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The Fed Shouldn't Worry About Losing Credibility: It Already Lost It
This Thursday the Fed may or may not hike: either outcome has become a losing proposition. If the Fed hikes, the market will tumble (regardless of the initial PPT and algo-driven spike designed to set the mood that this is the "right thing to do") after the Fed unleashes the next step in the Emerging Markets currency crisis, and the Chinese hard landing goes global. If the Fed does not hike, it will admit all its caveats about data-dependency (in an economy with 5.1% unemployment and a record high number of job openings) was nothing but a lie, and again expose itself as a muppet of the wealthiest market participants.
In other words, perhaps more than concerns about the market's reaction, the Fed may be just as worried about losing any more credibility with a global market where QE has increasingly less impact.
But is it?
As RBS summarizes it, "the Fed’s dilemma is a trade-off between shaking the tree today, risking that volatility and capital flight in EM may ‘spill-back’ into developed economies, or waiting and watching the fault lines deepen. Claudio Borio uses some economist humour to describe the issue: “All this is reminiscent of the old joke about the stranded tourist who, having asked for directions, was told: "If I were you, I wouldn't start from here."
What should the Fed do?
The choice is tough, and major policymakers are telling Janet Yellen to hold (IMF, World Bank, Summers and others). The arguments tend to be similar, mostly, worries about inflation being persistently low. This is true: inflation is low, from a mixture of commodity downward pressures, and structural imbalances in the labour market. But the real reason to hike is another one: preventing the debt $-denominated overhangs from building up further – the burst of which would be, in turn, even more deflationary (and the same imbalances resulting from a financial boom can also reduce productivity, as discussed by the IMF). So if the Fed’s mandate is to worry about the medium-term and to target structural issues vs today’s asset prices, the right thing to do would be to hike. This is also what the majority of institutional investors think. But the Fed won’t.
Why not? It appears that the Fed no longer cares about doing the right thing for a very simple reason - the Fed no longer is worried about losing credibility. As the following chart showing the results of a survey of 150 institutional RBS clients and investors confirms, two -thirds already believe the Fed has lost credibility.
As such, the Fed's only mandate is perhaps to prove that while it may no longer have the credibility, it still has the ammunition to influence markets. Because if the latter runs out, then it really is time to panic.
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I LOVE response #3
I mean, WTF is saying "no" at this point?
Whomever the CNBC audience is.......
The time for the fed to panic is when the failed fed experiment is exposed, which is very soon, but till then, party on bitches!!
FED-bots
All ZH readers
Judging by your downvote, I think someone can't line up responses.
pods
While #3 is a funny answer, it is also the most disconcerting part of this article.
Everyone on Zerohedge knows that the CB's are the root of almost every problem that the world currently has.
This article bascially reveals that 97% of the population is clueless about them and what role they partake in in regards to global suffering and misery.
We have a ways to go folks.
I'm in the 3%.
'Movin on up, (movin on up), to the top. To a deluxe apartment, in the sky-high-high."
pods
Pods, I dig your vibe and commentary.
I have to ask: can you grow an heirloom garden and protect it. Do you have close friends that would take you in or pull your ass out of a tight situation at three in the morning?
Can you walk out your back door and , shoot, field dress, and process a deer?
I have these plus I am in the 2%. I put no future value on my current wealth. Only the skills, land, PM, and Pb acquired with it. Also the skills I am I transferring to locals that want knowledge. Hillary is right: it will take a village, just not her vision of it.
The friends for the future are the old fashioned kind: earned through deeds and actions, with some kindness and grace.
Peace
"When in trouble, when in doubt, run in circles, scream and shout." ,"You can always tell who the big wheels are because they run in the biggest circles."
Yellen, the big shot, small calier but imense bore, similar to Tim Cook of APPL.
All BS. Just look at who's on the board of the FED. All big bank execs and former execs. The FED is not run by "Ivory tower academics," it's run by the big banks.
Should this surprise you? Did you REALLY think the US would let its most powerful tools, that of printing the reserve currency and setting interest rates, be wielded by a bunch of incompetent academics who have never seen live fire?
Very convenient the big banks can cause booms and busts all under the cover of blaming the ivory tower academics though don't ya think?
Its run by the Rothchilds
impossible to lose something you never had.
just like calling someone a "good" leader; you are either a leader or your not.
janet yellen is not a "leader" because she, like her predecessor, don't have the balls to start raising rates to put the honous where it belongs - on the president & congress to balance the fucking budget. all this fed has done has enable these clowns to keep borrowing at cheap rates. doesn't matter once the debt grows too large, its going to be impossible to pay back the principal so who gives a fuck what your borrowing rate is.
i love hearing these guys on CNBC say "if the fed makes a policy mistake" ... newsflash: their policy IS the mistake
I live in a socialist paradise - where the cost of health insurance is more than a house payment, but the deductible is so high you don't use it, and career opportunities for a lot of kids is In & Out Burgers. Oh yeah, and militarily blowing up stuff is the zenith of Keynesian broken window economic stimulus.
At least In & Out Burgers starts new hires at $12/hr. Not much, but something.
How do I get a job where each day my only responsibility is to move rates up or down knowing I cant do either...?
It is so easy to understand why this has all failed. We are arguing over a .25 basis point hike. 25 basis points!!! Does everyone get it. We should be at 4.5% and we are scared shitless over .25 basis points.
What a tragedy. What a farce. What a failure. The pied piper WILL be paid for all of this excess, and soon.
FED Caught on a hot Mike saying:
" We need a kardashian distraction, Yellen cut off your penis and toss it in the street, we will call all the news outlets and tell them Bruce finally did the big one "
I am not convinced that the crash will be televised. We will hit a 100 million out of the worforce by election day, so what? Chris Khardashian will have a penis sewn on, all will be forgotten. QE4 as a japanese Stock ETF purchase plan, sure to boost Stock Prices, to ATH's why would it fail? There are plenty of electrons in the computer.... A few more local malls close, so what we have Amazon, Hamburger hits $10 a pound, it was bad for you anyway. No I dont see any tangible difference between a crash and where we are now.... pass out more welfare, and Iphone XX's, and all will be good. Bread and Circuses....
Remember the Ukraine, Greece, North Korea, Ebola, Bird Flu, didnt think so.
"A few more local malls close, so what we have Amazon, Hamburger hits $10 a pound, it was bad for you anyway."
http://www.finviz.com/quote.ashx?t=bwld
A $3.8 bln dollar company founded on selling fried chicken parts that used to be thrown out, while selling beer that you would get punched in the face for drinking in Bavaria/Wisconsin. All while watching watered down "sports" that celebrate a hyper-safe/vaginal version of the Roman Colosseum. We're living in Idiocracy, except a super feminized version of it.
The FED should make it easier on themselves and others by turning themselves in voluntarily and avoid their eventual capture and prosecution for financial war crimes and the deaths of millions of innocent people.
not gonna ever happen - the Fed IS THE LAW for the entire globe - and there is absolutely nothing you can do about it
Funny part is everyone keeps talking about a crash, we're living through the crash as we speak.
they don't care anymore - they are a criminal organization that has the power, backed by the govt/military/agencies, to do just about anything it wants and nobody can do anything about it - absolute power kind of thing
I wonder though, if the FED has basically nothing to lose in terms of credibility, what about the millions of people looking at them as they were still making a difference?
We are not talking peanuts here - from the Chinese farmer who invested using borrowed money (number one think to never do on my list) to the "best in class" geniuses at JPM, and to a lot of others...
It is by now clear that it is not possible anymore to distinguish one market from the other - the chinese market and the US one are one and the same for what concerns cause-effects. The existence of such "global market" means that the response of both investors and speculators is not based anymore on what Ms. YELLen will do (which is completely irrelevant), but on what people on the other side of the world will understand of such irrelevant matter.
It looks like the financial "crisis" that erupted about Greece - lots of speculations and fear mongering, and very little rational analysis of the various case scenario's, including the Grexit option.
As an investor, I feel more prone to gather the "sentiment" than the data, as the latter has abviously and regrettably lost most of its weight in decision making. More often than not, the initial reaction to an event is far more telling than any kind of financial analysis, to the extent that investing has become more of a psycological game than anything else.
From my viewpoint, the FED has indeed buried itself in a corner - but they have a way out which they might indeed use... Slashing further rates and unleashing more QE could get them off the hook, provide the markets with yet another shot in the arm, and safeguard the FED themselves... at least in the short period.
Beyond the stated and impossible FED dual mandate (which is really idiotic), the real mission of the FED right now is one and only one - ensure a "soft" landing for China.
That would exclude raising rates, IMHO. Could include leaving things as they are, but it would result in a continuous state of impasse globally (since everybody would start ripping their hair off about October)... or it could be a "whatever it takes" clear statement, which would provide some more rational, although distorted, basis for markets to move on.
As long as China keeps falling, the FED can't move without causing damage of some kind. The only decision is about what kind of damage is the lesser evil. So far for credibility...
The FED only did what Congress allowed it to do.
That is their defense.
They blame you.
If the Fed wasn't going to hike they wouldn't be using bogus Unemployment Rate as cover. But they are and they will. I think Fed wants to hike, manage fallout, wait, then hike again, and again, to get rates closer to 2% than Zero.
Analysts who are trying to portray rate hike as first in a rate hike cycle are mistaken. Macro looks more like just before first CUT in pre-2008 cycles.
So long bonds should appreciate the hike as a tailwind and curve should flatten.
Pre-2008 Curve leads economy.
Post 2008 Economy leads curve.
They have Street Cred...Wall Street Cred... They could give a shit about main street cred. The speaking fees on Main Street aren't as good as Wall Street.
To state the very obvious: the Fed has no credibility because it lies about its intent in the markets and economies.
And yet, the vast majority of the US people don't even know what the Fed is, even after they have stolen the future of US children and given it to parasitic banking elitists and their cronies.
Is it time to buy gold?
And yet - check market volumes today - everybody, even a bunch of the HFTs, must just be markin' time and drinkin' alcohol in some form or another until 10 PM EST Thursday.
They should worry about being stormed by SWAT teams and Navy seals. Sooner or later.
Fed does continuous QE until dollar crashes.
n other words, perhaps more than concerns about the market's reaction, the Fed may be just as worried about losing any more credibility with a global market where QE has increasingly less impact."
I think they are.
Look. The economy has achieved the employment target (however wretchedly), and inflation (the positive kind, as a result of rising wages and consumer spending) isn't ever going to happen. To hold on inflation concerns is bullshit. It's a red herring that will never appear, and therefore, cannot be used as a rationale for keeping rates at the zero bound. That would mean rates can't ever rise, and that too, signals defeat.
What the Fed had better be concerned with is the continued destructiveness of artificial asset inflation (bad kind), and the ever-warping damage this is causing working people. This is the single biggest concern the Fed should have. We simply cannot continue to inflate shacks, for example, for the benefit of a relative handful, at the expense of the millions not able to participate, but who WILL suffer the effects of a crash in their inflated values down the road.
It's bad enough to stimulate these in the first place, as this practice time and again always involves moral hazards that should not be created.
That's not prosperity, nor is it recovery.
But...such warping behavior adds insult (asset inflation-driven rises in living costs to everyone, even though most don't participate in that deleterious mania) to injury (outsourced jobs and incomes over the last 40+ years).
If the Fed fails to raise rates from the zero bound, then the Fed MUST go.
They are not helping, and are instead, too dangerous to remain in such position of damaging power.
m
The great drama over a max 0.25% hike shows not only what a mess the world economy is in, but also what a farce what are incorrectly called "markets" are.