Reaction Time at the FOMC

This could be the week for the Fed to actually raise its base rate, according to former Pimco supremo Bill Gross, now at Janus Capital Management. Gross puts the odds at 50-50, suggesting that “Chair Janet,” Vice-chair Stanley Fischer and New York Fed President Dudley are itching to pull the trigger and start to normalise interest rates. Meanwhile, former Director of the Office and Management and Budget under the Reagan administration, David Stockman, who now runs an excellent political and financial blog, is scathing of the Federal Reserve’s handing of monetary policy, observing that the Fed has no mandate to peg interest rates at any level, let alone the near zero rate of the past 80 months, which has provided a massive subsidy for speculation.

He goes on to confirm many of the points mentioned within our posts: “in a world drowning in debt, the only reason to keep the interest rate below the market level or at zero, is if you are trying to encourage business and households to borrow. US business has all the debt they will ever need and they are spending it to buy back their own stock, whilst 90% of US households can’t borrow any more as they are fully leveraged, leaving Wall St to gamble ever more with the added liquidity.”

Our take: Forget the Fed rhetoric, forget CPI data and the exchange rate.

Just look at the chart, as charts don’t lie:

16 Sept 15 Blog .

The US two-year “market-rate” is now at 0.77% and a full 280% higher than in 2013, whilst the 10-year yield is primed to shoot higher

The Fed will feel pressured to raise this week for the simple reason observed both here and for the UK Central Bank within our earlier “revisiting the No 2s,” they have never made a pro-active decision in their respective lives, they re-act to the market and the market is crying out “higher interest rates.”

 

 

 

 

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2 responses to this post.

  1. […] was just about a year ago that I warned via the overview, “Reaction Time at the FOMC,” that US interest rates were set to rise. In the event the warning was a month too early before […]

    Reply

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