US Fed bluffs at interest rate hike

[Mr. Ambien]

For months the Fed has been hyping this interest rate increase. As per the usual, they were bluffing:

WASHINGTON (AP) The Federal Reserve is keeping U.S. interest rates at record lows in the face of threats from a weak global economy, persistently low inflation and unstable financial markets.

Ending a highly anticipated meeting, Fed officials said Thursday that while the U.S. job market is solid, global pressures may restrain economic activity and further drag down already low inflation.

Signs of a sharp slowdown in China have intensified fear among investors about the U.S. and global economy. And low oil prices and a high-priced dollar have kept inflation undesirably low.

Before years end, many analysts still expect the Fed to raise its key short-term rate, which its kept near zero since 2008. A higher Fed rate would eventually send rates up on many consumer and business loans.

Financial markets had been zigzagging with anxiety as investors tried to divine whether the Fed would start phasing out the period of extraordinarily low borrowing rates it launched at a time of crisis.

The Feds action Thursday was approved on a 9-1 vote, with Jeffrey Lacker casting the first dissenting vote this year. Lacker, president of the Feds Atlanta regional bank, had pushed for the Fed to begin raising rates by moving the federal funds rate up by a quarter-point.

Instead, the Fed retained language it has been using that it will be appropriate to raise interest rates when it sees some further improvement in the labor market and is reasonably confident that inflation will move back to the Feds optimal inflation target of 2 percent.

The Feds preferred measure of inflation was up just 1.2 percent in the latest reading and has been below 2 percent for more than three years.

In an updated economic forecast, 13 of the 17 Fed policymakers said they see the first rate hike occurring this year. In June, 15 Fed officials predicted that the first rate hike would occur this year. The forecast also reduced the number of rate hikes this year to show an expectation of just one quarter-point increase, rather than two that had been the expectation at the June meeting.

The new forecast significantly lowered the expectation for inflation this year to show the Feds preferred inflation gauge rising just 0.4 percent, down from a 0.7 percent forecast in June. The change takes into account the further rise in the value of the dollar, which makes imports cheaper, and a recent drop in oil prices. The Feds forecast still foresees inflation accelerating to a 1.7 percent increase next year, still below its 2 percent target.

The new forecast has unemployment dropping to 5 percent by the end of this year, down from 5.3 percent in June. The unemployment rate in August dropped to a seven-year low of 5.1 percent.

Before Thursdays decision, some economists argued that many factors from a sharply slowing China to the tumult in markets to persistently less-than-optimal inflation raised concerns about a rate hike. Others contended that with the U.S. job market considered essentially recovered from the Great Recession, it was time to start edging toward normal rates.

The anxiety that gripped investors stemmed in part from concern that once the Fed starts raising its key rate, other rates for mortgages, car loans, business borrowing will eventually rise. Some fear the economy might suffer.

Yet the Feds influence on many consumer and business rates is only indirect. In the short run at least, those rates could continue to stay low, held down by low inflation globally and by a flow of money into U.S Treasurys.

Fed officials have stressed that once the central bank starts raising rates, the process will be extremely gradual. The Fed might pause for months after its first hike and assess the consequences before proceeding further. Still, economists generally say the effects of a series of small rate hikes will be negligible.

Until turmoil struck markets this summer, a September rate hike seemed a lock. Then, Chinas surprise decision to devalue its currency ignited fears that the worlds second-largest economy was weakening faster than assumed. Stocks tumbled.

At an economic conference last month in Jackson Hole, Wyoming, Fed officials sent mixed signals about this weeks meeting. Some indicated they were ready to raise rates if markets had settled and if the economy kept improving.

http://www.breitbart.com/big-government/2015/09/17/federal-reserve-decides-not-to-hike-interest-rates/

And of course, Peter Schiff called their bluff:

I think Schiff hits it spot on.

The concept of the low interest rates and the QE stimulus was to help the US economy achieve an "escape velocity" in the market that could allow them to normalize interest rates, as I'm sure most of you are aware 0% interest is not in the remotest sense normal or healthy. The Keynesian thought is, you can have all this government intervention and stimulus and wind up with a normal recovery that can sustain itself without said stimulus. Obviously this is just another example that you can't.

Raising interest rates is, for the US, seen as an indicator that it's economy is healthy, this bluff should lift the veil off for more people investing in the US that this is all a sham. You can't get recovery by this kind of stimulus. It's just delaying a recession that's supposed to happen so the market can normalize itself according to real demand, instead of stimulus.

[nuckin_futz]

I don't see how the Fed was "bluffing".

Yellen hasn't made one public comment in more than 60 days. Even during the recent market turmoil she was silent. Plus you have Fed governors like Kocherlakota who is always vocal about his desire for no hike.

The Fed has always said they are data dependent and have a 2% inflation target.

While unemployment has normalized, wages have not. Inflation is non existent (as it is in Japan and Europe). So no hike was expected by all but the most hawkish/fool hardy.

[ronthecivil]

A little over the top reaction don't you think?

If the rates aren't raised by the end of the year you might be on to something. Until then.....

[Mr. Ambien]

A little over the top reaction don't you think?

If the rates aren't raised by the end of the year you might be on to something. Until then.....

Did you watch the video?

What makes you think they can?

It's evident the US government and Fed are utterly scared of any recessions. That's why the tease of rising interest rates.

The notion of "escape velocity" through QE and ZIRP is as phony as "trickle down" supply side economics. It's just an excuse for dangerous short term profits for long term damage.

[ronthecivil]

Did you watch the video?

What makes you think they can?

It's evident the US government and Fed are utterly scared of any recessions. That's why the tease of rising interest rates.

The notion of "escape velocity" through QE and ZIRP is as phony as "trickle down" supply side economics. It's just an excuse for dangerous short term profits for long term damage.

Yes. I watched it twice in fact.

There's two reasons that they have too.....

If you follow Shiff's reasoning, eventually the market will call itself. The fed can't bluff forever.

Also, while the last time the market blew up in 2008 a lot of things were out of whack, now the (US) economy is doing ok. And while the government is way in debt, the population and companies have deleveraged themselves a lot. So there's not nearly the bubble that Shiff sees.

Secondly, they have a huge amount of programs and savings things like social security that rely on higher interest rates that they need to rescue.

But most importantly for all you gold bugs out there......

If the price of gold is going through the roof, that means inflation, and then they will HAVE to raise them. Even in a recession. The US survived stagflation in the late 70s, they can do so again. History likes to repeat itself.

Rates cannot stay zero forever because NO ENTITY CAN CONTROL THE ECONOMY NO MATTER HOW HARD THEY TRY!!!!!

[Mr. Ambien]

Yes. I watched it twice in fact.

There's two reasons that they have too.....

If you follow Shiff's reasoning, eventually the market will call itself. The fed can't bluff forever.

Also, while the last time the market blew up in 2008 a lot of things were out of whack, now the (US) economy is doing ok. And while the government is way in debt, the population and companies have deleveraged themselves a lot. So there's not nearly the bubble that Shiff sees.

Secondly, they have a huge amount of programs and savings things like social security that rely on higher interest rates that they need to rescue.

But most importantly for all you gold bugs out there......

If the price of gold is going through the roof, that means inflation, and then they will HAVE to raise them. Even in a recession. The US survived stagflation in the late 70s, they can do so again. History likes to repeat itself.

Rates cannot stay zero forever because NO ENTITY CAN CONTROL THE ECONOMY NO MATTER HOW HARD THEY TRY!!!!!

There's a far bigger problem with the economy correcting itself even with these terrible stimulus policies in place..

It becomes a currency problem.

This affects Americans enormously, because their income would be in paper and worthless, whereas the wealthy people who gained from short term already have plenty of tangible assets (that can be converted to liquid regardless of fiat) to nullify any currency problems that would result.

The people that would suffer from such a disaster are not the wealthy, that's why Schiff has been so adamant about reversing course. This does not benefit him at all really (a healthier dollar means gold becomes less valued -- and Schiff is a major gold hoarder). He wants to invest more in the US economy, he wants to see the US succeed. He, like me, sees the path the US is headed down, and it's not a lesson you want to see people you grew up with and lived around have to go through.

[ronthecivil]

There's a far bigger problem with the economy correcting itself even with these terrible stimulus policies in place..

It becomes a currency problem.

This affects Americans enormously, because their income would be in paper and worthless, whereas the wealthy people who gained from short term already have plenty of tangible assets (that can be converted to liquid regardless of fiat) to nullify any currency problems that would result.

The people that would suffer from such a disaster are not the wealthy, that's why Schiff has been so adamant about reversing course. This does not benefit him at all really (a healthier dollar means gold becomes less valued -- and Schiff is a major gold hoarder). He wants to invest more in the US economy, he wants to see the US succeed. He, like me, sees the path the US is headed down, and it's not a lesson you want to see people you grew up with and lived around have to go through.

How in the world could the US have a currency problem? Sure, their income is in US dollars. But then again, so are their DEBTS.....

It's the fabled middle finger to China move. The more they manipulate their currency, the closer the US comes to just printing out a couple trillion dollars, putting it in a briefcase, and pushing it across the table at a meeting with the Chinese. Problem solved, even Steven!

Besides, where's the guarantee of a recession. Not sure if Shiff missed this, but the US did indeed massively deleverage themselves since 2008. Both their industry and their population. Their government, not so much, but the problem to fix that is more political than anything....

Now, if you want to talk about Canada, where we have balanced (or close enough) budgets both federally and provincially, yet the population is at super duper record levels of debt, in that case, you might have a potential problem on the horizon!

Now clearly it would be better to have a situation where neither is having trouble balancing the books, but what one do you honestly think is in more trouble?

[Mr. Ambien]

How in the world could the US have a currency problem? Sure, their income is in US dollars. But then again, so are their DEBTS.....

It's the fabled middle finger to China move. The more they manipulate their currency, the closer the US comes to just printing out a couple trillion dollars, putting it in a briefcase, and pushing it across the table at a meeting with the Chinese. Problem solved, even Steven!

Besides, where's the guarantee of a recession. Not sure if Shiff missed this, but the US did indeed massively deleverage themselves since 2008. Both their industry and their population. Their government, not so much, but the problem to fix that is more political than anything....

Now, if you want to talk about Canada, where we have balanced (or close enough) budgets both federally and provincially, yet the population is at super duper record levels of debt, in that case, you might have a potential problem on the horizon!

Now clearly it would be better to have a situation where neither is having trouble balancing the books, but what one do you honestly think is in more trouble?

There's way too much to go over here, but the things I will point out relate to:

- Corporate asset investment, versus aging assets and stock buybacks.. business is not sound in the US, people are just under the illusion that it is because they look at stock prices and superficial trends and nothing beyond that

- The only reason the Greenback has reserve currency status is because of the other major currencies, besides perhaps the pound sterling, are under Central Banks that do just as much stupid stuff as the Fed does

- Once investors realize the US can't and won't pay back it's debt obligations, they stop investing, creditors stop getting their money, they stop investing in US bonds, the Fed has absolutely no choice but to either skyrocket interest rates, or print money like crazy and hope the currency survives

The illusion is, with this currency, how long people buy into it. People don't seem to realize how dangerously vulnerable the US is. They are a house of cards waiting to fall.

News of the Fed is further proof the US has ZERO interest in doing the right thing for their people and long term, including currency survival. They know how fragile the US economy is, and that's with all this debt financed stimulus holding it up. I'm more amazed that more people don't see this. People are just stuck with "hurr durr the news says the Dow Jones is up 500 points, the US economy and fundamentals are great".

Then they go home and piss and moan about rich people, increasing wealth gaps, etc., because the economy doesn't "feel" like it's doing better. They ignore all their instincts and follow along with the drunk stock market mentality.

[Alflives]

There's way too much to go over here, but the things I will point out relate to:

- Corporate asset investment, versus aging assets and stock buybacks.. business is not sound in the US, people are just under the illusion that it is because they look at stock prices and superficial trends and nothing beyond that

- The only reason the Greenback has reserve currency status is because of the other major currencies, besides perhaps the pound sterling, are under Central Banks that do just as much stupid stuff as the Fed does

- Once investors realize the US can't and won't pay back it's debt obligations, they stop investing, creditors stop getting their money, they stop investing in US bonds, the Fed has absolutely no choice but to either skyrocket interest rates, or print money like crazy and hope the currency survives

The illusion is, with this currency, how long people buy into it. People don't seem to realize how dangerously vulnerable the US is. They are a house of cards waiting to fall.

News of the Fed is further proof the US has ZERO interest in doing the right thing for their people and long term, including currency survival. They know how fragile the US economy is, and that's with all this debt financed stimulus holding it up. I'm more amazed that more people don't see this. People are just stuck with "hurr durr the news says the Dow Jones is up 500 points, the US economy and fundamentals are great".

Then they go home and piss and moan about rich people, increasing wealth gaps, etc., because the economy doesn't "feel" like it's doing better. They ignore all their instincts and follow along with the drunk stock market mentality.

Every empire collapses, and it's because of economic reasons they do. Any movement upward in lending rates would signal the end. The sad part is, we would be sucked down the drain with them, and no amount of swimming could help us escape that consequence.

[Mr. Ambien]

Every empire collapses, and it's because of economic reasons they do. Any movement upward in lending rates would signal the end. The sad part is, we would be sucked down the drain with them, and no amount of swimming could help us escape that consequence.

Indeed. I assume you also mean there being no choice but to raise rates. Right now the US has a choice, they just choose ZIRP, bubbles, QE, endless debt financed consumption.. there's nowhere this leads but to currency crisis.

[Alflives]

Indeed. I assume you also mean there being no choice but to raise rates. Right now the US has a choice, they just choose ZIRP, bubbles, QE, endless debt financed consumption.. there's nowhere this leads but to currency crisis.

Don't you think our western economies are too reliant upon borrowing to buy consumer goods? If lending rates rose, the economy would stagnate, sending the entire western world into an economic crisis, that could only be corrected by War. In the Lower Mainland, for example, we really don't produce anything of real substance anymore. We build houses, and have an economic foundation based on that. Could you imagine what a rise in lending rates would do to our economic life blood? It's too much like this all throughout the western world. Our economic existence is secured by cheap money. If we do not consume, we die. I'm by no means an economist, and I'm certain many who post here are much better educated to discuss this matter than I, but I do "feel" this problem.

[Mr. Ambien]

Don't you think our western economies are too reliant upon borrowing to buy consumer goods? If lending rates rose, the economy would stagnate, sending the entire western world into an economic crisis, that could only be corrected by War. In the Lower Mainland, for example, we really don't produce anything of real substance anymore. We build houses, and have an economic foundation based on that. Could you imagine what a rise in lending rates would do to our economic life blood? It's too much like this all throughout the western world. Our economic existence is secured by cheap money. If we do not consume, we die. I'm by no means an economist, and I'm certain many who post here are much better educated to discuss this matter than I, but I do "feel" this problem.

I'm doing well, but I can "feel" it even from Canada because I'm generally aware of things like this (that and living in the US for a few decades and watching it slowly go to **** helps).. but let's consider:

- The US middle class unskilled work force has been replaced with the fast food/retail/service industry. These used to be industrial jobs, factory labour, dotcom/IT

- US debt has soared in 14 years. In 14 years, US debt has nearly quintupled.. from 4 trillion to 18 trillion. GDP has not risen this fast, despite the US often considering money that isn't theirs "assets"

- US Corporations hardly invest anymore in newer assets, it's all about stock buybacks and moving money around within. Where is the productivity? It's elsewhere, for peanuts.

This is not sustainable, obviously. So.. the further the US pushes this, and kicks the proverbial can down the road, the harder the crash will hit them, and the rest of us who are far too dependent upon them. This is the very reason why hoarding tangible assets > hoarding cash.

[Alflives]

I'm doing well, but I can "feel" it even from Canada because I'm generally aware of things like this (that and living in the US for a few decades and watching it slowly go to **** helps).. but let's consider:

- The US middle class unskilled work force has been replaced with the fast food/retail/service industry. These used to be industrial jobs, factory labour, dotcom/IT

- US debt has soared in 14 years. In 14 years, US debt has nearly quintupled.. from 4 trillion to 18 trillion. GDP has not risen this fast, despite the US often considering money that isn't theirs "assets"

- US Corporations hardly invest anymore in newer assets, it's all about stock buybacks and moving money around within. Where is the productivity? It's elsewhere, for peanuts.

This is not sustainable, obviously. So.. the further the US pushes this, and kicks the proverbial can down the road, the harder the crash will hit them, and the rest of us who are far too dependent upon them. This is the very reason why hoarding tangible assets > hoarding cash.

History is repeated time, and time again. "The Mote in God's Eye" is a wonderful commentary on the stupidity, and selfish nature of man. We are destined to repeat our mistakes, each time with more horrific consequence than the preceding. Elbert Einstein said, "I know not with which weapons WWIII will be faught, but I am certain any wars that follow will be faught with stick and stones." IMO now is the time to borrow and spend and enjoy life's every moment to its fullest.

[Amish Rake Fighter]

"You can put your boots in the oven...but that don't make 'em biscuits" - Elwood Einstein

[Alflives]

"You can put your boots in the oven...but that don't make 'em biscuits" - Elwood Einstein

Too funny! Thanks for lightening the mood:)

[Mr. Ambien]

History is repeated time, and time again. "The Mote in God's Eye" is a wonderful commentary on the stupidity, and selfish nature of man. We are destined to repeat our mistakes, each time with more horrific consequence than the preceding. Elbert Einstein said, "I know not with which weapons WWIII will be faught, but I am certain any wars that follow will be faught with stick and stones." IMO now is the time to borrow and spend and enjoy life's every moment to its fullest.

I can't say you're wrong, but I'm left in the dust when it comes to quotes and aphorisms.

[Alflives]

I can't say you're wrong, but I'm left in the dust when it comes to quotes and aphorisms.

There is so much more to life than we allow ourselves to experience. The Federal Reserve, the Bank of Canada, the International Monetary Fund, are all going say and do what they like, regardless of what is truly best for us - the common people. We will continue to work, and live our lives, looking forward to our days off. Life can be so much more, if we live in the moment, and not worry about tomorrow. Jesus said, "leave tomorrow's worries in tomorrow; there are enough worries in today." Every moment, including the laborious ones, are to be enjoyed. It's not what we are doing that is important, but how we choose to experience what we are doing that is. It's only money, and not any man, not even the king of kings - Ozymandias - can take his wealth beyond the grave.

[Amish Rake Fighter]

"...Ozzy rules..."

[ronthecivil]

There's way too much to go over here, but the things I will point out relate to:

- Corporate asset investment, versus aging assets and stock buybacks.. business is not sound in the US, people are just under the illusion that it is because they look at stock prices and superficial trends and nothing beyond that

- The only reason the Greenback has reserve currency status is because of the other major currencies, besides perhaps the pound sterling, are under Central Banks that do just as much stupid stuff as the Fed does

- Once investors realize the US can't and won't pay back it's debt obligations, they stop investing, creditors stop getting their money, they stop investing in US bonds, the Fed has absolutely no choice but to either skyrocket interest rates, or print money like crazy and hope the currency survives

The illusion is, with this currency, how long people buy into it. People don't seem to realize how dangerously vulnerable the US is. They are a house of cards waiting to fall.

News of the Fed is further proof the US has ZERO interest in doing the right thing for their people and long term, including currency survival. They know how fragile the US economy is, and that's with all this debt financed stimulus holding it up. I'm more amazed that more people don't see this. People are just stuck with "hurr durr the news says the Dow Jones is up 500 points, the US economy and fundamentals are great".

Then they go home and piss and moan about rich people, increasing wealth gaps, etc., because the economy doesn't "feel" like it's doing better. They ignore all their instincts and follow along with the drunk stock market mentality.

So you think that the US, with it's government having unbalanced books but it's population deleveraged is in bigger trouble than Canada with the government doing ok but the people being hugely in debt?

It's politically difficult, but all the US has to do is lower spending. Politically difficult, but it wouldn't destroy the US economically.

Don't buy into the doomers and gold bugs. If all that comes true there won't be anywhere to spend the shiny metal anyways.

[Mr. Ambien]

So you think that the US, with it's government having unbalanced books but it's population deleveraged is in bigger trouble than Canada with the government doing ok but the people being hugely in debt?

It's politically difficult, but all the US has to do is lower spending. Politically difficult, but it wouldn't destroy the US economically.

Don't buy into the doomers and gold bugs. If all that comes true there won't be anywhere to spend the shiny metal anyways.

The US can't lower spending. Too many entitlements. Too much bloated government. You know how well politically it would go over for them to lower spending?

Tax revenue.. they've been getting more with Obama of late, with a slight reduction in annual deficits, but these deficits are still way too high.

The US has to actually be producing things to be able to get a leg up in this fashion. Their biggest export is debt. They are putting their currency at risk now.

They can play the leverage game and pray it pans out, but that is all dependent upon keeping people drunk and them believing this facade that real profits will come from it. This game was proven to be way too stupid and risky with the last recession. One small snowball started it and look what it turned into. Where were all those leveraged profits? They were negative equity resulting from a pricked bubble. Rather than learn from the mistake, they've just ramped up the failed policies even more and made the US wholly dependent upon it.

And I don't need to buy into Schiff or Paul or Ferguson, they won me over because I already possess two business degrees and understand how macro works.

Raising interest rate will create a recession, yes. It's supposed to happen. ZIRP is not indicative of a healthy market. QE is not indicative of a healthy market. Goods being moved back and forth on their own without all this government and central bank incentivizing is healthy. The bubble inducing stimulus as such, is like a drug, and like drugs, it's meant to benefit the person in the short term. They get their highs, and then they have to eventually come down, because it's not sustainable. The longer the US holds onto QE and ZIRP, the less likely it can ever raise interest rates. People have it ingrained into them that government has to risk the future just to ensure short term bubbles.

Raising interest rates will decrease consumption, because people will undoubtedly have less disposable income. The result is less demand, the result is prices lowering. That's a good thing. It decreases the weight of inflation on the currency. The result is also lower profits, and lower wages. This is how things go back to normal.

As someone who just turned 33 yesterday and is likely going to live with the mess the older generation is creating, I would prefer to see normalcy and stability in the economy rather than people screwing my generation and my kids and grandkids' generations. That's exactly what they're doing. If I could just pull every cent of the Social Security/Medicare funds and CPP/OAS I've paid, I'd do it in a heartbeat. I fully know it's a scam that I won't benefit from come time for retirement. I'm just paying into it for the people who are both benefiting from it and screwing my generation over.