Fed Didn’t See Economic Reasons to Cut Rates, Admits Cutting for Other Reasons: My Fancy-Schmancy “Fed Hawk-o-Meter”

Fed Sent Big-Fat Message on “U.S.-China Trade Tensions” to White House.

The Fed did a lot of heavy breathing over “trade uncertainty” and “trade tensions” during the September 17-18 FOMC meeting, according to the minutes, released this afternoon. The word “trade” was mentioned 26 times in the minutes, in phrases like these:

  • “Trade tensions” (12 times), including:
    • “U.S.-China trade tensions” (4), for example, “increase in U.S.-China trade tensions”
    • “Escalation of trade tensions between China and the United States”
    • “Escalation in international trade tensions”
    • “Escalating trade tensions”
    • “Easing of U.S.­China trade tensions”
    • “International trade tensions and foreign economic developments”
    • “Trade tensions and adverse developments in the geopolitical and global economic spheres”
    • “Effects of trade tensions on their businesses.”
  • “Trade policy” (5 times), including “trade policy uncertainty” (2) and “trade policy concerns.”
  • “Trade uncertainty” (4 times)
  • “Trade tariffs” in “persistent drag from trade tariffs
  • “Uncertainty concerning trade.”

By making the “trade tensions” front and center of its economic picture, it’s sending a big-fat message with these minutes to the White House, on top of the messages Fed Chair Jerome Powell and Fed governors have already sent in their speeches, and on top of the messages sent in prior minutes, saying, look, this is your creation, there isn’t a whole lot we can do about it if you don’t get this resolved soon, and we’re washing our hands of it.

The word Brexit was used three times, lumped in with a long laundry list of the other international entanglements, such as:

 “…including trade tensions between the United States and China, developments in Europe, political tensions in Hong Kong, uncertainties related to Brexit, and escalating geopolitical tension in the Middle East following attacks on Saudi oil facilities.”

“Participants also noted that there continued to be a significant probability of a no-deal Brexit, and that geopolitical tensions had increased in Hong Kong and the Middle East.

The Fed has some other worries, including slow business investment, and is trying to figure out how to “promote” a more rapid dwindling of the purchasing power of the dollar.

But what matters the most — being about 70% of the economy — consumer spending is “strong” supported by a “strong” labor market. And so how does all this wash out in numbers?

My fancy-schmancy Fed Hawk-o-Meter analyzes the minutes for how the Fed sees the economy, by counting how often “strong,” “strongly,” and “stronger” appear in the minutes to describe the current economy. For the September meeting, the Hawk-o-Meter dropped 5 points, back to the same level of the July meeting, staying in the same range since the December meeting, and still above the red line.

This means that the Fed didn’t really see a lot of economic reasons to cut its policy rates, but admitted by the way it sees the economy that it cut them anyway for other reasons:

The words “strong,” “strongly,” and “stronger” appeared 23 times in the minutes of the September meeting. Three of them were “false positives” because they were used in a different context, unrelated to the current economy, or were used in a negative sense as in “slowing … from its strong second-quarter pace.” I remove the three false positives from the tally.

And there was a tidbit about markets being a little overenthusiastic about their rate-cut expectations, and how the Fed should go about nudging those expectations back on track:

“A few participants judged that the expectations regarding the path of the federal funds rate implied by prices in financial markets were currently suggesting greater provision of accommodation at coming meetings than they saw as appropriate and that it might become necessary for the Committee to seek a better alignment of market expectations regarding the policy rate path with policymakers’ own expectations for that path.

“Several participants suggested that the Committee’s postmeeting statement should provide more clarity about when the recalibration of the level of the policy rate in response to trade uncertainty would likely come to an end.

And as usual by now, the “two members” of the FOMC who voted to keep rates unchanged – Esther George, and Eric Rosengren, as we know from their own statements – were concerned that cutting rates “during a period of high economic activity and elevated asset prices could have adverse consequences for financial stability.” Yup, they’re considered “hawks” for just stating the obvious.

The Fed’s balance sheet jumped by $184 billion over the past month, to $3.95 trillion, mainly a result of the New York Fed’s repo operations. Read… Repos Boost Fed’s Assets by $181 Billion

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  48 comments for “Fed Didn’t See Economic Reasons to Cut Rates, Admits Cutting for Other Reasons: My Fancy-Schmancy “Fed Hawk-o-Meter”

  1. Bobber says:

    The Fed has has continually cut rates to try and avoid deflation. The interest rate chart over the past 20 years looks like a slide at the playground – down then level at the bottom.

    It is this continual lowering of rates that allowed the economy to grow a modest amount every year. Now that rates are low, tax cuts are done with, and fiscal deficits are already too big to handle, doesn’t this mean deflation is inevitable in the not too distant future? They are all out of stimulus.

    • Vespa P200E says:

      BoJ has been fighting deflation for 15+ years resorting to ZIRP long before other CBs and is the LARGEST shareholder of Japanese stocks. Well, don’t think it worked out well. God forbid the Feds to follow BoJ’s modus operandi…

      The Fed’s balance sheet expansion (which bank(s) are being bailed out when all big US banks supposedly “passed” the stress test?), and declaring cloaked QE4 this week portend not so STRONG economies as their actions are contrary to their words and seems like beyond Bernanke’s infamous obfuscated words.

      From Nikkei few months ago:

      Bank of Japan to be top shareholder of Japan stocks

      The Bank of Japan will overtake a state-run pension fund as the top shareholder in Tokyo-listed companies as early as 2020, Nikkei calculations show, as concerns rise regarding the central bank’s outsize role in the nation’s capital market.

      The BOJ held over 28 trillion yen ($250 billion) in exchange-traded funds as of the end of March — 4.7% of the total market capitalization of the first section of the Tokyo Stock Exchange.”

    • GP says:

      Fed is a bastion of knowledge and wisdom. What would we do without them? [sarcasm; in case it wasn’t obvious].

      Tax cuts are done with? We are just getting started. Revenue up by 4% this year due to ‘tax cuts’ (https://www.cbo.gov/publication/55699#section0).

      Next up is savings – end to endless wars. Review/end of government spending where it shouldn’t be spending.

      • Wolf Richter says:


        You KEEP FORGETTING in your statements that GDP (nominal) grew 4% too. And revenues just kept up with GDP growth. But with debt and deficits of the magnitude the US has, revenues should outgrow GDP in good times, because it’s going to reverse in bad times.

        • GP says:

          Why are you trying revenue growth with GDP only now when that hasn’t been the case in the past years?

          Spendings that contribute to the deficits have been rising much beyond the GDP growth levels (numbers in the report I linked).

          You also seem to overlook the very reason for the good times – tax cuts and lower regulations.

        • Wolf Richter says:

          Look, I like my corporate tax cut as much as anyone. My little corporation benefited from it. But like most corporations, it didn’t need the tax cut, and like most corporations, it’s not spending a dime more because of it. In fact, I’m now keeping more of my income in the corporation rather than taking it personally, because it’s taxed at a lower rate there. That does nothing for the economy but saves me money that I’m not spending, and that the government needs to borrow now because it’s not getting it from my company.

          In other words, these tax cuts were stupid from an America-first point of view. But they were great from a Corporation-fist point of view. They made the fiscal future of the US even darker. But sure, my little company, like Google and Microsoft, gets to save some money on taxes. We should just abolish taxes and watch tax revenues skyrocket or something.

        • GP says:

          Revenue from corporate taxes have increased too (it’s in the report).

          I understand the general tendency to associate the word corporation with only huge corporations (Google, Microsoft, et.al.). Barber shops, auto shops, clinics, coffee shops, Wolfstreet Inc etc – which provide livelihood for millions unfairly get bunched together with mega corps.

      • Bobber says:


        You are totally misrepresenting the CBO report to confirm a political bias or perhaps be intentionally misleading. Where does it say the increase in tax revenues is attributable to tax cuts? The biggest contributor to the increase in tax revenues was payroll taxes, which were not even subject of the Tax Cuts and Jobs Act.

        The report you reference is produced by the Congressional Budget Office (CBO), which is on record as saying the tax cuts will increase the debt by approximately $2T after consideration of macroeconomic feedback effects.

        When you say tax cuts lead to more tax revenue, you use the same logic as the Fed, which tries to tackle a debt problem by encouraging more debt.

        • Bobber says:

          Clarification: the payroll would be impacted somewhat by small individual tax cuts, but the the bulk of the TCJA was a corporate tax reduction of 40%. The increase in payroll tax was attributable to increases in employment, not so much changes to the individual tax rates.

        • GP says:


          I am not misrepresenting anything.

          The law spurred new hiring which in turn caused higher revenues from personal taxes and payroll taxes (higher tax base – which more than compensated for lower tax rates).

          If you are talking about CBO projections, that’s been historically very poor indication of what actually happens next.

          If you compare actual tax revenues of past 10 years with what they had projected you will see how pathetic they are with their estimates.

        • Gandalf says:

          You guy are arguing about the Reagan era Laffer Curve. The TRUTH behind the Laffer Curve, which even Laffer himself has admitted is:
          1. Cutting taxes, whether corporate or personal, does stimulate growth in the private sector.
          2. The increased tax revenue from this growth almost NEVER overcomes the loss of government revenue from the tax cut. Federal debt almost always increases with tax cuts, as a result

          There are many things that only government can do. Medicare, Medicaid, and Social Security make up 2/3 of Federal government spending. Which means:
          1. Defense spending is not the biggest drain on Federal spending, keeping grandma alive is.
          2. The U.S. is already a socialist democracy, just like Europe. The difference is that we spend huge amounts of socialist dollars on old people – European countries ABSOLUTELY DO NOT
          3. My theory as to why this is so is because old people in the US VOTE at far higher rates than young people, especially in key swing states like Florida

        • GP says:


          Laffer curve was a back of an envelope thought process – not based on research or empirical evidence. Too much credence is given to it.

          Your assertion about revenues is incorrect. Deficits are function of revenue and spending. Tax cuts don’t affect spending (no checks are sent out) – it only affects revenue. Historical evidence points to rise in revenue after tax cuts (incl the 4% jump in fiscal year 2018-19).

          As Wolf has stated earlier (perhaps in another post) military spending doesn’t show up in just defense budget. They are spread across multiple budget line items across multiple spending categories.

      • Setarcos says:

        Much agreed on tax cuts. The state I live in impacts my personal after-tax net by only 5 figures, but I am still considering spending my time where that can drop to my personal bottom line. The calculus for a US corporation with operations abroad was simpler and much more compelling …and with tax inversions execs don’t even have to move. Inversions were coming so fast and hard a few years ago, that there was a lot of hand wringing and strategies for trying to stop it. I cannot recall a major inversion the past couple of years.

  2. Vespa P200E says:

    The Fed is not independent and beholden to the banksters and Trump who all demand the lower rates. They say the economy is doing well and all and foresee “no” recession which the economists are terrible in predicting till we’re well in the midst of it.

    Now I can see the Fed lowering rates when the market tanks 20% plus but lowering rates when the indexes are near all-time high means either the economy is really about to tank or corporate welfare to enrich banks and those well to do.

    And the Fed not holding onto the rate decrease “ammos” till the market really “needs” them but shooting the wads too early may mean ZIRP in USA sooner than later.

    • d says:

      They way Foreign QE is working is that it is blowing HUGE bubbles in the US economy and driving the $ through the roof as the $ is the only safe Major currency in town paying any %.

      The sand pit tantrum trade actions by P 45 simply make things even worse for the fed as when P 45 is not throwing a tantrum over trade he is demanding NIRP and behaving even worse than before when he does not get it.

      There is a way out of this interest rate forigen forigen QE trap, however this requires Congress and P 45 to help the FED. Something they are not interested in doing as they think they should get the Interest rate P 45 wants.

  3. passingthrough says:

    Cutting rates is a race to the bottom, taking away incentive to save for the future — instead, supporting a very hyper-shorted quest by the wealthy to steal as much as they can.

    Also see: The tipping point came last year when the Tax Cuts and Jobs Act, which was signed into law by President Donald Trump at the end of 2017, took effect. While Mr. Trump vowed that middle-class families would be helped by the tax overhaul, experts say most working-class families saw only a minimal benefit, while the wealthiest citizens got the lion’s share of breaks. In fact, Saez and Zucman argue, the Tax Cuts and Jobs Act turned the tax system on its head.

  4. Bob Hoye says:

    Why do central banks “fight” deflation? Or even better no ‘flation at all.
    Just think–something merchants, artisans, traders and farmers have needed for centuries.
    A sound currency.
    But some idiot savants have a theory that unless they are depreciating the dollar something bad will happen.

    • bungee says:

      Bob Hoye (enjoy hearing you on goldseekradio btw),
      The banks want expansion and that takes credit. To keep expanding they make the debts easier to repay. The merchants, artisans, and traders eagerly accept, nay demand easier monetary policy in order to run their businesses.

      It is the savers, those who have already worked and have a surplus to store, that need your ‘sound money.’ They’ll never get it though (haha), so just buy gold.

      • bungee says:

        Btw that goes for farmers too. Especially farmers. They are notoriously eager for easing the repayments of debts.

      • R2D2 says:

        The Fed messed up and lifted interest rates too early and too fast in 2018.

        This smashed US confidence and effectively unwound all the good work Trump has been doing to rebalance US-China-Rest-of-World trade.

        The US is increasingly looking like the UK of the 1950s… Still a global giant, but wobbling. China is on the cusp of taking over economically, while Russia and China are doing the same militarily.

        • There is no consensus on this, Bernanke raised the 37′ Fed’s too early rate hike decision as precedent, so far no one is tagging this Fed for making the same historic blunder, but give them time. Powell is already a whipping boy of sorts. Fed chiefs (and presidents) create a legacy in crisis. Right now everybody needs one, blowing up this trade deal would a good place to start.

        • Craig says:


          I wonder if you will get the four day work week due to energy shortages soon.

  5. Double D says:

    The FED doesn’t have much ammo left & they know it. They’re boxed into a corner in a no-win situation. They didn’t see a lot of economic reasons to cut policy rates but it did them anyway for other reasons. Translated as: we don’t know what’s going to happen, but we have needed to do something to convey a picture of conviction & control.

    Markets have been hinging on the fact that there will be continued accommodative monetary policy, & any progress with Trade Talks which isn’t happening. After all of the false propaganda not delivering results, there isn’t much left that can be done. But lucky for them, The Middle East is always a fertile ground for chaos.

  6. Wes says:

    I enjoy your Hawk-O-Meter analogy Mr. Richter. It’s been said that the trade war between the US and China has had a negative impact on Europe, mainly Germany’s manufacturing sector which is dependent on trade with a China. Since the beginning of Brexit the GBP has fallen into the 1.20 range almost gaining parity with the Euro which has been trading in the 1.10 range. Maybe there is good reason to prolong Brexit? I spoke recently with an Englishman who referred to Brexit as being a swear word in England. I also agree with your premise that Powell and the FOMC has placed the onus where it belongs.

  7. 2banana says:

    It is comforting to know the Fed is an independent and objective organization looking out for the common man’s best interest.

    Oh wait…

    Former Fed Official Who Says the Fed Should Let the Economy Tank to Hurt Trump


    • nick kelly says:

      A former Fed official has no more relation to current Fed policy than you or me.
      Dudley was widely denounced by many other former Feds.

    • Setarcos says:

      Yep, Dudley publicly ripped his own mask off for all to see and showed how little he actually cares about main street and the economy. He is former vice chair of the FOMC, not some fringe member.

      “States are as the men are; they grow out of human characters.” “Like State, like man.” – Plato

      Nothing has ever really changed … though we might be the most distracted we have ever been.

      • nick kelly says:

        Have you two seen the avalanche of former State officials criticizing current State, and former Intel guys (Clapper etc) criticizing current Intel and former DOJ guys criticizing current DOJ (a Niagara)

        Dudley has nothing to do with current Fed policy.
        Any influence he might have on sitting members is long gone now.

        • nick kelly says:

          Just suppose there was a Deep State type movement inside the Fed to hurt Trump.
          How do you think the cabal would feel about Dudley revealing it?

        • Setarcos says:

          Nick, he was vice chair and yes, thankfully for main street not currently vice chair. Interesting that you bring Clapper into this. At least Dudley ripped his own mask off.

  8. Old Engineer says:

    Yet no word on the liquidity problem that one or more of the Fed’s favored repo banks is having? That seems to be the most serious concern right now and the secrecy surrounding it makes it seem like it must be an even worse problem than we think. That problem seems to be getting worse rather than better. And yet silence?

  9. Old Dog says:

    Thanks for the Fedspeak to English translation. Those people contort the language to produce the most convoluted, byzantine, tortuous, serpentine way to express the simplest things. If they wanted to rebuke the Whitehouse, they could have said, “You @%#$, and your #$%!* antics are destabilizing the country’s financial stability. Don’t blame us for your #*%^!”

    Imagine if Jerome Powell used the same language to convey to Mrs. Powell that he wants to get laid.

    My dearly beloved, may I bring to your attention that the restlessness of my reproductive related urges has reached levels unseen in a considerable amount of time. I’d like to suggest a position of mutual accommodation at our next marital encounter so that the ensuing alignment of our physical frameworks results in an acceptable outcome of our respective expectations.

    • Pelican says:

      “I’d like to suggest a position of mutual accommodation at our next marital encounter so that the ensuing alignment of our physical frameworks results in an acceptable outcome of our respective expectations.”


    • Saltcreep says:

      “Dear Mr. Powell,

      We would like to sincerely thank you for your interest.

      We are aware of the concerns voiced in respect of removal of measures that have been employed in the past to stimulate and relieve certain household sectors, and have carefully considered forward looking scenarios based on recent data trends.

      Currently 50% of household members respond positively to a continued withholding of further stimulus measures, and furthermore, household activity in other sectors is presently at less than satisfactory levels, so we wish upcoming policy to instead address observed shortfalls in domestic infrastructure maintenance and in bodily emissions controls.

      Our concerns must further address potential overheating that has in the past resulted from excess stimulus directed at targeted household entities. We therefore foresee an extension of the ongoing tightening cycle affecting the bedroom services sector, and we project that the affected participants, based on evidence of a strong pick up in internal demand driven motivations, are now capable of supporting themselves through auto-stimulative activites.”

    • nick kelly says:

      Seriously. when Greenspan proposed the lady at first had no idea what he was talking about.

  10. Brant Lee says:

    Any trade agreement between the US and China seems to be going nowhere fast. Especially now since Hong Kong is nearing a breaking point. Basketball anyone when China unloads on the protesters?

  11. unit472 says:

    Central Banks measure things with money/GDP. In their world Alphabet/Google is more valuable than Boeing, GM and Ford put together because its market cap is higher. . Google’s revenues come mostly from advertising. It makes a lot of money from it since it doesn’t even have to create the ads just target them. Problem is in order sell ads there has to be products and services to advertise otherwise Haiti need only develop a platform for advertisers and prosper. No need to actually make anything.

    Trade, in and of itself, produces nothing. Kuwait selling oil to Saudi Arabia and Saudi Arabia buying Kuwaiti oil in return might benefit some tanker owners but that is it! Since neither country produces much beyond oil they have to ‘trade’ with countries who produce things to survive.

    Powell and his ilk would be content with a hollowed out America that did nothing but trade money and flip real estate as ‘money’ is all Powell has to offer.

    • Pelican says:

      I feel sorry for Powell. The man tried to do the right thing at least until seemingly caving to pressure (the twitter-storm/name-calling) in recent months. I wish he stood his ground and didn’t reverse course.

      His predecessors – a whole different story.

  12. Patrick says:

    Trade tensions or not, I’m beginning to think that the only data point the Fed watches is the ‘market odds’ on the next rate cut. Given that, I’m certain they’ll be cutting in every meeting until zero.

    It seems Jerome ‘Not an easing cycle’ Powell is on track for his 3rd rate cut in a row solely to avoid disappointing markets. A couple meetings ago it was almost comical how Powell claimed they could instead raise rates ‘if they really wanted to’, but was quick to correct that they wouldn’t do that; almost as if terrified that even such a blatant lie might spook algos for enough milliseconds to send the S&P into free fall.

  13. MD says:

    El Presidente wants – nay, DEMANDS – the DJ to hit 30,000…and if he doesn’t get it he’ll scream and scream, stamp his feet and hold his breath until he’s dead and then you’ll all be sorry oh yes.

  14. John says:

    Thanks Wolf, nobody knows, I sure don’t. When they started raising I thought they were going to keep it up. I don’t think they know either. I know one thing, without corporations, we don’t stand a chance.

  15. Dave k. says:

    Haven’t tax revenues been at an all time high since the tax cuts?

  16. Ian Davies says:

    My take would be different: Trump is breathing down my neck for rate cuts so although we don’t need them lets say that it is trade tensions that warrant it so he leaves me alone.

  17. The Fed can raise or cut what matters is the spread between UST and EU bonds, and that spread is narrowing. Any implied rise in US rates would bring out buyers in droves and probably send Europe into a depression. Higher rates would not help the US economy either. The dollar is the sacrificial lamb, but is untouchable really because of those same market forces. so it’s surrogate the US Treasury bond, our debt, is going to reflect the change. Downgrades coming.

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