big bucks..to do absolutely nothing,but open their pie-holes once a month..
Wait, there's a winter this year?
As long as the market remains off the highs, you know the Fed will look to delay normalization. The economy isn't doing well enough to warrant a hike, and the only reason to raise is the threat of asset bubbles (even though the Fed never admits this since it's not in their mandate). While everyone with half a brain knows that most stocks are overbloated, we're not quite in dotcom territory yet. Add on top of that a massive gov't debt (that needs to be continually refi'd with low rates) and a strong dollar, these guys badly want to maintain ZIRP.
.... and all his coherts laughed with joy and cheeeer... cause all is well in satans work shop.... when the muppets all cry and jeer
The reaction this month to employment data has been just so much stronger than they had hoped.
Fischer had to wait until Yellen was at the beach to show who is the "decider." He was probably on the fence, but he's finally concluded that even a bluff hike is too risky. Because the market knows that once the FED starts they will hike for a while - multiple hikes over a year or more, else they look like boobs. "September?" The most vulnerable month of the year for the market? It read like Yellen was hoping for a crash. (I think it is just that timing befuddles her, because she has never bought a stock or a bond. All her money is at TIAA-CREF. G-S on the other hand thought September helped to panic the "folks" into worthless hedges.)
It's an interesting argument "if our only mandate was inflation we would not be discussing a hike."
Definitely December.....2025
i want gartman's take on this, it's the only way to be sure
Rate hike in July until there isn't anymore, rate hike in September until there isn't anymore, rate hike in December until there isn't anymore. Certainly there will come a time when even the most casual investor will be able to see the trend line here.
Or March, or June, or September, or December, or never......
On another article here someone posted a cnbc article where lockhart saying they will raise rates soon/slowly...54 minutes ago. sorry I closed the link and too hard to go find it again....
Janet doesn't OPT, she consents! The Fed doesn't know what they're doing next month, because they haven't been told what to do yet. They're just agents of the ruling class following orders. All the reports, speeches etc, just a smoke screen to placate the people.
They order takers, just like the politicians who next month will have fire blowing from their asses over the debt limit on TV, purposefully waiting to the last second to even mention the subject until it's a massive emergency that requires over night secret back room deals, WHERE THEIR TOLD WHAT TO DO!
They wont raise rates. There will never be perfect data or conditions ( they are using it as an excuse ) Fed will keep the people on edge until it doesnt work anymore. DATA DEPENDENT RATES iNCREASE TALK UNT?L WORLD WAR 3.
The FED will hike...NEVER...unless sell off in treasuries does it for them.
Firstly, all hyperinflations end in deflation as the loans are destroyed along with the currency.
Secondly, the Fed can't raise rates without setting off a deflationary time bomb. It is not only too late now, it was too late in 2001. We'd already begun the hyperbolic arc of credit growth.
And the growth in credit is a consequence of efforts to loan into existence enough new loans to make the old loans payable. The hyperbolic nature of the credit growth is caused by the ratio of accumulated interest payments in the structure of the debt exceeding the potential growth of the principal due to innovation. From there it is simply a matter of time.
So, shortly, they CAN'T RAISE RATES in any real way.
What is going on is a struggle amongst the bankers to identify which 'good banks' will support their salvaged wealth to allow a reset of their scheme. Each major House of the banking cartel has a varied idea of who should be the 'good bank' and who should be the 'bad bank'. A Good Bank and a Bad bank are necessary for the Banksters to salvage their wealth through a monetary collapse. The mechanism works by isolating all the 'bad' assets in a 'Bad Bank' that will be allowed to explode. They isolate the 'Bad Bank' by selling or transfering all the 'Good' assets in it to another 'Good Bank'.
Why is there a struggle? Simply because the Banksters are progressives, and progressives have a blind spot. They believe that stasis in an economy is possible - a self-serving delusion they must hold to envision how they can remain on top in a changing world.
It isn't possible. Only growth or retraction is possible, with growth uncertain and difficult, and retraction the economic expression of the physical law of entropy. This means that it is not even possible to achieve average stasis, because it is impossible to know what forgone innovations would have been necessary to address any particular physical challenge resulting in economic retraction.
Another way of saying it is, "Death is certain, livesaving technology is possible, but uncertain."
Some believed China to be their salvation...but it has proven soft, and the credit growth they sent it did not result in enough real capacity.
Some believed a United Europe to be the 'Good Bank'...but decades of socialist policy have made it the curency too soft, and the society too incohesive in the aggregate to address their needs.
They'll likely get the collapse they've built without being able to settle on a 'Good Bank'. Times up. And they are tearing their hair out trying to buy more time.
I can't see a 'surf n' turf' option on the menu.