This page has been archived and commenting is disabled.
Krugman Joins Goldman, Summers, World Bank, IMF, & China: Demands No Fed Rate Hike
The growing roar of 'the establishment' crying for help from The Fed should make investors nervous. While your friendly local asset-getherer and TV-talking-head will proclaim how a rate-hike is so positive for the economy and stocks, we wonder why it is that The IMF, The World Bank, Larry Summers (twice), Goldman Sachs, China (twice), and now no lessor nobel-winner than Paul Krugman has demanded that The Fed not hike rates for fear of - generally speaking - "panic and turmoil," however, as Krugman notes, “I think it would be a terrible mistake to move. But I’m not confident that they won’t make a mistake."
The Federal Reserve should hold off from raising interest rates until the first half of 2016, the International Monetary Fund said as it cut its U.S. growth forecast for the second time in three months.
The lender also said that the dollar was “moderately overvalued” and a further marked appreciation would be “harmful,” in a statement released in Washington on Thursday on its annual checkup of the U.S. economy.
“The FOMC should remain data dependent and defer its first increase in policy rates until there are greater signs of wage or price inflation than are currently evident,” the IMF said. Based on the fund’s economic forecast, and “barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016.”
...
“There is a risk that a further marked appreciation of the dollar -- particularly one that takes place in an environment where policies to address growth deficiencies languish both in the U.S. and abroad -- would be harmful.”
The report also discussed financial stability, with the IMF pointing to higher risks in shadow banking, a potential lack of liquidity in fixed-income markets, and greater market risk-taking in the insurance industry
The World Bank raises the fear-mongery...
“I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” Mr Basu said. “It is the compounding effect of the last two weeks of bad news with that [China devaluation] . . . In the middle of this it is going to cause some panic and turmoil.
China (twice) demanded The Fed hold...
- U.S. FEDERAL RESERVE SHOULD DELAY RATE HIKE, COULD PUSH SOME EMERGING MARKETS INTO CRISIS - CHINA OFFICIAL
"China's exchange rate reform had nothing to do with the global stock market volatility, it was mainly due to the upcoming U.S. Federal Reserve monetary policy move," Yao said. "We were wronged."
Goldman Sachs offers up 7 reasons why Yellen should stay on hold... 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.
a Federal Reserve decision to raise rates in September would be a serious mistake.
Now is the time for the Fed to do what is often hardest for policymakers. Stand still.
And now Paul Krugman joins the fray...
“I don’t think they are moving next week,” economist Paul Krugman says at conference in Tokyo on Wednesday when asked about timing of possible interest rate increase by U.S. Federal Reserve.
“I still think it would be a terrible mistake to move. But I’m not confident that they won’t make a mistake"
Fed keeps sounding like it’s eager to raise rates.
It’s almost as if there exists an urge at the Fed to repeat the mistakes of the BOJ and ECB.
* * *
Now Yellen is really cornered.. and just exactly how are the talking heads going to spin any of this as positive?
However, Saxo Bank offers four reasons why The Fed should hike rates in September... The probability of a rate hike in September is stronger than is generally believed. There is no perfect timing for the tightening monetary policy but several arguments confirm that the Fed is able to begin this month if it so desires. Here are the four we can see:
1. The Fed is on its way to achieving its dual mandate
With a 5.1% unemployment rate, the US economy is very near "full employment" and is preparing to enter its seventh year of expansion. Notably, the current period of growth is already 16 months longer than the average seen since 1945.
As for inflation, the Fed has nearly achieved its goal as inflation (excluding oil and energy) lies at 1.8%, very close to the 2% target.
Taking oil into account, of course, inflation is down significantly. But this near-deflation situation is an external factor on which the central bank has little influence and it cannot be the only driver of US monetary policy strategy.
2. The Fed is aware of the 'speculative bubbles' risk
Even if preventing speculative bubbles is not officially part of the Fed's dual mandate, this legitimate preoccupation is strengthened by the financialisation of the economy.
Economic literature dating from the beginning of the previous century underlines the necessity of central bankers' including the price of financial assets and real estate to get a more comprehensive view on actual inflation.
Recent speculative bubbles on stocks or real estate in several industrialised countries confirm this necessity.
In the United States, the excesses that led to the 2007 crisis appear to be drawing near again. Many stock prices are disconnected from companies’ balance sheets and first-time buyers can once again take out a loan worth 97% of the price of the property they intend to purchase.
Coming back to a more orthodox monetary policy implies obvious dangers, but the first benefit would be to return “real” value to money.
3. Credit conditions will remain durably flexible
Even if the coordination of monetary policies between the main central banks is just an illusion, it does exist to a certain extent. It can be witnessed in the Swiss National Bank’s decision to give up its three-year-old cap on the value of the Swiss franc last January, just a few days before the official announcement of the European Central Bank's QE programme.
In the event of the Fed raising its rates in September, the global monetary printing will go on. The tightening in America will be very gradual. In addition, the ECB shouldn’t hike its rates before the end of 2016, at least, and the Bank of Japan is involved in a similar process which is not intended to end any time soon.
4. The Fed’s credibility depends on it
A rate hike in September has been in the consensus for months and has led to a repositioning of portfolios in favour of USD-denominated assets since last Spring. Any backward step from the Fed could weaken its credibility, its forward guidance strategy introduced in 2008, and support the idea that market upheavals drive its decisions.
Since the Swiss franc case occurred early 2015, central bankers’ credibility has been notably affected. A postponed rate hike might then blur the American central bank’s message.
* * *
Finally, just in case there is still any confusion what a Fed rate hike means, we repeat what Bank of America said last week:
Should the Fed decide to raise interest rates, it will be the first Fed hike since June 29th 2006. In the 110 months that have since past, global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assets, zero [or negative] interest rates policies have been adopted in the US, Europe & Japan. And, following the Great Financial Crisis of 2008, both stocks and corporate bonds have soared to all-time highs thanks in great part to this extraordinary monetary regime.
As noted above, a rate hike with a stroke ends this era.
- 17259 reads
- Printer-friendly version
- Send to friend
- advertisements -


I want to run up my credit card and never pay interest as well!
The gvt will default before it raises rates, I'll guarantee it too.
OK
You're outta here when the Feral Reserve raises rates then right?
See ya!
Guess who's coming to dinner? 1937.
The day Krugman doesn't want cheap money from on high is the day hell freezes over.
Take a deep breath, Muppets............... never listen to what Goldman Sucks says, watch what they do.
What Goldman does to their clients with interest rate derivatives is NSFW.
Yep - anyone here on ZH surprised at Krugman's stance raise your hand.
Nobody?
Thought so.
Geez, a whole .025 and the world as we know it comes to an end.
The gvt will default if it raises rates, I'd expect.
Why not just print several quadrillion moar in debt? Uncle Sugar already has an exceptionally stupid tax-base that's willing to be on-the-hook for $18 trillion.
Smellin, "Pay me now or pay me NEVER"...
So obvious what's playing out here.
Pretend the FED doesn't work in conjunction with all other monetary powers.(RIIIIIIGHT)
Have establishment come out pleading for no rate hike to absolve them when it happens.
Have FED hike against wishes of everyone, isolating the FED as the sole cause of the crash.
Blame FED, abolish central banks.
Replace with even more centralized global banks.
Mission complete.
THERE WILL BE A RATE HIKE
I am almost completely out of stocks & long-term bonds, so I don't care (much) if they raise rates. In fact, higher short-term rates would give me a little more income.
* * *
I read recently that it is the LAST rate hike which blasts stocks. So if they DO raise, maybe no Doom for a while...
EDIT:
Besides, if Krugman et al say one thing, I typically would take the other side of their suggested trade.
I think it would be a terrible mistake to think that Yellen is as friendly as Bernanke was. But I’m not confident that Krugman won’t make this mistake.
Haven't they been staving off raising rates for like 3+ years?
I mean, this isn't even funny anymore.
I think even the dumbest around will realize the "economy" isn't really doing that well if a 1/4 point hike destroys it.
The economy is brain dead and they do not want to unplug the machine and admit it.
pods
1/4 point rate hikes are like potato chips. You can't stop at just one.
The time for a rate hike was 2005. It doesn't matter. I'm so tired of reading about financial pussies.
END THE FUCKING ERA ALREADY - CHANGE THE FUCKING DIAPER!!! THE SMELL IS DEATH ITSELF!
With Obie still in the White House? No way. He's just the advance man. He sets the stage, he's not the guy who's going to be performing when the curtain goes up on Act 3. They got a different guy in mind for that job.
Yep, and she likes Sushi too.
pods
Are you suggesting they would have white women in major positions of control when the unwind happens?
If a quarter point puts Hank Paulson's tanks in the street, they just need to go ahead and close the doors and turn out the lights.
I love that sycophantic HBO movie 'Too Big to Fail' with A list Hollywood actors doing their best to portray abject criminals as benevolent bankers caught with their pants down and William Hurt playing Paulson, waking up in a cold sweat with visions of martial law. Like he was the last line of defense holding back financial ruin. Such a crock of shit.
I know. I wanted to fucking scream at the TV. It was the most blatant bullshit propaganda movie I've ever seen. Paulson and bernanke as the saviors of the world, when those fucking criminals helped bring this whole thing about. What should be a lesson against central banking and govt is spun as showing how great central planning works.
Written & directed by the Criminal Psychopaths at the CIA.
"...in the 110 months that have since PASSED..."
Don't bankers have to speak English anymore?
why should they, they don't pay attention to math either?
Sing to the theme from 'Annie':
"The rates will go up tomorrow
Bet your bottom dollar that tomorrow, there'll be yield"
It's a very hopeful song in a very dark time, don't you think?
Fed is just making it look like they are being held back by the pundit class.
In the FED's defense, if they don't raise it, they'll need to introduce negative interest rates to keep the cardhouse up for another 2 years.
Will they do it?
FOR SURE!!
But a rate increase would buy them 2 extra years.
GET CASH OUT FOR 1 YEAR!! IF YOU DO NOT HAVE THAT MUCH, SAVE EVERY PENNY FROM NOW ON!!
If they don't raise rates time is running out pretty fast.
I've got supplies for 8 years, money in cash for 1, gold and silver for 15 years.
And I've been traveling the world for the last 7 years to see where I could go to if need be.
The endgame is getty scrary close....
I was looking to a docu of the MIR space station last weekend.
Did you know the last communist was on it when Russia fell?
IT HAPPENED OVER THE WEEKEND!!!!!
HOURS!!!!
AND SHIT GOT SCARY REAL FAST IN RUSSIA FOR A SHITLONG TIME!!
AND THEY HAD THE WEST TO GET OVER THEIR MISSERY! WE'VE GOT NOBODY LEFT!
For gods sake, we all know how this ends.
GOLDMAN IS THE FED!!!!
THE IMF IS THE FED!!!
FINKEL IS EINHORN!!!
EINHORN IS FINKEL!!!
I'll raise you 4 Krugmans, if you have a Summers/Yellen/Bernake flush then I'm fucked!
When owners of the firm tell employees to do X, employees that defy the owners are soon gone.
If Yellen raises 25 bps or 12 bps to get Fed Funds to 25 bps, she will soon be outta there. They have given her the pre-termination notice.
The full court press of why NO rate rise is simply cover for the banks if markets hit turmoil, after a rate rise.
NoVa
Seems to me there are a LOT of mispriced options, I mean I had some puts go DOWN in value while the market was going down, like WTF???
This tells me that there will be no rate hike and some big players in the market already know this, and these big fish are just not playing their hand yet.
Anyone else notice this?
Name symbols. If puts (or calls) are "mispriced" they can be arbitraged by buying or selling call options on the same symbol.
If you had puts that were still out of the money as the market went down, then the only explanation would be that the volatility for that symbol collapsed.
If the puts were in the money after the marlet went down then the price of the puts would have to increase .... unless there was a massive decrease in volatility from when you bought them.
You have to be more specific. This is basic stuff.
The Federal Reserve is irrelevant. They don't know it yet. Some do. But they lie to themselves. Green shoots for everyone! (Pass out the cyanide pills)
All you needed to do was add Putin's name to the article and you would have pretty much covered all entities responsible for WWIII.
Krugman and Summers, two of the most despicable kike economists ever minted
8 years at ZIRP, I am a saver and these idiots ae killing me along with every saver in Amerca.
Stop saving and buy Bitcoin.
All that economists seem to do these days is beseech the Fed. More worthless than worthless. Maybe they can take up begging as a career.
Isn't that precious? Saxo Bank really believes the unemployment rate is 5.1%! Even better, they think the Fed still has credibility to maintain. Laughable.
When the bankers believe their own bs, we know the end is nigh.
I've always said I expect them to lie about the stats, but for fuck's sake, don't base your whole economic theory on the lies.
Sometimes you just have to rip the bandaid off real quick to avoid long term pain.
Oh wait..... that would have been over 6 years ago.
relax assholes ms piggy isn't raising rates there will be other qe's but no raising rates
There will be both if you live long enough. But that's the real question isn't it.
I think they are bluffing. Trying to give a false impression they know what they are doing.
If they knew what they were doing, the economy wouldn't be in this mess.
But then again, these people have been stupid all their lives without being aware of it. One never knows.
The market is oscillating wildy and that is exacty why the Fed will announce a rate hike. Bluffing is not working anymore so they have to actually announce a hike. They will probably announce that it will take place in November or December hoping that with the news in place the market will calm down and then start going up again. Left alone the market will crash and they know that. Can't lose all that pretend value can we?
My guess is they'll do a 'token' mini hike just to prove that they can.
What will be more important to the casino operators is the language they attach when they do so.
But the economy is so great according to CNBC!!!! Unemployment is so low and jobless claims falling. Obama saved us!!!
It's so fucking great then raise the interest rates you degenerate Maggots!
Well, once again, if the establishment is calling for no rate hike, they must be wrong.
What choice do they have? Any rate hike would fuck this doped economy totally up. And what markets are they talking about?
North american refugee. Look, you will be getting out alot without a vehicle. To do things. Maybe along day outside OK. You gotta have non cotton baselayers. Cotton wi hold moisture against the skin and will cause extremely dangerous heat loss. You can not prevent hypothermia with a heavy coat while wearing sweatshirts full of sweat. Wool baselayer are great. Even merino sweaters are good. Polyester baselayer work well but can stink real bad. A wind short is a nice layer but holds moisture in too. Do not try the carhart duck jackets they become dead weight when wet. Get something with a fleece(polyester) lining and a nylon shell.some light dickies type jackets are really nice for low bucks.
Look on eBay for gaiters they keep snow out of your boots. If you are staying outside and your boots freeze you will have a bad time.
Krugman is a tool for taking the FED's September rate hike nonsense at face value.
~ Now gimme a Nobel prize, and get one for yourself too.
I wish I had a Ivy league PhD so I could earn big bucks for being fucking clueless.
Clueless is OK, but the big money comes from lying.
We are at appx. Full Employment. Wage inflation gonna take off. Way behind the curve. Better Volcker shock those rates and NOW.
Yeah? You know some employers that are just about to give everybody a raise? Or did I miss a sarc tag within your post?
Wage inflation? On what planet?
Everybody active in policy circles in the West has devoted his career to ensuring wage inflation simply doesn't happen, making sure all the gains in productivity over the last thirty years went directly into the pockets of the well-connected.
That's not going to happen until either the developing world reaches the current North American living standard or (far more likely) we're dragged down to their level or below.
The muppet slayers over at GS are a nearly perfect reverse barometer between what they say and what will happen.
I say the Fed raises rates 0.25%.
Why?
Just because they can and their friends can take the opposite side of the trade that the Fed won't.
How does the decision finally get made, is it a big wheel of fortune, or do they use dice?
Dont mind a rate hike in the US - it is irrelevant for most of it. It has just a symbolic effect to save the credibility of the istitution...
The -13% imports in China... that got my attention...
One thing I can guess, a hike would probably kill the US shale oil dream, and could lead to higher oil prices... Long on oil at the moment...
as Krugman notes, “I think it would be a terrible mistake to move. But I’m not confident that they won’t make a mistake."
The terrible mistake was stimulus. It is now a bigger bubble to burst.
"Should the Fed decide to raise interest rates, it will be the first Fed hike since June 29th 2006. In the 110 months that have since past, global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assets, zero [or negative] interest rates policies have been adopted in the US, Europe & Japan."
None Of It Has Worked.
Krugman: "It’s almost as if there exists an urge at the Fed to repeat the mistakes of the BOJ and ECB."
The mistake has already been repeated multiple times. QE doesn't work. Bernanke wrote in 1988, that it doesn't work. When in charge, he proved it doesn't work.
Still, Krugman doesn't listen.
The Federal Reserve should hold off from raising interest rates until the first half of 2016,
The relation: INFLATION = DEFAULT - INTEREST governs "any" MOE management process.
For a properly managed MOE process INFLATION = zero.
This obviously says DEFAULTs should be monitored and when experienced, should be "immediately" reclaimed by INTEREST of like amount ... or non-zero INFLATION will result.
Because a rate hike accompanied by a downturn might hurt a Democrat presidential candidate? "It's the economy, stupid."
Krugie/BB 2016?
"QE you can believe in"
When everyone on Wall Street starts slapping the Fed in the face with the Invisible Hand, I guess we have to start calling it something besides invisible.
Guess new normal orgy book sales will be affected during bullshit projections already stated.
Comically, keep Jeb Bush on his 4% GDP village indian idiot smoke signals. He'll instill the Mexicans to wave the rug over fire to communicate Español messages in godly fuffs of Morse code for central planning language encrypted set skills only.
07Sep/Koji Ishida: Japan's economy, price developments and monetary policy
Jeb and Hillary's ad compaign flop.
Mothers knows Best JEB - YouTube
Dorothy | Hillary Clinton - YouTube
You can see right thru the focus group bullshit. Are you OK Carl Rove? You better hire some foreign crisis actors to USAID sad faces and the need to elect.
Oh wait, you already blocked off Syria USAID and are blocking Russia to provide AID support.
Can you provide those people in your campaign ads? Even Palestinian West Bank refugees will show the Global Community such string dynasty between democratic/republican leadership.
FED: "Pull-eeeze don't throw me in the briar patch!"
Apparently the data on which the fed is to base its decision includes the performance of foreign markets.
It seemed that the (high massaged) domestic data was pretty much as expected.
This reminds me of when Obama said the sequester would be a disaster. The sequester came and went nothing happened. 25 basis points is an irrelevant joke.
I demand that they take their fucking fingers off of rates, period. It is not in their Constitutional purview. But then, neither is their mere existencce.
I think the decision has already been made by Goldman Sacks.