• Tim Knight from...
    04/28/2016 - 00:27
    I was expecting a few boring candidate statements of the U.S. Senate - AKA the World's Most Exclusive Club - but, boy, was I wrong. Just take a look at some of these gems.
  • Tim Knight from...
    04/28/2016 - 00:27
    I was expecting a few boring candidate statements of the U.S. Senate - AKA the World's Most Exclusive Club - but, boy, was I wrong. Just take a look at some of these gems.

Taylor Rule Says The Fed Should Be Tightening Now

Tyler Durden's picture


Once upon a time, the Federal Reserve decided to adopt the Taylor rule, named after Stanford economist John Taylor, as its key determinant in setting the Fed Funds rate. Then, after it realized that the original formulation of the Taylor rule was too constricting and not as permissive to pro-inflationary policy as the Fed's financial sector superiors demanded, it decided to adjust the Taylor rule formulation to its own parameters so that it was always in sync with whatever policy, monetary or as of QEterenity, pseudo-fiscal, it decided to pursue. In the meantime, John Taylor has become one of the more vocal critics of Ben Bernanke's printing ways if for no other reason then because the original Taylor rule says that instead of ZIRP at least until 2015, the Fed should be tightening right now.

Guggneheim's Scott Minerd comments:

Following the latest FOMC meeting, the committee announced a new asset purchase program and an extension of their low rate pledge through mid 2015 in an effort to stimulate economic growth and improve the labor market.  In addition, the FOMC also released its latest outlook on inflation and unemployment.  Based on the new estimates for inflation and unemployment, the optimal Federal Funds Target rate suggested by the Taylor rule would suggest the Fed funds rate should rise to over 2% by mid-2015, in contrast to the Fed’s pledge to keep rates near zero through that time. In light of this analysis, it appears likely that the FOMC will fall behind the curve in raising rates, especially given its new outlook on economic growth and its pledge to keep rates on hold through mid 2015.


What this means is that by the time 2015 rolls by, all else equal, the Fed will be far behind on the tightening curve and when it finally does admit tightening is overdue, it will have to scramble to not only hike short-term rates, but promptly proceed to commence offloading its balance sheet which as we calculated will be $5 trillion by then, or nearly 100% higher than it is now, and with a DV01 of $4 billion. Oops.

What this will mean for risk, i.e., stock prices, is self-explanatory. Luckily for Bernanke, by then the collapse in the stock market which will finally shift to a phase of liquidity extraction, will be some other Fed Chairman's problem.

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Tue, 09/18/2012 - 15:10 | 2808116 holdbuysell
holdbuysell's picture

"We don't need no steenkin' Taylor Rule"

Tue, 09/18/2012 - 15:18 | 2808157 CrockettAlmanac.com
CrockettAlmanac.com's picture

The other Taylor rule: "Take your stinking paws off me, you damned dirty ape."

Tue, 09/18/2012 - 15:26 | 2808182 hedgeless_horseman
hedgeless_horseman's picture



The Tyler Rule states:

On a long enough timeline
the exchange rate in ounces of gold
of every fiat currency drops to zero.

Tue, 09/18/2012 - 15:33 | 2808227 Sofa King Confused
Sofa King Confused's picture

What about the Charles Taylor rule?

Tue, 09/18/2012 - 15:52 | 2808296 HeliBen
HeliBen's picture

Bernank has adopted the James Taylor Rule.

I've seen subprime and I've seen AIG, GMC, TARP, and Freddie's Fannie,
I've seen debt explosions and financial implosions that I thought would never end,
I've seen lonely times when Ron Paul and those ZeroHedge nuts were never a friend,
But I always thought with enough QE that I'd see some real GDP and lower unemployment again... (sigh, it's tough being me)

Tue, 09/18/2012 - 16:32 | 2808402 icanhasbailout
icanhasbailout's picture

I thought he was following the Lawrence Taylor rule - after your glory days are over, become an addict, play a lot of golf, and seek out underage prostitutes

Tue, 09/18/2012 - 17:25 | 2808558 akak
akak's picture

Overage prostitutes work too.

Tue, 09/18/2012 - 15:36 | 2808217 AlaricBalth
AlaricBalth's picture

The other other Taylor Rule:

By and by, you will find they will tear the Constitution to shreds, as they have begun now; they won't have to begin; they have started long ago to rend the Constitution of our country in pieces; ...but we will stand by and maintain its principles and the rights of all men of every color, and every clime.
John Taylor, 1884

Tue, 09/18/2012 - 15:34 | 2808229 LMAOLORI
LMAOLORI's picture



The Fed is just helping the squid do God's Work


Sneaking Past Congress


Tue, 09/18/2012 - 15:23 | 2808173 Landotfree
Landotfree's picture

This is the funniest article yet.  I tell you wait, have the Fed raise a half a point a quarter and see what happens.   The equivalent of financial nuclear blast.   

Hey, I am all for it but that is not the mission of the Fed.  The Fed's mission is simple:  delay the final collapse as long as possible and assist in making the system the largest ever before the collapse.

Lemmings can continue their march to their doom or stop today and meet their maker.... either way it's not going to end well for quite a few unfunded liabilities.   All I see is a bunch of unfunded liabilities complaining.

Tue, 09/18/2012 - 16:24 | 2808375 Popo
Popo's picture

Actually, Bernanke just wants to finish his term and move to a small island in the Carribean under a false identity.   Then he'll read Zerohedge every day and watch some other chump try to keep all the plates spinning.    He has two options: Go down in history as the guy who blew up the world, or retire to an island in peace.  Just watch.   I'll put any amount on him quietly sneaking off stage when his term is over, and going incognito for a while.

Tue, 09/18/2012 - 15:23 | 2808179 Gringo Viejo
Gringo Viejo's picture

Sheriff Andy Taylor's cousin from Mount Pilot?

Tue, 09/18/2012 - 15:12 | 2808125 Yellowhoard
Yellowhoard's picture

Taylor Schmailer.

Let's get this party started!

Throttles forward and hang on tight!

Tue, 09/18/2012 - 15:16 | 2808148 Temporalist
Temporalist's picture

Ludicrous speed bitchez!

Tue, 09/18/2012 - 15:32 | 2808225 GolfHatesMe
GolfHatesMe's picture

Going to Plaid

Tue, 09/18/2012 - 15:18 | 2808160 Divided States ...
Divided States of America's picture

For the zillioneth time already....STFU about Fed raising rates, that aint gonna happen!

John, wish you were the one at the controls but NO you aint, the Bernank is, and hes driving this train full steam towards the cliff.

Tue, 09/18/2012 - 15:36 | 2808235 James-Morrison
James-Morrison's picture

Old Charlie stole the handle
And the train, it won't stop going
No way to slow down

Locomotive Breath -- Jethro Tull

Tue, 09/18/2012 - 15:47 | 2808274 CrockettAlmanac.com
CrockettAlmanac.com's picture

"The pumps don't work 'cause the vandals took the handles." -- Zimmerman

Tue, 09/18/2012 - 15:13 | 2808128 kralizec
kralizec's picture

Tightening, heh, that's a good one!  Ben just loosened the belt, soon the pants will hit the floor.  How's that for tight?  LOL!

Tue, 09/18/2012 - 15:14 | 2808135 redpill
redpill's picture

And all those dark pools would spill out right onto the floor!


Tue, 09/18/2012 - 15:13 | 2808129 101 years and c...
101 years and counting's picture

"In addition, the FOMC also released its latest outlook on inflation and unemployment.  Based on the new estimates for inflation and unemployment"

based on Fed's projections......


'nuff said.

Tue, 09/18/2012 - 15:15 | 2808143 101 years and c...
101 years and counting's picture

or, maybe monetary policy is the real projections the Fed has, not the "official" projection.  the Fed eases when its really bad. 

Tue, 09/18/2012 - 15:19 | 2808163 Cursive
Cursive's picture

@101 years and counting

My thoughts exactly.  The economic numbers are fudged.  Not to be believed.  I think BernanQE et al had a look at a different set of projections last week.

Tue, 09/18/2012 - 15:26 | 2808198 101 years and c...
101 years and counting's picture

whats the saying?  do as they do, not what they say?

just waiting for the next earnings warning, followed by a new one every day or 2 until E in 2012 = $88, which puts future PE at 16.50 during a recession. 

Tue, 09/18/2012 - 15:34 | 2808232 GolfHatesMe
GolfHatesMe's picture

BernaQE  - hillarious!

Tue, 09/18/2012 - 15:23 | 2808141 Haager
Haager's picture

Whats the meaning of that rule considering a probably totally wrong outlook and a target rate that doesn't match standard economical conditions?

Tue, 09/18/2012 - 15:16 | 2808146 Zero Govt
Zero Govt's picture

Bubblenomics wins again

Tue, 09/18/2012 - 15:18 | 2808155 LULZBank
LULZBank's picture
Taylor Rule Says The Fed Should Be Tightening Now, The Noose Around The Middle Class.

Tue, 09/18/2012 - 15:47 | 2808273 bornlastnight
bornlastnight's picture

How is "middle class" determined?  By the quantity of food stamps one holds or by the quality of food stamps one holds?

I could never get a good answer using Google.

Tue, 09/18/2012 - 15:59 | 2808300 akak
akak's picture


How is "middle class" determined?

If you find yourself stuck in the middle between stagnant or falling wages and rising prices on all the necessities of life (despite all the "sub 2% CPI" bullshit propaganda from the Bernankster and his lapdogs in the BLS), you can consider yourself middle class.

Tue, 09/18/2012 - 16:46 | 2808451 roadsnbridges
roadsnbridges's picture

Try Siri.  Hear it's been updated.

Tue, 09/18/2012 - 15:18 | 2808158 Hype Alert
Hype Alert's picture

Offloading their balance sheet?  Stop, you're killing me!  What fairy tale is that going to happen in?  And how?

Tue, 09/18/2012 - 15:42 | 2808260 helping_friendl...
helping_friendly_book's picture

Double reserve requirements for primary Dealers every FOMC meeting?

That would force the Primarys to buy the FRBNYs book?

Tue, 09/18/2012 - 15:19 | 2808161 LawsofPhysics
LawsofPhysics's picture

Go ahead, stop buying treasuries Mr. Bernanke, I dare you.  Should make 2013 a lot more fun.

Tue, 09/18/2012 - 15:19 | 2808164 Vincent Vega
Vincent Vega's picture

+1 to the author for the use of Fed and Tightening in the same sentence.

Tue, 09/18/2012 - 15:20 | 2808168 ParkAveFlasher
ParkAveFlasher's picture

Stanford?  That's nowhere near Harvard.

Tue, 09/18/2012 - 15:50 | 2808283 bornlastnight
bornlastnight's picture

That's "Hahvad" to you.  Show some respect.

Tue, 09/18/2012 - 17:32 | 2808574 TheFourthStooge-ing
TheFourthStooge-ing's picture

Hartford? Isn't that one o' them fancy ivory league schools?

Tue, 09/18/2012 - 15:21 | 2808175 fonzannoon
fonzannoon's picture

fucking gold and equities need to decouple already. garbage.

Tue, 09/18/2012 - 15:23 | 2808186 Sutton
Sutton's picture

Ben follows the Simon LeBon Rule.

Tue, 09/18/2012 - 15:38 | 2808251 Vincent Vega
Vincent Vega's picture

Would that be Rio or Hungry Like The Wolf?

Tue, 09/18/2012 - 15:47 | 2808272 blunderdog
blunderdog's picture

More like Wild Boys.

"They tried to take us.  Looks like they'll try again."

Tue, 09/18/2012 - 15:28 | 2808205 CrashisOptimistic
CrashisOptimistic's picture

If they use mark to market, the balance sheet would be near zero -- the true value of the MBS they are overpaying for.

Tue, 09/18/2012 - 15:28 | 2808206 Snakeeyes
Snakeeyes's picture

Not really. The Stone and McCarthy and Deutsche Bank versions of the Taylor Rule call for further easiing. Oogh!

Charts here.


Tue, 09/18/2012 - 15:29 | 2808211 101 years and c...
101 years and counting's picture

estimates brought to you by the same insane monkey that once said the following:

"subprime is contained"

"i will not monetize the debt"

Tue, 09/18/2012 - 15:32 | 2808221 Getting Old Sucks
Getting Old Sucks's picture

Who gives a shit about rules anymore?  Congress?  Senate?  President?  Certainly not the banks.  It's every man for themselves and their own, so proceed accordingly.  Just don't let anyone know what you're doing or how you're doing it.

Tue, 09/18/2012 - 15:38 | 2808249 AldoHux_IV
AldoHux_IV's picture

Everything hinges upon the masses waking up... the more eveyone's in denial about the state of things and the media/politicians/overlords continues to get away with the charade the longer the fed can get away with bloating its balance sheet.

It's both a curse and a blessing we are the solution to this problem because it requires all of us doing something about it.

Tue, 09/18/2012 - 15:50 | 2808285 meco1999
meco1999's picture

And what are you doing about it? Typing comments on zerohedge.com doesn't count.

Tue, 09/18/2012 - 16:44 | 2808442 The Alarmist
The Alarmist's picture

I've decided to become a liberal, so I only have to feel bad about it and not really do anything to fix it.

Tue, 09/18/2012 - 15:50 | 2808282 blunderdog
blunderdog's picture

Given the size of divergence on the graph back in '02 (that 4% peak), I don't think one can make any reasonable guess as to how things would've turned out differently.  A 2% Fed rate discrepancy is HUGE.

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