Saturday, October 3, 2015

Analyst: Fed Will Never Raise Rates

Chris Rupkey, chief financial economist at Mitsubishi UFJ Financial Group, in an email blast Friday wrote that "rates will never go up again."

This is completely absurd. You have to believe that the Fed can print money forever without price inflationary consequences or that, if price inflation does climb to 5%, 10%, whatever, that the Fed won't raise rates under these conditions. These scenarios make no sense.

The lack of fundamental; understanding of what the Fed can and can't control is quite stunning, even among some pretty good Austrian school thinkers. I named and discussed one in Friday's EPJ Daily Alert.

I have never seen such an across the board perspective in decades of watching markets. When the turn occurs, on rates and inflation, it is going to be spectacular. There is almost no one ready for it or believes it will happen quickly. It is going to take nearly everyone by surprise.



  1. But it's not going to happen this year.

  2. I'm not certain you're understanding what they mean when they say the Fed will never raise rates. They do not mean that the Fed will never be FORCED to raise rates. They simply mean the Fed will not raise them until the choice is no longer available. The market, in that sense, will be the one raising the rates, not the Fed. Very few, if any, Austrian thinkers would believe rates will never again rise. But it isn't unreasonable to think that the Fed will not purposely raise rates until the rates go up regardless of what the Fed does.

    1. No, this, for example, is waht Peter Schiff is saying ( :

      “The Federal Reserve caused all the problems that led to the 2008 financial crisis, and now they’ve made them all worse. So all they can do is keep interest rates at zero.

      "They’re setting up for another round of quantitative easing. People who think the Federal Reserve is finished printing money – they’re just getting started.”

      He also thinks we are still in a recession:

      “The economy has never been good. We’ve really been in a recession, I think, for the entirety of the recovery. I think the policies that the Federal Reserve has used to prop up the stock market and the real estate market have hurt the real economy. That’s why things are actually getting worse."

      1`. He appears to think that there is something special about QE, when it is just another method of increasing the money supply. 2. The money supply of late has been growing without QE, as I have pointed out before, watching QE is taking one's eye of the key factor money supply, which QE is just one subset of. 2. He seems to equate easy money with a zero rate policy and that is far, far from the case.

    2. @Unknown

      Please clearly indicate the mechanism of "force" you see markets bringing to bear on the Fed. What pain will the Fed feel, exactly, and why? If the Fed has a printing press and the will to use it arbitrarily, why could it not continue to buy bonds and other assets like stocks indefinitely?

      If you say Fed governors feel pain at the prospect of high inflation, I say think twice. They will just say it's "for the greater good to stimulate the economy during this time of economic malaise." As all governments that print money with abandon say. We've seen this movie before. We know how the story goes.

      Oh wait, maybe you think, "These Fed governors are the 'good guys.' They would never do that. This is America. This time it's different." :)

      Markets are playing with the Fed's tokens. It has utter and absolute control over those tokens. And legal tender laws compel use of the tokens in the U.S. The worst thing international markets could do is abandon using the tokens. Domestic markets are stuck with them if people want to stay out of jail. Markets don't force the Fed. The Fed forces markets.

    3. Not all increases in money supply are equal or uniform. The Fed wants more inflation. QE is a means to increase inflation far more quickly and directly. I'm not entirely sure why you do not think the federal reserve will use QE again. I think another round of QE will cause the inflation needed to force interest rates to rise.

    4. @Samuel Scott

      You have no idea what you are talking about. Most QE went into excess reserves which means it has not even entered the economy.

      ANY money entering the system results in more bidding for goods, there is nothing magic about QE.

  3. Fed Policy will soon be NIRP ... the days of ZIRP are over.
    Wall Street Daily reports on September 21, 2015 that The Fed Foreshadows Negative Interest Rates