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What Does The Fed Do Now? The FOMC Decision Tree
Over the past few months, numerous so-called "experts" (they know who they are) desperately tried to come up with both their own facts and their own history by saying that, far from fearing the Fed's decision, "a rate hike would be good for stocks." Well, as last week's historic VIX surge, and biggest market plunge in years confirmed, that was not the case. In fact, what happened is what we summarized in 7 words late last week:
The Rate Hike Tantrum has finally arrived
— zerohedge (@zerohedge) August 20, 2015
In short: the market made it very clear that a rate hike is not welcome. Promptly other so-called "personal finance experts" joined in the demands for a bailout.
Others, such as Bank of America, were slightly more tongue-in-cheek in their "explanation" of what it would take for the Fed to panic and not only delay rate hikes but pass Go and proceed straight to QE4 (for those who missed our post on the topic, the answer is go short Glencore and Noble Group).
But back to the $64TN question: what does the Fed do? One attempt at an explanation taking into account last week's market plunge comes from Nomura, which provides a "2015 Scenario Analysis" in which it "breaks down various monetary policy (rate hike options) and rates market implications ahead."
This is the summary:
The minutes to the July meeting revealed that the Committee has doubts about a variety of aspects of the economic outlook, including growth, inflation, and developments abroad. Incoming data since the July FOMC meeting have not really answered those questions, all the while financial conditions have tightened materially recently. As such, we believe that the probability the FOMC will raise short-term interest rates for the first time in September has decreased materially while the probability of liftoff in December or no interest rate increase this year has increased. We now only put a 20% probability of liftoff in September (previously 35%) while we have raised the likelihood of liftoff in December to 44% (previously 40%) and liftoff after December to 36% (previously 25%).
Here are the details broken down by meeting:
The September FOMC meeting
We think there is only a 20% likelihood that the FOMC will decide to raise interest rates at its meeting in September. The minutes to the July meeting revealed that the Committee has doubts about a variety of aspects of the economic outlook, including growth, inflation, and developments abroad (see Minutes of the July FOMC Meeting, Policy Watch, 20 August 2015). Incoming data since the July FOMC meeting have not really answered those questions. Moreover, developments abroad, notably in China, have raised new questions about the outlook for the rest of the global economy. Last, as noted above, financial conditions have tightened materially.
A decision to raise interest rates at the FOMC meeting in September would probably require a combination of factors. The economic data released between now and the meeting—both real side and inflation—would have to surprise to the upside. Developments abroad and financial conditions would have to stabilize. There would have to be a strong consensus within the Committee on the need to start the interest rate adjustment sooner rather than later. This is certainly possible, but it does not seem likely.
We will get some new data between now and the September FOMC meeting (see Fig. 10). But the amount of additional information that the FOMC will have at its September meeting will be limited. An important reason why we doubt that the FOMC will raise rates in September is that there simply isn’t enough time to answer the questions that the Committee seemed to be struggling with at its meeting in July.
The December Meeting
If the FOMC does not raise rates at its meeting in September (and it stays on hold in October), the issues that will drive a decision in December are mostly the same. That is: a decision will depend on the outlook for growth and inflation, financial conditions, and developments abroad. We think there is a good likelihood (55%) that the economy will have evolved in a way that leads the FOMC to initiate liftoff in December. We think that positive fundamentals for consumers will drive stronger spending. We think that investment will recover as drilling activity in the oil gas sector stabilizes. We think that housing activity will continue to grow at a healthy pace. We think that growth in China will remain on target and that financial conditions are likely to stabilize. We think that labor markets will continue to improve. We think that a forward-looking assessment of inflation will be more positive. The additional time between the September and December meetings will make all of these positive developments apparent.
Of course, there may not be enough progress on these measures to convince the Committee that it is time to raise short-term interest rates. Moreover, concerns about year-end issues may cause it to delay liftoff until next year.
For what it's worth, we remain in "concerns about year-end issues" camp (clearly the Fed realizes there is nothing quite as destructive as 6 inches of snow to the Apple Sachs Industrial Average, pardon the world's biggest economy as the past two "harsh winters" have shown), or in the worst case: a rate hike followed promptly by QE4.
Here, for those who naively still think the Fed is data-driven, here is Nomura's full decision-tree.
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the fed will now declare its sovereign independence from The Bankrupt Global Federal Empire of America http://www.philiacband.com/propaganda.html
The fed can let the markets crash or keep jump back in with QE, but that's short term thinking, its the crazy stuff they could do in years to come, not months that is the real interesting stuff. It will still end in ruin but it will be one hell of a show.
I'll go with A. They want everyone on their knees begging.
Rate increase or not These high PEs can't continue with no growth economy period.
Sell the rips unless QE4EVA
What does the Fed do next?
Answer: Screw over the regular Joes and make the bankers rich.
End the Fed!!!
The fed is more likely to start a new money printing scheme (QE or whatever code name they use for it) than they are raising rates!
P(nochange*2)=100%
If there is a QE4 exactly what the fuck is the FED supposed to buy? No mortgage origination and no room for any grand new spending with a Democratic President and a GOP congress leaves them without much to buy. If anything the FED has to raise rates and crash the market to get the economy distressed enough for more government spending and to pop Housing Bubble 2.0 so prices get to a level where people can actually take on mortgages.
Yup. Thats why this time is different. They cant raise rates because the markets are already tanking and they cant print more money (plus the easy money pumped into the markets is losing its effects). The fed is at the end of its rope. We need to make sure that when people blame the scapegoat that the fed sets up, that we see through it and expose them.
Will it be war with Iran? Blame China's market crash? Blame the euro? Start WWIII with Russia and China? A False flag attack?
Nobody knows, just dont fall for their crap. Stay focused on the root of the problem...The Fed!!!
POP THAT HOUSING BUBBLE, I like the sound of that!!
What will they buy? Well they can do a clean up print to scoop the last mortgages for sale in the free world then after they own all of those they can jump into the listed markets and start buying e-minis.
Oh yeah. This works. Getting advice on QE exit strategies from a Japanese Investment Bank. Can't we get some input from the Central Bank of Venezuela? Or how about "Cartman" Gartman? Somebody email has ass and so we can get the real inside scivvy.
Fate the Magnificent
"Push the Button, max"
That's what the end of a gvt default looks like, know what comes next?
The proper answer is commit seppeku with a dull blade......
Why no coverage on the rising Euro there Tyler ? Dow down 500 pts Euro up over 1% ? How often does that happen.
Another way of putting that:
FED decision tree = enrich Wall Street, screw Main Street.
Head-fake 0.25% rate raise in September, stocks crash, back to zero at next meeting, followed by QE4. "For the children."
in 2007 i said the fed will probably raise rates, and the finance people i know all said what are you nuts, and i said its the feds job to price risk. i was right, its just common sense, the risk premium went up, and the fed didnt do its job, it decided to protect a small portion of the banking industry, the big banks trading desks, probably thinking they had another LTCM and that everything other than this third party gambit was okay with the economy. they failed to see RISK ON and they perpetuated that mode. it says in their charter, maintain a STABLE market, not a hyper speculative market. so they fucked up big time. now when they raise rates what does that do? well it prices risk higher, which takes the spec trade out of the commodities, but since investment is in toilet anyway encouraging less investment risk (other fhan floating buybacks and MnA) is a disaster. the fed has no real choice but to take on more bad paper, cement over the building and orphan their debt. then trreasury has to figure out some other way to do their monetizing and other dirty little schemes, which i think means nationalizing the big banks, making them GSEs, so that at some future date they can bury more paper someplace, the graveyard for paper is getting pretty large. if the congress had some balls they would tell the Fed that their bad paper belongs to them and not to the US treasury. that would do a difficult job in two ways.
Pumpin' or jumpin'
It ain't that difficult.
the chance of raising in both september and december is still 40%, and that would be a move of unprecendented impact, you want to think about that for a minute. if the stock market tanks between now and then whats the difference? another gallon of water over niagara falls
Probability of no change = 100%. It's an election season. Probability of Fed jawboning also 100%.
Fed does nothing. Decides to talk.
Welllllllllllllll, they could:
1. Print
2. Sell more debt (see #1.)
3. Close down shop.
If I could get 5% on my money I would start spending again. As it is, I have given up cable tv, eating out, vacations, buying anything other than bare necessities, and I'm not paying any income taxes because I have no income. These fuckers, these miserable cunts at the fed can all suck my dick. I will piss on everyone of their graves. That's the only spending I foresee, driving to the hebrew cemetary they put these fuckers in so I can urinate on their miserable fuckfaces.
Fuck You Bernanke
well said; you are not alone
Selfies
What parents know, which the healthcare robots bringing this nation to financial ruin do not, is that children can just as easily be run over by a school bus as an antibiotic resistant bug, and teaching your children to use their brains is far more effective than placing baby bumpers around life, to avoid an act of stupidity. And only an MBA maximizes revenue for an insurance monopoly, by treating spit-up with a nutrition, oxygen and hydration deprivation protocol, contracting the brain to cause autism.
Autistics and fascists alike now think that printing money in China and elsewhere to infinity, to consume natural resources, drive real estate inflation, and contract wages, is normal, because it has been going on since the Roosevelts established a beach head, for themselves, with the New Deal on one side and shell corporations to make the transfer on the other. Kissinger and Silicon Valley simply accelerated the black hole, from the university hospital out, ensuring a positive feedback loop, into globalization. So much for decoupling MAD global financial instruments, bred into behavior over time.
Life cannot be controlled, even in the smallest subsystem, without killing it, and extrapolating statistics gleaned from a control group to represent all of us can only lead to economic insanity, war by means of selective breeding to maintain the status quo. Keep shuffling those healthcare make-workers, adding thin facades, and installing electronic controllers, which cannot be made to work, with certified technicians fixing nothing.
Time in, time out, and output, who initiated the sequence, tells you what happened for the patient, the hospital and the system. As the executive reports amply demonstrate, the hospital needs to be shut down, because you would have better short-term population health outcomes and something much better would pop up in its stead in the medium to long term, to replace the economic activity drug driving demographic collapse.
Taking other people’s children because you cannot produce your own doesn’t work, but that never stops CPS from trying. You can easily see the boom and busts of related demographic, financial, and war cycles in an isolated population, but globalization hides them with immigration cycling. The problem now is that the central bankers can’t get economic slaves from outer space, to maintain the global pension Ponzi.
You might think that the general population has advanced since the time of Archimedes, but you would be wrong, because peer pressure can only collapse on itself, back to its origin, which is why Chimerica, the current iteration, is not the future. At best it is a stepping stone, from which to watch the implosion, until it consumes your position as well. The oil hinge point failed, and is now being followed by Nasdaq hinge point failure. Beat the body, until the head presents itself.
The wealth effect, monetary inflation, is simply an illusion, managed by the central bank magician, until all activity collapses, leaving only your children as the future, if they are so positioned. I grew up with kids now working at UCSF, but I didn’t want anything to do with doctoring, applying orangutan research, to produce monkeys.
Public health might want to unbundle that baby, open a window, and run water over the head, because not everyone is raised as a statistically controlled, economic slave in a petri dish, and parents make the best advocates for children. Ignorant decisions followed by ignorant results, making parents the scapegoats, who were informed only after no consent, only works for the slumlord doctor, dealing drugs to the community, and only for so long.
Despite Family Law, we are not all morons, and the difference between the ignorant masters and ignorant slaves dwindles every day. That’s it; threaten a woman with CPS and reward her with a job doing the same when she complies. Hospital are 90% gossip, and 10% medicine, and 90% of the medicine is statistical superstition. Keep printing those results, bankrupting every community.
Lawyers work for government, themselves. An oncologist lawyer on the ethics committee, denying natural selection; that’s an oxymoron. Information after the act and no consent is not public health, even if a judge in a trial of fact certifies it so, the majority desperately trying to control the leading edge minority with behavior in the trailing minority as an excuse. Don’t be surprised when the so-cornered parent becomes a bear.
Thank God for the competent doctors and nurses still tolerating this crap, if for no other reason than habit. In God, the unknown, we trust; in the currency of tyrants we discount. Of course the certifiably incompetent are afraid of me, always forming a gang, which ends with itself in the corner, big surprise.
The noted death of San Francisco at the hands of Silicon Valley techies is a bit premature, as are the techies. What you are looking at is The General Strike, globally. Labor just has better things to do than stand in a line, holding up signs, in front of empty buildings owned by Chinese front companies.
Did you know that there was a 6-hr work day, 30 week before women entered the workforce, which was more productive than the current regime of both parents being gone from the home full time, pretending to work?
Arbitrarily subjecting people to poverty, presuming them guilty, and convicting them accordingly is not exactly enlightened, nor does it make the judging party superior. Some of us just have more important priorities than responding to a growing circle of idle gossip, like watching over our families. List all that gossip on paper, look at it, and throw it away. It’s meaningless. You are much better off examining the sunk costs in your investment portfolio.
I'd like to see the Fed set rates at 17% to fix the problem, like Russia did. Russia fixed their problem, mostly. Things got better. Within just a couple of days, it stopped the spiral of the Ruble, meaning the Russians, with a debt to GDP of only about 16%, still can manage their financial system. Now, ask yourself how 17% would work in the good old USA, with a debt to GDP of 108%.
17% in USA would = wasteland. Did I get it right?
1.7% would probably cause the complete collapse of the US financial system right now. 1.7%.
lol
well put
Why cant the Fed raise rates right now?... Why are they waiting??.. What difference will waiting 3 months make??
The Fed says they are "data dependent" .. ok.. so.. Don't they have 6+ years of "recovery" data??
The Fed wont be raising rates in September or December. They cant. Their is too much debt out there now and the economy is too weak. Keep in mind common sense says you only raise rates when the economy is overheating. We are not even close to that !!
I think more smart investors are finally waking up to this reality, and thats why stocks are selling off. Monday will be a bloodbath as smart money is trying to get out with gains, rather than hold have losses.
They will raise rates in an attempt to control the runaway rate increases that will occur if they don't. The reason is that the market, their main policy tool (most think it's the interest rate) will not go up any longer without another round of blatant QE because they've run out of buyers. Even the evil corporations are pulling back from buybacks at all-time-highs when on the precipice of disaster. This is all occuring when we are very possibly already at war with China/Russia...cyber, market shenanigans, factory explosions, territorial conflicts...it's all unraveling, flying apart and no amount of fed-BS is going to stop it.
Trust law requires at least a 2% dividend or interest on investment that is real. I am of the belief that the partners in the FED are committed to trust law thus the 2 to 4 % rule, but as I understand they have been making bank at over 4%, now do they owe this (or part) to the FED? So do we (the people) sue Chase (and other partners) and make them support the FED?.. LoL
FED calls LAdy LAgarde for a bail out...Lady Lagarde says she won't lend until US debt goes down.
Yellen is pissed off to be treated like Greece.
Obama tells Yellen its time to print. Lagarde says She will ask China to fund Yellen. China asks North Korea who attacks South Korea with its outdated skuds.
South Korea asks Samsung to outplay Apple and Apple says they will have a car that works on a watch that talks to an Ipad.
WS goes mad on that news and that makes commodities crash its tattered shorts right down to its ankles.
Naked is that naked does.
The latest news is that Yellen, Lagarde, Mutti and Trump were seen swimming in the nude in the Trump tower pool on the roof. It brings the house down.
Trump declared the new JFK says he will NEVA visit Dallas.
Obama hits a hole in one and then triple bogeys the next 17 holes.
Michele divorces him for being a one hole smart ass; who can't go the distance.
We enter 2016 and Yanis V is declared the most sexy politician who never made it to the top.
That was the year that was.
I did my part by selling all my 401k that I have not contributed to in years, yes, it's still trapped in wallsteet hell, I know I won't ever see it anyway so I sold...hope it will help get more people to panic and sell too....long shot I know
I did that in 07.
I miss $750 Au.
"Raise interest rates
probability = 20%"
ROFLMAO oh god stop it I'm dying here
nice 'brain fart'.. but you know QE4 is coming. I'd say QE4 at 2% to get inflation going... and they like always, inflation becomes its own animal and starts climbing, forcing rates to go to 30%, then price controls.. oh, ya.. like the good old days with 'Tricky Dick' (, and that 70% upper income tax).
Now that is some thing to laugh about and shit in you pants at the same time.
I can't seem to make out the branches for stagflation in Nomura's little tree.
Those don't seem like very accurate probabilities...come on dude just call it a coin flip already
FED is screwed. It's already crashing. More QE and no rate increase...and it will still crash.
Troubling news indeed.
The Fed has a dual mandate:
1) Keep the Federal Reserve System's primary member "banks" solvent and highly profitable.
2) Enable the Federal government to run massive deficits.
The Fed doesn't really give a shit about its "official" dual mandate to, "Promote maximum sustainable employment and price stability." The Fed only answers to its financial-world masters and political-world power brokers that provide its legal charter. Enrich the banks and maintain Washington politicians' ability to allocate vast sums of money without having to tax their constituents. That's it.
The endless ballyhoo about whether or not the Fed will raise its benchmark rate 0.25% is absurd. A + or - 0.25% in the benchmark rate has negligible impact on employment or consumer prices.
And at some point, make the entire financial system crash so the economy (which depends on working debit/credit cards) utterly collapses, and 80% to 99% of the world population kill each other.
Interestingly, that point could be this September. So get ALL liquid assets out of banks and financial institutions and into your own possession at least a few days before September 11th, which could be the last day the banking system functions. I give this "unbelievable" scenario a 1/3 probability for this fall, which given the severity, is rather mind-blowing.
Better prepared unnecessarily than die horribly this fall or winter.
"I don’t mean to be alarmist or to induce panic, but someone needs to tell the public that there is a plausible scenario in which the U.S. stock market now collapses by another 70% until the Dow Jones Industrial Average falls to about 5,000. The index tumbled more than 3% to 16,460 on Friday."
http://www.marketwatch.com/story/dow-5000-yes-it-could-happen-2015-08-21
And everyone who shorts the markets won't be allowed to remove their winnings from their accounts. Well, except the 0.001%.
Greed will always trump prudence for most gamblers (prey) who'll find themselves trampled before they even glimpse an exit.
Rate hike now, not later! [Keep it, the rate hike, away fron final tax day, April 15th, or the end of the year.]
If the decline continues in good measure next week, the Fed governors will be sent out to jawbone the market up- the Bullard Strategy. I do now think the rate increase in September is dead, and I expect it is dead for a good long while. The economy continues to sink into/or deeper into recession, you will see QE reactivated by the end of the year, and maybe even by the September meeting.
The FED should raise rates and sit tight.
The US Treasury should mint a new 1 ounce copper coin with a face value of $100 US Dollars, and distribute to all US taxpayers via the IRS. Copper stimulus coins should enter circulation and be valid for all debts private and public.
Encourage domestic spending via copper coins and “keep the copper home”.
Perhaps lead would be a better choice since the heavy 100 dollar lead coins could be hurled into plate glass windows to shatter them and spur repair expenses to goose that falling/false GDP number.
Any and all economic data will be crafted to prevent any rate increase for the foreseeable future. They cannot raise rates even by a fraction. These shit heads still think moar debt is a good thing.
Keep the market down enough to get the Repatriation Tax thru.
Alea iacta est.
After decades of debt & money printing orgy, as Hillzilla so succintly told us "What difference does it make ?!"
- you have been screwed already by your leaders.
pet rocks rock
"What Does The Fed Do Now? The FOMC Decision Tree"
Whatever Zion and the Rothschild banksters tells them to.
Zion is a scheme, not an ethnicity.
No matter what happens, if it's still less than 1% it's still cheaper to borrow money from the FED to manipulate markets, metals than the cost of creating money out of thin air. It won't change the way Banks steal, so what difference does it make. My Gold/Silver is still on the No Chance bet.
>the market made it very clear that a rate hike is not welcome.
The market made it very clear that it has a full diaper.
The monetary lever has been rendered inoperable. Is there anyone out there that genuinely believes that QE just wasn't big enough?
I have to believe the next desperate step is a bout of massive fiscal stimulus. After all, deficits don't matter. Krugman and Cheney agree. Who could possibly argue with that duo?
Not to mention that it's a presidential election year. The rubes might take a dim view of enduring a full-blown depression prior to the selection, er, election.
Look for tax cuts, followed by helicopter money drops to keep this shit show going. Federal non-GAAP deficits will be in the $1.5-2.0 trillion range. GAAP shortfalls will be north of $7 trillion.
What a farce.
As frustrating as it is? ]
Just lay back, and watch the circus unfold.
The Fed will jawbone and pose. Equiites continue to retreat. Bonds gets nervous and yields start to rise. The Bankers know that if China and other sovereigns owning USB start selling they are fucked.
Obama will announce a major "jobs" program as the market continues to move downward. Which politician will oppose?
The Banks then quietly support a Trump Presdiency counting on him to be able to "negotiate" with trading partners not to sell USB en masse and manage debt and Gov't sposored "jobs" programs.
It works for a while, but then war within 2 years of Trump Presidency. What other scenario is more probable?
there is no decision tree, south park was EXACTLY right, google south park chicken bailout if you want to know the real secret ...
They have truly backed themselves into a corner. Any 7 year old could see the problem coming. They might try a small intrest rate bump with another massive QE for cover, but in the end demand has fallen, and that in and of itself is the end of the FED controlling everything. Surprise, Surprise Our economy has a finite limit of how much tinkering (um read absolute theft) one can get away with.
ZIRP is like Hotel California. You can check out any time you want, but you can never leave.