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This Is What Yellen Said About Negative Rates Coming To The US
As reported earlier, the biggest stunner bar none in today's FOMC announcement, was the emergence of a negative interest rate dot in the Fed's projections. It was unclear who drew that (perhaps Kocherlakota, perhaps not)...
... but the author is ultimately irrelevant: what is very relevant is the "inception" of NIRP in the heads of the FOMC members, which came at a time just when everyone was supposedly gearing up to boost rates by a meager 25 bps, further raising questions if the US economy is already in recession (spoiler alert: yes).
Of course, this should come as no surprise to our readers: just in January we wrote "Get Ready For Negative Interest Rates In The US", but for the Fed to admit this possibility just when it was widely expected to at least signal a rebound in the economy with the tiniest of rate hikes, or at worst a hawkish statement, was truly a shock.
So besides a red dot on the dot plot, what else do we have to go on? Not much, though luckily one reporter did ask Yellen what the NIRP dot signaled. This is what she said:
Let me be clear that negative interest rates was not something that we considered very seriously at all today. It was not one of our main policy options
The proverbial "we did not seriously consider it today" fluff. Remember when the SNB promised the Euro-Franc peg was safe and sound "today", and the very next day it crushed countless FX traders who were long the EURCHF? Kinda like that.
And yet...
I don’t expect that we’re going to be in a path of providing additional accommodation. But if the outlook were to change in a way that most of my colleagues and I do not expect, and we found ourselves with a weak economy that needed additional stimulus, we would look at all of our available tools. And that would be something that we would evaluate in that kind of context.
And there you have it: not if but when the inevitable inventory accumulation spills over and results in the next recession, we now know the simple choice that is facing the Fed: QE 4 (or 10 if the Fed goes "Windows") or NIRP.
As for hiking rates, well we leave it to Ben Bernanke who said it best earlier this year: "No Rate Normalization During My Lifetime"
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You mean santa bitch isn't real daddy?
Real leadership there.
Somebody buy that courageless microcephalic a "Damfino" hat.
That woman likes to say "that" a lot. That that I just said there is true.
Yawn
According to Macquarie Research:
https://app.box.com/s/hx16540dwpct4uj5h5iohxsa4197zozd
Time for a policy U-turn?
Back to the future: British Leyland
From conventional QEs to more unorthodox policies…
- As discussed (here and here), we do not believe that investors are likely to benefit from acceleration in growth rates, trade or liquidity and indeed on the contrary, negative feedback loops from EMs to DMs imply that neither would be able to support global growth. Secular stagnation is the key explanatory variable (here). The deflationary pressures from overleveraging, overcapacity and technology shifts can be either allowed to work through economies or the public sector needs to continue resisting via expansionary policies.
- Since ’08, monetary policies were doing most of the lifting with limited participation by fiscal authorities (bar China). In other words, in the absence of either private or public sectors driving higher velocity of money, it was Central Banks that were supplying incremental liquidity to preclude contraction of nominal GDP and avoid stronger deflationary pressures. However, marginal utility of incremental injections has been declining (witness much lower impact of recent ECB’s QE and increase in BoJ accommodation since Dec ’14).
- Part of the reason for monetary stimulus fading is that supply of US$ remains low. Global economy continues to reside on a de-facto US$ standard and current incremental supply is almost non-existent (depending on definition growing at +2%/-1% clip vs. average since ‘01 of ~15%). In other words, due to lack of recovery in the US velocity of money and lack of QEs, global economy is not getting enough US$ to continue leveraging.
…as efficacy of conventional monetary QE is questioned
- At the same time efficacy of continuing with conventional QE policies is being challenged and not just by independent observes but also ‘insiders’ (such as recent SF Fed paper). As velocity of money globally continues to fall, conventional QEs have to become exponentially larger, as marginal benefit declines. If the public sector is not prepared to step aside, what other measures can be introduced to support nominal GDP and avoid deflation?
- There are several policies that could be and probably would be considered over the next 12-18 months. If the private sector lacks confidence and visibility to raise velocity of money, then (arguably) the public sector could. In other words, instead of acting via bond markets and banking sector, why shouldn’t public sector bypass markets altogether and inject stimulus directly into the ‘blood stream’? Whilst it might or might not be called QE, it would have a much stronger impact and unlike the last seven years, the recovery could actually mimic a conventional business cycle and investors would soon start discussing multiplier effects and positioning in areas of greatest investment.
British Leyland failed, but it might work at least for a while
- British Leyland (formed from nationalized British car companies in the late ’60s) destroyed its automotive industry but for a time it provided employment and investment. Central Banks directly monetizing Government spending and funding projects would do the same. Whilst ultimately it would lead to stagflation (UK, 70s) or deflation (China, today), it could provide strong initial boost to generate impression of recovery and sustainable business cycle. It could also significantly shift global terms of trade (to the benefit of commodity producers) and cause a period of underperformance by our ‘Quality & Stability’ portfolio and improve performance of ‘Anti-Quality’ screen. What is probability of the above policy shift? Low over next six months; very high over the longer term.
okay, i'll say it again, i'm a sub 1000 on my sat but this gal is really stupid.
Inflation no, defaltion no, stagflation close to it, but we need to come up with another term to label what we are living nowadays, maybe fuckation.
what she means is Negative Interest Rates where the first thing they talked about and it the only trick left in their bag
See you in the morning right?! Black Friday??? nope Floated it till Feb mujo dinero March next squeeze... er not lol private joke esp when thee non ssi disacrpaps checks dont show up! or food stamps. lol
Boss asked have I drink tonight, u know what leaving hour early fk u....
A bust and collapsing U$$A; Weimar is finally coming so get yer wheelbarrows oh exceptional slave$!
Sometimes I wonder if these people just cook up this shit to confuse the goyim or if they are really stupid enough to believe it themselves. It has to be the former, nobody that stupid could con their way into a master of the universe position.
Malignant dwarf babbles in fedspeak. Soon she will be choosing the next sacrificial victims to appease the gods residing on Mount Stoopid, after which tea will be served.
There is no way to convey how cosmic my indifference to stawks is. There simply are no words. All I want to know is, where are PM prices going?
as soon as tates go negative, i'm borrowing all the fiat i can. rofl
The FED = The Khazarian Mafia! That`s all what you have to know.
http://beforeitsnews.com/power-elite/2015/09/vatic-alert-the-entire-hidd...Well, the FED is leveraged what 80 to 1 and its Wall St. owners the same or more. What to do? More leverage? It´ll be rather difficult to hike rates AT ALL when the leverage is 200-1 and a raise of a mere 1-2 percentage points will totally wipe you out. I guess it´ll be negative rates down the road until they kick that can of theirs off a cliff at the end of the line.
Finally interest rate rise is now rejected.
NIRP not a chance, the removal of value from the
System will rapidly occur and set a precedent
For generations to come.
QE it is then,but do they use it before Xmas
Or wait until the carnage occurs start of next year.
Still on for QE before Xmas but getting close,
So a question for Yellen why wait and trash the
Start of next year already?
Think that is a fair question.
So, all Yellen has to do is leave her ivory tower to realize things suck in this country?
We are doomed.