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What December Liftoff? The Lack Of Any Discussion On "Normalization Logistics" Is Big Red Flag
While in theory yesterday's FOMC Minutes said little that wasn't known (except for the admission that the "equilibrium" real interest rate is now well longer than historically) with markets now almost fully-pricing in a December rate hike (and in the case of some assets such as CHF negative swap spreads, more than fully), in practice there was one glaring ommission from the Minutes. Namely - the logistics of the proposed rate hike, or, well, the "practice."
As Jefferies economists Ward McCarthy and Thomas Simons write in note, if December 16 is "indeed the liftoff date, the Fed is running out of time to be 'well before' raising rates."
As Bloomberg reminds us, in the July 29-30 minutes, FOMC participants agreed the committee should provide additional information to the public regarding details of normalization well before first steps in reducing policy accommodation.
And yet, aside from some vague reassurance that the Reverse Repo - IOER corridor "should" work, there has been no detail on the topic. To Jefferies this is a glaring problem: "The lack of any discussion of liftoff logistics is puzzling to us and a potentially significant communication snafu."
Jefferies adds that the Fed has never attempted to raise fed funds rate under "IOER regime" so lack of confidence "is not unreasonable."
In the note, the authors write that still unresolved issues about liftoff logistics and normalization process include:
- Issues include how to communicate liftoff, spread between IOER and RRP, as well as spread between RRP rate and fed funds
- FOMC members still struggling with risks associated with RRP facility, including “appropriate size” that would limit Fed’s role in financial intermediation
And then there is uncertainty “about the efficacy” as how combination of RRP and IOER rates will control fed funds rate
The punchline: Jefferies says that the idea that IOER will be primary tool to move fed funds rate is "wishful thinking" as IOER was initially intended to put floor under fed funds rate yet hasn’t been "an effective tool for doing so."
Where it gets more problematic is that while the RRP usage has “varied significantly” throughout test phase, fed effective has been “relatively steady,” indicating there hasn’t been a strong relation between RRP and fed funds rate. One correlation that has emerged is that RRP usage has inverse relationship to bill supply as T- bills fell during September and October, facility utilization increased. Or as we have said before, most banks have been using the RRP not as an indicative benchmark rate, but as a facility with which to window dress their books.
For Jefferies this suggests availability of “alternative investment options” beyond RRP will reduce "downward gravitational pull" on short-term rates due to the “enormous supply of liquidity sloshing around the system” and will also increase strength of the “magnetic field of the IOER on short-term rates”
Finally, it is worth noting that yesterday after the Minutes release, the NY Fed announced that it "plans to offer $300 billion in term RRPs that cross the year-end date. These operations will be conducted in addition to the authorized overnight RRPs, which remain subject to a separate overall size limit authorized by the FOMC. A tentative schedule of the term operations spanning the year-end follows below. This schedule will be updated on or around December 17 with additional information, including the amounts offered and the maximum offering rates."
Why December 17? Because that is the day after the alleged FOMC rate hike announcement.
The schedule is shown below.
Why only $300 billion? If together with overnight RRPs these are meant to satisfy year end window dressing demand, this token amount will be nowhere near enough to push up the trillions in liquidity sloshing at the zero-lower bound.
And the biggest unanswered question: when the NY Fed was implementing these term repos, was it assuming the current ZIRP rate, or will the repos take place assuming 25 bps of interest.
With everyone confused, and even more questions set to be unveiled about the liftoff corridor, the fact that less than a month from a proposed December rate hike few are discussing the practical matters of normalization, let alone have any answers, shows just how behind the rate hike curve the Fed really is... assuming in fact it has any intention of hiking rates in the first place.
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that's because there is no path to normalisation in the works, rates are going up for the sake of optics
to prove the lipstick on the pig is still working
rates will rise for a token amount just to prove everything is fine, but when we look back say 5-10yrs down the track, we'll realise it didn't really change a damn thing
nothing fundamental in the real world economy is going to change for the better on the back 25 or 50 points, and no one in any of the major developed economies is contemplating anything resembling a real interest rate anyway
but hey, the lipstick works, gotta keep painting
personally, I don't see a collapse or "sky falling" ending anymore, it's looking more likely to be stagnation from here on out
Moma always told me, "If you're gonna lie, lie well or don't lie at all." Who knew she was talking about the Federal Reserve?
peaked into the flows and some nice new stuff- thanks.
Your "moma" lied to you. Mr Yellen will not rqaise rates.
>>> Rate hike in '15
>>> Rates not hiked in '15
just as Goldman's take, I see this as sellside trying to make rate hike unanticipated, because they know that the Fed won't raise rates in this case. But all the Fed has to do is unleash a few definitive comments (if it chooses to do so) to nulolify these arguments. No rate hike would be too damaging since we are already (unofficially) in recession, and they probably prefer to make a "policy error" now to go back to "easing as usual" once the recession becomes official than have their long term policy questioned.
They never planned to hike in 2015. And 2016 is election year. And shortly after the elections they can't hike either.
So they are not planning to hike, but rather wait until this whole thing explodes. It's maybe the best thing to do given how far they are behind the curve already.
All they need until then is reasons to not hike. In the next 4 weeks there should be plenty of reasons coming up, so they don't need to worry about logistics details (e.g. "Brazil" or "commodities" or "terrorism").
In case there wouldn't be any obvious reasons, they will just fabricate some terrible abysmal data (e.g. pointing to "deflation danger is rising" or "king dollar is too strong = we are just too good for the rest of the world, we can't do it to them" or "we just decided that labour rate participation rate is what we will be dependent on, not unemployment rate").
It's a no brainer.
Enough of the big buyers, holders & manipulators know that, which is why we see the "markets" do what they do.
(IMHO NIRP or QE4 in December '15 meeting seems about 10 times more likely than a 0.25% hike)
They can't wait it out until it explodes (collapses). That outcome would be no different than hiking. The only way to avoid pain is for them to muster "the courage to print."
does anyone here really think the governments obligations are going to be paid? these are numbers that represent ONLY ONE THING: DEBT SERViTUDE. there will never be a default. the game is control of the monetary system and default means loss of control. now i ask: will a default happen?
they will find/create a way to "kick the can". create a new bond to suppliment the original and leverage its value into new value deemed a new life line to previous debt obligations. they make the fucking rules. they are psycopathic control freaks that would fuck your twin sister at age 12, while possing as an inocent well intended babysitter. They are fucking banksters.
to believe for one secoind that any of this will default is a fools game of not understanding what is at stake and who is in control.
this money we are captivated by is the very control they have over us. they certainly will not lose control.
outsiders of the western bankster system, assuming russia and china are actually competitors, would be the only risk to the dolla hedgemony. and that i doubt is true, just posturing...
see, it is the biggest conspiracy know to mankind right in our face.
we are captivated by the very monetary system they created and control, backed by violence if neccesary...
and a final thought; what is a moar devastating to mankind, a bankster or neocon politician-the devil or devils advocate?
"What's moar devastating"? Banksters and Politicians assraping GenPop. Welcome to Fascism.
Neocon? Blue Dog? Tea Party? Leftists? All b.s. labels. They're all the same
label them "followers", lacking critical think skills with brain disorders(lacking right side compassion)...
Federal Reserve has gotten a lot of mileage out of this rate hike lie and if they do it again this afternoon saying January rate hike for sure, same result because it is a game with the zionist run banks. Result nto fool the world but, no one is fooled anymore except some week kneed people who cant see this and are jumping out of Gold into paper!
Maxine Waters is right: a .25% rate hike would devastate middle-class homeowners.
For every $100,000 they owe in mortgage balance their payments would increase $250 per year! Who the Hell has that kinda dough? Nobody has $250 lying around gathering dust. They'd lose the house, through no fault of their own. It would be a catastrophe.
Write your Congressperson: No .25% rate hike! Save the beleaguered middle class homeowners!
I though she was in prision.
… she was refused entry.
Not in a million years will the Fed ever raise rates again (unless it benefits the big banks).
By the way have you seen the FBI's Real Top 10 Most Wanted List? Guess which Fed Chairman is listed?
https://mega.nz/#F!8tkBgAIR!b2bzMlHp1S3ftfqfKNX-kQ
Who else made the top 10?
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I thought all that QE we ?ï$$?? down the drain was to keep rates low.
So how are they still keeping rates low without QE?
Hmm…
•?•
V-V
Partly by maturing securities and partly by hidden QE. RRP is a new FED tool probably also to hide the hidden QE. Follow Jim Willie to get the full scope on hidden QE. http://news.goldseek.com/GoldenJackass/1441051200.php
REVERSE REPO ABUSE
Focus on the Reverse REPO, which is highly innovative from two angles. Normally the USFed requires collateral to be placed at the REPO window, from companies seeking cash infusions on a temporary basis. Sometimes the USFed announces a ripe volume of Reverse REPO infusions into the system. They occasionally attract bad attention, but it wanes with the next fiction on strong markets and recovering economies, or even debate among fools who anticipate official rate hikes. The USFed uses the Reverse REPO to hide some of its QE volume. It is concealed QE volume, part of the biggest lie in US financial history since the USFed has generated multiple $trillions in hidden channel support, massive gushers. The key is no collateral placed on the opposite side of the window. It is neither stimulus nor minor in volume. The central bank helm is managing a gigantic volume, hidden in numerous ways. The John Q Public is none the wiser, reading the controlled fiction in financial press publications, about wondrous stimulus. In reality, QE kills capital and assures an economic collapse. It is happening before our eyes.
The related other side of the table features the Failures to Deliver on USTreasury Bonds. The Wall Street Journal and New York Times report on the phenomenon, but quickly move off the topic. To have a significant figure of undelivered USTBonds speaks of more deep criminality. It indicates counterfeit or naked shorting by Wall Street banks. They have found a way to bring in liquidity to their broken insolvent big banks, selling USTBonds they do not own, receiving the funds into the corporate treasuries, improving handsomely their cash flow, never to deliver on the product. The buyer is often none other than the US Federal Reserve, which does not force prosecution for counterfeit or bond fraud from its vassal bank accomplices in the crime of counterfeit. Other buyers must wait, since no penalty is meted out for violations. The result is a fancy pants infusion of big $billions into the Wall Street banks with no costs associated. One must wonder how they hide the funds within their balance sheets, 10-Q filings, and quarterly statements. Probably they do so by mixing it in with their ample busy narco funds within New York money center banks.
Demand for Fed's reverse repos set to surge: JPMorgan
4 November 2015, New York (Reuters)
http://www.reuters.com/article/2015/11/04/us-fed-reverserepos-jpmorgan-idUSKCN0ST2ZD20151104
Total RRP demand could grow close to $1 trillion in the middle of 2016 due to a likely increase in appetite from reforms of the money market fund industry, J.P. Morgan Securities analysts said.
Fed to hold term reverse repo operations in December
18 November 2015, New York (Reuters)
http://www.reuters.com/article/2015/11/18/us-fed-reverserepos-idUSKCN0T72ZY20151118