Posted on 08/21/2014 3:12:27 PM PDT by Kaslin
The Fed released the minutes from its last gathering, and this report should move the market. The big question of the day is: what is the level of internal dissent from official policy and Chairman Yellen? Some market observers think that the Fed is ready to hike interest rates based on the last four times they reversed course. I actually see the exact opposite, as “real” unemployment (U6) is higher than those other times and inflation is officially at its second lowest point.
| Rate Hike Triggers | U6 | PCE | Fed Funds |
| Feb 4, 1994 | 11.4 | 3.19 | 2.4 |
| March 25, 1997 | 9.1 | 5.57 | 2.3 |
| June 30, 1999 | 7.5 | 5.12 | 1.7 |
| June 30, 2004 | 9.5 | 1.38 | 2.4 |
| Now | 12.2 | 1.6 | 0.0 |
Not only is the real unemployment rate too high for the Fed to change course, the composition of jobs is lousy with net part-time jobs gained in 2014 at the expense of full time jobs. In 1968, part-time jobs were only 13.5% of total employment; the number peaked at 20.1% in 2010, but is heading back up and is currently at 19.2%.
We all know the Fed playbook is to print money, make people feel richer, and get people to spend more. Fed policy is simply designed to deter savings and get people to buy stocks and houses. However, individuals are not buying stocks nor houses. Instead since Quantitative-Easing 2 (QE2) began, people have plowed $1.2 trillion into bank accounts, bringing the grand total to $10.8 trillion or 84.5% of annual disposable income. This is the highest ratio in 23 years.
Unless wages begin to soar, I’m stating right here and now that the Fed will not hike rates for at least one year, and that means the Dow Jones has a great chance to rally north of 19,000 (maybe even to 20,000). Of course, there are always other threats including a fresh recession, which would be a bigger indictment of Fed policy than an eventual inflation crisis.
Note, the Fed is admitting there has been no job growth therefore acknowledging the BLS numbers we are getting pure BS.
One wonders then why prices are inching up.
A little food for thought.
The phrase “interest rate” is meaningless. If you can’t get a loan the rate is infinite. If you have pals in the government they PAY you to take a loan.
Been saying this for quite some time. Rates have to stay near zero or the deficit becomes unaffordable. With more people on the Federal entitlement wagon every day (plus illegals), interest rates cannot be allowed to rise.
But that’s causing new bubbles and holding back real growth.
It also hurts savers. But it does not matter. The Federal Gravy Train MUST roll on. That is the sole imperative.
Agree with you: US debt would detonate if rates were allowed to rise. Sooner or later (probably a fair bit later) they will rise to more historic levels, but at present that cannot be allowed to happen.
And yes, it is creating bubbles. When in recent history has the Fed acted as if they cared about creating bubbles? Yes....slightly past Y2K. But in general, IMO it is in their interest to create bubbles because it means more people will borrow to take risks and also IMO, that will give the feeling like the economy is normalizing.
The war on savers continues.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.