One Fed President Says The Rate Hike Decision Was A Choice "Between Faith And Data"

Tyler Durden's picture

Over the years many have accused central banking of being the world's latest (and most profitable) religion, with central bankers the only modern day priests left that still matter (to the tune of $75 trillion, the market cap of all stocks in the world).

Today, in a blog post from Minneapolis Fed president Neel Kashkari explaining why he dissented from the latest Fed rate hike decision, he admits as much when he says "for me, deciding whether to raise rates or hold steady came down to a tension between faith and data. On one hand, intuitively, I am inclined to believe in the logic of the Phillips curve: A tight labor market should lead to competition for workers, which should lead to higher wages. Eventually, firms will have to pass some of those costs on to their customers, which should lead to higher inflation. That makes intuitive sense. That’s the faith part."

In a surprisingly honest assessment, he then says that "unfortunately, the data aren’t supporting this story, with the FOMC coming up short on its inflation target for many years in a row, and now with core inflation actually falling even as the labor market is tightening. If we base our outlook for inflation on these actual data, we shouldn’t have raised rates this week. Instead, we should have waited to see if the recent drop in inflation is transitory to ensure that we are fulfilling our inflation mandate."

Which inductively suggests that the rest of the FOMC is still driven by, well, faith alone. Unfortunately, this time the faith has consequences, and as Citi's Matt King explained earlier, the Fed's decision to not only hike rates but also to begin a $450 billion annual reduction in its balance sheet, will have "significant adjustment in valuations."

Which is perhaps ironic, because while Kashkari's opinion is quite objective on the topic of America's economic realities, he continues to be disappointing blind about the Fed's true purpose, namely to prop up asset prices, to wit:

"while some asset prices appear elevated, I don’t see a correction as being likely to trigger financial instability. Investors would face losses from a stock market correction, but it’s not the Fed’s job to protect investors from losses. Our jobs are to achieve our dual mandate and to promote financial stability."

Which is funny, because while the priests over at the Fed continue to live in their ivory towers, everyone figured out what was going on, and as Citi said earlier this week,"the principal transmission channel to the real economy has been lifting asset prices."

Kashkari's full Kashsplainer can be found here.

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HelloSpencer's picture

'Faith or data?'

 

What happened to the 'Rational Markets Hypothesis' ?

nope-1004's picture

Like Blankfein and Dimon give a shit what Kashkari thinks, much less "voted".

BullyBearish's picture

the policy "error" occured back in 2008 by giving away free money to the criminals who "broke" the system...of course, this is seen from the PEOPLE's standpoint, however from the money printers standpoint there was not only no error involved, but the "system" worked exactly as planned: the largest generational transfer/theft of wealth in history...and we continue to let them control the money system...

 

 

                     E   N   D     the      F    E    D

Jim Sampson's picture

I remember when smoking was allowed in restaurants.  Meaning...  things change.  "A tight labor market should lead to competition for workers, which should lead to higher wages. Eventually, firms will have to pass some of those costs on to their customers, which should lead to higher inflation. That makes intuitive sense."  Come on...  these guys don't know shit!  There's fucking paper clips and scotch tape holding this bitch together.

JRobby's picture

"deciding whether to raise rates or hold steady came down to a tension between faith and data"

Interpreted: We have no fucking idea what's going on

 

"A tight labor market should lead to competition for workers, which should lead to higher wages."

Interpreted: We have no fucking idea what's going on

 

 

"while some asset prices appear elevated, I don’t see a correction as being likely to trigger financial instability."

Interpreted: We have no fucking idea what's going on

eclectic syncretist's picture

"we should have waited to see if the recent drop in inflation is transitory to ensure that we are fulfilling our inflation mandate."

Since when does the Fed have an inflation mandate? Isn't it the inherent instability of an inflationary system that got us into this mess?

Au_Ag_CuPbCu's picture

"A tight labor market should lead to competition for workers, which should lead to higher wages. Eventually, firms will have to pass some of those costs on to their customers, which should lead to higher inflation. That makes intuitive sense."

 

What part of a tight labor market with shit wages and a low participation rate isn't this guy getting? 

Åristotle's picture

"We have no fucking idea what's going on"

That's Plato for you.

Sages wife's picture

"We know you're working hard Mr. Kashkari, our question is who are you working for?". 

- Dennis Kucinich.

DavidC's picture

Spot on Jim.

Yup, I LOVE inflation. I can't wait to have to pay more for goods and services. I can't wait to spend everything I have before prices go up even more.

These people are absolute fuckwits.

DavidC

newmacroman's picture

Yup, the patient is dead, Jim

AllOfGood's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

Cognitive Dissonance's picture

I have full faith in bald men. And bald women for that matter.

NugginFuts's picture

where the hell did my original comment go? 

Cognitive Dissonance's picture

Mine disappeared as well.

I suspect Tyler 'disappeared' a comment(or) and we became collateral damage. Everyone below a comment that is deleted is also deleted.

 

el buitre's picture

I remember Cash & Carry from the 2008 fiasco before he was appointed to the Fed as a reward for his nefarious deeds.

Like they get to vote independently.  The real boss of the FMOC (who of course answers to higher ups) is Stanley Fischer, transplant former president of the Israeli central bank.  He decides how the each vote will be recorded.  How strange we should have this Israeli running our central bank!!  Yellin is simply an overstuffed muppet who can barely chew gum and walk at the same time.

Dukes's picture

CashScary is simply trying to save his own soul.

Spoiler alert: not gonna happen

DavidC's picture

That may be, but she CAN start EVERY sentence with the word 'So'. That takes some doing.

DavidC

yogibear's picture

Cash & Carry learned well from his Goldman mentor stuttering Hank Paulson. Serve your Goldman master's.

Sorry_about_Dresden's picture

Here is play-by-play from the meltdown, this stuff is/was dynamite! 

 

https://goo.gl/txXe4B

Åristotle's picture

"Faith or data?"

Plato or Aristotle?

"What happened to the 'Rational Markets Hypothesis' ?"

Plato

Secret Weapon's picture

These people really have no idea what they are doing.  But then again, the whole thing is just a scam anyeay. 

mily's picture

Buy the fuckin dip, hallelujah!

Cursive's picture

Uh, I'm thinking Neel is actually having a crisis of faith right now.  Having spent some time in the woods, he probably also know that his type is going to be fleeing the angry mobs in the coming years.  Good luck, bro.  Enjoy those Belgian caterers while it lasts.

mily's picture

No worries mate, i've got everything planned. Face transplant + one way ticket to Argentina, same as high rank gestapo officers did

yogibear's picture

With this print trillions Federal Reserve, always.

Drimble Wedge's picture

Ironically ~ given the history of the FED (& the latest 3 chairs ~ Greenspan, Bernanke, Yellen), there's little doubt in my mind that FED decisions have more to do with "faith" (in it's various interpretations) than they do "data".

 

But I'm a 'PASTAFARIAN' so what do I know?

rf80412's picture

They have a very clear idea of how the economy should work if neoclassical/neoliberal economics were right ... and they believe that if the economy is not working that way, that's not a problem with their ideas, but a problem with the economy that merits intervention.

Drimble Wedge's picture

Well, that, & they're basically just greedy 'organized crime' types hellbent on parlaying those virtues into a world domination operation.

Dilluminati's picture

I worked at the IMF well over 15 years ago, before they went off traditional publishing.  I worked as a Data person finacial publications.  As far as a DECISION goes, it wasn't faith and fact,, the decision was simply a poor one, WRONG ONE.  The one that gets remembered.

el buitre's picture

The whole global financial system is a house of cards Ponzi scheme.  The fact that they are choosing to raise rates now simply indicates that they wish to speed up the current on-going real collapse of the economy and blame it on Trump.  They have decided to "pull it," as Larry Silverstein put it regarding the collapse of WTC building #7.

eclectic syncretist's picture

THe purpose of the Fed Reserve is to allow a very limited number of people to counterfeit money and lend it out at interest so that they eventually get it back, plus a skim as a nice bonus. Everything else is just smoke and mirrors distraction used to keep the masses confused about this real purpose.

Cordeezy's picture

I wouldnt call the financial system stable right now, it is going up and up, but should it really be?  It has the appearance of stability with most feeling that a crash is around the corner.

 

 

www.escapeamazon.com

 

 

Silver Savior's picture

Now the bitches are running on faith now? Actually for a long time. Yep screw it all. We are done until reset. Hoard, hoard hoard! Not junk or garbage but shiny stuff and some zeros and ones.

SybilDefense's picture

Data, data? We don't need no stinking data.  GDP is just noise.

"There's a lady who's sure all that glitters is gold, but she's buying the stocks way to heaven.  When she gets us there she knows all our accounts will be closed...."

~Bubbles Yellen

Cursive's picture

LOL. They can't hide it anymore.  It's a cult.  Cargo cult.

Fake Trump's picture

No faith and fake data.

small axe's picture

more for them and their buddies, less for you

that's the decision, and that's the plan the Fed supports each and every time it meets.

they're thieves in suits, nothing more

shaggythelma's picture

Kashkari should replace Yellen.  Not owned by third parties/dual citizens/AIPAC/New World Order.

Schmuck Raker's picture

Then how did he end up at the Fed? Was he third caller to a radio station give-away?

Sorry_about_Dresden's picture

You haven't been paying attention? Kashkari was bought into to work for Hank Paulson, Bush's Treasury, to plan and execute the financial crisis.

Specifically to coordinate Reserve Primary, a mutual fund run by Bruce Bent and family, changing their business model to leverage up on $780 billion worth of Lehman paper: https://goo.gl/txXe4B

"""Reserve to file its March 22, 2006 supplement to the Prospectus and SAI for the Primary Fund, which noted the deletion of the paragraph that said the Primary Fund would not buy commercial paper, and thus opened up the Primary Fund to investments """"

https://en.wikipedia.org/wiki/Neel_Kashkari

When Henry Paulson, the former head of Goldman, was appointed Secretary of the Treasury in 2006, he brought Kashkari on as an aide. Kashkari was eventually named Assistant Secretary of the Treasury for International Economics and Development. At Treasury, he played a number of roles in the response to the financial crisis and the subprime mortgage crisis that preceded it, most notably administering the TARP.

Why will noone understand the 2008 financial crisis was carefully planned and orchestrated by GS alumni?

Then Neel gets position as Feral Reserve Gov'n in Minneapolis for his fealty to the dark overlords. Get a clue sheeple!

 

runnymede's picture

Excellent ^^^^Post

Thank you for taking the time to enlighten and not to just fire off one-line zingers. That is a great link for enquiring minds.

As a side note, I wonder if the Giant Squid will someday apologize for the financial Dresden they are currently unleashing on the world. 

Sorry_about_Dresden's picture

The 2008 event had been planned for many years. Bernanke laid out his vision in his 2002 "deflation" speech to wit:

Of course, in lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets. If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets.

https://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default....

See paragragh titled Fiscal Policy, near the end of the remarks.

The Feral Reserve, and UST i.e. Goldman-Sachs, did exactly what Ben he said he would do! Has he not????? There is much subtrifuge, but it appears Bernanke, and the Feral Reserve, did carry out their plan eactly as he laid out many years in advance? 

Wouldn't you agree?

rf80412's picture

He's a racial minority and only first generation American.  I'm sure his unexamined alienation, biases, and tribal loyalties can make him just as useful to you know who.  Not to mention that his own tribe also have a reputation for being shameless liars and cheats.

Dilluminati's picture

I'm reading the news and thinking of the classical quadrant model of price/service.  In that cartesian model there is one quadrant from the "carriage trade" opposite low service an low price (quadrant 0).  So next time you're at Ocean City, MD and look around and wonder why there isn't a McDonalds on the boardwalk you get an illustration of how that market differs from the fed/macro market.  If.. If there wasn't zoning restrictions against fast food the associate business models, traditional vendors, and the existing low service & high price model would collapse alongside a low service/low priced alternative.  

Naked pricing is similar to the above model however selling a used modem/router, refurbed item, used car etc.. wwith naked pricing is inherently deflationary.   This has been going on with commodity labor, multiple dwelling units and comp pricing, and now in corporations themselves, the wrist slashing.. it is on..

I see the Venezuellans are lynching one another when a guilotine would suffice and be less messy, however the false markets that were created and/or where appropriate the lack of financial stability creates these imbalances.   Now in Ocean City you need to pull out your focking wallet, there is property values and tax collection at stake, banks would creumble if it were just a MDU on a sand hill..  But it is a PROTECTED MDU on a sand hill..  and McDonalds, Starbucks, isn't welcome..  so, there is more jobs and 100% employment and lots of taxes...

Macro?  Corporations pay little taxes and employment not so good...

The fed fucked the pooch on the last rate hike and pushed the string.. the real economy never warranted the rate raise.  You should have bought the 10 year in March of this year.. you will have a long time to regret not doing so.   Pweople today hoping and not acting..  hope is not a plan