Saturday, May 23, 2015

Is the Fed Telegraphing of Its Coming Rate Hike Because of Ron Paul?

In decades of monitoring Fed policy, I have never quite seen the telegraphing of a Fed rate hike, like the telegraphing that is going on ahead of the rate hike that is very likely to occur later this year.

WaPo reports on the latest telegraphing from Fed Chair Janet Yellen:
Federal Reserve Chair Janet Yellen on Friday reaffirmed the central bank’s plans to raise interest rates this year despite new concerns that the nation’s economic recovery may be slowing down.

In a speech in Rhode Island, Yellen dismissed disappointing data from earlier this year. Government figures showed growth came to a halt during the first quarter, and many private economists believe the revised numbers will show the economy actually contracted. Data for the second quarter suggests any rebound will be modest.

But Yellen expressed confidence that the recovery remains intact -- even if it is not as robust as Fed officials themselves once thought. And that would be enough for the Fed to begin reversing nearly a decade of easy money.

“Because of the substantial lags in the effects of monetary policy on the economy, we must make policy in a forward-looking manner,” Yellen said in prepared remarks. “Delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy.”

Yellen explicitly stated Friday that she expects the Fed will raise its benchmark interest rate this year, assuming the recovery proceeds as forecast.
Similar telegraphing is being done by Federal Reserve Vice-Chair Stanley Fischer.

Although it could be argued that there are policy reasons for prepping the markets ahead of a rate hike, I have to think that Ron Paul's call for an audit of the Fed has something to do with this quite remarkable policy transparency.

I believe the Fed wants to show that they are not operating mysteriously behind closed doors. Because of this transparency,Yellen will be able to point to Congress during future testimony and say that she was very clear about the coming rate hike...and thus there is no need to audit the Fed any more than it is already audited now.

My view is that focus should be more on stopping the Fed from printing more money (or ending the Fed) rather than any focus on auditing the beast, but this Fed transparency is an example of how ideas have consequences In this case, Ron Paul's idea to audit the Fed.

 -RW



8 comments:

  1. I understand that rates are artificially low and that they can not stay that way forever. What I don't understand is why they are planning to do it now ? (Or rather, this year?). What is the driving factor?

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    1. To save face. 6 years of ZIRP and QE. They said they weren't monetizng debt. If they can't even raise rates to 0.25%, the jig is up. Or maybe not, and the fed has found the monetary fountain of youth.

      Of course, maybe they're as dumb as they look, and they really think they've pulled off a real, sustainable recovery. They claim the magic unemployment number of 5.2%, and inflation moving towards 2% will be cause for a rate hike... Let's see.

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  2. And yet anytime Rand brings up Audit the Fed you give him grief. Your bias is showing Wenzel. Hilarious.

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    1. It's that or maybe you have a reading comprehension problem. Wenzel is making a point on how ideas have consequences. He clearly states:

      "My view is that focus should be more on stopping the Fed from printing more money (or ending the Fed) rather than any focus on auditing the beast, but this Fed transparency is an example of how ideas have consequences "

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    2. Yeah! RW! You hypocrite!!

      Oh wait...

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    3. No malcom, I don't have a reading comprehension problem. Is fed being more transparent about what its doing a good thing or a bad thing?

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    4. Yes really great goal, Fed transparency as they destroy the economy. Keep on working on that program.

      And, yes, you do have a reading comprehension problem. You are just misdirecting now.

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    5. Hahah OK. I'll take that to mean you view government transparency as a bad thing then. More hilarity from EPJ hypocrites.

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