Tag: Fed monetary policy

Is Data Dependency Dead At The Fed?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


While it was certainly gratifying to know that the Federal Reserve may, finally, be ready to raise interest rates and normalize monetary policy before the end of the year, its reason for doing so, elucidated after last week’s FOMC meeting and Janet Yellen’s press conference left me shaking my head. To put it in economic terms, it didn’t make a whole lot of sense, given the Fed’s past behavior.

As we all know by now, the Fed, as widely expected, left interest rates unchanged last week, but hinted strongly for the umpteenth time that it’s almost ready to raise rates, just not right now.

“The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” the post-meeting announcement said.

Yet, at the same time, the Fed lowered its estimate for U.S. economic growth this year to 1.8% from its June forecast of 2.0%, which is also its new long-term view of the economy. That’s certainly justified by the reports we’ve been getting the last several weeks, which show the economy slowing, not gaining strength, in the second half.

So why would the Fed say that the case for raising rates had “strengthened” even as it downgraded its view of the economy and most recent reports back that up? Continue reading "Is Data Dependency Dead At The Fed?" →

Top Five Reasons Why the Fed Won't Raise Rates This Month

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Eric Rosengren, the president of the Federal Reserve Bank of Boston, singlehandedly spooked the financial markets last Friday when he commented that “a reasonable case can be made” for the Fed to start raising interest rates soon, which traders and investors interpreted to mean as early as next week’s FOMC monetary policy meeting.

“If we want to ensure that we remain at full employment, gradual tightening is likely to be appropriate,” Rosengren said. “A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”

While I certainly don’t have any issue with what Rosengren said – I think the Fed should have started raising rates two years ago – I’m a little puzzled what exactly he said that put the markets to flight. He didn’t seem to say anything that other Fed officials, including Janet Yellen, hadn’t also said periodically recently, plus he didn’t offer any imminent schedule for raising rates. Yet that was apparently enough to get stock and bond traders to bail. Continue reading "Top Five Reasons Why the Fed Won't Raise Rates This Month" →

Same Old, Same Old From The Fed

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


If we’re to believe the financial press, there is at least a 50-50 chance the Federal Reserve will raise interest rates at its next meeting on September 20-21. I’ll believe it when it actually happens – but not a minute before then.

The Wall Street Journal story on the release of the minutes of the Fed’s July 26-27 meeting last week, written by its senior Fed watcher Jon Hilsenrath, said the Fed announcement “suggested a rate increase is a possibility as early as September, but that the Fed won’t commit to moving until a stronger consensus can be reached about the outlook for growth, hiring and inflation.”

But haven’t we heard that before? All the Fed did was provide more of the same “let’s wait and see what happens before we do anything” prevarications.

“Members generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labor market and economic activity,” the Fed minutes actually said. “Members judged it appropriate to continue to leave their policy options open and maintain the flexibility to adjust the stance of policy based on incoming information.”

Sound familiar? Continue reading "Same Old, Same Old From The Fed" →

The Bond Market Gets Curiouser and Curioser

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Sometimes the smartest thing is to do nothing.

This column has been pretty harsh on the Federal Reserve for its failure to start tightening monetary policy, as it sort of promised it would back in December. Since then, there’s been a steady stream of “yes we will, no we won’t” pronouncements from the Fed – both from the Fed itself and its individual members – that have left investors confused about the direction of U.S. monetary policy. Now, nine months later, the Fed has still not made the next move in “normalizing” interest rates.

A Reuters survey released last week found that 69 of 95 – that’s nearly three out of four – economists don’t expect the Fed to raise rates until December, after the presidential election, followed by two more hikes next year. We’ll see. Continue reading "The Bond Market Gets Curiouser and Curioser" →

When Did Market Stability Become A Fed Mandate?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


According to the Federal Reserve Act, in which Congress created the Federal Reserve System back in 1913, the U.S. central bank was given the following statutory objectives for conducting monetary policy: maximum employment, stable prices and moderate long-term interest rates.

The Fed has since given itself an additional mandate: market stability. Congress didn’t grant the Fed that power, but that seems to be the Fed’s overriding concern lately. In the process, it’s succeeded in creating what some very smart people believe is the biggest bond bubble of all time, and a pretty big one in equities, too. It’s pushed more and more of the country’s wealth into the pockets of the so-called 1%. It’s also given some people a false sense of financial security that the Fed has created a floor – a guaranteed return, if you will – under which investment returns will not be allowed to fall. Continue reading "When Did Market Stability Become A Fed Mandate?" →