Posted on 12/18/2014 9:23:39 AM PST by Kaslin
The Fed made its much awaited FOMC Announcement.
Pundits poring over the statement have generally concluded as does the Financial Times, that Fed Signals Tightening by Mid-2015.
Why?
Because the Fed dropped its forecast that it will keep low interest rates for a "considerable time".
Now the Fed says it can be "patient" in judging when to start raising rates.
The Financial Times claims the "new language is designed to reassure markets that rate rises are not imminent."
If rate hikes are not imminent, what difference does the change make?
Three Dissents
Hawk: Richard Fisher objected because "improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate"
Dove: Narayana Kocherlakota believes "the Committee's decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target."
Data Dependent: Charles Plosser believes "the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements."
Of the three dissents, there is one hawk, one dove, and one statement can be interpreted any way you want, but generally seems neutral. What Plosser failed to say is what he would have done today, if he was running the show.
As for where interest rates should be now, the answer is clearly "not here" based on numerous asset bubbles the Fed is too blind to see.
In terms of what to expect down the road, it's quite preposterous to pore over every word as if it means anything. Actions speak louder than words.
Expectations vs. Reality
The market expected a word change, so the Fed made one. But a lot can happen in the next six months. The US could be back in recession next month, or the next four job reports can be 500,000 each.
Those are extremes of course, but they are possible.
"Patient for a Considerable Time"
If a slowdown comes at all, and I believe one is coming, then expect the Fed to be "patient for a considerable time" whether the fed mentions the words "considerable time" again or not.
Viewed that way, the language change is meaningless.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Low interest rates are a cause of the continuing recession. It’s counterintuitive to have a financial crisis with rates falling. Borrowers aren’t in a position to borrow, despite low rates. What good is a low rate when you still have to pay back the entire principle.
What should have happened is a region by region, loan by loan principle reset, but that would have killed urban Democrats and their cronyist policies. It would have forced municipalities to choose between unsustainable policies, including pensions, and basic services. It’s the change we need, being prevented by low interest rates.
What needs to happen is to restore the import tariffs and put Americans back to work. The reasons borrowers aren’t in a position to borrow is that there are no jobs, and those jobs that do exist are not quality jobs.
The drop in oil prices is going to help a little in the short run. But low import tariffs is like trying to bail out a ship that has an unrepaired hole in the side.
Better idea would be to stop protecting unions and recognize that Americans need to modernize to compete. We must reject the excessive regulation and taxation by our government. The engine that makes America exceptional is still there. Take off the restraints and the new jobs will be there and they will offer big rewards for skills.
One caveat is that if we don’t start educating rather than indoctrinating our children, they won’t be able to compete with the influx of better educated illegals.
“The reasons borrowers aren’t in a position to borrow is that there are no jobs, and those jobs that do exist are not quality jobs.”
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You can say that again, I would hate to be a young person starting out now. I went straight from high school into the military (Navy) and spent 38 weeks learning electronics. I would never advise a young person to enter the current military. When I came out at 21 I could land the sort of job for which a recent college graduate would be considered unqualified now. By 23 I was earning the equivalent of $75000. or more a year in today’s money and was driving a new Mustang. In those days I was not considered a success though...I was still single and was the male equivalent of an “old maid” at 23.
Thanks for introducing some sanity into this thread.
Assuming, of course, that TPTB want our children to be able to compete with better educated illegals.
IMO, the efforts to forge the NAU are continuing apace and the dumbing down of our children are one of the requirements to accomplish that goal.
no, that is not a solution.
Tariffs are archaic and a tax increase.
I’m surprised to see a taxer on Free Republic advocating higher taxes
Our Founding fathers viewed tariffs as a tax on foreigners seeking access to our markets.
George Washington warned us against foreign entanglements. Nothing entangles us more than low tariffs, high trade deficits and high foreign owned debt.
Besides, you an use the proceeds from a tariff to reduce individual and corporate income taxes, further strengthening the US economy.
Nothing enables big government like high unemployment caused by offshoring all our industries.
Besides, you an use the proceeds from a tariff to reduce individual and corporate income taxes, further strengthening the US economy.
Nothing enables big government like high unemployment caused by offshoring all our industries.
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