Fed says U.S. economy strong enough to handle rate hike

[Zippyjuan]

Certain types, yep. Certain types that are highly vague and thus not as useful nor as actionable as you'd hope for a prediction to be, as an investor.



Pretty much! Just like everybody else! Rothbard's Law, you know. Nobody ever admits he was wrong. Certainly no economists do, and even fewer investment gurus. The sooner you realize that, the safer your money will be, in my opinion. Just expand your skepticism of the usefulness of Austrian economics as a basis for your investment decisions to all other schools of economics as well. Believe me, they're wrong just as often as the Austrians.

No matter how good of information you have, nobody can consistently predict what the economy will do in the future. If one could, they would be a trillionare.

[Ronin Truth]

No matter how good of information you have, nobody can consistently predict what the economy will do in the future. If one could, they would be a trillionare.

Like the Rothschilds?

[timosman]

Like the Rothschilds?

Banque des règlements internationaux

[PRB]

Like the Rothschilds?

No, like Peter Schiff and Ron Paul and Alex Jones. These people know everything.

[Zippyjuan]

(psst- a crash is coming- stock up on gold. Schiff will sell it to you. Jones will just sell you the gloom and doom).

[PRB]

(psst- a crash is coming- stock up on gold. Schiff will sell it to you. Jones will just sell you the gloom and doom).

get your facts straight. Jones will sell you the SOLUTIONS to doom and gloom. I'll be laughing at you from my bunker when the nucular apocalypse comes, tough guy, your government shill check won't buy you nucular protection.

[Bossobass]

(psst- a crash is coming- stock up on gold. Schiff will sell it to you. Jones will just sell you the gloom and doom).

Since Y2K:

Dow is up 170%. Gold is up 380%.

A boom is coming in the stock market, load up on stocks. Zip-it will tell you which stocks are sure things and will polish your (free with every recommended stock purchase) rose colored glasses while you read his glowing reports, furnished by Yellin.

[boneyard bill]

http://www.reuters.com/article/2015/...0OX2DX20150617




More at link.

My thoughts? They won't announce anything at their meeting next month which means September at the earliest for a announcement of any rate hikes (assuming they do happen before the end of the year- things are better but not sure they are quite strong enough yet). I would then expect at least a couple months between the announcement and any actual increases- which puts us into the holiday season- November or December. If it does not happen then, then we are talking March or April (given that first quarters have been the slowest of the year for the last several in a row). And if they do, it won't be much - probably a quarter of one percent.

I think it's all Kabuki. They don't want the world to think that they're going to do QE forever because that collapse confidence in the dollar. So they'll talk about raising rates. But they won't do anything significant. They might raise short term rates by 25 or 50 basis points, but in the meantime they will continue back-door QE on long term rates so the 10-year will remain well below 3%.

[timosman]

I think it's all Kabuki. They don't want the world to think that they're going to do QE forever because that collapse confidence in the dollar. So they'll talk about raising rates. But they won't do anything significant. They might raise short term rates by 25 or 50 basis points, but in the meantime they will continue back-door QE on long term rates so the 10-year will remain well below 3%.

End of QE would mean system collapse.

[Zippyjuan]

You are right- rate changes won't be significant. Even the Fed agrees that changes in interest rates (when they do finally happen) they will be small (in one report they suggest one tenth of a percent). Large changes would be a drag on the economy. You may want that if an economy is over-heating and inflation is a problem and you need to really try to slow it down but that is not our situation today. There is growth but it is slow- not booming- and inflation is very low.

What do you consider "back-door" QE? Unless they start buying long term US Treasuries again, they have little control over 10 year Treasury rates (which are currently yielding about 2.4%). http://www.treasury.gov/resource-cen...spx?data=yield

[Zippyjuan]

End of QE would mean system collapse.

Would it? Or rather, did it? QE ended October, 2014. Has the system collapsed?

http://www.forbes.com/sites/samantha...g-awaited-end/

10/29/2014 @ 2:24PM 15,878 views

Fed Ends QE, Perks Up Labor Market Outlook

$0 — that is how much the Federal Reserve will buy in mortgage and treasury bonds next month. As widely anticipated the Federal Open Market Committee announced the end of its multi-year asset purchases Wednesday.

In case you haven’t been watching, every month in 2013 the Federal Reserve purchased $85 billion worth of bonds, the peak of what was ultimately 37 months in a row of buying. The program, known as Quantitative Easing, was a key component of the central bank’s attempt to simulate job growth in an American economy that was still struggling to come back from the 2008 recession. After months of speculation brought on when then Fed Chair Ben Bernanke implied we might have been closer to the end of the program than the beginning, in December 2013 the FOMC cut monthly asset purchases to $75 billion kicking off the tapering process. The committee promised to keep a close eye on incoming economic data but told investors— barring significant changes to its outlook that the economy was moderately expanding — they should expect the same small measured cuts at subsequent meetings.

Despite occasional hiccups from one data set or another, the economy broadly has continued to improve. The Fed cut $10 billion from its asset purchases at each of its six meetings leading up to October. Buried on the tenth page of minutes chronicling the group’s June gathering was news the program would end with a $15 million cut following the October meeting.

That brings us to today.

In space the statement once reserved for details on how much the Fed would spend on a given asset (mortgage back securities or longer-term Treasury securities) compared to the prior month, it now reads:

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.”

[Occam's Banana]

You are right- rate changes won't be significant. Even the Fed agrees that changes in interest rates (when they do finally happen) they will be small (in one report they suggest one tenth of a percent). Large changes would be a drag on the economy. You may want that if an economy is over-heating and inflation is a problem and you need to really try to slow it down but that is not our situation today. There is growth but it is slow- not booming- and inflation is very low.

//

[boneyard bill]

End of QE would mean system collapse.

That's the bind that the Fed is in. They cannot admit that they're going to print money forever because confidence in the dollar would implode. Already, we're having difficulty finding buyers of Treasury securities, and China has now even begun to un-load some of their holdings. They're down from 1.2 trillion to $900 billion. If the prospect is that we will simply keep printing, that would be disturbing to buyers. So they have to act like they have a balanced policy.

Ultimately, we're going to see a collapse anyway. The Fed just has the finger in the dike. But the dollar is strengthening. Admittedly, this is due largely to the weakness of other currencies. (As Steve Forbes put it, the dollar is the best horse in the glue factory). Nevertheless, I also find it hard to think that the Fed would raise interest rates, which would strengthen the dollar even more, in the face of an already strong dollar. So either they'll do nothing at all, or they'll make a token move, but my guess is they will do nothing at all in September while announcing that they are still following the situation closely.

[boneyard bill]

You are right- rate changes won't be significant. Even the Fed agrees that changes in interest rates (when they do finally happen) they will be small (in one report they suggest one tenth of a percent). Large changes would be a drag on the economy. You may want that if an economy is over-heating and inflation is a problem and you need to really try to slow it down but that is not our situation today. There is growth but it is slow- not booming- and inflation is very low.

What do you consider "back-door" QE? Unless they start buying long term US Treasuries again, they have little control over 10 year Treasury rates (which are currently yielding about 2.4%). http://www.treasury.gov/resource-cen...spx?data=yield

Back door QE is when the Fed gets someone else to buy US Treasuries and then reimburses them in some way. There have been quite a few suspicious large bond purchases, for example, in Belgium and Luxembourg lately. These purchases approach the entire GDP of Belgium and dwarf the GDP of Luxembourg, so they obviously are not being done by residents. There are foreign brokers using the banking facilities in these countries to buy these bonds. If you could trace the source of the money back to it's origins, you find out that it came from the exchange stabilization fund which is run by the Fed.

I don't know that the Fed is actually doing this, but there has been no significant increase in bond yields since the Fed officially stopped QE and certainly that is what you would expect when such a large buyer exits the market.

I think the reality is that most markets, especially financial markets, are pretty much rigged by the governments and central banks of the US, Europe, and Japan.

[Warrior_of_Freedom]

mmm lots of 20 hour a week jobs out there, good enough to pay half your bills

[boneyard bill]

Would it? Or rather, did it? QE ended October, 2014. Has the system collapsed?

http://www.forbes.com/sites/samantha...g-awaited-end/

They want from $85 billion a month to nothing. Not actually. 40% of that was mortgage backed securities and 60% was US Treasuries. Nevertheless, they went from nearly $50 billion a month in purchases to nothing at all and bond yields barely budged. Surely, you should expect a spike interest rates when that happens. Yet none occurred. It makes me think that QE has never ended.

Also, consider the risk of ending QE. If interest rates spike, bond prices collapse. Lots of banks and financial institutions would become insolvent. We would then get a massive deleveraging. It would be the mother of all economic collapses. So I don't think the Fed would risk it. I don't think QE ever ended. They're still doing it by covert means.

Of course, we're still going to get that collapse. Paying off debt is one form of deleveraging. A far more potent one is default or bankruptcy, and there are loads of them out there just waiting the to happen. Start with the big Wall Street banks. The Fed is trying to save the banks. They don't care about the public.

But a collapse is a good thing. The damage has been done and the repair must begin. So a collapse will allow a rebuilding which should happen fairly quickly if the government stays out of the way.

[Zippyjuan]

Back door QE is when the Fed gets someone else to buy US Treasuries and then reimburses them in some way. There have been quite a few suspicious large bond purchases, for example, in Belgium and Luxembourg lately. These purchases approach the entire GDP of Belgium and dwarf the GDP of Luxembourg, so they obviously are not being done by residents. There are foreign brokers using the banking facilities in these countries to buy these bonds. If you could trace the source of the money back to it's origins, you find out that it came from the exchange stabilization fund which is run by the Fed.

I don't know that the Fed is actually doing this, but there has been no significant increase in bond yields since the Fed officially stopped QE and certainly that is what you would expect when such a large buyer exits the market.

I think the reality is that most markets, especially financial markets, are pretty much rigged by the governments and central banks of the US, Europe, and Japan.

Belgium is the financial center of Europe. New economic regulations kicked in requiring higher quality collateral on loans - and US Treasuries were considered the best collateral. They are not owned by the government of Belgium but are held in trust by financial institutions there in exchange for loans.

From the Financial Times:

http://www.ft.com/intl/cms/s/0/a1de1...#axzz3hioNjpQo

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/a1de1546-c...#ixzz3hiomyGYB

A further explanation for the rise of Belgium as a big Treasury holder is financial reform that requires the greater use of top-rated government debt as collateral for derivatives trades.

Euroclear, which holds more than €22tn in assets under custody, confirmed that the volume of US Treasuries it holds had “gone up dramatically” in recent months.

Traders say Euroclear is renowned for its sophisticated collateral management system, which helps global investors move bonds to various clearing houses around the world.

US Treasury paper is the largest and most liquid of “safe” collateral used to backstop the financial system. Indeed, since the financial crisis, the amount of outstanding US Treasury debt has nearly tripled to $12tn, creating a vast pool of collateral for the global financial system.

[Zippyjuan]

They want from $85 billion a month to nothing. Not actually. 40% of that was mortgage backed securities and 60% was US Treasuries. Nevertheless, they went from nearly $50 billion a month in purchases to nothing at all and bond yields barely budged. Surely, you should expect a spike interest rates when that happens. Yet none occurred. It makes me think that QE has never ended.

Also, consider the risk of ending QE. If interest rates spike, bond prices collapse. Lots of banks and financial institutions would become insolvent. We would then get a massive deleveraging. It would be the mother of all economic collapses. So I don't think the Fed would risk it. I don't think QE ever ended. They're still doing it by covert means.

Of course, we're still going to get that collapse. Paying off debt is one form of deleveraging. A far more potent one is default or bankruptcy, and there are loads of them out there just waiting the to happen. Start with the big Wall Street banks. The Fed is trying to save the banks. They don't care about the public.

But a collapse is a good thing. The damage has been done and the repair must begin. So a collapse will allow a rebuilding which should happen fairly quickly if the government stays out of the way.

The Fed did not suddenly stop buying large amounts of securities- as you note, that would have caused a spike in interest rates which they did not want. Instead, they used what they called "the taper" where the amount they purchased was reduced gradually- by $ 10 billion a month until it got to zero (actually the final month's purchases were $15 billion).

Sample report: http://www.cbsnews.com/news/federal-...ering-program/

"As expected, the near-stagnation in first-quarter GDP growth wasn't enough to prevent the Fed from tapering its asset purchases by an additional $10 billion, to $45 billion per month," said Paul Ashworth, chief U.S. economist, in a client note

[helmuth_hubener]

Two parts arsenic, one part gallium, juuust a touch of vanilla, a tablespoon of nitroglycerin...

Or wait, was that a teaspoon?

[devil21]

Gotta have an excuse for the planned stock market crash.

[helmuth_hubener]

Gotta have an excuse for the planned stock market crash.

Was this the thread you wanted me to reply to, devil21? If so, what did you want me to say?