Saturday, September 19, 2015

Fed Jawboning Their Decision Not to Hike Rates

Three stories from Reuters:

Fed's Williams still sees 2015 rate hike after 'close call'

Fed's Lacker says economy strong enough for higher rates

St. Louis Fed's Bullard says argued for rate hike at meeting

And WSJ's Greg Ip gives us the Yellen perspective:
The monetary doves have won the battle, but not the war. Not yet.

In deciding to stand pat on interest rates, the Federal Reserve cited many of the reasons that some vocal opponents of tighter credit—the “doves”—have advanced for keeping rates near zero.

The Fed acknowledged a troubled global economy and market turmoil have cast a shadow on both U.S. economic growth and inflation, still well below the Fed’s 2% target.

But these were tactical considerations. Janet Yellen, the Fed chairwoman, and her colleagues still think they’ll be ready to boost rates by the end of this year after the fog lifts from the global economy and markets...

Still, Fed officials remain more optimistic than the markets. Despite revising down their projected path of rate increases, they see rates rising by more than investors expect. By the end of 2017, the market thinks the Federal-funds rate will be just 1.25%, about half what Fed officials believes.
With Yellen's failure to hike rates last Thursday, she has revealed herself to be more G. William Miller than Paul Volcker.

It is unclear when Yellen will start to raise rates, but it is noteworthy that the mainstream is running four stories (on a weekend) suggesting the Fed was close to pulling the trigger. My view is that markets will eventually force Yellen to raise rates, if she doesn't do so on her own.

That said, I view the idea, that by the end of 2017 the Fed funds rate will only be at 1.25%, to be way off. I'm thinking 5% plus.

Sentance is correct here, a sharp spike upward in interest rates is very likely.



  1. I don't think they will let the bond market crash.

  2. Let's count some votes, shall we?

    "Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting."

    ONE dissenter vs MANY herd animals

    Whew! That was truly a "close call" !!!

    1. Thanks for the misdorection. Williams is the one that said it was close and he voted with the majority. You don't know how to even interpret these votes correctly. Why don't you go post over at CNBC, they would appreciate your idiocy.

    2. Meanwhile, Bullard argued for a rate hike, but voted against it.

      You mean, one should not compare the actions of men to what they say?

      And a true "close call" would tend towards a split vote, not a 9-1 vote. Please examine your brain wiring circuits for sabotage by brain worms. Thanks.

  3. Wenzel, the Fed is not going to raise rates. The next move is negative rates.

    1. This seems to be the next insane step of madmen and a mad woman. If rasing rates has an immediate connection to a multi-bubble crash, this directly hurts the FED immensly. Even the most economic ignorammuses could pin it on the Fed central planners. They despise blame for thier crimes. Negative rates here we come.

  4. Abolish cash to make way for worldwide "negative interest rates". Impossible to bank run. Sounds about right from an evil standpoint.

  5. And if you have a major asset bubble burst while rates are at their current level then raising rates will simply be out of the question. Canada is going through this now. They lowered interest rates twice as soon as a technical recession hit due to an oil price bust. Canada has no way it can survive rate hikes with out popping its housing market.

  6. "a sharp spike upward in interest rates is very likely" ..and needed. But do you think that these people got to where they are by doing the right thing? The Fed is as dependent on favorable public opinion as standing democratically elected governments. The Fed will do what's popular, you can forget about doing what's right.

  7. Thats it then. No rates rise til the new president is sworn in.

  8. "I'm thinking 5% plus"

    Interesting hypothesis. Certainly 5%+ is closer to a market rate. But you seem to neglect the national debt.

    A 5% rate hike across the yield curve would, as debt rolled over, start pushing the percentage of tax receipts needed to service the national debt from $430B to $1.322T. To come up with this extra $891B in interest, the Federal government would need to start raising taxes across the board by 1/3, start cutting the federal budget across the board by 1/4, or start defaulting on debt.

    Given the immediate catastrophic political and economic consequences resulting from any of these moves, I'm guessing the Fed governors on their own accord or if not via offer-you-can't-refuse prompting from politicians will fire up QE instead. Fight reassertion of market interest rates with printing press brute force.

    For self-interested politicians and Fed governors, national economic death by inflation after one's term of office has expired, blamable by future politicians on third parties/circumstances/foreign countries/wars, is far preferable than immediate personal career suicide.