Wednesday, September 4, 2013

SF Fed Prez: No Interest Rate Hikes Until 2015

John C. Williams, President and CEO, Federal Reserve Bank of San Francisco, during a speech he delivered  today to Portland Community Leaders, said:
Based on my current forecast, I don’t expect the economy to reach 6½ percent unemployment until the first half of 2015, and I don’t expect the FOMC to raise rates until later that year. So monetary policy will continue to be extraordinarily stimulative for quite some time.
In reality, the FOMC makes decisions on a meeting by meeting basis. Williams' statement is pretty bold. Based on the  The Billion Prices Project @ MIT price inflation is already above the Fed's 2% target. It is hard to see how the inflation rate will stay tame into 2015. Furher, despite focus on whether the Fed will "taper" bond purchases, money supply growth (NSAM2) is already slowing rapidly. This is already forcing long-term rates higher


  1. Naturally, money supply growth would slow when the amount of bonds you're buying each month stays at a constant number (rather than a constant rate).

    1. You have no idea what you are talking about. The primary factor relative to growth is how much of the money, created by the Fed as super money, ends up as excess reserves.

      The second factor is whether money created by banks ends up as demand deposit money, where reserve requirements are higher, or as rime deposit money.

      There is nothing "natural" about your confused statement.

  2. If they keep the Fed funds rate at zero, but interest rates rise for the government's gigantic spending spree, what will Ben and his successor do? They can't shrink their balance sheet. They can't taper. In fact, they'll need to increase their asset purchases to keep a lid on this pressure cooker.

    Implode the economy now or kick the can and eventually ruin the dollar. That's the choice.