The Fed Admits The Good Old Days Are Never Coming Back

Tyler Durden's picture


The dots that the FOMC members contribute to the plot indicate their expectations for the federal funds rate.

Technically, it’s what they think rates should be, not a prediction of what rates will be on those dates. Is that a forecast? You can call it whatever you like. I think “forecast” is close enough.

But before we analyze the whatever-you-call-it, let’s look back at the not-so-distant past.

A 5% risk-free return

Here’s a rate history of the last 16 years:

I’ve highlighted this fact before, but it’s worth mentioning again: In 2007, less than a decade ago, the fed funds rate was over 5%. So were the interest rates for Treasury bills, CDs, and money market funds.

People were making 5% on their money, risk-free. It seems like ancient history now, but that year marked the end of a halcyon era of ample rates that most of us lived through.

The chart below shows historical certificate of deposit rates—but remember, you could put your money in a money market fund and do better than the six-month certificate of deposit yield, back in 2007.

Today’s young Wall Street hotshots have never seen anything like that. To them, the jump from 0.5% to 0.75% must seem like a big deal. It’s really not. If the chart above were a heart monitor readout, we would say this patient is now dead and that last blip was an equipment glitch.

The point to all this is that these near-zero rates to which we have all adapted are by no means normal or necessary to sustain a vibrant economy.

We’ve done fine with much higher rates before. They are even beneficial in some ways—they give savers a return on their cash, for instance. But there are likely to be consequences once we embark on this rate-increase cycle.

The FOMC cast members are all old enough to remember those bygone days of higher rates as well as I do. So, we would think they might at least foresee a return to normalcy at some point in the future.

Not so.

The FOMC members see nothing of the sort

Here is the official dot plot published by the FOMC. (I have included their preferred heading so that no one complains about my calling it a forecast, even though that’s what it is.)


Each dot represents the assessment of an FOMC member. That group includes all the Fed governors and the district bank presidents. All 17 of them submit dots, including the presidents of districts who aren’t in the voting rotation right now. There would be 19 dots if the two vacant governor seats had been filled.

That flat set of dots under 2016 represents a rare instance of Federal Reserve unanimity: They all agree where rates are right now. (See, consensus really is possible.) The disagreement sets in next year. For 2017, there’s one lone dot above the 2.0% line, but the majority (12 of 17) are below 1.5%.

Nevertheless, it will be a much different year than this one if they follow through. The dots imply that the fed funds rate will rise a total of 75 basis points next year.

Presumably, that would be three 25 bps moves, but they can split it however they want. They could ignore their expectations completely, too. This time last year, the FOMC said to expect a 100 bps rise, or four rate hikes, in 2016. We got only one.

Follow the dots on out and you see that their assessments trend a little higher in the following two years, and then we have the “longer run” beyond 2019. Most FOMC participants think rates at 3% or less will be appropriate as we enter the 2020s.

The most hawkish dot is at 3.75%.

Think about what this means

Today’s FOMC can imagine raising rates only to the point they fell to about halfway through their 2007–2008 easing cycle. They see no chance that overnight rates will reach 5% again. None.

Here is another view of the same data, that shows how the dots shifted.

Looking at each set of red (September) and blue (December) dots, we see only a slightly more hawkish tilt than we saw three months ago. The “Longer Term” sets are almost identical—two of the doves moved up from the 2.5% level, while the two most hawkish hung tight at 3.75% and 3.50%.

That word hawkish is relative here. By 2007 standards, these two voters are doves. But, Toto, I’ve a feeling we aren’t in 2007 anymore.

*  *  *

Contrary to common belief, it’s not greedy Wall Street brokers that are wrecking the US economy—but academic policymakers like the ones employed by the Federal Reserve. And they all have the best intentions… Read financial-bestseller author John Mauldin’s riveting special report, How the High Priests of Economics Are Leading Us to Monetary Hell. Click here to get your free copy now.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
wisehiney's picture

How many times to people have to learn that the fed does not control long rates?

First good growth scare and the world will flee to the "safety" of U.S. treasury bonds.

tazs's picture
tazs (not verified) wisehiney Dec 27, 2016 2:34 PM

Only idiots expect the good old days to come back. At least, not while the Fed is still around.

Ending the Fed should be America's priority.

The Saint's picture
The Saint (not verified) tazs Dec 27, 2016 2:43 PM

LOL.  As if any mere mortal has any idea what will happen with rates. NOT!


rccalhoun's picture

the FED DOES control long rates.  they own a large portion of the longer dated maturities and a few more QE's and they could own it all.

right now is a see how high they can take short rates, before other assets collapse.  might as well do the test on donald trumps


REAL interest rates will be NEGATIVE for the rest of the USA existence....opitmal for the fed is 5% inflation and 0% interest rates

dogmete's picture

Maybe they own most of the long term bonds already. How do we know what they own?

Delving Eye's picture

I believe they own our souls.

daveO's picture

I don't see it as a test. It's SOP. In previous credit/presidential cycles, the FED would raise rates early in an administration, tank the markets and then lower rates into the president's reelection. This time, they will raise rates, tank the markets and QE once again. Reminds me of a leech administering pain killer to it's host while getting fatter and fatter.

Clint Liquor's picture

Central Bankers are not mere mortals. Only Gods can create wealth from nothing.

Dilluminati's picture

cleanest shirt in dirty laundry

A. Boaty's picture

Leper with the most fingers.

Paul Kersey's picture

"How many times to people have to learn that the fed does not control long rates?"

The Fed does, indeed, control long-term Treasuries rates. Since 2008, the Fed has been monetizing Treasuries on the secondary market, so, even as the buyer of last resort, it can keep those rates low. The BOJ has been doing the same thing with Japanese Government Bonds since 1999.

Meanwhile, the TBTF banks borrow at near zero interest, pay depositors at near zero interest, and lend the money back to the general public at 14% to 30% for credit cards and used car loans. For those banks, these are the good old days. These billionaire banksters are making multi-generational wealth.

Paul Kersey's picture

"Watch and learn."

Learn what? When Bill Gross bought millions of dollars worth of garbage Freddie/Fannie mortgages, just before the Treasury agreed to back that toxic waste paper, explicitly, I thought he was an idiot. Then the Treasury backed all GSEs, the Fed monetized them, and Gross made hundreds of millions of dollars for PIMCO.

So tell me again, what am I supposed to be watching and what am I supposed to be learning?

wisehiney's picture

You will discover that the credit market is trillions and qe is billions.

Jayda1850's picture

This is a repost, but for all those who keep saying, wait until Trump gets in office and give him a chance.

Trump's team is getting even more swampy. I give you Jason Greenblatt as Trump's International Negotiator.

From Wikipedia: Greenblatt was educated at the Marsha Stern Talmudical Academy,[4] followed by Yeshiva University.[5] In 1992, Greenblatt received a JD degree from the New York University School of Law.[2]


tazs's picture
tazs (not verified) Jayda1850 Dec 27, 2016 2:36 PM

The swamp's getting joocier and joocier.

froze25's picture

Thanks, I am still going to wait and give him a chance. Till then we are speculating on knowing what may or may not happen.

Paul Kersey's picture

Yeah, who would ever do something as dumb as hiring a powerful Jew lawyer to negotiate for them? I, for one, would be happy to never have to sign for some kind of an official looking certified letter in the mail from some lawyer named Greenblatt, who works for the U.S. Government.

Jayda1850's picture

Oh, he will be negotiating for a country alright. Just not ours.

Uzda Farce's picture
Uzda Farce (not verified) Jayda1850 Dec 27, 2016 7:00 PM

Greenblatt has been Trump's lawyer for 20 years.  Trump's mentor was homosexual, mob-connected, Jewish lawyer Roy Cohn:


Stuck on Zero's picture

Th Fed is trapped in a wet paper bag.

curbyourrisk's picture

Today’s young Wall Street hotshots have never seen anything like that. To them, the jump from 0.5% to 0.75% must seem like a big deal. It’s really not


f you think about it...  it really is.  That is a 50% INCREASE in rates...

Hohum's picture

There isn't enough net energy to allow a 5% risk free rate--ever.

balz's picture

I agree. Falling EROI per capita is the name of the game.

HokumYTrader's picture
HokumYTrader (not verified) Dec 27, 2016 2:49 PM

Donald is calling Citadel directly now.


40 times a day

wisebastard's picture

yeah well.....thats....kind of what happens when bankers put on the suicide vest of the question they yell allah akbar or in god we trust before they blow themseves up

khakuda's picture

There should also be zero chance that they ever go below the baseline inflation rate of 1.5 - 2%.  But, of course, the Fed likes their bubbles...

VWAndy's picture

 The good times will be back. Right after we take all the snowflakes kicking and screamin into Bartertown.

onwisconsinbadger's picture

Savers be damned. Speculators feel the love.

Silver Savior's picture

The new savers are the gold and silver buyers!

edifice's picture

Tell that to the guy who bought at $1900 in 2011.

Wang Dang SP's picture

If he didn't sell, he hasn't lost anything.

Silver Savior's picture

Well if one holds on to the gold then what's the loss? Gold will be great when it goes to 10k plus. I wish I was buying gold back in them days. I could have just dollar cost averaged. Its all good though. I got the silver pile and that's even better than gold! Manipulation of spot price. Gotta love it.

Silver Savior's picture

The case for buying precious metals is so strong yet the pencil pushers have not caught on yet. So much for all that education in finance. 

warpigs's picture

this will all lead to normal folks chasing riskier instruments/ideas to seek some kind of gain in their idle money. we know the ending of those stories. i now understand why older folks always recommend things they can touch i.e. land, cows, etc etc etc

nakki's picture

This dot plot looks the same as the dot plot from 2010 2012 2014 2016 2018 2020. 

blindman's picture
A Shortcut Through 2016
from ShortcutsLength: 59:14
peter boshan

yogibear's picture

Never say never.

An lesson from someone that said rates would never be below 12%.

DavidC's picture

The move from 0.5% to 0.75% IS a big jump - it's a 50% increase in rates!

Imagine being maxed out in terms of borrowing at 0.5% and then having to come up with a 50% increase!


blindman's picture

who could awaken from such a dream?

Basilian's picture

Icelandic policy -- all this opining about the economy is always done so "sans debt servicing" if the debt cannot be repackaged further then it gets real ugly -- not sure anyone wants that ... not sure how long we can "repackage" -- "Do these jeans make me look fat?" Answ: No your Fat makes you look Fat

Dirtnapper's picture

Hearding in those sheep for the eventual slaughter.  If Clif High's ALTA report is close to the mark, won't be very long before this economy is exposed as the farce it is.

Hanomy's picture

The better days are ahead.  I believe I have figured it out and I wrote Hanomy Manifesto ....

Pleaes visit   and review   full document: Hanomy Manifesto at that site.  Download, share it, spread the word. It's a new social, financial, and political system that can replace what we have right now.  It's to serve all people in the world.  Please make it goes viral so when SHTF, we know there is an alternative.  It can be implemented in just few short years.

UnschooledAustrianEconomist's picture

ZHers, this guy deserves no freaking downvotes. Though it's late in good ole Europe and I'm too tired to read into the details, scrolling over his manifesto showed me he figuered shit out and got something to say.

Wisate, as you probably figuered out by now too, your Thai harmonism and optimism might be lost on us Western cynics.

And to help your cause some advice from one of those cynics: Your Asian politeness won't help here, you got to grab the ZH-fuckers by the pussy.


yogibear's picture

Once inflation gets rolling, steepening rates is the only way to counter. 

Happens in all fiats.

Just a matter of time.

These people are blowing smoke.

Sudden Debt's picture

Just wait untill you get inflation spikes.

Sooner than later, we'll get them. Nobody can keep printing money without risk forever.

Forced Fed Said's picture

When will the Fed cut rates next? Odd question but then again consensus around robust economic outcome and higher inflation seems dangerously uniform.

newworldorder's picture

As we all know, markets no longer exist outside of the Central Banks. For that matter, digital money can and will go to infinity.

Earned money and created money will be on par with infinate Central Bank money.