Posted on 03/21/2015 6:55:02 AM PDT by Kaslin
Curve Watcher's Anonymous is investigating the yield curve following Janet Yellen's exceptionally dovish FOMC announcement on Wednesday.
Yield Curve 2-yr, 3-yr, 5-yr, 10-yr, 30-yr
image: http://1.bp.blogspot.com/-X-y4z8jZc-g/VQxu8cA-gfI/AAAAAAAAdDc/h62vyTWJPc0/s400/Yield%2BCurve%2B2015-03-20.png
click on chart for sharper image
image: http://1.bp.blogspot.com/-A4Y0gR0Cdoo/VQxuKK-kaqI/AAAAAAAAdDQ/0SNCKnlJkzA/s400/Yield%2BCurve%2B2015-03-20%2BBloomberg.png
Although the Fed removed the word "patient", the rest of Yellen's yap could not possibly have been any more dovish.
The panel said it will be appropriate to tighten “when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
That statement can mean virtually anything, prompting me to ask "How much more improvement does the Fed want? Or does the Fed not believe all these glowing labor reports either?"
And of course no one has any clues about the true meaning of "medium term".
Weak Data
For four months nearly all data except lagging jobs data has been weak.
image: http://4.bp.blogspot.com/-6PxegfAsJIw/VQx2tOSeQPI/AAAAAAAAdDs/HHjWwqWfBYo/s400/GDPNow%2B2015-03-20%2Cpng.png
Doesn't Sharia law prohibit charging interest?
I think the Fed is being forced to ‘hint’ in public that the jobless numbers are all smoke and mirrors.
Market rates will push interest on the debt to over $1 trillion/year. This president will not permit that reality. It would scotch his plans for unlimited government spending.
I don’t think his goal is unlimited spending. I think it is the destruction of the economy. If a rate hike would do that faster, he’d go for it... but he might set it up so that the trigger will wait until it can be blamed on others.
I’ve read many times about “the excesses of cheap credit in the 80’s.” They’re all written, of course, to make Reaganomics look like a fake boom (My parents were making nearly 100,000/year in the 80’s when a new car cost around 10,000, gas was 65 cents, we had manufacturing jobs, and a new house was 50,000). Anyway, I wonder if the same libtard ‘economists’ (those who just regurgitate Paul Krugman) will issue the same fulminations about Obamanomics. No, I don’t wonder that because I know they won’t.
Theoretically, but like everything else in Islam it's basically fake. They have a term "sukuk" that they use to circumvent it by calling it rent.
Especially since the Atlanta Fed is forecasting a 1-Qtr 2015 GDP between 0.3-0.6%.
I think you're right. Low rates are great for a someone who borrows recklessly and then spends wildly (in other words, politicians). So the Fed will continue to delay rate hikes for as long as possible.
And if that means ignoring some data and falsifying others, so be it.
I'm an anti-semant. Say what you mean and mean what you say.
“...but he might set it up so that the trigger will wait until it can be blamed on others.”
I’ve often wondered if that’s why the GOP lost the last two Presidential elections on purpose (yes, intentionally).
Maybe the word was out that if a Republican won the Fed would be instructed to let the market determine both long and short term rates (no more money printing). All hell would immediately break loose.
Can’t see how Fed can ever raise rates again.
as an economics major, I recall learning that the “natural” interest rate over time is something like 4 to 6pct.
as a 64 year old, I recall mortgage rates 16 percent plus in the early 80’s. We re-negotiated our home mortgage once or twice when the rates fell from 10 to 8 and so on.
People (generally) under 50 do not recall rates like that. Any change in rates will be a huge shock to most. Imagine some millennial applying for a car loan and being told that interest is not “free” but 6pct? Can you hear the sound of economic brakes screeching???
The long term, artificial suppressing of interest rates is, to me, the greatest threat to the economy out of many economic threats out there these days.
When we bought our house in 1967 the interest rate was 51/2% and our neighbors who bought their houses before we did had a lower interest rate
That’s been my thought re: the 2016 election
Don’t look for a Fed rate hike this century.
So yeah, our interest rates were higher, but we were better off for it in the long run. Now retirees who responsibly saved for the future are being slammed because all planning assumed a minimum 4% interest being paid on savings.
We have plenty of cash to pay for stuff to avoid interest charges but it seems almost everyone is offering 0% interest for a certain amount of time so I have been using their money.
I currently have 2 payments that are 0% interest for 12 mnths.
The yield curve is a very good indicator of things to come.
An inverted yield curve is when long bonds are yielding/paying less than shorter term bonds.
These are market driven rates, all except the overnight rate that is set by the FED.
The question is why would anyone buy a 30yr bond that pays less than what they could earn overnight?
Answer: Because those short term rates are likely to drop, (reinvestment risk)and they need to capture what they can while they can.
People need to know that the Bond Market is substantially bigger than the Equities market. The Bond market is where the so-called “Safe Money” is invested.
The spread between short and long bonds has compressed as the safe money is still looking for a home.
It’s not likely to actually “Invert” with FED funds (overnight) at 25 basis points, but may invert between the 7yr and 30yr.
We are in somewhat uncharted territory.
I contend that if the yield curve inverts between the 5-7yr and 30yr bonds, and stays inverted for a number of months, than we are in for a whole lot of trouble.
To put this in perspective and in some historical context, I recommend this website.
http://stockcharts.com/freecharts/yieldcurve.php
Dynamic Yield Curve
They have data back to 1999 that compares, side by side, the S&P to the yield curve.
Just click on the S&P chart to set the “start time” and hit animate.
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