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It's Time For Negative Rates, Fed's Kocherlakota Hints
If you’re a fan of dovish policymakers who are committed to Keynesian insanity, you can always count on Minneapolis Fed chief Narayana Kocherlakota who, as we’ve detailed extensively, is keen on the idea that if the US wants to help itself out, it will simply issue more monetizable debt, because that way, the Fed will have more room to ease in the event its current easing efforts continue to prove entirely ineffective (and yes, the irony ineherent in that assessment is completely intentional).
On Thursday, Kocherlakota is out with some fresh nonsense he’d like you to blindly consider and what you’ll no doubt notice from the following Bloomberg bullet summary is that, as the latest dot plot made abundantly clear, NIRP is in now definitively in the playbook.
- KOCHERLAKOTA SAYS FED SHOULD CONSIDER NEGATIVE RATES
- KOCHERLAKOTA: TAPERING ASSET PURCHASES LED TO SLOWER JOB GAINS
- KOCHERLAKOTA SAYS JOBS SLOWDOWN 'NOT SURPRISING' GIVEN POLICY
- KOCHERLAKOTA: TAPERING ASSET PURCHASES LED TO SLOWER JOB GAINS
So not only should the Fed take rates into the Keynesian NIRP twilight zone, but in fact, the subpar September NFP print was the direct result of not printing enough money which is particularly amusing because Citi just got done telling the market that the Fed should hike (i.e. tighten policy) because jobs data at this time of the year is prone to being biased to the downside.
Here's the full speech...
* * *
Thank you for that generous introduction, and thank you for the opportunity to speak to you today.
My speech today focuses on the behavior of the labor market over the past nine years. I will document that, after several painful years of labor market stagnation, the United States experienced truly historic improvement in labor market performance in 2014. Unfortunately, these labor market gains have slowed markedly in 2015. This may suggest to some that there is little room for further improvement in labor market outcomes. I will argue that current and projected low inflation presents strong evidence to the contrary. There is room for more improvement—but we will only achieve those gains if we make the right monetary policy choices. I will describe what I believe those right choices to be.
I look forward to taking your questions at the end of my prepared remarks. For me, those questions are a highlight of my speaking engagements. As I will discuss, two-way communication between policymakers and citizens is a core function of the Federal Reserve System. Your questions are a key part of that two-way communication.
The views that I express today are my own and are not necessarily those of others in the Federal Reserve System.
Federal Reserve System basics
Let me begin with some basics about the Federal Reserve System. I like to tell people that the Fed is a uniquely American institution. What do I mean by that? Well, relative to its counterparts around the world, the U.S. central bank is highly decentralized. The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, along with the Board of Governors in Washington, D.C., make up the Federal Reserve System. Our Bank serves as the headquarters for Federal Reserve operations in the ninth of the 12 Federal Reserve districts, which includes Montana, the Dakotas, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan.
Eight times per year, the Federal Open Market Committee—the FOMC—meets to set the path of monetary stimulus over the next six to seven weeks. All 12 presidents of the various regional Federal Reserve Banks—including me—and the governors of the Federal Reserve Board contribute to these deliberations. However, the voting members of the Committee itself consist only of the governors, the president of the Federal Reserve Bank of New York and a rotating group of four other presidents. In this way, the structure of the FOMC mirrors the structure of our government, because representatives from different regions of the country—the various presidents—have input into FOMC deliberations.
This decentralized system has many desirable attributes. I believe one of the most important is that it facilitates two-way communication between the nation’s central bank and the nation’s citizens. We’re engaging in one direction of this communication right now, as I tell you about key considerations regarding monetary policy. In the other direction, the Federal Reserve Bank of Minneapolis gathers valuable economic information from local contacts in a variety of ways. For example, a couple of weeks ago, I met with the Federal Reserve Bank of Minneapolis’ Great Lakes Advisory Council—which includes business and community leaders from around the states of Minnesota, Wisconsin and Michigan—to gather exactly this kind of information. We also meet with business and community leaders from many other economic sectors through our other advisory councils and outreach programs. The public service of these people, and their many contacts, helps ensure that we have a deeper understanding of what is happening in the local economy.
But let me turn back to the FOMC and the making of monetary policy. I mentioned that the FOMC meets eight times per year. At those meetings, we decide on an appropriate stance of monetary policy for the economy. What is the FOMC seeking to achieve by varying monetary policy? Congress has charged the FOMC with making monetary policy to promote maximum employment and to promote price stability. The FOMC has interpreted the second goal, price stability, to mean keeping inflation close to 2 percent.
Employment over the past nine years
I now turn to the FOMC’s performance with respect to its employment mandate over the past nine years—since December 2006. Many metrics are used to measure labor market performance. I will concentrate on what I see as a very basic metric: the fraction of prime-age people, those aged 25 to 54, who have a job. I focus on prime-age people as a simple way to strip out the demographic effect of the retirement of the baby boom cohort.
From December 2006 through December 2009, labor market performance deteriorated rapidly. The fraction of prime-age people who had a job fell from about 80 percent to 75 percent. Those people did not suddenly become disabled. Nor did they suddenly decide that they could have more fun playing video games than working. Rather, there was a large group of people with talents and skills who would have been employed in 2006, but were not being utilized by the U.S. economy three years later. In this sense, the 5-percentage-point decline in the employment-to-population ratio represents a dramatic and disturbing waste of America’s valuable human resources.
From the end of 2009 through December 2013, the share of prime-age people with a job rose very sluggishly to about 76 percent, still well below the pre-recession share. Employment data like these led more than a few observers to be concerned at the end of 2013 that the U.S. labor market was stuck in some kind of adverse “new normal.” However, the fraction of people with a job rose dramatically in 2014—by 0.9 percentage points—the largest December-to-December increase in over a quarter century. 2013 was not a new normal.
Unfortunately, this progress has slowed sharply in 2015. The fraction of prime-age people with a job has risen only 0.2 percentage point since December 2014 and is unchanged from its January 2015 level of 77.2 percent. As a result, this key metric remains almost 3 percentage points below pre-recession levels.
Good news from inflation data
As I mentioned earlier, Congress has charged the FOMC with making monetary policy so as to promote maximum employment and price stability. We saw rapid labor market improvement in 2014, but that rate of improvement has slowed noticeably in 2015. Does that mean that the FOMC is close to reaching the top of the hill—that is, close to achieving its maximum employment goal? In my view, the behavior of inflation clearly shows that the answer to this question is no: The FOMC can facilitate further improvement in labor market performance.
As I noted earlier, the FOMC has translated price stability to mean a personal consumption expenditures (PCE) inflation rate of 2 percent. Here’s what inflation has looked like since the start of the Great Recession at the end of 2007. Over that period, inflation has averaged 1.4 percent. In addition, inflation shows little sign of returning to its 2 percent target. As of August, it was 0.3 percent on a 12-month basis, down from 0.8 percent in December 2014. It has been below 2 percent on a 12-month basis for well over three years.
PCE Core Inflation
I agree with those who say that the current low rate of inflation is attributable in part to the temporary downward pressure stemming from falling oil prices. However, even if we remove volatile food and energy prices and look at core inflation, we see little evidence of inflationary pressures. PCE core inflation has averaged 1.5 percent since the start of the recession and has fallen from 1.4 percent in December 2014 to 1.3 percent in the latest reading. With the exception of a few months in late 2011 and early 2012, PCE core inflation has been below 2 percent, on a 12 month basis, for nearly seven years.
PCE Inflation
These data tell us where inflation has been in the past. Monetary policy affects future prices and employment, with a lag that is generally thought to be about 18 to 24 months. So, when we make monetary policy, we need to know where inflation is going in the future. Both private sector and public sector forecasters are currently forecasting PCE inflation to remain below the FOMC’s target over that 18- to 24-month horizon and beyond. In terms of the private sector, the median projection in the August Survey of Professional Forecasters is that PCE inflation will be below 2 percent in 2015, 2016 and 2017. In terms of the public sector, in June 2015, the Federal Reserve Board’s staff outlook was that PCE inflation would remain below 2 percent into the next decade.1 These forecasts are largely consistent with my own. As I have been saying for some time, based on what I perceive to be the likely evolution of FOMC policy, I don’t expect PCE inflation to return to target until 2018 or later.
These inflation figures are often depicted as bad news—“Oh, my! The FOMC can’t get inflation back to target!” But they are, I think, better understood as representing a huge opportunity. The FOMC has a free lunch. There would be little or no inflationary cost if the Committee were to aim for the kind of remarkable improvement in labor market conditions that we saw in 2014 by adopting a more accommodative monetary policy stance. Of course, at any point in time, there are large uncertainties about the long-run level of employment in the economy. But I see low inflation and the strong labor market improvement in 2014 as being strong pieces of evidence against the hypothesis that the Great Recession caused permanent damage to the U.S. labor force. Without clear signs of such damage, I believe that it is most natural for the FOMC to treat the pre-recession year of 2006 as a key guidepost in formulating its employment objectives.2 In a speech earlier this year,3 I showed via some simple calculations that we will need at least three more years as good as 2014 to return to 2006 employment rates.
Thoughts on monetary policy tightening
The above discussion does raise one key question: Why has the rate of labor market improvement slowed so much in 2015 relative to 2014? In thinking about this question, I find the timing of monetary policy changes to be highly suggestive.
In mid-2013, the FOMC announced its intention to taper its ongoing asset purchase program. We can see that this announcement represented a dramatic change in policy from the sharp upward movements in long-term bond yields that it engendered. Personally, I interpret this policy change back in 2013 as the onset of what the Committee currently intends to be a long, gradual tightening cycle. As I noted earlier, we would typically expect that such a change in monetary policy should affect the economy with a lag of about 18 to 24 months. Viewed through this lens, the slow rate of labor market improvement in 2015 is not all that surprising.
I believe the FOMC should take actions to facilitate a resumption of the 2014 improvement in the labor market by adopting a more accommodative policy stance. Remember, inflation is low, and is expected to remain low, relative to the FOMC’s target. In particular, I don’t see raising the target range for the fed funds rate above its current low level in 2015 or 2016 as being consistent with the pursuit of the kind of labor market outcomes that we are charged with delivering. Indeed, I would be open to the possibility of reducing the fed funds target funds range even further, as a way of producing better labor market outcomes.
There is, of course, a risk that inflationary pressures could build up more rapidly than I (or others) currently anticipate. But the solution to this scenario is relatively simple: Raise interest rates. Given my current outlook, I believe that it would be appropriate to wait until 2017 to initiate liftoff and then raise the fed funds rate at about 2 percentage points per year. My preferred pace of tightening mirrors the pace of tightening from 2004 to 2006—a pace of tightening that is often seen as gradual. (In fact, some would argue, with the benefit of hindsight, that it was overly gradual.) In response to unanticipated inflationary pressures, the FOMC could simply react as it did in 1994, and raise the fed funds rate more rapidly than this gradual pace.
Conclusions
I am an economist, and economics is often, with good reason, called the “dismal” science. But the message I intend to leave you with today is one of hope and optimism.
From 2006 to 2009, we saw a marked deterioration in labor market performance. As recently as January 2014, it seemed like this loss of human resources might prove to be permanent. But the rapid growth in employment that we saw in 2014 shattered this hypothesis. The lesson of 2014 is clear: We can do better. Given 2014, and given how low inflation is expected to be over the next few years, I see no reason why the Committee should not aim to facilitate continued improvement in labor market conditions. Indeed, I currently see no reason why we should not aim for the kind of strong labor market conditions that prevailed at the end of 2006.
But we will get there only if we make the right choices. The FOMC can achieve its congressionally mandated price and employment goals only by being extraordinarily patient in reducing the level of monetary accommodation. Indeed, to best fulfill its congressional mandates, the Committee should be considering reducing the target range for the fed funds rate, not increasing it.
Thank you for listening.
* * *
You're welcome.
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Negative rates?
Buy a home today and you will own it in 30 years without making a payment?
Your student loan will be magically paid off in 20 years?
Eat shit, Lacotakocher! ;-)
Looney
Wonder if Chase bank will give me a sizeable "interest only" negative rate loan... make it large, so it can be a valuable "asset" on the books so they can package it up into a CDO....
They'll need some political capital before they can play with their new negative rate policy tool. Now how could they go about getting some political capital?
i'd say they open up with a 20* and then see if the politcals call
* - % correction
Never let a good crisis go to waste.
So how does negative interest rate work ? We pay interest to keep our money in the bank ? That's fucked up dudes.
Pretty much that's how it works. You put $1000 into a negative-rate investment and you get $950 back.
The easier way to look at it is to assume the bank has a 0% rate on deposits and has fees proportionate to the money deposited.
Any way you look at this, as soon as the banking system as a whole moves to negative rates, everyone is inventivized to hold cash, which will then have a return relative to the negative rates. Which is why suddenly they want to ban cash, and my guess is they'll want to ban anything that can't be "adjusted" via NIRP/transaction taxes etc.
All of it just underscores how broken the fiat system is -- they're having to go further and further from reality to save it. It also shows that like the great depression, we're dealing with hugely deflationary forces and they're desperately inventing shit to save themselves.
This chart should put it all into perspective......
http://static2.businessinsider.com/image/55fc35efbd86ef15008bb4f3/the-50...
Its basically implied in NIRP that cash will be banned. Even the sheeple are not that dumb to use a bank account, if they are being charged to keep their money in there!
The quicker we acknowledge we are dealing with power-hungry sociopaths, the better off we will all be.
BTW, no sociopath has ever (EVER) been cured. 'Treatment' actually results in them studying the therapist, for more tricks, more techniques, ways to perfect their ability to simulate empathy. And yes, they love acting as victims! When you have no conscience, why wouldn't you portray yourself as EVER the victim.
(For bonus points, is there a group of people, either ethnically or culturally, this reminds you of?)
I believe that Hitler found a way to cure his sociopathy.
In modern times I believe that nail guns are used instead.
Dear Mr. Kocherlakota:
I think that I speak for many in that we have considered it.
Please set you home table for about 100 million guests, all traveling to your area for a banker's holiday.
Sincerely,
Arnold
Narayana Kocherlakota
https://en.wikipedia.org/wiki/Narayana_Kocherlakota
The views that I express today are my own and are not necessarily those of others in the Federal Reserve System.
Then STFU! What are you guys, a bunch of Cramers who need a freakin disclaimer that your info is for entertainment purposes only?
For the love of God, can't Princeton turn out a half decent person these days instead of the constant stream of "pinky and the brain" economists they have created lately?!
lol that is true!
The economy is super totally awesome but we can make it supery totally awesom-er-er-er with negative rates.
- The Fed
Riiiight. No I'm pretty sure it will just be negative rates for savers and top 0.0001% borrowers. Regulars shmoes will continue to be enslaved via debt.
You wish!! Negative rate from the Fed for bankers and financiers, NOT YOU!!
The guillotines grow hungrier...
Maybe they'll lower credit card interest fees from 17,5% down to 17,499%?
It could be a win for everybody!
Maybe they'll lower credit card interest fees from 17,5% down to 17,499%?
It could be a win for everybody!
No, it's negative rates for us, too, on "investments." They'll be effectively returning less money than deposited.
For loans, no, they'll have a nominal low positive rate for low-risk stuff. Note that because the underlying montary environment is NIRP, though, the assets will be price-deflating and the effective rate on the value will be higher. That 2% rate on a home loan isn't very attractive when the house will be worth 10% less in 5 years.
My guess is they're going to have to adjust some laws, like making mortgages recourse loans nationally, in order to make the NIRP approach work. Just more evidence the system is starting to break in a very visible sense. Once there's too many moles in this game of whack-a-mole it'll be game over.
Yes, but good luck with that. The value of the home will matter very little when there are numerous, well-armed, folks taking possesion regardless.
Remember, when fraud is the status quo, possession is the law.
Let's be honest, the fucking bankers/financiers are scared to death that they will actually have to work for a living again.
Fuck em.
You still have to make payments on the principle. You just get paid interest.
He's a LOON! Always has been!
I'm going to need a bigger mattress.
Why not listen to the doctor and go on a diet?
Isn't that special sure glad I have no money.
that is when you are truely free!
no money and no debt
you have to learn to feed yourself though
I'll give you a dollar if you repeat that on do a little dance
Well fellow consumer, be sure to not spend it wisely this Holiday Season! May your credit continue to flow. I'd like to raise an empty glass: Let us recognize that the 'global economy' continues to fire on all cylinders and show incredible resiliance in the face of bad/good/no-matter news. Hurrah! Time to join the queue in front of the pharmacy with the green cross flag.
I am glad hear the Federal Reserve values its two way communications with us citizens. They have heard me loud and clear - I am so f*cking fed up with this damn lack of inflation!
what the fuck man...
THEYRE ALREADY NEGATIVE adjusted for REAL INFLATION.....
just sayin..............
Your not supposed to notice that little caveat.....
No burglar stops after the 900th time!
So 4 quarters will be worth more than a yanky dalla
Fuck negative rates. I want free helicopter money.
NIRP would actually be great if those of us with good credit could actually get paid to take out a billion dollar loan.
This is a "heads I win, tails you lose" NIRP situation.
Roll the motherfucking guillotines.
Nothing changes otherwise.
I guess buying that impregnable fireproof safe a few years ago was a good call.
And did you already figured out how to change that preset code 1234 ?
lil suzy: "mommy, why does the bank statement say that the $100 check grandma gave me for my 7th birthday now say $97.50???"
mommy: "i don't know honey, it must be some kind of mistake ... ill call the bank 1st thing on monday morning & get it sorted out."
And it's gone.
https://www.youtube.com/watch?v=-DT7bX-B1Mg
Really? "TAPERING ASSET PURCHASES LED TO SLOWER JOB GAINS."
Should read; Asset purchases led to more useless eaters.
P.S. >He looks like a bloated Vampire.
Asset=a bridge for sale in Brooklyn...cheap.....
Somebody rent this guy a prostitute. He has too much on his mind. He SERIOUSLY needs to get laid!
I think we can chip in for that. The hooker can be any gender or transgender he prefers, just make sure "it" has a current diagnosis of AIDS, tuberculosis, hepatitis C and herpes simplex. Meth addiction is optional.
I'm glad the teaser pic wasn't reposted full-size in this one. I wouldn't have minded a pic of a hot Brazillian instead, just to fill the space.
ANother banker makes the final leap
http://politicalvelcraft.org/2015/05/30/another-banker-suicide-added-to-the-list-of-72-dead-by-un-natural-causes/
Body parts may have also hit or bounced off a Honda CRV that stopped short on the roadway and remained at the scene, witnesses said. “I don’t know where he came from! I don’t know where he came from!” a passenger of the SUV was heard screaming.
Witness Mario Mroczkowski, 37, said the impact was so bad, the man’s body was left in pieces. “I got close, but when I looked, all I saw were body parts … guts everywhere,” Mroczkowski said. “He hit the railing and got his head cut off.”
Taxi driver Tony Santos, 45, was in his SUV in front of the Ritz-Carlton across the street when he was startled by the sound of the body’s impact. “I heard like a boom,” Santos said.
all I saw were body parts … guts everywhere
...or he was dead and cut apart before being dropped off the balcony.
Stop calling it "insanity". Sure it's insane, but when you focus on that fact you leave a little door open in your mind that there is a real chance it won't happen since its insane which permits you to put off taking action.
Negative rates or helicopter money *will* happen so spend your time thinking about how you will react rather than telling yourself how "insane" it is.
From the peak of Rome's power to the beginning of the dark ages took about 150 years. We may easily have 95 or so more years of "insanity" to go before we hit bottom in North America.
People like that guy should really just be executed. What purpose do they serve to the "greater good" other than making non idiots feel happy they aren't an idiot like that?
The only way the human species will ever have any chance to progress is if the fat (aka idiots, power mongers and useless people) is trimmed. Until that happens, humanity is going to keep going down the shitter. It's simple logic.
Last one out of the United States of America please throw the fuse pannel breaker box main on/off switch before leaving the USA for the last time.
You get what you accept. How did we ever find these mental midgets. They are psychotic. No. They are thieves who intentionally are milking this country for everything it has.
Working in a nursing home as an aide for the rest of their lives would be a fitting restitution. That is hard work.
They know the end is coming. They are just getting prepared - the richer they are (the 1%) and the poorer everyone else is - the more chance they have of enslaving all of us when the Rebellion starts - which may very well be before their gun confiscation starts. I am very fearful they will start a major war with China -most likely with a pre-emptive nuclear strike which the demon psychos who control this country actually believe they can win.
Pudding brain
Won't negative rates just take money out of cirulation and add to deflation?
No, at least not in theory.
Inflation happens when more money shased fewer goods.
There's plenty of goods of course... but more money in the system... at least they hope... but if you look at saving rates... where most people don't even have 1000 dollars in savings....
Nothing will change at all.
So it's just another tax but issued by the banks and not the government.
"My speech today focuses on the behavior of the labor market over the past nine years. I will document that, after several painful years of labor market stagnation, the United States experienced truly historic improvement in labor market performance in 2014."
Shit, I must have blinked. I missed the improvement in 2014.
That's one pasty mug.
Looks like he should be a boy scout troop leader or a priest instead of an economist.
This guy clearly believes as his religion that the power of the Fed and the "smarts" of the FOMC can control and manage all economic activity in the United States. Its also clear nothing will change his mind on this - and YOU will bear the consequences.
He's a hard-core central planner who has more faith than even the apparatchiks who used to run the Soviet Union.
Officially making the mattress a safer place to store your wealth!
Fucking criminals...
Start taking their fucking heads!!!!
Nothing changes otherwise.
I would like to bitch slap the smug right off of his face.
Why not just reconsruct a fundamentally stron economy instead.
The Fed knows how to tear one down, let's see if they are smart enough to create one.
Re-installing the rule of law and the Bill of Rights would be a good start.
We'll need a mattress full of paper money to catch all the paper money.
I can only wonder how the people will react.
My bet is that they'll just keep their money in the ban and just see it as a fee.
People are dumbed down, what can I say...
They (the people) need to have every single thing they ever worked for taken away. Because they voted for it. On with the show.
NIRP won't hit consumer accounts. It would be political suicide. This will most likely only affect the largest corporate accounts and of course the actual FED funds rate. Could possibly destroy what little people are getting in their Money Market accounts as well, but I'm not sure...
It has to hit consumers or it won't work.
How it manifests itself hasn't been defined -- it could be high fees, it could be a proportional balance readjustment, or it could be like in the 1930s where the value of the dollar was readjusted simultaneously with the gold confiscation. But in the end they need to steal consumer's money to save themselves, so they will.
NIRP sounds like a bank run in the making.
One more thing:
Fuck you Maria Bartiroma for that blow job you gave to Bernnake this week with your BS interview
The only way to fix this to charge these 12 members for treason of the highest order and apply the harshest punishment.
He looks like a Kocherlakota..I had one on my butt a long time ago..they had to cut it out..
Ok, give home buyers, students and car buyers negative rates and lets see where this goes.
Heck, give credit card holders negative rates and that should reallly crank things up.
What a wonderful world the psycopaths must live in. Loan me money and I would gladly pay you back less. I have no problem with that, any takers?
Que the bad cop Stanley Fischer telling all that rates will rise, any day now.
I have a fever and the only prescription is MORE COWBELL!
(( https://youtu.be/GCd0OjjCz88 ))
...or he was dead and cut apart before being dropped off the balcony.
I meant this to go below the note about the banker that face plants from 60 floors high.
Negative rates = outright theft of capital
guess they're not able to steal as much as they like currently
Anyone want to help fund the startup of a "Bank of Sealy" mattress security products company?
***Kocherlakota: MOAR. MOAR. 10 YEARS WITHOUT A RATE INCREASE ISN'T ENOUGH!
***Kockerlakota: Cukoo for Cocoa Puffs. Cukoo for Cocoa Puffs!
It seems like some psychopathic corksuckers will say anything to jawbone asset prices higher.
FedFUBARtoHell.
wow... we are truly already a hostage people if we have to not only keep low rates, but impose negative ones to avoid "permanent damage to the labor force".
Should I take all my money out before the rush? Before they ban cash and take money out of my bank account to pay for their lavish benefits and spending habits? Are You Fucking Kidding Me? Tell that Ahole he can pound sand! He might want to start looking for a job because hes not getting my money.
If you want to fight these Aholes go to your bank and withdraw as much cash as they will let you, leave only what you need for bills, its not like the interest is great? its a great form of protest to show how much you think the FED SUCKS!
NIRP,then funding massive infrastructure projects directly by massive money printing,then cheques of $10,000 bucks to every man,women and child.