Saturday, August 29, 2015

Why the Fed Will Likely Raise Interest Rates Soon

Federal Reserve Vice Chairman Stanley Fischer spoke today at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyoming.

He said that "the labor market is approaching our maximum employment objective."

He also said, however, that "inflation has been persistently below 2 percent. That has been especially true recently, as the drop in oil prices over the past year, on the order of about 60 percent, has led directly to lower inflation as it feeds through to lower prices of gasoline and other energy items. As a result, 12-month changes in the overall personal consumption expenditure (PCE) price index have recently been only a little above zero."

But he went on to say, “With inflation low, we can probably remove accommodation at a gradual pace. Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.”

Thus, it is extremely likely that either at the September 16-17 FOMC meeting or the October27-28 meeting, the Fed will raise rates by a small amount, most likely 25 basis points.

My one caveat to this forecast is if a US stock market crash or extremely volatile stock market, with much downside action, develops. As I am reporting in the EPJ Daily Alert, because of a recent slowdown in money supply growth, a stock market crash is possible, though not a certainty.



  1. Stanley Fischer is one hawk in a room full of doves. Higher Interest Rates won't happen.

  2. Steven Warrenfeltz, I agree with you.

  3. it won't happen b/c it has nothing to do with labor:

    Leveraged Financial Speculation to GDP in the US at a Familiar Peak, Once Again

    "I believe myriad global “carry trades” – speculative leveraging of securities – are the unappreciated prevailing source of finance behind interlinked global securities market Bubbles. They amount to this cycle’s government-directed finance unleashed to jump-start a global reflationary cycle.

    I’m convinced that perhaps Trillions worth of speculative leverage have accumulated throughout global currency and securities markets at least partially based on the perception that policymakers condone this leverage as integral (as mortgage finance was previously) in the fight against mounting global deflationary forces."

    Doug Noland, Carry Trades and Trend-Following Strategies

    Like a dog returns to its vomit, the Fed's speculative bubble policy enables the one percent to once again feast on the carcass of the real economy.
    'And no one could have ever seen it coming.'

    Do you think that Jamie bet Lloyd a dollar that they couldn't do it again?

    Once is an accident.

    Twice is no coincidence.

    Exactly what has changed since then?

    What will the third time be like? Should we ask them to please behave, levy some token fines, watch the politicans yell and posture in some toothless public hearings, let all of them keep their jobs and their bonuses? And then bail them out, wind up the old Victrola, and have another go at the same old thing again?

    Maybe we can vote for one of their chosen servants, or skip the middlemen and vote for one of the worst themselves, and hope they get tired of taking us for a ride.

  4. What if the elites know it will collapse the economy and will have another opportunity to buy assets cheap and expand gov control.

    They also need a reason to do QE.

    They also need to give China a reason to keep their treasuries by the huge gain the dollar is about to make when dollars are destroyed in this market collapse.

  5. Do these guys really believe their own politically manipulated stats? I wonder

  6. As soon as the market believes the Fed will raise rates, the market will tank. Then the raise will be off the table. If the Fed dissembles so that the actual rate hike is a surprise, the market will tank as soon as it is put in effect. Then the Fed will reverse it and start the next QE post haste.

    Saying the Fed will raise rates as long as the market does not tank is like saying there will be no prostitution next week as long as everyone keeps their members in their pants.The market will tank either before the rate hike (if it gets believable evidence the hike is coming) or immediately after the hike (where it has actual knowledge of the hike). Then the next QE to try to save things.