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

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.

Comments

BullyBearish nope-1004 Fri, 06/16/2017 - 12:20 Permalink

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

In reply to by nope-1004

Jim Sampson BullyBearish Fri, 06/16/2017 - 12:24 Permalink

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.

In reply to by BullyBearish

JRobby Jim Sampson Fri, 06/16/2017 - 12:31 Permalink

"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

In reply to by Jim Sampson

Au_Ag_CuPbCu eclectic syncretist Fri, 06/16/2017 - 14:27 Permalink

"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? 

In reply to by eclectic syncretist

el buitre Crypto-World-Order Fri, 06/16/2017 - 12:20 Permalink

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.

In reply to by Crypto-World-Order

Cursive mily Fri, 06/16/2017 - 12:35 Permalink

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.

In reply to by mily

Drimble Wedge Fri, 06/16/2017 - 12:03 Permalink

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?

Dilluminati Fri, 06/16/2017 - 12:06 Permalink

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 Dilluminati Fri, 06/16/2017 - 12:27 Permalink

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.

In reply to by Dilluminati

Silver Savior Fri, 06/16/2017 - 12:13 Permalink

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 Fri, 06/16/2017 - 12:15 Permalink

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

small axe Fri, 06/16/2017 - 12:28 Permalink

more for them and their buddies, less for youthat's the decision, and that's the plan the Fed supports each and every time it meets.they're thieves in suits, nothing more

Sorry_about_Dresden Schmuck Raker Fri, 06/16/2017 - 13:18 Permalink

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! 

In reply to by Schmuck Raker

Sorry_about_Dresden runnymede Fri, 06/16/2017 - 15:27 Permalink

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… 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?

In reply to by runnymede

Dilluminati Fri, 06/16/2017 - 12:34 Permalink

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