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A September Rate Hike Is "Not Even Close": Goldman's Seven Reasons Why Yellen Will Delay... Again
On one hand, every economist, virtual portfolio manager, Yahoo Finance Twitter expert, and TV talking head is certain that a September rate hike is inevitable.
On the other hand, the bank that runs the NY Fed (and whose chief economist Jan Hatzius has dinner with NY Fed head Bill Dudley at the Pound and Pence every other month), Goldman Sachs is doubling down on its call that the Fed will not hike in September.
We'll go with Goldman (only because in this case it really is a dumb vs dumber moment).
Incidentally, here is Hatzius in January 2014 predicting "above-trend growth" for the US (and "for what it's worth", Joe Wisenthal naturally agreeing with him).
So here, without further ado for those who still care about this most farcical of discussions, is Goldman's Jan Hatzius with seven reasons why Yellen will delay. Again.
* * *
From Goldman's Jan Hatzius
Shouldn't Be Close
1. We do not expect a rate hike at the September 16-17 FOMC meeting. This call was originally based on our interpretationof the June “dot plot” and Chair Yellen's July 10 speech, which suggested to us that her own expectation was liftoff in December, not September. If this interpretation was correct at the time, and if we are right in assuming that Yellen’s views are ultimately decisive, the key question is how the economy and the financial markets have performed relative to her expectations of 2-3 months ago. If developments have beaten her expectations, it is possible that she might now support a hike. In contrast, if developments have been in line with or weaker than her expectations, she will presumably resist a hike.
2. Even if we focus only on the economic data, it is difficult to argue that developments have beaten expectations. Although growth has been decent and the labor market has improved further, both wage and price inflation have fallen short of consensus expectations. Our wage tracker stands at just 2.1% as the Q2 employment cost index surprised on the downside, and core PCE inflation just made a four-year low of 1.24%. Moreover, the notion that the weakness in core inflation is principally due to the temporary effects of a stronger dollar and lower commodity prices does not look right; core PCE goods inflation, where such effects should be concentrated, is only 0.4pp below its 20-year average, a gap that is worth just 0.1pp for the overall core PCE index. This suggests that most of the inflation shortfall relative to the Fed’s 2% target is due to more persistent factors, including continued labor market slack.
3. Once we broaden the perspective to include financial markets, developments have been substantially worse than almost anyone expected in June or early July, leading many forecasters (ourselves included) to shave their expectations of future growth. Our GS Financial Conditions Index (GSFCI) is at the tightest level since 2010, as the dollar has appreciated further, credit spreads have widened, and stock prices have fallen substantially. At this point, our “GSFCI Taylor rule” suggests that actual financial conditions are much tighter than the level suggested by the current levels of employment and inflation relative to the Fed’s targets. In a similar vein, market inflation expectations have fallen back to the lows of early 2015; the five-year five-year forward TIPS breakeven stood at 1.88% on Friday, which we think is consistent with a market expectation for PCE inflation of just 1½%, half a point below the Fed’s target.
4. So how do we explain Vice Chairman Fischer’s relatively hawkish CNBC interview and speechat the Jackson Hole symposium? While Fischer did not comment directly on the timing of liftoff, he did provide a fairly upbeat interpretation of the labor market and inflation picture, which many have interpreted as a signal that he will support a hike on September 17. However, an alternative interpretation is a desire to avoid pre-empting the actual FOMC meeting, at a point in time when the market-implied probability of a September hike stood below 25%. In support of this interpretation, we would note that Fischer also gave a speech widely interpreted as hawkish just three weeks before the March 17-18 FOMC meeting, which featured sizable downward revisions to the committee’s inflation and funds rate paths.
5. There are also some logistical difficulties with a hike on September 17. Right now, the market-implied probability of a hike is 30%-35%. We believe that the FOMC will want to be reasonably sure that the first rate hike in nearly a decade is well anticipated by the market on the day it occurs. This implies that a strong signal between now and the meeting may be necessary to put the committee in a position where it feels it actually can hike without potentially causing a significant amount of market disruption. But again, the desire to avoid pre-empting the discussion at the meeting itself presumably argues against sending such a signal. The path of least resistance is therefore to wait, which might mean that the market-implied probability of a hike on the day of the meeting itself will be close to current levels. If so, we think that market pricing in itself would become a strong argument around the FOMC table against pulling the trigger on September 16-17 [ZH: which means that as many have suggested, it is the market's tantrums and not the Fed, which calls the shots].
6. If we are right about the will-they-or-won’t-they issue, the next question is what message the committee will send about future policy on September 17. On this, it is harder to be confident. The tightening of financial conditions has greatly strengthened the case of commentators such as former Treasury Secretary Summers that the committee should not be signaling a 2015 liftoff; taken literally, our GSFCI rule implies that the committee should be looking for ways to ease, not tighten, policy. And the simplest way to do that would be to signal a later liftoff than the market is currently discounting. Against this, many meeting participants will argue that the tightening of financial conditions could reverse quickly and a 2016 liftoff is too late given the further improvement in the labor market and the sharper-than-expected decline in the headline unemployment rate in recent months. In the end, our baseline expectation is that the message from the meeting, including the “leadership dots”, will remain broadly consistent with liftoff in December but Chair Yellen will make it clear in the press conference that financial conditions need to improve for the committee to actually hike this year.
7. Other aspects of the meeting are also likely to be mostly dovish. Although the unemployment rate path will once again have to come down, we expect this to be largely offset by a reduction in the committee’s estimate of the structural unemployment rate. The forecasts for real GDP growth, inflation, and the longer-term funds rate are also likely to decline modestly. That said, the Fed’s funds rate expectations are likely to remain well above the distant forward rate, which now suggests a market view of the equilibrium funds rate of just 2%. We agree with the Fed’s view that this is likely too low, although the question will not be definitively settled for several years.
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Looks like Hanky Paulson did a great job huh, GS?
A rate hike is the least of our worries. Expect false-flags, skullduggery, deception, lies, agents provocateurs, and teleprompter speeches written long ago.http://www.aopa.org/News-and-Video/All-News/2015/September/04/AOPA-seeks...
Rate hike seems to be the mother of all distractions from the reality of ZIRP and more QE to come.
They want to issue QE4. But can't because the economy is doing so well. They need a crash before they can implement it.
So, in conclusion, they will hike to spur on the next crash and keep the sheep guessing. This is Oligarchy 101
OMG!! You work for CNBC!
If there was going to be a rate cut, one thing that you would expect would be got Goldman to say there was not going to be a rate cut? It would give them a few more weeks to sell to the Muppets.
Most will buy this line from Goldman, and for good reason, a rate cut at this point would seem crazy and almost guarantee a continued crash. But that may be exactly what they want; to crash the markets, scare the pants off the politicians so they can try the policies they really are itching to put into practice. Namely ban cash, and push rates seriously negative. It will only cause super bubbles, but hey lowering rates is all they know and cash is the only thing preventing them from doing so.
Goldman Sachs tells the FED what to do, so positing 7 reasons why not is just more "baffle 'em with bullshit".
When the time comes, all G.S. has to do is make a phone call to the FED and say "Do it!" to which Yellen will say "How much?"
I always worry that Goldman is just setting everyone up to be on the wrong side of a trade so they can make a bundle.
GS is more interested in being rich than right.
Goldman: 'A September Rate Hike is "Not Even Close".
My reply: Sure.....and Napoleon won at Waterloo.
"Shouldn't Be Close" - sounds more like an editorial and muppet set up combined into just one other piece of "all pay attention to the fed because it has all power" piece of brainwash noise to me.
That's the narrative, dumbass.
Go back to flock.
Well its the narrative you used. Try a /sarc tag grasshopper, if you don't mean it, and are not skilled in the art of snark construction. ;-)
The economy is not doing well. If you look at U6 unemployment (admitedly, a rather imprecise metric), it's about 10%. The labor participation is and has been trending downward for some time. Average hourly wages for those that do work are stagnant. Bricks and mortar retail is doing very, very badly. Food inflation, for anyone that looks at a consistent market basket of products, is quite high.
So, yeah, other than those things, I guess the economy is doing well.
yes, but youre understating the weakness by a seriously large factor. welcome to zh. you'll catch on soon enough.
The rate hike should set off a real event. Dollar higher. Emerging markets MUCH MUCH lower. Crippling for Russia.
Dont you think that this has largely been front run? A stronger dollar americans can buy more imported crap.....
There will be a rate hike, maybe 75 basis points. Yellen and her Fed cohort are clueless.
What are you smoking? If there were to be any hike it woldn't be more then 0.25. But I don't expect any hikes this year.
The last FED rate hike was in June 2006.
0.25% and the markets are worried and nervous about its effects... We are all so fucked, looking at our belly buttons while the rest of the World is experiencing 30% declines in currency, 3+ sigma commodity events, the largest forced displacement of humans since World War 11 and asset bubbles of such proportions that it crowds out the Sun.
If 0.25% is that catastrophic an issue, I think they fucked up and the fuse was lit and the trigger pulled a long time ago. The Federal Reserve has become an ineffectual castrated beast who's only purpose is to be the voice and the puppet of Wall street.
The apocalyptic days for gold are over. For a little while. Credit has keep precious metals sideways and now its time for the great sell back. Gold is now headed for $430.00
<----I bought gold with cash
<----I bought gold with credit
POLL
Do you think any man has ever put his doohickey in Yellen's whatchamacallit?
is married to George Akerlof, a Nobel prize-winning economist, professor
Also please don't insult the people who control my money.
so... is this good for the stockmarket or bad? I've lost count...
I'm curious if one day enough people will wake up, scratch their heads and go "wow. what if they CANNOT hike? what if the FED is trapped?"
Then shit will get real. But before that: SSDD
its not so much that the FED is trapped, it's the US Treasury that is trapped and requires low rates to inifinty so the FED will, of course, never "normalize" rates but a symbolic 20-50 bps hike is certainly in the cards. i can't help to think that I'm a muppet everytime GS speaks. the FED lost credibility over rates with their moving goalpost over unemployment. the only question I have is when do they pull their market support, which would be very convenient if a small hike triggers an equity correction of the size that ensures a UST bid for the last act of the play.
They hike rates and buy US debt to offset. If any politician complains, he gets JFK'd.
But not for the reason most people think.
If they raise interest rates to 0,25% or even 1%, they can just print that money and poof, problem solved.
Nop, the reason is because US bonds where and are being shorted into oblivion. If they break, they'll break fast.
And the real problem is a out of whack derivative bomb that keeps growing and growing.
And all the money in the world is being used to keep it from blowing up.
2015 won't be the year. That's way to artificial.
I really don't believe all this crash crap.
How can you justify a 20% marketcrash because they could possibly raise rates 0,25%??
It would just mean the next QE to be bigger to pay for it and get money into pension funds and banks.
And as far as I've seen, QE's prop markets. And they'll do it again.
You're using the Occam's Razor approach and there's much to be said for that. This being the volatile season of the year might be a good time to sneak in a rate increase which would be masked by the typical seasonal shenanigans. It would be tough to lay blame on exactly what caused a market super-crash rather than a typical turmoil. Lots of cover for this, as has been said, taking advantage of a situation that's going to happen anyhow. Hide the causation in plain sight.
The economy has the potential to advance unless unforeseen circumstances prevent it.
Hey! I could work for the Fed.
The "we will raise rates in 2015" is going to be the same as Tesla's "we will ship the Model X in Q3 2015." It'll be done at the LAST possible moment with the SMALLEST delivery possible (in Tesla's case, probably one prototype car).
They can't so they won't, but they'll have a great excuse.......
Since Goldman writes the scripts that Old Yeller reads, you can be sure that there will be no rate increase
No rate normalization during my lifetime Bernanke
or that s what Goldman wants you (and many others) to think... now tell me how much can GS gain when investors believe FED will not hike, and then it hikes...?
The path of least resistance is therefore to wait
WTF. Seriously??
Well, it wouldn't happen if one were using rational, logical and thought based reasoning.
But this the Federal Reserve we are talking about.
I expect a rate hike because they always seem to do the wrong thing...
If you mean wrong as in gang rape by a biker gang then, yes, they will most definitely hike. Cover your ass-ets.
kinda make ya wonder what these fools are REALLY thinking...it's all coming together..they KNOW Sept is a volatile month(history shows this),and yet everything on the line now comes to Sept..the BIG SHOWDOWN....sounds kinda planned,but what do I know?...just a point to ponder....Happy Labor Day,Yall.....popcorn is on tap for the China show tonite
What "show"?
PBOC said:
1) The Exchange rate of the renminbi against the dollar is stabilising
2) The correction in the stock market is already mostly over and
3) The financial markets show hope for stabilising
http://www.cnbc.com/2015/09/06/financial-times-pboc-governor-says-china-...
No more show. Just normal trading action in the markets. Nothing to see here.
/s
you could atleast gave me a thumbs up for wishing everybody a Happy Labor Day
I am laboring today with a digging bar, pick and shovel. There ain't nothing happy about it.
The last bullet in the FED's arsenal is the jawbone. They have jawboned the market higher. They jawbone about rate hikes.
My favorite piece of bullshit was that "accidental" rate hike release on their website a couple months ago. That was some weird shit- le jawbone in extremis.
Put up or shut up assholes. I am sick of seeing your gums flap.
They'll jawbone until it doesn't work anymore.
But then it will also be too late for actions.
This point (=the end) is near IMHO...
This reminds of me of The Dead Muppets
In case you are slow I will spell it out for ya. The banksters are well on their way to scuttle the US of A.
The Fed is not your friend and never was. I dont see how any clear thinking honest person could not know this.
That may be so, but if it is, it's not like they have anywhere safe and prosperous to run to.
China looks to be on deck as the new top dog.
OK, now I know you're just making a joke of the whole situation.
I wish it was.
Peter Schiff doesn't expect a rate hike in September or anytime soon. So when its November will we still be talking about a September rate hike? Maybe Sept. 2016.
Peter is the best! His call on the 2007/2008 housing crash saved me! I went to cash and averted the crash!
translation: "liftoff's a done deal but no muppets in the life boat's until the 1st class passengers are done liquidating!"
A " couple" is going to turn into a year....
Of course there is a defensible argument for raising rates. How's this? The FED should have raised rates in 2001, when the business cycle ended. And they are supposed to continue raising rates until 2019. Why? The next business cycle begins in 2019. This is the ONLY TIME when there is geniuine economic growth possible. 1911-1929. 1947-1965. 1983-2001. 2019-2037. These are the Business Cycles, when rates need to come down to encourage growth. When the Business Cycle ends we have the end of growth. We switch from the Spending Season to the Saving Season, from Speculation Frenzy to Patient Interest Rate Accumulation. We need to shut the water off on speculation because all it does is create new debt that is destructive to the economy and society. We raise rates to discourage new debt when the Business Cycle ends. Study the historical patterns and you will see that there are 18 years of growth followed always by 18 years of rest. The illusion that we can "extend" the business cycle is no more than the rich and powerful becoming fearful that they will lose some of their precious earnings and attempting to steal money from taxpayers during the No-Growth period. Raise rates; accrue interest-rate earnings that will act as a pot of gold for the next investment cycle: 2019-2037. Learn this law: everything in nature breathes, expands and contracts. This is a law. We may not like it as much as the fantasy that everything grows and grows and grows without rest: only cancer grows and grows and grows without rest. No wonder it is the perfect death-metaphor for our soulless civilization.
WE ARE 14 YEARS LATE in raising interest rates. All the bad debt we generated since 2001 is a result of us not raising rates in 2001. Rates have to go both directions or they are useless. Yes, we would have had a defaltionary season starting in 2001 had we begun raising rates. Now we have a deflationary season and even more debt to have to destroy during this WINTER SEASON of the economy. We have stolen trillions from the future to try to buy off MISTER DEFLATION and we have only delayed Judgment Day. Judgement Day is built in to the schedule. We cannot 'figure out' how to get rid of Judgment Day. Judgment Day is a permanent feature of our planetary system. Man cannot out-think Nature. Man can become aware of Nature's Laws by thinking and reflecting. That is the best that Man can do. He cannot out-wit Nature.
All we are doing by keeping rates low is delaying the inevitable. Negative interest rates are not the answer to massive indebtedness. That is how we try to preserve the status quo. The status quo needs to go. Isn't it clear that destroying our currency system is not the answer to preserving our debt when the real answer is preserving our currency system and destroying our debt system?
Number 2. We need higher rates because we want a stronger US Dollar. Why do we want a stronger US Dollar? It hurts our manufacturing sector. Same reasoning. No growth possible from 2001-2019. The natural order is a shrinking global economy. We want the US Dollar strong because it makes America richer, makes rich foreigners buy US Dollar assets, makes foreign money flow into the US.
We need a weaker Dollar during the Business Cycle: 1983-2001. We need a stronger Dollar during the Non-Growth phase of the Business Cycle. The weaker Dollar seeds the global economy with cheap debt for the world. The stronger Dollar harvests that money and deflates the global economy, driving prices down. We fear this. Why? This is the law. When the next Business Cycle comes we begin to lower interest rates slowly and steadily, with the understanding that the reverse process begins in 2037.
Do we like having the US Dollar as the global currency? Or would we rather have some other currency as the blood system driving the global economy? We want a stronger Dollar NOW, and a weaker Dollar later, when the Business Cycle begins.
The New Normal dictates Boom-Bust business cycles are historic (as you described). Now the Fed will do whatever it takes to avoid economic depression.
That's why GS is correct.
Yellen was chosen to follow Greenspan & the Bernank, not some natural law. Inflate or die is their motto.
Of course, long term it won't work. We've seen the disasterous effects of this gross mis-allocation of capital already.
History will be unkind to these economic meddlers but for now we're stuck with their destructive theories.
They will push on the string until it used to hang them.
If Gov Sachs is saying no hike, you can bet there will be one.
Exactly. In other words, GS wants to screw us one more time before TSHTF, and they will already have their new financial order ready for launch after they have finished screwing over the last possible screwee with their disinformation campaign.
If she hikes rates, bond markets will collapse.
They can raise rates if that's what they want to happen.
Not all the propaganda money can buy will allay risk.
Every country, including our friend Israel, are dumping Treasuries.
8.they have trillions of dollars of garbage at zero percent or close to it that will implode
In other words, everything is still stuffed after 7 years and the only way we can limp along is by keeping interest rates at zero, well, for the important people anyhow.
The only way they will raise rates is if they've started to believe their own bullshit cproaganda.
THE usual crap is so far wide of the truth that I doubt even they can be so stupid,
There's only one reason that counts: higher rates will blow the federal budget to smithereens.
In regards to Peter Schiff, I think he is ok, and a good economic advisor, but he doesnt understand the evil bankers. He really is no better than many. Ron Paul is the same way, a genius economic advisor but he doest see the big picture either. Jim WIllie however, gets it better than most. Anyway, this next sentence I copied from someone else from a past blog that I thought was interesting.
"all of this crazy talk over a little tiny .25% interest rate hike"
THink about that for a minute. .25% and the world will end. crazy.
it's like an elephant giving birth to a mouse. What's really sick is the US has allowed itself to morph its economy into this mess where things are determined by an unelected and uncontrolled privately owned bank - the Fed - the creature from Jekyll Island
the pooch is screwed no matter what these assholes do now
"How can you have any pudding if you don't eat your meat?" Number 8.
I love the smell of farce in the morning...or somesuch saying.
Even if they double the current rate, is that really a rate hike. It's still only going to be 1/2 of one pervent.
Currently, the Banks can create $10 Million out of thin aur and only have to pay $25,000 in Interest, while you will be paying interest rates at least 20 times that !, and if it's a credit card it's over 100 times that !!. It quite litterally is a License to Print your own Money.
Two Ex- Goldman-Sachs banking CEO's and the same being past Department of Treasury cabinet Secretary political operatives (One a democrat and the other a Republican) panel discussing the crushing of the working middle class while making $Millionaires into $Billionaires, creating $20 $Trillion in obligated debt on the general public, and establishing a corrupt global oligarchy class not seen since the days of Louis XIV.
https://www.youtube.com/watch?v=HK4xNOguKro
What is missing in all this discourse is a simply written explanation of why and how a .25% interest rate hike is going to cripple Wall Street. How are the lives of the country and corporations and individuals going to change if the Fed raises interest rates just barely above zero..if this is all that it takes to crash the market...then we have got bigger problems than we know about..
Seriously, I've said it before, but the FED is ABSOLUTELY playing the shell game making you look one way while doing NOTHING!
1/4%! Are you kidding!!!!
Does anyone remember 1974-1978when interest rates were going up 1/4% PER WEEK. Residential mortgage rates were 18%, commercial 23% and AA-AAA 12-14%.
The FED is not raising rates for any market reason, but simply this government CANNOT afford higher interest rates to fund our $18.376 TRILLION dollar National Debt.
You can do the math..........at a normalized 5-7% interest rate, we are BROKE.......GREEK BROKE!
Where will this end?