“You Should Take the Fed at Their Word”

Flip-flopping killed its credibility. That’s a problem for the markets.

“They’re getting more worried about the negative consequences of QE”: Fitch Chief Economist

The markets have been brushing off the Fed and have done the opposite of what the Fed has set out to accomplish. The Fed wants to tighten financial conditions. It’s worried about asset prices. It’s worried that these inflated assets which are used as collateral by the banks, pose a danger to financial stability. It has mentioned several inflated asset classes by name, including commercial real estate, which backs $4 trillion in loans heavily concentrated at regional banks.

And yet, markets have loosened financial conditions since the Fed started its tightening cycle in earnest last December. Markets are hiding behind “low” inflation, when the Fed is focused on asset prices.

So longer-term yields have been falling even as short-term yields have moved up in line with the Fed’s target rate, and thus the yield curve has flattened. The dollar has been falling. Equities have been soaring to new highs. And companies, if they’re big enough, are able to get funding for the riskiest projects at stunningly low rates.

“I think there is maybe too much confidence that the Fed is not really going to do too much more on interest rates, that we’ll have one or two more rate hikes and that’s it,” Brian Coulton, chief economist for Fitch Ratings, told Reuters on Tuesday.

Market participants are expecting “just one or two interest rate increases a year” despite the Fed’s stated expectation of seeing long-run interest rates at around 3.0%.

“When the Fed says they’re going to engage in a gradual rate of interest rate increases, they mean three or four rate hikes every year and we think that’s what they’re going to do,” Coulton said. “We think that you should take them at their word and it may even be a little faster than that.”

This disconnect between market expectations and the Fed’s stated intentions could create volatility in fixed-income markets when markets finally catch up, he said.




Volatility, when it’s used in this sense, always means downward volatility: a sudden downward adjustment in prices and spiking yields – a painful experience for the coddled bond market with big consequences for the stock market.

“We think they’re going to be … getting more worried about some of the negative consequences of QE, the fact that it encourages risk taking and may create some issues for the banks,” he said.

And he expects – this is “more of a personal view,” he said – that the Fed will continue with the rate hikes, or even accelerate them, even if consumer price inflation remains low.

Despite “low” consumer price inflation – which is in the eye of the beholder – the Fed has raised rates four times since December 2015, including three times over the past nine months. Before the rate hikes began, the Fed’s target range for the federal funds rate was 0% to 0.25%. Now it’s 1.0%-1.25%.

Federal funds futures are expecting just one more rate hike by August 2018. And as the Fed moves forward, it might trigger a sudden adjustment in yields as markets catch up with the Fed.

The Fed has caused this disconnect on its own. Starting in 2013, it has engaged in relentless mind-numbing flip-flopping, first on tapering of QE – the subsequent Taper Tantrum in the bond market caused furious flip-flopping – and then on raising its target for the fed funds rate. In an astounding cacophony, Fed heads have publicly disagreed with each other and their own prior statements. At every squiggle of the markets, perhaps worried about their own portfolios, they flip-flopped from prior communications of their intentions.

During this period, they took their credibility out the back and shot it. And when that credibility seemed to still have any life left in it, they shot it again. And even after everyone saw that it obviously had no more life left in it, they shot it again, just to make sure.

Now no one believes them anymore. It’s hard to revive a credibility with so many holes in it. But that’s what the Fed is trying to do. And since December, it has been sticking to its story with a focus on asset prices, the chase for yield, the banks, and financial stability – essentially brushing off a bout of “low” consumer price inflation.

Next up is the well-telegraphed announcement at the September 19-20 meeting to unwind QE. The amounts and the mechanics have already been announced. Now it’s just a matter of announcing a start date. If they stick to it, it’s one more move – a huge move – in their efforts to revive their credibility.

But reviving credibility, after it has been so thoroughly shot so many times, will take years. No one will easily forget the endless flip-flopping between 2013 and mid-2016 that made laughingstock out of these people. Now markets keep expecting the Fed to flip-flop all over again. But since the fall of 2016, it hasn’t. And markets are not prepared for a non-flip-flop Fed.

Retail investors are now just as optimistic about stocks as they were in January 2000 just weeks before the dot.com crash began. Read… Finally the Contrarian Warning from Small Investors




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  73 comments for ““You Should Take the Fed at Their Word”

  1. Justme
    Sep 13, 2017 at 12:26 pm

    Next tue-wed 19-20. sep is going to be an occasion for the history books.

  2. JZ
    Sep 13, 2017 at 12:29 pm

    One will never know what a committe would do that consists of only a dozen people. There is no math model, all about trust and confidence and trust and confidence will be mined for the profit of a few.
    Yes, there is an domestic economical angle for the FED policies. But there is also the consideration of world dominance and destroy/exploit other nations through currency/financial wars. There is even considerations for the internal 2 party competition to move each party’s agenda against the other one.
    The truth is, such power should NOT exist to begin with. As long as it is around, there is endless ways/motives for people to use it against others, be it rich vs poor, dems vs reps, US vs Russia/China/Euro.
    It is complicated enough that arguing from economic angle alone is too simplistic.

    • Justme
      Sep 14, 2017 at 10:24 am

      JZ, that ‘s what I have been thinking, too. The world’s central banks are competing with each other about who can create the most asset inflation within their own countries. The goal is to inflate your own assets faster than other countries’ assets, and use that elevated position to take over the assets of said other countries. That’s the external game. The internal game is similar, but here the target s the bottom 99%.

    • Cynic
      Sep 14, 2017 at 10:34 am

      JZ Very astute: one can’t ignore geo-politics (as well as internal political struggle) in the world empire that is the US.

      Still, considering all factors might well make one’s brain boil……

  3. Rates
    Sep 13, 2017 at 12:29 pm

    1% rate raise next meeting. That should take care of things.

    • Sep 14, 2017 at 10:08 am

      Raise 1% and the proposed fiscal spending package is DOA, which it is anyway.

  4. Lee
    Sep 13, 2017 at 12:55 pm

    I understood the cheap debt gravy train, to stop a depression, but for that long downhill, it only has one outcome. It will not be good, but let the pain start, to get it over with; bad debt needs to be washed away. The Feds should raise the fund rate 50 basis points now.

    • Mike
      Sep 13, 2017 at 2:24 pm

      The “Federal” Reserve has been called a banking cartel or a bankster carte, because it is paid up in part of gigantic banks that have had to pay gigantic fines and apparently, committed numerous, serious crimes. At any rate, its history of failure to oversee or regulate in 2000 to 2008-9, keeping rates artificially low, which allowed the numerous financial crimes, then secretly funding billions to the same banksters through ultra low interest loans (when the banks were the insolvent) and outrageous commissions on trading.

      Thus, I am certain that even though the Fed banksters are supposed to be appointed, the persons in charge have been carefully selected to be sure to protect the owners of the banks. Keep in mind, in any rational system, you may protect the banks. However, if the banks are mismanaged into insolvent bankruptcy procedure would let the creditors take over that bank, fire the criminal/crony officers, take over complete ownership from prior shareholders, and start fresh with new managers and new owners.

      That was not done to protect the billionaires and millionaires that control those massive banks. The banks were actually force grown and not adequately regulated. Thus, if one goes down now, it is sure to take down the entire U.S. financial system, and probably that of our allies too, now.

      This is relevant to your comment, because the Fed banksters painted themselves into a corner to protect their crony bank owners. Now, the Fed banksters are in a pickle. They really cannot afford to raise interest rates much.

      First, the U.S. government cannot pay its current debt obligations as it goes along if the rates that it has to pay on its regular refinances by sales of treasuries spike past a certain (very low) point. See https://www.usnews.com/news/articles/2012/11/19/how-the-nations-interest-spending-stacks-up

      See also http://www.politifact.com/wisconsin/statements/2013/sep/15/chris-kapanga/interest-payments-us-debt-exceeds-us-tax-revenue-w/. I read quite a few articles about this critical point: if the rates that the US government must pay on its issuances of treasuries spike a little, it will have to make enormous cuts on all spending just to avoid defaulting on its ongoing current debt obligations.

      Investors may realize that the U.S. government is in too much of a tightrope act to allow interest rates on Treasuries (and thereby other interest rates) to rise much. They are betting interest rates will remain low for a long time. An unwinding of the QE holdings is too risky to begin in any substantial way.

      The inflated stock prices and incredibly high price earnings ratios may reflect the calculation that these stocks earnings (low as they are) may represent a better future return on investment. I am sure that this means that many investors opine that treasury interest rates will remain low for many years.

      Keep in mind that the Fed is in a dangerous position. It holds way too many treasuries.

      If it sells too many U.S. treasuries, it will be effectively bankrupt if the value of those U.S. treasuries that it holds dips below a low threshold. The rise in interest rates if the Fed sells too many treasuries will also essentially “bankrupt” the U.S. government due to its debt service payments rising, so it will not be able to bail out the Fed banks, as before.

      I opine that is why we are seeing this unreasonable rise in the stock markets. The others side of the ship is effectively on fire, so investors, like panicked passengers, run for the side that is not on fire.

      • Dan Romig
        Sep 13, 2017 at 7:31 pm

        Mike: Well said sir.

        The CBO has forecast that the US national debt will be $30 trillion by the end of fiscal year 2016, and at current GDP growth, we’ll see a GDP around $23T at that time.

        As Professor Mujahid Kamran stated back in June 2011, “The control of the US, and of global politics, by the wealthiest families of the planet is exercised in a powerful, profound and clandestine manner. This control began in Europe and has a continuity that can be traced back to a time when the bankers discovered it was more profitable to give loans to governments than needy individuals.” Further he states, “The US is a country controlled through the privately held Federal Reserve, which in turn is controlled by a handful of banking families that established it by deception in the first place.”

        http://www.globalresearch.ca/the-elite-the-great-game-and-world-war-iii/25160

        In the US, there has always been a contest as to who controls the issuance of currency. From the differences between Hamilton and Jefferson, and the Congressional 20 year charters for the First and Second Bank of the United States; to Andrew Jackson who returned the power of issuance got the Treasury; to Lincoln who in 1862 printed and distributed nearly half a billion dollars of ‘debt free money’; until 1913 when Woodrow Wilson set up the Fed.

        My favorite Wilson quote: “Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of something. They know there is a power somewhere, so organized, so subtle, so watchful, so interlocked, so complete, so pervasive that they had better not speak above their breath when they speak in condemnation of it.”

        As a ‘Moderate Libertarian’ I believe that the US would be better off ending the Federal Reserve. Mike’s point about secretly funding billions to the same banksters should be adjusted to trillions! Citigroup is the poster child for this, and WallStreetonParade has chronicled this superbly.

        Finally, Wolf, I love the use of language regarding, ” … they shot it again, just to make sure.”

    • d
      Sep 15, 2017 at 1:20 am

      Interest rates are a smoke screen.

      watch the balance sheet as that shrinks it will draw much liquidity from the system with out pumping government interest costs.

      This is a balancing act many dont see.

      50 BP PA is still a 30% increase in interest rates PA, when the rate is 1.5%

  5. Sep 13, 2017 at 12:57 pm

    There is no disconnect, its the “goldilocks” economy, though that term was overused. The Fed and its watchers discuss minor moves in what appears to be an extremely stable economic backdrop. The only argument is that the Fed may be getting too cute, with its stutterstep approach. In weather terms is one degree warmer a heat wave? Granted some Fed-hysteria is warranted, they want to draw down the balance sheet, “like watching paint dry”. It must get increasingly hard to get up each morning and scream about bankrupt Fed policy. There is a whole lot going on behind the curtain, which we have no direct evidence of global bank collusion should someone come up with that then stop the presses..

  6. michael
    Sep 13, 2017 at 1:07 pm

    All the FED needs to do to regain control is make a real increase in interest rates and stop buying MBS. I do not look at what a person says they will do rather what they are doing. They can change the narrative at any moment they decide to do so. I do not see how another .25% would make any difference.

    • Ambrose Bierce
      Sep 13, 2017 at 3:11 pm

      suppose the Fed stepped aside and let the markets set rates? where do you think they would be? clue: check out the policy of RRPO

  7. Gershon
    Sep 13, 2017 at 1:35 pm

    The Federal Reserve cue card:

    Step 1: Create fake money stealing value from everyone

    Step 2: Loan the fake money to people with interest

    Step 3: Take people’s stuff when they can’t repay the debt

    Step 4: Get government to enforce our fraud

    Step 5: Plunder humanity

    • Mike
      Sep 13, 2017 at 2:28 pm

      Amen, except they loan the money to their crony banksters, through the banks they own, and those banks have done the plundering.

    • Kay
      Sep 19, 2017 at 8:18 am

      Let’s get rid of the Fed and Central banks they aren’t part of government. This obsession the economists in the Fed have with the inflation variable isn’t working. Before the 1970’s the Fed was just a cash checking service and the Fed was obsessed by full employment. How come none of the Central Banks and the Fed haven’t admitted the current political and economic system of Neoliberal economics is a complete failure.?

      • d
        Sep 19, 2017 at 5:19 pm

        “This obsession the economists in the Fed have with the inflation variable isn’t working.”

        It cant work as the FED is bound to use the OFFICIAL US Stats of inflation.,

        Which are absolute BS.

        The Government statisticians tie the FED’S hand’s behind its back.

        Then people like you use it as a punch bag.

        When you are forced to use a blatantly FALSE # in your calculations and action’s.

        You calculation’s and actions, MUST be at the least, far less than effective.

  8. raxadian
    Sep 13, 2017 at 1:42 pm

    We may have rate hikes at an average of once every few months, until rates are “normal” again. Or maybe just about three rate hikes a year.

    Of course while doing that one or more bubbles will crash. December could be horrible even if no bubble crashes until next year.

    This is just theoric based on the data avaliable so far, but the indications for a future crash in the next six months or less are there. They have even been posted in this site.

    Why December? Because is the month of expending and the end of the year.

    The economy for the working class is not going well, and that will affect how much they expend for the holidays and Christmas.

    We will most likely see less money being expended during December, that together with the rate hikes and one or more bubbles crashing, will cause a crisis.

    Of course nothing could happen, people could actually expend more during December, thinking they may not be able to do so later, and the crisis might be delayed a few months.

    But while we might not know when things will crash, they will crash.

    The end of cheap credit will negatively affect negatively the earnings of most companies and outright crash and burn others.

    So if you want a somewhat safe investment, buy gold. At the very least you won’t lose your money and gold prizes tend to rise during crisis.

    And gold is always a good long term investment due to inflation and currency devaluation.

  9. Frederick
    Sep 13, 2017 at 1:42 pm

    Where’s Gershon when we need him?

    • Sep 13, 2017 at 2:19 pm

      Out to lunch?

      • Sep 13, 2017 at 2:26 pm

        He came back from lunch :-)

        • Gary
          Sep 13, 2017 at 9:56 pm

          Didn’t Bernanke himself (and I think Yellen too) say that interest rates will not normalize in his lifetime? Just Sayin’

        • Sep 13, 2017 at 11:16 pm

          Yes, someone said this. I don’t remember who. But I don’t think Yellen did. Bernanke might have. He also said that QE would not be unwound. He’ll be proven wrong on that point later this month.

          “Normalize” means different things to different people at different times. A fed funds rate of 4% to 5% used to be “normal.” But I doubt we’ll see that anytime soon. 3% could be in the cards though over the next few years.

        • cdr
          Sep 14, 2017 at 7:34 am

          Wolf, Bernanke said it. The fact he will (hopefully) be proven wrong is interesting.

          What is of most interest to me is WHY he said it in the first place. Was it hubris? Was it a belief that a fix of sorts was in and he got ball rolling on it? Was it the kind of empty blather we all make from time to time (doubtful as he has been quoted many times over the years without a reaction from him).

          I personally think he believed he was on the vanguard of a change in world economics: using central banks to create an equilibrium in rates and activity. Since much of the analysis written about it is common sense and lots of it disagrees with Bernanke, it makes me think he is either a few bricks short of a load OR not being completely honest in his telling of the WHY behind his thinking. Since the latter is most likely, this makes me wonder about the WHY about that. Then, out pop the globalists over time and their love for low rates, open borders, and low wages, and a reasonable theory appears.

        • Sep 14, 2017 at 8:00 am

          cdr, well said.

    • Gershon
      Sep 13, 2017 at 3:33 pm

      As you know, Frederick, I’m no fan of the Fed, but out of respect for Wolf and his moderating duties will try not to be a one-note drum on the subject.

      • Frederick
        Sep 14, 2017 at 6:09 am

        Understood Wolf surely doesn’t want to run afoul of those sociopaths or is it psychopaths Right some of each most certainly roaming those hallowed halls

  10. IdahoPotato
    Sep 13, 2017 at 1:50 pm

    Former ECB head Jean-Claude Junker:

    “When it becomes serious, you have to lie.”

    • walter map
      Sep 13, 2017 at 2:28 pm

      Must have been pretty damn serious.

      And always was, still is, and always will be.

      Sometimes the truths leaks out, no matter how heavily they’ve sealed it off.

  11. walter map
    Sep 13, 2017 at 2:23 pm

    Well, I believe in the Fed. I believe the Fed is fully committed to its primary purpose of enriching the wealthy to the destruction of everybody else and will never stray from this course.

    I think it’s unreasonable to suppose they might raise interest rates enough to seriously risk compromising wealth accumulation and consolidation, because that’s what they’re for. That’s why they’re going so slow. For the same reason I also think it’s unreasonable to suppose they might ever unwind QE completely, or even more than a fraction of the total. Judicious exploitation of QE may prove it to be the tool they’ve always needed to avoid another crash, for the foreseeable future. One could easily suppose that QE will remain a very substantial tool of financial manipulation until civilization arranges to exterminate itself through the sheer weight of its own inequities.

    In the meantime the financial markets continue to surge to new record heights. It’s lonely at the top. But it’s comforting to look down upon everyone at the bottom. And that comfort is all they really want.

    • mike
      Sep 13, 2017 at 2:30 pm

      Amen. However, they also want to fund their banksters to plunder humanity and enjoy the spoils. You are being too kind on them.

    • Gershon
      Sep 13, 2017 at 3:34 pm

      Testify, Brother Walter. Could I get a “Hallelujah!” in the house?!

      • Frederick
        Sep 14, 2017 at 12:09 am

        Hallelujah brothers oops and sisters

        • Gershon
          Sep 14, 2017 at 5:05 pm

          “Brothers and sisters?” Surely you’re aware of the 58 new genders our social justice warriors have identified. You need to be more inclusive, Frederick, or it’s off to the Gulag with you.

    • cdr
      Sep 13, 2017 at 3:37 pm

      I’m a little less cynical, but not too far away from you, Walter. It’s irrational to think the market indices and bond prices will not change if rates change or if the balance sheet is reduced. The Fed acts as if they forget it every time the asset price levels jiggle a little. Out comes James Bullard on CNBC to tell everyone it’s going to be reversed and/or things won’t change enough to matter. Every Frickin time. Within a day or two.

      I think the FOMC is independent in thought and action providing they think and act according to parameters that don’t hurt the globalist agenda. Then they face career and reputational risk.

      It’s still to early to know, but I hope the Fed changes to a more Taylor Rule based approach in the coming months as people are replaced. I have no real preference for the Taylor Rule vs any other rule someone comes up with, as long as they make it easy to raise rates.

      An occasional sale on money to increase demand is fine, just as a sale at a retailer bumps demand from time to time. A 10 year sale on money is abnormal and any theory that justifies it is a farce. A Taylor Rule or an Acme Rule works for me as long as it removes their ability to have a 10 year sale on money ever again.

      Hoping, but not holding my breath.

      • cdr
        Sep 13, 2017 at 3:50 pm

        Stanley Fischer quitting a cushy, no real work, high prestige, flunky love, very top of the heap job long before his time for personal reasons is a good sign in the tea leaves department. To me, it looks like he’s getting out of Dodge asap. Still, not holding my breath. Bullard is free and capable of refuting any bad tidings on a moment’s notice.

        • Frederick
          Sep 14, 2017 at 8:26 am

          Rats fleeing a sinking ship carrying treasure chests over their heads is a cartoon I saw that was perfect for what’s going on

      • walter map
        Sep 13, 2017 at 5:01 pm

        The Fed is trying to restore balance to the farce. I doubt they can do that without doubling down on the distortions already created. I don’t think there’s any way for them to establish normal markets, and no real will in any case.

        But they can only gut the real economy so much before it all blows up. That said, predicting an endpoint seems to be impossible because the manipulations are in uncharted territory. They do seem to have become extremely proficient at kicking the can down the road, and so far the can seems to be holding up. So far.

        In other words, I don’t know. But I don’t think they know either. And I don’t think they care at all what anybody thinks about their ‘credibility’ except for the vested interests they serve.

        Magic is loose in the world, and anything is possible.

        • cdr
          Sep 13, 2017 at 5:07 pm

          Raising rates and reducing the balance sheet significantly will fix everything in the US, eventually.

    • Mark
      Sep 13, 2017 at 7:13 pm

      Banks holding large number of over price shares will first unload them to pension funds and us pions. Soon after the Feds is able to turn off the QE tap and allow the share to dive and keep the banks for harm way. TaDa. done… fait a compli….
      Given that the setiment of private investors has changed and are optimistic of stocks, the Fed are halfway there.
      Who cares of credibility in an environment of false fabricated wars, torrorism, news, medical care, GMO food ect… the FEDs are the pinical with fake money with full control of the Co media and government.
      Welcome to hell.

  12. Bobber
    Sep 13, 2017 at 3:02 pm

    The Fed has created a fundamental misstep. It’s failure to exit the markets after 2008 has left many people thinking we live in a managed economy, and they think it is government’s responsibility and desire to protect us from financial failure. I sit here wondering right now whether that is true. The Fed has nullified the concept of risk to such an extent that I can’t say whether I live in a communist state or a democracy. I have no idea how to plan for future, and it appears the only way to survive may be to plan for hyperinflation, take on huge debts, and be wreckless with my finances. When everybody thinks that way, there is safety in numbers.

    As a result, we now have many individuals and businesses that are over-extended and completely dependent on continued government interest rate subsidies and stock price support.

    The Fed needs to go, or it will cause the end of civil society and our democracy.

    • walter map
      Sep 13, 2017 at 8:53 pm

      “The Fed needs to go, or it will cause the end of civil society and our democracy.”

      The Fed’s constituency would burn down the world if it could rule over the ashes.

      Remember, whoever dies with the most money wins. And they have the will and the means to take that to its logical conclusion.

  13. curious cat
    Sep 13, 2017 at 3:06 pm

    In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control, and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely…. In any bureaucratic organization there will be two kinds of people: those who work to further the actual goals of the organization, and those who work for the organization itself. The Iron Law states that in all cases, the second type of person will always gain control of the organization, and will always write the rules under which the organization functions. [Pournelle’s law of Bureaucracy]

    From: Thoughts from the Frontline
    The Future of the Global Economy
    BY JOHN MAULDIN SEPTEMBER 10, 2017

    • nick kelly
      Sep 13, 2017 at 4:06 pm

      The only ‘laws’, things that must be true, are either mathematical or scientific.
      An example of a misnamed ‘law’ is the still often- quoted ‘Moore’s Law’ which states that chip memory storage density will improve and its cost will fall forever, which of course violates actual laws of particle physics.

      Man- made memory density has been plateauing for five years; the theoretical limit of info storage already exists in DNA, where information is stored at the atomic level)

      The nature of reality is that, outside of the above exceptions, there are no ‘always’. As Wittgenstein put it: It is a hypothesis that the sun will rise tomorrow’

      That being said, no doubt the Sir Humphreys, the permanent civil servants, will often have more power than the elected ‘temp’

      But not always. Every now and then along comes a Black Swan e.g. a Hitler, who completely dominates those ‘who work for the organization’.

  14. Drango
    Sep 13, 2017 at 3:30 pm

    If the Fed were forced to revert to overseeing the monetary relations within the financial system, and not allowed to conduct crazy experiments with the wider economy, the economy would be in much better shape. How can a bunch of half-assed academic economists know what will eventually bring back economic health? Things won’t ever get better until the Fed no longer has the authority to screw things up.

  15. Flying Monkey
    Sep 13, 2017 at 3:40 pm

    If find it strange the FED does not play with stock margin rate of 50%. They could lower it from 50% to 40% or lower and take the buying pressure off the market due to cheap rates without having to raise rates.

    They did not use this option in 1929 to cool off buying pressure either.

    They should let the market set the rates anyway. As a manufacturing engineer, people believe they can dick knob a machine and make it run better than the factory optimized settings. Sooner or later the factory mechanic has to be called to restore the machine to the factory settings since it has been dicked with so much.

    It is the same thing with the economy.

  16. raxadian
    Sep 13, 2017 at 4:11 pm

    The rates will raise to at least be as high as they were before the 2009 crisis, that’s the most likely outcome.

    So goodbye cheap credit, the damage is done anyway.

    Oh and retail will become a monopoly stuck in very few hands, I don’t think the main man will be Amazon, Amazon has been very reliant in cheap credit… but who knows?

    Someone shouls compile a list of companies that are not doing bad that will need to be sold due to the end of cheap credit…

    Uber maybe? Uber is sinking and everyone knows it.

  17. Old Engineer
    Sep 13, 2017 at 4:31 pm

    The “markets” are ignoring the Fed because they have figured out that the Fed is unlikely to do anything significant in the way of raising rates. They know that what is left of our economy is entirely and completely dependent on cheap debt. Any significant rise in interest rates would hurt consumers, banks, corporations, and governments.
    So the Fed will take the time honored civil servant bureaucrat action of doing nothing, or very little, and covering up how little they are doing with confusing techno-babble.

  18. cdr
    Sep 13, 2017 at 5:02 pm

    If the Fed wants to regain credibility, it should do something the markets don’t expect, and do it at least 3 times in short order. Raising rates in Sept and stating the balance sheet will be reduced at greater than a snail’s pace are two. Bullard agreeing with it on CNBC is three. Another increase at the next meeting is four. Bullard on CNBC agreeing again to seal the deal. Followed by more rapid rate increases and a constant balance sheet reduction.

    Anything short of this is code for flip flop do nothing globalist pandering.

    I expect the latter.

  19. Alessio
    Sep 13, 2017 at 5:44 pm

    No. Interest rates will not go up. This time is going to be a big entity defaulting on its debt which will bring the world economy into the biggest financial meltdown of human history. It can be China.

  20. Gershon
    Sep 13, 2017 at 6:52 pm
  21. Zach
    Sep 13, 2017 at 10:10 pm

    “The Fed wants to tighten financial conditions. It’s worried about asset prices.”

    I believe that raising rates would be a good thing, but Wolf, and I say this with all respect, you give the impression of willfully ignoring reality at this point.

    Europe and Japan are at negative rates and show no sign of budging. Canada has moved up a bit but they are now dependent on real estate bubbles until commodities revive. The US economy is dependent upon real estate bubbles and stock bubbles.

    I read that Trump is going to pick several Fed governers and it’s likely they will be dovish for the primary reason that the booming stock market is Trumps only accomplishment (not really but you know what I mean).

    So you think Trump will prick both the real estate bubble and stock market bubble on his watch? He is a theatrical personality, and crashing markets makes for bad TV.

    Since the economist that run the world all believe in ultra low rates forever I’m not sure there is any credibility for the FED to lose.

    In addittion Trump made it clear he thinks the dollar is too high, so how does that fit in with raising rates?

    What’s good for the long term health of the economy has gone out the door. Keeping rates low is an imperial, political decision.

    • Sep 13, 2017 at 11:31 pm

      Canada has raised twice this year. Japan has quietly backed off QE. The ECB has backed off QE by €20 billion a month already, and will announce more changes this year. The Fed leads. Other central banks follow. Watch them.

      At a snail’s pace….

      • Gershon
        Sep 14, 2017 at 7:23 am

        It looks to me like the Wall Street-Federal Reserve Looting Syndicate is setting up the muppets for the Mother of All Pump & Dumps. Having created massive economic distortions and asset bubbles with nine years of “emergency monetary measures” and trillions in created-out-of-thin-air “stimulus,” the counterfeiters and racketeers at the Fed have forced or herded millions of yield-seeking retail-investor bag-holders into Wall Street’s rigged casino where they can be fleeced at will. This would be an opportune time, at or near the peak of the Ponzi, for Yellen’s Goldman Sachs handlers and their grifter accomplices to cash out of the pump & dump, go massively short, then order their creature Yellen to hike sharply enough to initiate the Great Muppet Slaughter of 2017, after which Yellen can print up QE4 so her bankster accomplices can buy up the distressed assets of the pauperized middle and working classes for a song.

        Personally, I think the September FOMC meeting will be more of the same: Yellen will mumble incoherently about the supposedly strengthening economy, and recommit to unwinding the Fed’s $4.5 trillion balance sheet, but will then claim that “the data” indicates rate hikes are in play – just not right now. I don’t think her oligarch handlers will give her the signal to hike as long as retail investor marks continue to flock into the Ponzi in its terminal phase. Only if some exogenous event threatens to put a pin to the balloon – such as North Korean bellicosity or a indications of a pending flight to safety out of the central bankers’ debauched fiat currencies and into gold – will the banksters accede to a premature exit from the Wall Street-Federal Reserve pump & dump. But after Da Boyz slip out the back door of the rigged casino with their jackpots, look out below, muppets – the next Fed-engineered crash is going to be one for the books.

        • Frederick
          Sep 14, 2017 at 8:29 am

          Correct Got Gold and Silver? If not you had better get some and soon and NOT paper products but the real McCoy

      • d
        Sep 15, 2017 at 1:28 am

        The one thing western CB’S have yet to achieve is consistency in action hence so many of our GLOBAL problems when Europe WONT cooperate with the US out of pigheaded arrogance.

        The ECB would not QE when it was the time to do so and now they will not stop. 20 billion a month when they are buying junk stocks and bonds left right and center, is an insult to our intelligence.

  22. Realist
    Sep 14, 2017 at 12:37 am

    Maybe what emperor Aurelian did to rein in the rogue Fed of the day, ie the mint of Rome, might be a solution to the scourge of central banks. The surviving leaders apparently had a change of careers, becoming circus stars.

  23. Raymond C Rogers
    Sep 14, 2017 at 7:45 am

    If the Fed is trying to cool things down, what will it do with tax cuts that negate the effects of higher interest rates?

  24. Gershon
    Sep 14, 2017 at 7:46 am

    Even our Soviet-style CPI inflation numbers can no longer conceal the reality that the Fed’s debasement of the currency through its deranged money-printing is causing an erosion of our purchasing power.

    http://www.marketwatch.com/story/higher-rents-gas-boost-inflation-in-august-cpi-shows-2017-09-14

  25. Gershon
    Sep 14, 2017 at 7:57 am

    The number of investors placing big bets against these rigged, broken, manipulated markets seems to be rising, as despite the central bankers’ machinations and interventions, the long-deferred financial reckoning day is slouching closer, along with true price discovery that will be cataclysmic for the Fed’s asset bubbles and the fools who “invested” in the biggest Ponzi in human history.

    https://www.nytimes.com/2017/09/13/business/dealbook/market-volatility.html

  26. Gershon
    Sep 14, 2017 at 8:24 am

    Shelter is more expensive than ever for Americans, thanks to the rampant speculation fueled by the Fed lavishing trillions in “stimulus” on its favored banksters.

    http://www.zerohedge.com/news/2017-09-14/august-consumer-prices-jump-most-january-due-soaring-energy-shelter-costs

  27. beadblonde
    Sep 14, 2017 at 9:37 am

    The markets probably expect Congress to approve the next Fed suggestion that they be allowed to buy equities to support the high asset values. Yes, Congress is complicit. The voters are completely distracted and can’t understand policy so this should be as simple as abolishing the debt ceiling. The better Fed put is installed and the big shots ride their shares to ever greater riches. As the saying goes if you don’t have a seat at the table you’re on the menu. Excuse me while I fantasize about Medicare for one and all.

  28. chris Hauser
    Sep 14, 2017 at 4:27 pm

    gonna sell a little, here and there, just for discipline practice.

  29. Gershon
    Sep 14, 2017 at 4:56 pm

    Another central banker jawboning about fiscal tightening “in coming months.”

    Or maybe after Jesus returns, depending on “the data,” right, Carney?

    And the currency algos respond like Pavlov’s dogs.

    A cynic might suggest that these central bankers are trying to jawbone up their debauched currencies while trying to talk down the price of gold (real, physical bullion, not the make-believe paper gold and silver in EFTs and traded by the bullion banks).

    Guess we’ll see about that supposedly pending monetary tightening “in a few months,” then. Unless, of course, the Fed’s nightmare scenario of millions of sheeple becoming awake and aware of the fraud being perpetrated on them by our central bankers, and exchanging their FedBux, Euros, etc. for tangibles that can’t be debased by central bank money printing comes to pass. In that case, the Fed and its partners in crime are going to have to hike rates further and faster than they ever thought possible to defend their currencies – with catastrophic results on their asset bubbles.

    http://www.telegraph.co.uk/business/2017/09/14/pound-nudges-ahead-key-bank-england-decision/

    • Sep 14, 2017 at 5:47 pm

      The Fed leads, the others follow. BOE will raise rates too. That has already been telegraphed here on this site, in June:

      https://wolfstreet.com/2017/06/28/tightening-slugfest-erupts-behind-the-fed/

      • Gershon
        Sep 14, 2017 at 6:02 pm

        Of course the BoE will raise rates.

        Right around the time of the Rapture.

        • Sep 14, 2017 at 8:12 pm

          November.

        • cdr
          Sep 15, 2017 at 7:09 am

          November Rapture? Too late for me.

    • IAV8
      Sep 18, 2017 at 11:32 am

      Might have something to do with a rapidly aging population.

      Something has to be done to shore up State and Municipal Pensions or there is likely going to be civil unrest. Purchasing power is not on the radar of the soon to be pensioner who is only interested in one thing: 100% of promised “Value”.

      What’s interesting (to me at least) and perhaps ironic is most Americans think Social Security will eventually go Bankrupt and means tested prior to that admission. Not the Municipal Pensioner.

      Shortfalls in aggregate Pension Funding nationwide must be Trillions. It simply doesn’t matter what the “Economy” is doing. Unless The 30 gets to 5% soon, I predict the liquidation of much of what society holds precious to meet the shortfall.

      Yet every rate hike to date has flattened the yield curve. We’ve managed to bounce back thus far.

  30. Gershon
    Sep 15, 2017 at 3:05 pm

    Article reprinted by Zero Hedge. Posters’ comments indicate ZH readers have no illusions about these Fed criminals or their supposed attempts to regain their shattered credibility.

    http://www.zerohedge.com/news/2017-09-15/you-should-take-fed-their-word

  31. Gershon
    Sep 19, 2017 at 5:26 am

    Yet another central banker already walking back his dissembling about mythical future rate hikes.

    http://www.telegraph.co.uk/business/2017/09/19/pound-shakes-mark-carney-speech-warning-limited-gradual-interest/

    • Sep 19, 2017 at 7:08 am

      He is not walking anything back. He is saying there will be rate increases, they’re coming soon, they will be “gradual” (using the same word the Fed has been using all year as it has lifted rates) and they will be “limited,” instead of unlimited or something. Of course, rate increases are going to be “limited.” Everyone knows that. You’re not going to raise rates to infinity.

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