{"id":2786,"date":"2016-02-25T10:49:45","date_gmt":"2016-02-25T17:49:45","guid":{"rendered":"http:\/\/financegourmet.com\/blog\/?p=2786"},"modified":"2016-02-25T10:49:45","modified_gmt":"2016-02-25T17:49:45","slug":"fed-telegraphs-slower-rate-hikes","status":"publish","type":"post","link":"https:\/\/financegourmet.com\/blog\/news\/economy-news\/fed-telegraphs-slower-rate-hikes\/","title":{"rendered":"Fed Telegraphs Slower Rate Hikes"},"content":{"rendered":"

The Federal Reserve, via its members, is out announcing that the rate hikes everyone was\u00a0sure<\/em> were coming this year, after the December interest rate increase<\/a> are, in fact, on hold, until the markets and the economy stop being so shaky.<\/p>\n

Fed Members Nudge Wall Street Off of Hike Forecasts<\/h3>\n

The St. Louis Fed President, James Bullard, said in an interview that rate hikes during 2016 were never a sure thing. He is right that the Fed often, and deliberately, said that rate hikes were dependent upon data going forward, but the markets didn’t believe them, pricing in a full 1% interest rate hike over 2016, and every analyst under the sun talking about a steady march up in interest rates.<\/p>\n

Bullard blames the previous Fed under Fed Chairman Bernanke for “mechanically” raising interest rates 17 straight times from 2004 to 2006 (and likely triggering the nationwide real estate slump that ended up all but crashing the U.S. banking system in 2007). He says that because of that chain of increases, everyone simply assumed that this year would have similar, albeit slower, rate increases.<\/p>\n

Bullard leaves out that many of the other current Fed members (including himself) could say often enough that rate increases were already too late, and that the first rate increase couldn’t possibly enough, and that they stood ready as super-duper inflation hawks to jack rates fast and often in order to save the economy from non-existent inflation.<\/p>\n

Check out this review of the Acorns app<\/a>.<\/em><\/p>\n

Now, we the global markets in turmoil, and the U.S. as pretty much the only fully upright economy, even those guys are starting to wonder if now is really the right time to add a little more break to a U.S. economy that has just started gaining speed.<\/p>\n

Hawks Are Not Better Than Doves<\/h3>\n

Most U.S. business schools still teach the evils of inflation, especially the runaway inflation of the 1980s as the worst possible thing that the Fed can let happen. Ironically, it seems the inflation of the 80s have largely gone the way of the gang-led drug wars of the 80s. That is, everyone still really worries about it, even though no one has really seen anything like it in the last two decades. This table of inflation rate driven increases in Social Security payments shows the truly scary inflation of the late 70s and early 80s, with the Boogeyman-style inflation since. (Source<\/a>\u00a0– Social Security Administration)<\/p>\n

\"inflation<\/a>
Social Security COLA increases<\/figcaption><\/figure>\n

One way to get a feel for inflation is to look as the cost of living (COLA) increases in Social Security<\/a>.\u00a0It was a big fat zero for 2016, because there was basically no inflation<\/em> at all in 2015. That makes you wonder why the Fed jumped out to raise rates in December at all. The reasoning is that they were trying to get ahead, Ahead of what, is anyone’s guess. I suppose a speeding train of inflation starting at zero was a possibility (*eyeroll*).<\/p>\n

The reality is that since 1990, the\u00a0annual inflation rate has never really gone above 5%, and that year (2007) was almost all due to oil prices, not due to inflationary economic pressures. It makes you wonder if inflation hawks are still relevant in this day and age, or if they just mess up the economy with their constant fear mongering. But, mostly because of those aging business professors, everyone on Wall Street thinks the hawks are the good guys and the doves are the bad guys.<\/p>\n

\"inflation<\/a>
What if there is no inflation? We can’t take that chance!<\/figcaption><\/figure>\n

Bullard, himself, has backed away from near-term rate increases because the labor market<\/a> isn’t looking hot enough to generate any inflation on its own.<\/p>\n

The rule of thumb at the Fed is if the job data tell a different story than the GDP data, go with the jobs data, Bullard said.<\/p><\/blockquote>\n

Either way, the futures markets now no longer price in another four quarter-point rate increases. In fact, as of today, it looks like no further increases are expected during 2016.<\/p>\n

The good news, is that current Fed Chairman Yellen should have all the credibility she needs going forward to at least get the markets to pause when she says that further increases will only come based on data, and right now, the data says, don’t mess with a (getting there) good thing.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

The Federal Reserve, via its members, is out announcing that the rate hikes everyone was\u00a0sure were coming this year, after the December interest rate increase are, in fact, on hold, until the markets and the economy stop being so shaky. Fed Members Nudge Wall Street Off of Hike Forecasts The St. Louis Fed President, James Bullard, said in an interview that rate hikes during 2016 were never a sure thing. He is right that the Fed often, and deliberately, said that rate hikes were dependent upon data going forward, but the markets didn’t believe them, pricing in a full 1% interest rate hike over 2016, and every analyst under the sun talking about a steady march up in interest rates. Bullard blames the previous Fed under Fed Chairman Bernanke for “mechanically” raising interest rates 17 straight times from 2004 to 2006 (and likely triggering the nationwide real estate slump that ended up all but crashing the U.S. banking system in 2007). He says that because of that chain of increases, everyone simply assumed that this year would have similar, albeit slower, rate increases. Bullard leaves out that many of the other current Fed members (including himself) could say often enough … <\/p>\n

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