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Fed Hike - Now Or Never
Submitted by Lance Roberts via STA Wealth Management,
Will The Fed Hike?
The most anticipated, discussed and fretted about meeting of the Federal Reserve Open Market Committee (FOMC) is rapidly approaching. That meeting will answer the one singular question on every investors mind – will the Fed hike interest rates?
The chart below shows that the Fed has maintained near zero overnight lending rates for a period longer than any other in history.
The consequence of extremely accommodative monetary policy has been a blistering run-up in financial asset prices as "savers" were forced to chase yield in higher risk areas. However, there has been little translation through the real economy that has continued to limp along.
It is worth remembering that the Federal Reserve uses monetary policy tools in an attempt to foster full employment and maintain price stability. In other words, the Fed lowers interest rates to stimulate economic activity and spark some inflationary pressures. The raises interest rates when the economy begins to accelerate too quickly, and inflationary pressures are building to a point that it becomes a detraction to economic growth. The chart below shows the Fed Funds rate as compared to CPI.
In the late 90's Alan Greenspan began an interest-rate hiking campaign as inflationary pressures were building in the economy. The sharp increase in rates beginning in early 1999 ultimately led to a suppression of inflation as asset prices plunged, and the economy fell into recession.
Then, starting in 2004, then Fed Chairman Ben Bernanke also launched a rate hiking campaign as housing prices, commodity prices (oil) and asset prices were rising sharply. The inflationary pressure build in the economy became a concern, and ultimately, increases in Fed interest rates once again quelled those concerns. Unfortunately, the quelling of inflation was combined with an unprecedented global financial crisis.
In the next few days, Fed Chairman Janet Yellen will announce whether or not she will begin further restricting monetary accommodation by lifting the overnight lending rate. She will do so with both inflation and economic growth at levels lower than at any other time in history.
As stated by Richard Fisher in the Financial Times:
"'The art of economics,' the old master Charles Kindleberger said, 'is to choose the right model for the given problem, and to abandon it when the problem changes shape.' At upcoming US Federal Reserve meetings, rate setters will pore over a model that was already 10 years old when they last voted to raise rates, almost a decade ago."
While Fisher believes that the recent fall in inflation is solely due to collapsing energy and crop prices, the issue of weakening economic data on a global scale, particularly that of China, may suggest much less transient nature.
As I stated previously, I think the Fed realizes that we are likely closer to the next recession than not. While raising interest rates may accelerate the pace to the next recession, it is better than being caught with rates at zero when it does occur.
It's Now Or Never
In Tuesday's post "A Sucker's Rally?," I discussed recent market action as compared to the previous bull market peaks in 2000 and 2007. During my analysis, I looked at a long-term trend of the market going back to 2009 which I thought was worth sharing with you.
Since the "debt ceiling debt default" crisis in 2011, the markets have traded within a much defined bullish trend.
That trend was decisively broken this summer and the market has yet to regain its footing. While the market "bulls" expect the markets to recover and move back to all-time highs, there is also a possibility of failure that should not be ignored.
If the market rallies back to the bullish trend channel, and fails, it will likely lead to a continuation of the current correction.
Could the market re-establish a new bullish trend channel at a lower level? Yes. However, as discussed in Tuesday's missive, the internal deterioration in the market is more consistent with the development of more major bull market peaks rather than just a correction within a bullish trend.
In every market cycle throughout history there have been times where it was vastly more beneficial to "err to the side of caution."
This is very likely one of those times.
A Word On Jobless Claims
In a recent post on the "Economy In Pictures," I received a comment suggesting that while the bulk of the economic data appears weak, jobless claims suggest a much stronger economy.
While the improvement in jobless claims is certainly welcome, they do not necessarily suggest that for few claimant there are an equal number of jobs being filled.
I discussed the phenomenon of "labor hoarding" previously stating:
"The problem that businesses are beginning to face is while they have slashed labor costs to the bone there is a point where businesses simply cannot cut further. At this point businesses have to begin to "hoard" what labor they have, maximize that labor force's productivity (increase output with minimal increases in labor costs) and hire additional labor, primarily temporary, only when demand forces expansion.
This issue of "labor hoarding" also explains the sharp drop in initial weekly jobless claims. In order to file for unemployment benefits, an individual must have been first terminated, by layoff or discharge, from their previous employer. An individual who "quits" a job cannot, in theory, file for unemployment insurance. However, as companies begin to layoff or discharge fewer workers the number of individuals filing for initial claims decline. This is shown in the chart below which shows the 4-month average of layoff and discharges versus the 4-week average of initial jobless claims."
"The mistake is assuming that just because initial claims are declining, the economy and specifically full-time employment is markedly improving. The next chart shows initial jobless claims versus the full-time employment to population ratio."
The "good news" is that for those that are currently employed - job safety is high. Businesses are indeed hiring; but prefer to hire from the "currently employed" labor pool rather than the unemployed masses. The "bad news" is that for those unemployed full-time employment remains elusive and wages remain suppressed due to the high competition for available work.
Just something to think about.
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Screwed - Now or Very Soon
So having a 0.25% bullet is worth the havoc that will come from a hike? It was time to raise two years ago (or three or four) but it's a bit late now.
^^^this. In addition to the rate hike, the time to prosecute and JAIL the perps has also long since passed.
Too late for a refund, retribution and war it shall be...
same as it ever was...
perhaps rates are going negative.
Perhaps you will get pulled into the black hole about to be created bt CERN too!
Perhaps, but totally fucking meaningless unless my business can get paid to take out a huge loan....
Sorry, the laws of physics and Nature are starting to take over, again...
that which cannot be sustained, won't be...
the idea that capital can be created out of thin air from nothing is fucking stupid, akin to the idea that there is no risk in issuing a loan...
Let me be clear, fuck em.
Entropy, and lots of it......
Prediction:
They'll talk a big game about raising rates (same as it ever was), and ultimately come up with some new and interesting reason to never hike.
What do I win when I'm right? What is really like is some devalued currency - no whammy.
You may be right, Bones.
But, it MUST be met with a rise in public anger and outrage. Young people, especially, should understand that everyday that passes under current conditions is another day they get older and poorer in a future that won't be prosperous they way we're going.
THIS IS YOUR FUTURE, and the days are adding up to years quickly.
We are not getting better because we can't as things now stand. EVERY DAY IS A WASTED OPPORTUNITY TO RECOVER TOMORROW.
It may already be too late, but if you want something better, you HAVE TO try. Put the mind numbing gizmos and games away, and get on their (Fed, TPTB's), asses and start raising hell.
m
Exactly!! Any change the FED makes now will be seen at the catalyst for what we know is coming. The FED won't take the risk of being the fall guy for inept fiscal policy.
""Monetary policy can’t solve the problems we face," warns German finance minister Wolfgang Schaeuble". Congress and the administration have the perfect fall guy(s) for their inept fiscal policies.
If they don't raise rates they will be blamed for not normalizing sooner. Being the fall guy therefore cancels out of the equation. They are losing credibility and faith in the Fed is the only thing supporting fiat money. When a total collapse is on the way, why not prepare for it and then cause it so that you know the timing and can profit from it.
The banksters make money when the market goes up or down. They hit a grand slam when the markets collapse.
The FED is not here to stabilize markets or help anybody but themselves.
Misinformation and deceit is their speciality.
Rate hike coming. Crash coming. QE4 coming. War coming.
what is this "next recession" nonsense?
Yeah, you lost me at 'It is worth remembering that the Federal Reserve uses monetary policy tools in an attempt to foster full employment and maintain price stability'.
It's been transparently obvious for years that the Fed uses monetary policy to transfer wealth from savers and 'investors' to insiders in the banking community. If you're going to pimp the party line then fuck off.
He lost me at Lance Roberts.
zinggg!
I came here about a year ago and Lance was pimping weakening (at any moment!) $US and 10yr yield @ 4% in 2015
been my personal pinata ever since
I agree but calling counterfeiting monetary policy may be a bit too polite,yes in return for monopoly money it acumulates real assets and distributes wealth to the rich and various banker knights of the pentagram table
in return for monopoly money it acumulates real assets
Of course, when the time comes, those overpriced "real assets" willl quickly become unmarketable tombstones for the previously real elites.
It didn't work that way in 1929. The common people paid dearly, some moderately wealthy lost their wealth, the elites got more money and power. That will happen again but I think this time turmoil and unrest will cause violence to all.
Inflation near zero? If thats the case, than helicoptor money will work, unless you need to buy food or pay rent.
Its now or never...
Come hold me tight. Kiss me my darling, Be mine tonight Tomorrow will be too late, It's now or never My love won't wait. When I first saw you...
Elvis sings to Janet!
What can the Queen of the FED do when the King croons the blues!
Armageddon coming soon to a cinema near you...
http://www.washingtonsblog.com/2015/07/governments-worldwide-will-crash-...
They will provide a meager rate hike and the will keep printing...
Eventually the supply lines will break and the world will go to war in earnest.
same as it ever was...
"The "good news" is that for those that are currently employed - job safety is high."
You gotta be F'ing kidding Lance...?
Finance departments have one hand on the $buyback button and the other on the Layoff button... At the first whiff of danger, you're going to see a $slash & burn campaign that will make 2009/2010 look like an 8 year old playing with matches in a sandbox...
he's a moron
employment a lagging indicator
yesterdays report on import/export prices ... BOTH negative does not bode well for employment as business margins are being squished.
This article is possibly the large pile of shit that ZH has ever published. What a load of bollocks to believe that a .25 or .50% ammo holster of hike will provide any relief later in the very likely event of a recession!
They will NOT raise rates this year or NEXT. Period. The talk is window dressing and market watching. The reality is the FED has no more monetary weapons left and they know it.
Talking about it doesnt make it so.
You haven't read ZH much have you. A rate hike is a monetary weapon. Don't discount the effectiveness just because the weapon is aimed at you and not the other guy. You don't know what the Feds real intention is do you?
Ok I want to know TODAY what the company line is Gold will do if Raises rates or not. Because even though we know it will be spun to go down no matter what Mr. Yellen picks out of her ass. Common sense would tell us that one choice would make it go and one would make it go down. I used to think raising rates would hammer Gold (and I'm sure it will) but I now think it should be bullish for Gold. Anyway what's the experts say TODAY. Raise rates Gold up or down. No Rate hike. Gold up or down ???????????
OT, but important, IMO. Unsustainable trend. NY phasing in $15/hr minimum wage. This nation is doomed.
http://finance.yahoo.com/news/york-state-oks-15-minimum-wage-fast-food-1...
Volcker ushered in a recession but that was at 18%. We are worried about .25% resulting in a recession. We are already in a recession.
Bingo. The next step will be the death of all bullshit paper promises. If we are lucky we might get to execute some of these useless fucking middlemen as well.
The strong move on Jobless Claims in last chart should have also seen a big move in Participation rate, but it didn't happen. This indicates that something else is going on and that the pre-2008 relationships don't apply to where we find ourselves now (thanks Central Bankers!).
In pre-2008, Jobless Claims dropped as people found jobs. Post-2008 Jobless Claims dropped as the 99-weekers reched the end of the line and entered unemployment purgatory.
The whole hiking rates so they can cut them when the economy goes into recession makes me crazy. A lot of analysts have posted articles on ZH making a strong case that the US never really got out of recession (compared to pre-2008 recoveries). And now the Fed is going to hike so they can have a rate cut in their pocket for the next recession when their rate hike will likely make sure that the US goes into recession. Just shows how fucked the Fed really is.
Should have let the banks go under motherfuckers.
They must pretend they, the FED, are relevant, which, of course they are to themselves and their kind. The peoples economy, jobs/inflation mandates, is as meaningful to the FED as "We the People"" are to Washington.
How much QE4 do you want?
How much QE5 do you want?
If China has been neutered as the US's #1 bond vigilante...no raise
"Then, starting in 2004, then Fed Chairman Ben Bernanke also launched a rate hiking campaign as housing prices, commodity prices (oil) and asset prices were rising sharply. "
Um no. Bernanke never raised rates. That baby step bullshit was greenspan.
Keynesianism has no exit strategy!
0.25% (or worse yet 0.125%) is not ahike... this is a rounding error.
BUT the FED will take ANY hike as reason for a victory lap.
Total Fail.
this guy is full of beans
Yes, zero bound is for pussies. Lock and load at 0.25% and duke it out with the recession.
Godliness with contentment is great gain regardless of the circumstance...may each of us reach that place as individuals.
-------------
Think what would happen if we cut in half our "Christmas" spending & debt enslavement sprees; we would have less stress, less debt and more contentment...the children will survive. The corporations that feed our lustful appetites would cease and desist or be reduced...food for thought. Buy a good book and read with them.
Unfortunately, the quelling of inflation was combined with an unprecedented global financial crisis.
What "quelling of inflation"? All QE initiatives (i.e. monetizations of undeliverable government trading promises known as debt) were DOA (Defaults on Arrival). They were not met by equal interest collections.
Therefore, by the operative relation:
INFLATION = DEFAULT - INTEREST
inflation is obviously not being quelled and is clearly not zero.
Inflation is virtually impossible to measure. Thus the measurement and reporting of it is very easy to fake.
But, by the relation, it is a trivial exercise to know when INFLATION "is not" zero. If DEFAULTs exceed INTEREST, INFLATION is not only not zero, with the QE driven DEFAULTs and ZIRP driven interest collections, INFLATION isn't even small.
The butcher has his thumb on the scale.
Pay attention folks!
notice rents are rising much faster than housing prices, and the equivalent rent factor is the measure of housing inflation. do they pay attention? of course not. its like umpiring in baseball, thats a strike because i said its a strike. the fact that rents are outgaining the underlying assets should cause a jump in CPI, and the problem will only acerbate, the no-homeownership society of W Bush will take hold. were all rentiers (thats the verb for landlording)
first of all this is a fractured fed, everyone speaks their mind, the chair is not autonomous although yellen will probably do what she wants, or make the statist decision. then as everyone notes the rate hike is too small to really matter, unless it has some accompanying policy rejoinders. their last comment on this was that they would raise or lower according to the immediate take on the economy, so up a 1/4, down 1/4 (i dont think markets like that kind of uncertainty, but in the fractal sense its okay as long as everything is incremental. big problem when you propose that sort of policy and you need more than baby steps) finally they will probably suggest that QE and rates hikes can operate simultaneously, and that news will send the stock market into orbit. everybody gets what they want, zero interest to buy stocks, some benefit to savers. who pays for it, thats not their problem. the fed can and does make fiscal policy, (john hussman) as well as foreign policy, the real question is are they aware of their mandate, and do they use it, and will they use it. the fed could become very very powerful without anyone having much say about it. and of course presidents can change the fed leadership , and we can change presidents but it scarcely matters (bush obama obama bush). but for the moment QE and a rate hike, should be fun
The rate hike thing is over, it's long past time for hiking rates. Yellen missed the boat, and there won't be another.
Surely no one in their right mind believes a percentage point here and there makes any difference. Rate cuts only work if there is some 'rate' to cut!
All this agonizing over rate hikes just exposes the lie about the "recovery". But this constant yapping about it pisses me off...as if it actually matters to the economy whether they hike a quarter-point or so.
Whatever is going to happen with the economy is going to happen, regardless of what Yellen finally does or doesn't do. The Fed lacks the sense or the balls to do what should have been done, and their little half-measures and token gestures are meaningless now.
as a surrogate they could restrict credit and let the markets put a premium on lending. its also possible to restrict credit and maintain or even increase liquidity. greenspan did this when he raised rates, by opening the repo window. repo and pomo are crude tools compared to qe, i liken it to changing the punch in the punchbowl, not taking the bowl away, just filling it with 3.2 beer. yuuck
That channel diagram is so straight it looks like machines are purchasing the stocks.....
Ohhh...
World markets are waiting for FED's verdict on this month's now-or-never interest rate hike.
http://davidstockmanscontracorner.com/fed-hike-now-or-never/
There is no point in speculating. The FED and the govt are doing everything in their power to declare that they pulled it off. But I do not think this is a decisive moment because both options are bad. If they fail it will be bad. If they succeed it will be catastrophic. Only ignorant will feel the bliss.
http://just-a-thought-from-thinair.blogspot.com/
4 more days.
FED will likely hike but not because there is rampant inflation in The US, rent, school, food and periodically gas all basics but for completely different reason, an futile attempt to fix what they screwed up.
Here it is:
https://contrarianopinion.wordpress.com/economy-update/
About reality of stealth inflation:
Those who concoct CPI, forgot about serving size inflation, quality collapse inflation, component substitution inflation, choice narrowing inflation, package cost and quality inflation, air conditioning, freezing/heating power limitation inflation, shopping experience quality collapse inflation, and other manipulations to keep so called nominal price marginal increase of few percent only per year.
"While raising interest rates may accelerate the pace to the next recession, it is better than being caught with rates at zero when it does occur."
Wrong, wrong, wrong. Liquidity traps are a Krugmanite statist fantasy, the Fed can just target the nominal GDP trend, like they should have been doing all along.
Central banks can ALWAYS inflate.
Targeting "normal interest rates" is a ridiculous policy.
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