POLL: Fed and interest rates

[shalab]

Impact of fed rate increase:

 

https://www.bloomberg.com/news/articles/2019-02-03/dollar-vortex-puts-chill-on-earnings-that-may-worsen-in-spring?srnd=premium

 

[John Hjorth]

CNBC [February 14^th 2019] : Watch CNBC's full interview with Federal Reserve Governor Lael Brainard.

[shalab]

We have inverted yield curve now - comparing 3 month treasury to the 10 year treasury

 

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

 

Fed still thinks they can have a rate hike in 2020

 

[thefatbaboon]

Continue to be amazed at the recklessness of Powell.  Pushing through those eight sequential hikes...especially the december one.  And then within a few days  he's speechifying in January and again now dialing it all back in the face of data that was already rather obvious to even the most casual observer. Clown

[Cardboard]

Yup! Went from 2 rate hikes in 2019, to data based driven, to none whatsoever in 3 months.

 

Then just before this latest decision goes on CBS 60 minutes to brag about himself and the rest of his academicians bunch.

 

This entire Fed is a joke. Really have no clue and as I said previously never orchestrated a soft landing in their entire history.

 

Cardboard

[Cigarbutt]

Yup! Went from 2 rate hikes in 2019, to data based driven, to none whatsoever in 3 months.

 

Then just before this latest decision goes on CBS 60 minutes to brag about himself and the rest of his academicians bunch.

 

This entire Fed is a joke. Really have no clue and as I said previously never orchestrated a soft landing in their entire history.

 

Cardboard

Read lately here and elsewhere:

-The Fed hasn't been able to engineer a strong recovery after the 2007-9 episode.

-The Fed has had a hard time managing the economy due to unforeseen circumstances.

-The Fed hasn't been able to stage a credible exit process.

 

In the last 20 years, most of positive stock returns have occurred around FOMC meetings, the GFC happened more than 10 years ago and, on a relative basis, the Fed had only started to decrease its balance sheet.

 

Question:

How have we come to rely so much on central planners?

[Spekulatius]

Recession would occur with and without the Fed. It looks like the yield curve inverses due to rates in the EU being inverses, not because the economy is too weak. I don’t see credit freezing up, nor do I see a recession. The only issue I see is that the Fed is talking about what they are going to do and it seems counterproductive. I suggest they do whatever they want to do and shut up about what they are intend to do in the future.

 

I personally like some volatility in the stock market. Another panik run this year would be great.

[Cardboard]

"Recession would occur with and without the Fed. "

 

Sure but, no need to add fuel to the fire as they do each and every time! Never noticed that they never seem to think about the dollar strength, what copper says, what other currencies and interest rates are?

 

"I personally like some volatility in the stock market. Another panik run this year would be great."

 

Feels to me like the Fed is a tool for the ultra wealthy to actually accentuate these panics. Maybe to overthrow some administrations as well. Bilderberg comes to mind:

 

https://www.independent.co.uk/news/world/europe/bilderberg-group-conspiracy-theories-secret-societies-new-world-order-alex-jones-a8377171.html

 

Cardboard

[shalab]

In addition, 70% on this board supported rate hikes. It shows how politics can turn ones head into cabbage, ala Munger.

 

Continue to be amazed at the recklessness of Powell.  Pushing through those eight sequential hikes...especially the december one.  And then within a few days  he's speechifying in January and again now dialing it all back in the face of data that was already rather obvious to even the most casual observer. Clown

[Spekulatius]

In addition, 70% on this board supported rate hikes. It shows how politics can turn ones head into cabbage, ala Munger.

 

Continue to be amazed at the recklessness of Powell.  Pushing through those eight sequential hikes...especially the december one.  And then within a few days  he's speechifying in January and again now dialing it all back in the face of data that was already rather obvious to even the most casual observer. Clown

 

Huh? What have the Fed hikes to do with politics ? Powell was chosen by Trump, by the way.

Anyways, I can’t see how  a 2.5% interest rates (real interest rate is 0.5-1% after inflation) can cause a problem. It sure seems to be a preferable situation Europe, where interesting rates are virtually nil and the economic is crawling to a halt nevertheless. My guess is that the recent drop in LT interest rates in The EU is caused by Brexit uncertainty, which is an exogenous event for the US.

 

I also note think that every value investor should love volatility.

[shalab]

Agreed with volatility being a friend of the investor. I am getting cash ready for the next event which could happen 3-6 months out.

 

However, USA interest rate hikes have implications beyond the immediate interest payment. E.g:, USDCAD is at 1.34. EURUSD is at 1.13. Given 50% of SP500 earnings are from abroad, this has implications on trade and investments.

 

In addition, 70% on this board supported rate hikes. It shows how politics can turn ones head into cabbage, ala Munger.

 

Continue to be amazed at the recklessness of Powell.  Pushing through those eight sequential hikes...especially the december one.  And then within a few days  he's speechifying in January and again now dialing it all back in the face of data that was already rather obvious to even the most casual observer. Clown

 

Huh? What have the Fed hikes to do with politics ? Powell was chosen by Trump, by the way.

Anyways, I can’t see how  a 2.5% interest rates (real interest rate is 0.5-1% after inflation) can cause a problem. It sure seems to be a preferable situation Europe, where interesting rates are virtually nil and the economic is crawling to a halt nevertheless. My guess is that the recent drop in LT interest rates in The EU is caused by Brexit uncertainty, which is an exogenous event for the US.

 

I also note think that every value investor should love volatility.

[Viking]

It really is surprising how quickly the economic data is turning compared to 3, 6, 9 and 12 months ago. Europe is slowing. Exports from China are slowing. And now US GDP is slowing, with expectations for Q1 now around 1%.

 

GDP growth in Canada in Q4 was barely positive and expectations are Q1 GDP will be negative; on a blended (Q4+Q1) basis the expectation is we could see a negative number.

 

The million dollar question: does this global slowdown continue in 2019? Or do we bottom in Q1 and see growth pick up in Q2 and rise into year end?

 

As has been posted by Spekulatius, i am also hoping for some volatility to take advantage of panic selling.

 

 

[shalab]

Looks like the fed is again not doing its job - "Central bank policy makers are looking for reasons to ignore the lack of upward pressure in consumer prices"

 

https://www.bloomberg.com/opinion/articles/2019-05-02/the-federal-reserve-s-inflation-message-is-muddled

 

[Spekulatius]

It really is surprising how quickly the economic data is turning compared to 3, 6, 9 and 12 months ago. Europe is slowing. Exports from China are slowing. And now US GDP is slowing, with expectations for Q1 now around 1%.

 

GDP growth in Canada in Q4 was barely positive and expectations are Q1 GDP will be negative; on a blended (Q4+Q1) basis the expectation is we could see a negative number.

 

The million dollar question: does this global slowdown continue in 2019? Or do we bottom in Q1 and see growth pick up in Q2 and rise into year end?

 

As has been posted by Spekulatius, i am also hoping for some volatility to take advantage of panic selling.

 

Looks like the US is doing nicely and China as re-accelerating. Europe is still slow and I don’t know about Canada. Mr. Market simply seems to have overreacted back in December.

[shalab]

Minneapolis Fed President Neel Kashkari said Thursday the bigger problem was how the Fed had conducted monetary policy this decade and not its current approach to targeting 2% inflation.

 

"Ms. Brainard's views illustrate how the central bank's center of gravity has shifted over time. While she was initially reluctant to lift rates, she said by last summer the Fed would need to raise them high enough to slow the economy given the expected boost from the tax cuts and federal spending increases.

 

Several officials last year had projected inflation would begin to rise above the 2% target even with continued rate increases. Now, officials are conceding their economic models may not be working as they did in the past. Inflation excluding volatile food and energy prices posted an annual gain of just 1.6% in March and 1.8% in January, according to the Fed's preferred measure.

 

...

 

Policy makers will never have perfect information on the real economy," he said in remarks in Santa Barbara, Calif. "But raising rates while inflation was low is an example of a shortcoming of how we implemented our framework rather than a shortcoming of the framework itself."

 

https://www.wsj.com/articles/feds-brainard-says-central-bank-should-welcome-modest-rise-in-inflation-11558023372

 

Fed admits its short comings

 

[TwoCitiesCapital]

It really is surprising how quickly the economic data is turning compared to 3, 6, 9 and 12 months ago. Europe is slowing. Exports from China are slowing. And now US GDP is slowing, with expectations for Q1 now around 1%.

 

GDP growth in Canada in Q4 was barely positive and expectations are Q1 GDP will be negative; on a blended (Q4+Q1) basis the expectation is we could see a negative number.

 

The million dollar question: does this global slowdown continue in 2019? Or do we bottom in Q1 and see growth pick up in Q2 and rise into year end?

 

As has been posted by Spekulatius, i am also hoping for some volatility to take advantage of panic selling.

 

Looks like the US is doing nicely and China as re-accelerating. Europe is still slow and I don’t know about Canada. Mr. Market simply seems to have overreacted back in December.

 

Not to say that it hasn't been wrong in the past, but Atlanta Fed GDP numbers are tracking at 1.6%. hardly a "re-acceleration". If that's what it prints at, it would prove a deceleration given slowing GDP while things like oil/inflation should be rising to support it.

[thefatbaboon]

Minneapolis Fed President Neel Kashkari said Thursday the bigger problem was how the Fed had conducted monetary policy this decade and not its current approach to targeting 2% inflation.

 

"Ms. Brainard's views illustrate how the central bank's center of gravity has shifted over time. While she was initially reluctant to lift rates, she said by last summer the Fed would need to raise them high enough to slow the economy given the expected boost from the tax cuts and federal spending increases.

 

Several officials last year had projected inflation would begin to rise above the 2% target even with continued rate increases. Now, officials are conceding their economic models may not be working as they did in the past. Inflation excluding volatile food and energy prices posted an annual gain of just 1.6% in March and 1.8% in January, according to the Fed's preferred measure.

 

...

 

Policy makers will never have perfect information on the real economy," he said in remarks in Santa Barbara, Calif. "But raising rates while inflation was low is an example of a shortcoming of how we implemented our framework rather than a shortcoming of the framework itself."

 

https://www.wsj.com/articles/feds-brainard-says-central-bank-should-welcome-modest-rise-in-inflation-11558023372

 

Fed admits its short comings

 

I’ve said this before but I think Brainard’s aboutface is possibly political. She’s a democrat and donor and she abandons a steadfast cautious position that she spoke to many times in public to support a whole series of hikes.  Obviously she could have changed her mind on the basis of changing  fundamental data but it doesn’t make sense to me as inflation never got to target.

[shalab]

Still having difficulty to admit they made a blunder in raising rates

 

https://finance.yahoo.com/news/fomc-fed-june-meeting-interest-rates-130018529.html

 

[Cigarbutt]

Still having difficulty to admit they made a blunder in raising rates

 

https://finance.yahoo.com/news/fomc-fed-june-meeting-interest-rates-130018529.html

In this race to the bottom, the US has a lot of room to maneuver in comparison to other pushing-on-a-string benchmarks:

--% of government debt with negative yields as of June 18, 2019 (total value 12T)--

Germany: 88%

Japan: 74%

Italy: 12%

At the end of May 2019, 20% of European investment-grade corporate debt had negative yields.

 

For those interested, here is a list of real-time tools to "Get Expert Insights to Manage FOMC-Related Event Risk".

https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

Interesting times.

[Spekulatius]

Othe then perhaps boosting asset prices, I don’t think the level of interest rates matter much at this point. 2.25%, 2%, 1.5% why would anyone care? What did Europe or Japan get for lowering interest rates to basically zero?

[shalab]

It matters for two reasons

  - foreign trade, the dollar is artificially high - this depresses us exports and boosts imports

  - yield curve - it is inverted - https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

  - negative yield curve slows down the economy or puts it in recession or both

Othe then perhaps boosting asset prices, I don’t think the level of interest rates matter much at this point. 2.25%, 2%, 1.5% why would anyone care? What did Europe or Japan get for lowering interest rates to basically zero?

[TwoCitiesCapital]

Othe then perhaps boosting asset prices, I don’t think the level of interest rates matter much at this point. 2.25%, 2%, 1.5% why would anyone care? What did Europe or Japan get for lowering interest rates to basically zero?

 

+1

 

 

Honestly, I agree with this. The cost of servicing the stock of debt is more deflationary than the inflationary impulse of the continues flow of new debt issuance. In other words, the marginal utility of new debt is exceeded by the additional cost of servicing that debt.

 

I think we need a Volker 2.0 - someone who will raise rates despite negative consequences.  Not to break the back of inflation, but to break the back of debt dependence to purchase every major item in a lifetime (i.e. and education, a home, a car, a standar of living, etc).

[thefatbaboon]

Still having difficulty to admit they made a blunder in raising rates

 

https://finance.yahoo.com/news/fomc-fed-june-meeting-interest-rates-130018529.html

 

The Wizard Powell. 

 

We have a "symmetric" target of 2% inflation. We raise preemptively 8 times before reaching this target as the data suggests we may reach this target at some point.  We never really reach the target and inflation expectations turn down. Question: so why aren't you cutting this meeting?  Because we are waiting for more persistent data. Someone needs to explain the words symmetry and target to this guy!   

 

Reflect for a minute on the last 12 months. The arrogance of this man is staggering.  Everything he says is contrary to what the rates markets are telling him at the time he says it. Think of this from a gambling point of view.  The bookmakers with all their trillions of $ at risk along all durations of the bond market expect a lower neutral rate, undershooting inflation and lower growth and believe that hitting 2% is unlikely and price trillions and trillions and trillions of bonds accordingly.  This wizard then repeatedly backs the long shot contrarian position: that the neutral rate is higher, and that inflation and growth will increase. Like most long shot gamblers he has been losing all his bets.  Ok, so this isn't ideal, it would be better if the guy wasn't always wrong.  But really more remarkable than all these lost long shot bets is that Powell has been walking into the bookies when HE DOESNT EVEN NEED TO.  He has a target of 2% he doesn't need to gamble on any outcomes until we hit 2% and spend some time symmetrically around it.  So not only do we have long-shot-larry running the Fed but he's compulsive and runs out to make these bets when he should be sitting quietly at home.

 

 

 

 

 

 

 

 

[RuleNumberOne]

Inflation between October 1997 and March 1999 was less than 2%.

 

Yet, the short rates were much higher than now. Wasn't enough to prevent the big stock market bubble.

 

Inflation exceeded 2% only in April 1999, and the 3-month yield then was 4.5%.

[TwoCitiesCapital]

Still having difficulty to admit they made a blunder in raising rates

 

https://finance.yahoo.com/news/fomc-fed-june-meeting-interest-rates-130018529.html

 

The Wizard Powell. 

 

We have a "symmetric" target of 2% inflation. We raise preemptively 8 times before reaching this target as the data suggests we may reach this target at some point.  We never really reach the target and inflation expectations turn down. Question: so why aren't you cutting this meeting?  Because we are waiting for more persistent data. Someone needs to explain the words symmetry and target to this guy!   

 

Reflect for a minute on the last 12 months. The arrogance of this man is staggering.  Everything he says is contrary to what the rates markets are telling him at the time he says it. Think of this from a gambling point of view.  The bookmakers with all their trillions of $ at risk along all durations of the bond market expect a lower neutral rate, undershooting inflation and lower growth and believe that hitting 2% is unlikely and price trillions and trillions and trillions of bonds accordingly.  This wizard then repeatedly backs the long shot contrarian position: that the neutral rate is higher, and that inflation and growth will increase. Like most long shot gamblers he has been losing all his bets.  Ok, so this isn't ideal, it would be better if the guy wasn't always wrong.  But really more remarkable than all these lost long shot bets is that Powell has been walking into the bookies when HE DOESNT EVEN NEED TO.  He has a target of 2% he doesn't need to gamble on any outcomes until we hit 2% and spend some time symmetrically around it.  So not only do we have long-shot-larry running the Fed but he's compulsive and runs out to make these bets when he should be sitting quietly at home.

 

I think this unfairly targets Powell.

 

In reality, any member of the FOMC is hugely arrogant to believe that they know better than the millions of market participants what rates should be. If they weren't arrogant, they'd let markets handle rates and call it a day.