The Fed is heading for another catastrophe - page 8
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Martin Armstrong Warns: The Fed Just Made The Same Mistake As It Did In 1927
The Federal Reserve yielded to international pressure making the very same mistake that it made during 1927.
Back then, there was a secret meeting and the Fed agreed to lower US rates to try to help Europe and thereby deflect capital inflows back to Europe.
The exact opposite unfolded in the aftermath and even more money abandoned Europe and flowed directly into the US share market.
In 1927, the Fed lowered US rates to try to help Europe which was then in the middle of an economic debt crisis the same as today.
It is very curious how history repeats and we have just witnessed the Fed yield to international pressure once again. In doing so, they are condemning US pension funds as well as the elderly to financial doom setting in motion the next financial crisis.
The FED is the catastrophe. They have no idea what are they doing
The FED is the catastrophe. They have no idea what are they doing
Oh they have
Next thing to do : QE4 (to please the bosses). The rest does not matter
BILL GROSS TO THE FED: Raise rates now!
Janus' Bill Gross thinks the Fed needs to raise rates now.
In his latest monthly investment outlook, the legendary bond manager urges the Federal Reserve to raise interest rates for the sake of the US economy's long-term health.
Directly addressing the Fed, Gross writes:
My advice to them is this: get off zero and get off quick. Will 2% Fed Funds harm corporate America that has already termed out its debt? A little. Will stock and bond prices go down? Most certainly. But like Volcker recognized in 1979, the time has come for a new thesis that restores the savings function to developed economies that permit liability based business models to survive — if only on a shoestring — and that ultimately leads to rejuvenated private investment, which is the essence of a healthy economy. Near term pain? Yes. Long term gain? Almost certainly. Get off zero now!
This is Gross' first investment outlook since the meeting last week in which the Fed elected to keep interest rates pegged near 0%, which is where they have been since December 2008.
About half of Wall Street economists expected the Fed to raise rates, with many arguments making a similar point to what Gross has urged on Wednesday — namely, that the Fed's 0% interest-rate policy is the thing holding back the economy, not just now but over the long-term.
The last time we heard from Gross, he was telling folks that basically everything was terrible (at least regarding investing returns).
And on this front, things haven't changed much.
In short, Gross thinks the Fed is ruining capitalism.
source
Stop 'Overreacting' to China, Look at US Strength: Fed Lockhart
Speaking at an event in Georgia's capital, Federal Reserve (Fed) Bank of Atlanta President Dennis Lockhart repeated that he will likely support a Fed interest rate hike this year.
Lockhart believes that the world has been overreacting to the slowdown and the recent market turbulence in China and the following volatility in global financial markets.
"China is slowing to still a very respectable pace of growth. It is ratcheting down a little bit, but there is a decent chance that the world is overreacting," he said, adding that it will take some time to fully understand the ongoing processes in the major world economic power.
Disappointing Chinese manufacturing data on Wednesday contributed to another drop in US markets, in line with previous data that contributed to the Fed's decision last week to delay a rate increase.
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This Alan Greenspan speech from 2004 holds the key to understanding how the Fed thinks about the world
If we want to understand what the Federal Reserve might do in the future, we need to look to the past.
In an email on Thursday, Neil Dutta at Renaissance Macro highlighted a 2004 speech from then-Federal Reserve chairman Alan Greenspan, who explained the Fed's rationale for cutting interest rates in 1998 amid a Russian debt crisis but an apparently strong and sound US economy.
The key quote from Greenspan is that back in 1998, the Fed judged, "The product of a low-probability event and a potentially severe outcome was judged a more serious threat to economic performance than the higher inflation that might ensue in the more probable scenario."
What this is basically saying is that the risks were, in economics speak, "weighted to the downside." This means the Fed judged it had the potential to make a bigger mistake by probing for answers on just how strong the economy was rather than assuming the economy — both in the US and otherwise — could be aided by easier monetary policy.
Last week, the Fed elected to keep interest rates pegged near 0%, where they've been for nearly seven years, despite a US labor market that appears close to meeting the Fed's goals and an economy that, overall, is as strong as it's been since the financial crisis.
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As usual - FED was all promisses
There will be no rate hike this year and that will be priced in very soon
Fed officials seem ready to deploy negative rates in next crisis
Federal Reserve officials now seem open to deploying negative interest rates to combat the next serious recession even though they rejected that option during the darkest days of the financial crisis in 2009 and 2010.
“Some of the experiences suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate,” said William Dudley, the president of the New York Fed, in an interview on CNBC on Friday.
The Fed under former chairman Ben Bernanke considered using negative rates during the financial crisis, but rejected the idea.
“We decided — even during the period where the economy was doing the poorest and we were pretty far from our objectives — not to move to negative interest rates because of some concern that the costs might outweigh the benefits,” said Dudley.
Bernanke told Bloomberg Radio last week he didn’t deploy negative rates because he was “afraid” zero interest rates would have adverse effects on money markets funds -- a concern they wouldn’t be able to recover management fees -- and the federal-funds market might not work. Staff work told him the benefits were not great.
But events in Europe over the past few years have changed his mind. In Europe, the European Central Bank, the Swiss National Bank and the central banks of Denmark and Sweden have deployed negative rates to some small degree.
“We see now in the past few years that it has been made to work in some European countries,” he said.
“So I would think that in a future episode that the Fed would consider it,” he said. He said it wouldn’t be a “panacea,” but it would be additional support.
In fact, Narayana Kocherlakota, the dovish president of the Minneapolis Fed, projected negative rates in his latest forecast of the path of interest rates released last month.
Kocherlakota said he was willing to push rates down to give a boost to the labor market, which he said has stagnated after a strong 2014.
Although negative rates have a “Dr. Strangelove” feel, pushing rates into negative territory works in many ways just like a regular decline in interest rates that we’re all used to, said Miles Kimball, an economics professor at the University of Michigan and an advocate of negative rates.
But to get a big impact of negative rates, a country would have to cut rates on paper currency, he pointed out, and this would take some getting used to.
For instance, $100 in the bank would be worth only $98 after a certain period.
Because of this controversial feature, the Fed is not likely to be the first country that tries negative rates in a major way, Kimball said.
But the benefits are tantalizing, especially given the low productivity growth path facing the U.S.
With negative rates, “aggregate demand is no longer scarce,” Kimball said.
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They decided "not to move to negative interest rates"? WTF?
Fed's Fischer says 2015 US rate rise "an expectation, not a commitment"
U.S. Federal Reserve policymakers are still likely to raise interest rates this year but that is "an expectation, not a commitment", and could change if the global economy pushes the U.S. economy further off course, Federal Reserve Vice Chairman Stanley Fischer said.
"Both the timing of the first rate increase and any subsequent adjustments to the federal funds rate target will depend critically on future developments in the economy," Fischer told a group on the sidelines of the International Monetary Fund meeting in Peru.
He said "considerable uncertainties" surrounded the U.S. economic outlook, particularly the drag on exports from slowing global growth, low investment caused by the decline in oil prices and what he called a "disappointing" recent drop in U.S. job growth.
He said he felt the U.S. economy was still generating enough jobs to continue making progress towards the Fed's goal of maximum employment and that inflation would eventually rise. Based on that, he said, the U.S. central bank should be able to keep on track with an initial rate hike expected in October or December.
But he also cautioned the group that the United States is now more exposed than ever to international events and that developments in China and elsewhere had already influenced the Fed to delay a widely expected rate increase in September.
"We do not currently anticipate that the effects of these recent developments on the U.S. economy will prove to be large enough to have a significant effect on the path for policy," he said. "That said, recent employment reports have been somewhat disappointing and, as always, we are closely monitoring developments that could affect our sense of the economic outlook and the risks surrounding that outlook."
Fischer was speaking on the sidelines of an IMF meeting where some other central bankers were encouraging the Fed to eliminate uncertainty and move forward with their rate "lift-off."
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