The Fed's Bill Dudley confirmed this morning why The Fed is so keen to raise rates no matter what - "liftoff will signal The Fed's confidence in the US economy." In other words, the 'con' continues... We have two simple questions - 1) Given the chart below, which 'economy' is The Fed confident in? and 2) What is The Fed going to say when they reverse the rate hike (as we have seen with every nation who has tried to raise rates since 2010 [4])?
Which economy is Dudley 'confident' about?
Can The Fed do what everyone else has failed to do?
[5]
As a reminder, all these countries also wanted to "signal confidence" in the economy. They lasted on average a few months before they had to unsignal...
As we noted previously, the question then becomes: if the Fed does hike in December as over 90% of economists predict, will it be the first bank that avoids having to promptly "unhike", which is unlikely or far more realistically - how long until the Fed is forced to admit "policy defeat [6]" and go right back to ZIRP, or perhaps even NIRP, ultimately sliding right into QE4.
Alas, by now the script of hiking just to have an alibi to ease has become so trite even Deutsche Bank recently had the temerity to ask "Is The Fed Preparing For A "Controlled Demolition" Of The Market [7]"?
