Will the Fed Hike Anytime Soon?

Let’s have a quick Fed recap:

-Fed Funds Futures are now pricing in a 100% chance that the Fed raises rates by a total of
50 bps by the October meeting.

-Futures place a 24% chance of a 75bps increase by October.

-Futures By the January 2009 meeting, we have a 98% chance that Fed Funds rate will be raised by a total of
100 bps to 3%.

Is the Fed likely to be raising rates in this environment? Will we see a new tightening  cycle? Or, is the Fed merely jawboning in response to a more Hawkish ECB?

~~~

What say ye?




 

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. rj commented on Jun 12

    Jawboning – 1 vote

  2. michael schumacher commented on Jun 12

    Fed Schmed… bond market will do it for them

    Look at the 10 year…today alone. Jumbo’s are approaching 7.5% and even the “buy at all costs” Fannie and Freddie are at 6.3X%

    Totally out of the Fed’s control.

    To quote Estragon “Hu’s your daddy”

    That’s who is and will raise rates.

    Ciao
    MS

  3. brion commented on Jun 12

    And Samson said, With the jawbone of an ass, heaps upon heaps, with the jaw of an ass have I slain a thousand men.
    “…or a thousand HELOCS, give or take”

    Judges 15:16

  4. Ian in NZ commented on Jun 12

    The FED does not set rates, the market does, this yield hike is forcing profit taking on winning positions from TRUE inflation noise. Barry I know you know this ! Whats interesting is the JGB 10yr yield, that goes up, borrowing to buy stocks and commodities gets more costly. This is a trend that can create a STOCK MARKET CRASH !

  5. brion commented on Jun 12

    I’m with MS on this..The FED merely has a -remnant of the-illusion- of -control here…..

    I’ve got my Glock and my popcorn BEnnie…..I’m ready for any move you care to make.

  6. Owner Earnings commented on Jun 12

    Unless Ben Bernanke, who knowingly bailed out the housing buble with inflation, turned into Paul Volcker overnight then there is no way in hell he is going to raise rates anytime (years) soon.

  7. jrfar005 commented on Jun 12

    Bene and the boys need one thing…a steep yield curve so their brethren on Wall St can maintain high margins and stay solvent…the steeper the curve gets the better for them…no way they tighten any time soon…no way

  8. tranchefoot commented on Jun 12

    Jawboning, but there’s no way I’d go long bonds anyway, because there’s a chance that if the shit REALLY hits the fan that the Fed will lose all control over long term rates.

  9. Solodoc1 commented on Jun 12

    Strategy brilliant to date to increase spread between Fed funds rate and 10 yr rate. To actually raise would reverse that trend: therefore it’s jawboning.

  10. Mel commented on Jun 12

    Nothing happens before the election. Afterwards, it depends on who wins. In this crazy time, politics rules economics–and that’s why regulators have taken a long vacation–and BB pimps for investment banks. The better question is–Can anything prevent a meltdown?

  11. gregh commented on Jun 12

    does this mean the ARMS that a roll a year from now might go up even higher? damned if they do, damned if they don’t

  12. Chris Noyes commented on Jun 12

    Rates go up this month when his hand is forced by the asian banks .

  13. HCF commented on Jun 12

    The Fed is going to raise rates in the same way the Treasury believes in the strong dollar….

  14. Paul Griffith commented on Jun 12

    The Fed will be forced to raise rates to stem the inflation is has already started.

  15. Winston Munn commented on Jun 12

    With much jawboning about the lowered risk of economic slowdown to cover their tracks, the Fed will do whatever the bond market tells them to do.

    The one thing the Fed cannot do is to monetize to defend the target.

  16. rickrude commented on Jun 12

    who gives a $#@$#%#$!!!, its the chinese
    and the foreigners that determine the fate of the fiat currency

  17. Polar Bear commented on Jun 12

    Is this same futures market that was pricing in Fed Funds at 1% by now back in March. The Fed is a follower, not a leader. The foreign holders of UST are busy giving them back to Bennie and the inflation Jets and the only way to stop the reversal of bond flows is to talk up inflation hawk. Rates up equals financials down hard.

  18. HCF commented on Jun 12

    On a tangential note…

    How is it that most of the talking heads are suddenly so “hawkish”? After 325 basis pts. of cuts in such a short time, the mere possibility of raising by 25 bps in the SECOND half of the year is hawkish? WTF?

    Unfortunately, unlike our favorite BR, most of the commentators on CNBC, etc. are mere cheerleaders without well reasoned arguments (Buy stocks now! Now is the best time! There is NEVER a bad time!). Incidentally, Barry, can you make some sort of bet with Jerry Bowyer or Dennis Kneale or something where when you win it, they have to come on K&C with a pink skirt and pom-poms? That would literally be the highlight of my life.

    I love CNBC, but most of time, I take it about as seriously as Comedy Central

  19. Giovannoni commented on Jun 12

    I say that this policy of the Fed has nothing “economic” per se. Sorry to ask, but how can the Federal Reserve curb inflation coming from increased health care prices, increased education prices, increased oil prices, and increased oil prices? I suggest sending Federal Reserve officials to hospitals, schools, the middle east and, if all of that fails, send them back to farms.
    Since liberalization and the bust of the unions in the early 80s, inflation disappeared.
    If their idea is to curb “imported inflation” by reevaluating the Dollar –good luck. They have millions of investors ready to bet against it.
    If Bernanke has so far avoided a recession, he won’t curb inflation –unless maybe if he brings interest rates in the double digits territory.
    But wait… isn’t Bernanke known for “inflation targeting”? Ha!

  20. leftback commented on Jun 12

    Jawboning. A desperate attempt to break the long oil trade and restore reason to the energy markets in response to demand destruction, before we begin yet another round of dollar depreciation as some truly recessionary statistics start rolling in. Oh… they already have, as you pointed out Barry, take away the smoke and mirrors of the BLS and we are there.

  21. stuart commented on Jun 12

    The Fed is largely jawboning. Moreover, the Fed, except for the discount rate and attempting to manage rates through open market operations, it doesn’t control rates. The markets do and right now the Fed is well behind the market. The Fed is the tail, the markets are the dog. Sure, the Fed can tell the market which direction it would like to see rates move, but that’s it. A deluge of treasuries hitting the market is what is pushing up rates. This is a long term trend dependent upon foreign central banks taking up excess supply. When they do not, prices plummet, rates rise. Lately, foreign central banks have been taking materially less. The Fed can do little in this regard.

  22. Bob A commented on Jun 12

    The fed will try to sabotage Obama. One way or another.

  23. Xavier commented on Jun 12

    where is this information coming from? please let me know.

  24. Mike in NOLA commented on Jun 12

    Ben’s acting like he’s got a bigger you-know-what than Trichet. But we here all know who’s impotent and who’s not.

  25. Hal commented on Jun 12

    if rates increase it will not be avolker like increase.

    So what if rates go up by 25bps? What does it change? Not housing, not auto,s and not the banks who are being helped by a monopoly like game between father and children where the father bails out the kids to keep them going.

    There is no easy solution to the 26 years of prosperity so either we continue the current path till it all falls apart, or someone says “enough”

  26. zackattack commented on Jun 12

    Another vote for jawboning.

    I am wondering if the heightened noise level this week means they know CPI will come in hot.

    Fed has been in zugzwang for a long time, probably knew it and had to decide who should be thrown under the bus.

  27. johnnyvee commented on Jun 12

    Raise rates! LOL I dare the fed to raise rates– “Go ahead. Make my day.”

  28. Ron commented on Jun 12

    1) Housing
    2) Employment (or lack thereof)
    3) Election…see ‘The Age of Turbulence’ where Greenspan says he is blamed for Clinton victory…

    I Double Dog Dare Ben to raise before the elections.

  29. glenn_in_ma commented on Jun 12

    CLASSIC jawboning…nothing more.

    No way, no how the Fed raises rates this year

  30. dug commented on Jun 12

    Jawboning. There is no way the man who believes the depression was caused by not lowering fast or far enough is going to raise rates when the entire banking system is insolvent and the official inflation numbers remain “tame”.

    That said a small increase or two in the next year, still remaining well below the real inflation rate, wouldn’t be surprising. After 9 months of reassurances that everything is contained or resolved it would be difficult not to start acting as though it were true even if it started as a calculated lie.

  31. stuart commented on Jun 12

    If the Fed is aware, privately, of any other bank, whether deposit or Investment bank in serious trouble, there’s not a chance in hell they’ll raise rates…zippo, unless they absolutely want to hand the election to Obama. Who knows, perhaps Bernanke is a huge Obama fan.

  32. ww commented on Jun 12

    I think it is highly probable that the Fed does nothing but talk.

    I was surprised that no one offered that the reason May sales increased so much above expectations was because people were stocking up the pantry before price increases hit, as it is almost a daily occurrence in the grocery store. It will be interesting to see tomorrow what the Consumer Sentiment survey says the expected inflation rate is; it may reflect inflation expectations anchors away!

  33. super-anon commented on Jun 12

    This illustrates why we’re screwed.

    We’re not talking about how businesses and workers can make things better. We’re not talking about how we can make corporatations and government operations more efficient and cost effective. We’re not talking about how we might foster widespread awareness of finance and economics to create a more constructive financial system. We’re not talking about pursuing longer term objectives and investments to create future wealth and opportunity. We’re not talking about developing the sort of trust necessary for commerece. We’re not talking about encouraging education in fields determing critical to our future after careful, honest assessment of our future needs. We’re not talking about punishing and removing those from power who wrought so much destruction either through ignorance or malicious neglect.

    I see no signs we want to use brains and hard work to make the economy better.

    Instead we’re talking about the cost of borrowing pieces of paper. Our focus is on how our economic problems will be solved by shuffling pieces of paper around in just the right way.

    Playing with paper is easy. Building real wealth is hard.

    The fact that we’re almost exclusively focused on the paper option gives me little hope for our future.

    We can’t get past the idea that the Earth is flat because that’s how it looks when we go outside.

    So we focus all our efforts on building an “economy” out of paper promises of wealth, reward, and innovation.

    And because we believe these promises there’s no need for us to put in the effort to create meaningful wealth, innovation, and social progress ourselves.

  34. simon commented on Jun 12

    They are done lowering for now. If they feel they must, they will lower more. That is what they must do to retain credibility and financial stability.

  35. Bill commented on Jun 12

    Fed can’t raise rates – if they do the market crashes – all the investors go to cash – and we have a financial crisis.

    Jawboning.

  36. ScottB commented on Jun 12

    A hearty second to super-anon’s comments. Wonder what it would be like if this country had a real energy policy, and a real manufacturing policy, that took into account the rest of the world. Until recently, our policy has been a strong dollar and free trade. Hm, hasn’t worked very well, has it…

  37. Mich(^IXIC1881) commented on Jun 12

    I think the mortgage rates are going to be a lot higher next year this time…But I am not particularly interested in knowing when Fed raises rates…I think with Oil and food prices where they are, unemployment rising, Fed is busy worrying about anything but the stock market…hence the recent action

    What will it do to the markets when one morning you wake up to hear Ben is shutting down those windows he opened? Why lose money in the bottomless pit, holding worthless mortgages? There is got to be a more useful way to spend that money.

    Too many troubles, too few resources…

  38. magne13 commented on Jun 12

    Jawboning with rhetoric of a stronger dollar? Do we really care at what level the dollar is compared to any other currency? and if so why? We run twin deficits to the tune of needing $2 trn of foreign capital just to keep us a float. We have China and Saudi Arabia printing their currencies to sterilize their profits and to keep them pegged to the dollar. This is not Benny and the boys adding to the inflation it is imported inflation due to other countries manipulating their currencies. The right thing for the FED to do is to drop rates to zero and get the foreigners to dump their pegs, which are artificially creating inflation. Inflation has nothing to do with pricing it has to do with relative value. The FED will not raise rates with negative employment numbers and Benny and co. should get their heads out of their rears and save the banking systems butt by hammering the hedge funds who are fully loaded with short treasury positions. The only concern of zero rates is that it creates excessive spending, well I think banks are to heavily impaired to be spending anytime soon. there is nothing worse than having money than all of a sudden not having it, it is far worse than never having money at all, and trust me the financial industry is learning this the hard way. Cut rates to zero and you will see massive buying of treasuries, massive liquidation of hedge fund shorts and banks reaping heavy arbitrage profits via overnight repos of long securities positions. This whole rhetoric out of Trichet is lunacy, the guy hasn’t touched rates in over a year, but like most euro fans know that it is more about image than reality. We cut rates to zero you will see the Euro drop under par in a heartbeat as every smart player scoops up treasuries on a real arbitrage play, what the hell do you think happened the last time rates dropped to 1%? U.S. Banks were flooded with capital, stocks took off as did housing…Benny has to get out of the media and become more Wizard of Oz and pull the strings not because people ask him to but because he can…magne13

  39. Jeff commented on Jun 12

    The thing I find hardest to believe is that the bond market believes the Fed will raise rates like that.

  40. random guesser commented on Jun 12

    my 1 cent unauthoritative prediction: post-election, regardless of the winning party, Fed jacks up rates and pulls a mini-1982.

    Consumer gets crushed via variable rate debt: credit cards, home equity, ARMs, student loans, etc.

  41. magne13 commented on Jun 12

    Jeff, Big institutions have big economists who sniff inflation and think that there is a text book solution, that we must raise rates in order to combat this, this is the chain of command at institutions trickling down to the trading desks and instituting the “model program” for most likely scenario to occur. The Hedge community has become so big that they think they can force the FED to act a certain way, and at times they can, I think the FED is about through with the market and funds telling them how to set policy. So I think this is more of a setup play that the institution are trying to force the FED that raising rates is the right play however the FED will not concede here due to fictitious inflation of “prices”

  42. Mark E Hoffer commented on Jun 12

    super-anon,

    way to be cogent
    http://www.thefreedictionary.com/cogent

    along those lines, see:

    “The Crack up Boom series has returned due to the enormous amounts of money and credit creation required to save the G7 financial and banking systems. As I have outlined in recent letters, we are only in the second inning of a nine-inning ball game. Over 500 billion dollars will have been created out of “thin air” and it will require over a trillion to rescue the reckless bankers from their journey into the world of speculation and hedge funds in disguise. Their efforts have failed miserably and now they are paying the price of misuse of leverage. This leverage has just continued to get worse, contrary to reports about de-leveraging. Assets which used to be able to be priced as recently as last fall have now moved into the roach motels (see Tedbits Archives for August ’07) known as Level III assets, AKA asset value UNKNOWN.

    Helicopter Ben Bernanke has continued his adventures into the policy of the unknown and the unlimited moral hazard he began when elevated to Chairman of the Federal Reserve. He threw the Federal Reserve on the systemic G7 financial bomb known as Bear Stearns, tipping his hand to the coming socialization of risks of the G7 banking system. This week he stepped over the line again, taking on the role of the US Treasury Secretary, and blew HOT AIR at the dollar exchange market. Pinocchio George and Hank Paulson could no longer be believed when they spoke of a strong dollar policy, so they brought in a new big gun: Helicopter Ben. He is next in line to destroy his personal credibility. Unfortunately for us all, as Big Ben goes so does the credibility of the central bank of the world’s reserve currency–the Federal Reserve. No sooner did he jolt the currency and bond markets with hawkish “hot air” then he turns around the very next day and revs up the printing press by doing a system repo of $27 billion dollars to goose the markets—a complete and total contradiction to his RHETORIC.

    Remember what I have told you: never look at the headlines or their words as they are empty FOOL’S gold. Look at their actions for the real story. An epidemic of illusions are now the only thing most investors have to work with. Truth has succumbed to political expediency in an election year, as it always does. Anyone that takes the time to look at economic reports coming out of G7 governments knows the decision has been made to NEVER give you a clear picture of what’s being reported in the headline numbers, which is what the mainstream financial press splash in front of you. Unemployment numbers, inflation, retail sales, GDP —you name it. All are misleading, to say the least, or outright lies after careful examination.

    Decades of de-industrialization, destruction of industry and wealth creation has now deposited us where are now: inflationary recession known as stagflation. The truth of the economies of the G7 is inconveniently terrible and so it is politically incorrect, so politically correct ones are substituted in their place. Public servants seeking reelection see to it that the MASSES never know the truth.

    Ben’s rhetoric distracted from the ratings downgrades of the dead men walking zombies known as the monoline insurers: Ambac and MBIA. These firms are completely bankrupt, only we haven’t been told yet as politically correct regulators fan the flames of the unfolding insolvency of the G7 banking sectors. Those downgrades mean approximately $100 billion dollars of fresh losses for the major money center and investment banks. I believe insolvency is the correct term for the following firms: General Motors, GMAC, MBIA, Ambac, Lehman brothers, Fannie Mae, Sallie Mae and Freddie Mac to name a few (MORE TO FOLLOW). Citigroup, UBS and JP Morgan Chase are also in bad straits but will NEVER be allowed to fail. Public servants, bought and paid for with political contributions, will do whatever is necessary to underpin these entities. Do you know how much MONEY will have to be printed to rescue them? It is an unimaginable amount. As the founder of the Rothschild banking empire so clearly said:
    http://www.financialsense.com/fsu/editorials/andros/2008/0611.html

  43. js_mcknz commented on Jun 12

    If a rollback of the Bush tax cuts is actually a tax increase, then the Fed’s decision not to cut rates is actually a rate hike. I swear that’s in the minutes somewhere….

  44. DL commented on Jun 12

    We’re not going to see a 3% Fed funds as early as January 2009. By January 2010 maybe, but not 7 months from now.

    I think that this is all tied in with those term auction facilities they have, and all the mortgage paper that they’ve taken. The Fed can’t be raising rates aggressively while they are in possession of so much of this paper. If they force the banks to take back their paper, that would pave the way for a gradual increase to 3% (funds rate).

    My guess is that they’ll give us 25 b.p. in December, but nothing before then.

  45. rj commented on Jun 12

    “Jawboning. There is no way the man who believes the depression was caused by not lowering fast or far enough is going to raise rates when the entire banking system is insolvent and the official inflation numbers remain “tame”.”

    Good point. It was his thesis after all.

    magne13,

    “Do we really care at what level the dollar is compared to any other currency? and if so why?”

    Cause we buy oil in U.S. dollars. If the dollar goes down, the price of oil goes up. And that’s a global phenomenon. No investor likes holding an asset that’s consistently losing value. So the notion of the dollar being the worldwide reserve currency to buy oil with is gone faster than you can say “petroeuro” or “petroruble”. The sad thing about our dollar’s decline is it has worked out best for countries that hate us cause they have/are getting rid of the petrodollar, such as Iran and Russia. Good job American economy/Fed/Wall Street, you’re helping Iran.

    “I think the FED is about through with the market and funds telling them how to set policy.”

    Who do you think holds the seats on the individual Federal Reserve boards? The market, the funds, the banks, etc. That’s why they set policy.

    “This whole rhetoric out of Trichet is lunacy, the guy hasn’t touched rates in over a year, but like most euro fans know that it is more about image than reality. We cut rates to zero you will see the Euro drop under par in a heartbeat as every smart player scoops up treasuries on a real arbitrage play, what the hell do you think happened the last time rates dropped to 1%?”

    Name your price and I’ll take that bet. We can set up something on Paypal.

    “Benny has to get out of the media and become more Wizard of Oz and pull the strings not because people ask him to but because he can”

    The Wizard of Oz was a fraud.

  46. Simon commented on Jun 12

    Jawboneing wins by a wide margin. Place your bets gentlemen

  47. chris commented on Jun 12

    We debate about recession,interest rates, inflation and the dollar level but it seems none of these measures will help an economy which has no manufacturing left. If we were to each recieve 1 million dollars from bush to stimulating the economy these funds would end up abroad in no time.When the hotest technologies (iphone, ipods, x boxes plasma tvs) all thought of in usa but mass produced in china the creators will become richer then rich but the masses in america will be living off government. Will educating our children to be engineers so they will develope ides that will be putting to work other countries really help?

  48. KJ Foehr commented on Jun 12

    Ben, et al, are hoping to pump up the dollar to create a buffer to protect it from falling to new lows when the ECB raises in July. And, as an added big benefit, maybe burst the oil bubble. But the jawboning attempt will fail to achieve either goal, IMO

  49. stuart commented on Jun 12

    DL, “I think that this is all tied in with those term auction facilities they have, and all the mortgage paper that they’ve taken. The Fed can’t be raising rates aggressively while they are in possession of so much of this paper. If they force the banks to take back their paper, that would pave the way for a gradual increase to 3% (funds rate).”

    I think you just nailed it. Much of what the Fed took in is worthless and a rate hike guarantees much more will be worthless. Well the Fed itself would be hurt because with this crap sitting on their books as it deteriorates, they would be unable to put it back to the banks without sending the bank down the chute, which is what they want to avoid in the 1st place…catch-22. A big no to rate hike.

  50. stuart commented on Jun 12

    Forgot to add, with all the recent jawboning, not only from BB, but HP and GB, so then here’s a question, what happens to the dollar if they don’t?

  51. rj commented on Jun 13

    “We debate about recession,interest rates, inflation and the dollar level but it seems none of these measures will help an economy which has no manufacturing left.”

    My factory builds 600 engines a day and is fully employed.

    “Will educating our children to be engineers so they will develope ides that will be putting to work other countries really help?”

    Would preparing them to work at McDonald’s help? Honestly, this country has 312 million people, 200 million have to work. Someone has to make money so other people can make money. If I don’t make money in the factory I work in, then I can’t spend my money which helps other people in the community make money off of me. This is why I get pissed off at Wall Street that thinks manufacturing is dead. What do they think the rest of the country will do in this future? Happily live at $5 an hour at do-nothing jobs/semi-welfare while they were supposed to be making millions in financial servicing?

  52. mhm commented on Jun 13

    They will raise it because that is what they have to do: who wants to buy treasuries and get a negative return?

    But they will wait until an external event shakes the market, then slip in a .25 or .50 to test the waters. (If only to be able to cut again in the future…)

  53. MarkTX commented on Jun 13

    I cannot believe how people/US society FEARS 3% fed fund rates……!!!!!!!!

    Idiots, Idiots, Idiots……

    It speaks volumes when 3% is a make or break deal for the whole US economy!!!!!!!

    When amongst the “new economy” thieves

    There is no shame…..

  54. AGG commented on Jun 13

    They will raise the rates in October because of the bond buyers pulling a disappearing act. We can’t finance our debt without bonds. Bernake would leave rates alone or even lower them more if he could but the fed is out of gas (marsh, methane and capital). Beggars can’t be choosers. They will also be forced to overhaul the TIPS formula with something better than the CPI tie if they want buyers. That will probably happen in 2009. Again they’ll be dragged kicking and screaming but they’ll do it.

  55. jombi commented on Jun 13

    super-anon your comment was on point, truthful and insightful. What every happened to the substance people? It amazes me how people are soo focused on paper and numbers and none at all on the things that define it… It’s about what backs the paper .. Not the crumby number that is printed on it and not how fast you can multiply it. I honestly can’t wait for it all to crash .. I really can’t. I have marked out june and sit anxiously waiting daily.

  56. ARISTOTLE commented on Jun 13

    I think there’s a chance that they could hike at some point in the near future and then end up reversing when the next shoe drops in the credit markets. In the bigger picture Ben B
    will not hesitate to choose inflation over a financial meltdown in the credit markets. Ultimately they’ll cut when reality confronts them.

  57. ZIRP commented on Jun 13

    ZIRPzirpZIRPzirpZIRPzirpZIRPzirp

  58. j-daddy commented on Jun 13

    They know the market would tank if they did raise rates, but they also know that the market would skyrocket if it thought they were going to but then didn’t. So, I too think they’re jawboning. They’re setting us up.

  59. Darin commented on Jun 13

    I think that the FED will indeed raise rates, but only because the need to fund the current account deficit as others have already pointed out. Mortgage rates will be much higher. I think that the Asian banks put Ben in his place last week and will do so again tomorrow. With no chance of a repeat of the 1980 Plaza (Hotel, NY) Accords because the Chinese culturally could never assume the losses that the Japanese and the Germans took on our behalf then, and with our runaway printing, they are going to demand better returns. Now that Bernanke has figured out how to contain the credit crisis through direct loans to primary dealers and ibanks, he doesn’t need to worry about rates as much. The mortgage meltdown is only 33% complete and still need two more majors to capitulate. BTW, I would argue here that rates are less relevant than even five years ago. That doesn’t seem to have been factored into our discussion yet…

  60. Andy Tabbo commented on Jun 13

    I hate to go with the crowd, but I think you’re all correct. There’s no way in hell he raises rates.

    This man was the foremost expert on the GREAT DEPRESSION and HE concluded that there should have been a much more accomodative policy….that it could have been avoided….

    I personally think that’s folly. You cannot avoid deep cyclical downturns when it happens to be your turn.

    Every depression in modern economic times was caused by a real estate collapse.

    If they really think the weaker dollar is causing this runup in energy prices, then they’re fools. It’s only a small part of the issue.

    It’s very clear what needs to happen. Regulatory changes can fix what ails the energy and agricultural sector….but nothing can fix the bursting housing and credit bubble except for low rates.

    – AT

  61. ohemingway commented on Jun 13

    The market almost always leads the Fed. Huge spike in rates across the curve the past few days. Higher rates ahead. Things are going to get ugly.

  62. super-anon commented on Jun 13

    We’re all waiting for the Federal Reserve to do something to make us wealthier.

    Even though the Fed has no stores of real wealth (in the sense of economic output) and no capacity create real wealth.

    It’s literally insane.

    Like hiring a magician to make your ex-wife disappear and bring your favorite dog back to life.

  63. constantnormal commented on Jun 13

    Does anyone believe that a 3% fed funds rate would dampen the inflationary expectations induced by a world full of consumers producing more demand than we have supply?

    Aren’t the only REAL ways to bring these things in line with each other to either:
    a) raise rates so high that the consumers are unequivocally crushed (and 3% simply ain’t a big enough stick for that) or
    b) stimulate economies to produce more via low rates (which we seem to have in spades and 3% would still be low), and “threaten” (aka “jawbone”) to reduce inflationary expectations to whatever extent is possible ?

    I.e., we have the deflationary route or the inflationary route. Perhaps there is some happy middle ground, but I can’t see one. And in any event, the Fed is not the only character in this game — given the ginormous amount of dollars in foreign hands, there are a lot of players.

    I have no clue which path we will take. Probably both.

  64. HK_Vol commented on Jun 13

    Hikes? From a man who just a few months ago dropped rates 75 basis points over the weekend with no scheduled meeting simply because the stock market was to open 500 points lower on a Monday? From a man who accused the Fed of teh early 1930’s of creating the Depression in large part because they raised rates rather than dropped them?

    A strong dollar? Against what? Non-oil inflation is coming from China, which has its currency pegged to a degree against the US Dollar and the currency that all of Congress is urging to appreciate even more (which would drive up import inflation even more).

    As others on this thread have already intimated – the Fed is quickly losing any and all credibility that it had. There will be some excuse not to raise rates. Defaults on ARM’s exploding? Lehman going under? A large regional bank being forced to close by the FDIC? The stock market drops 500 points in 2 days? Whatever. Bernanke has no backbone. I’ll be shocked if he raises rates.

    Notes:
    US import price change from China Y-o-Y: 4.6%
    US import price change Y-o-Y 17.8% (all time record high I believe – at least the highest in over 25 years).
    Michigan survey for 1-year price inflation: 5.2% (highest level in 25 years)

    Inflation is baked into the cake ladies and gentlemen. And even a hike to 3% still puts real rates well below inflation. Look for 10 years to continue to rise in price.

  65. Jas commented on Jun 13

    Lehman did a piece this week where in the last couple cycles the Fed didn’t tighten until unemployment peaked. Is 5.5% peak unemployment? I think not.

  66. HK_Vol commented on Jun 13

    Correction:
    I look for 10-year notes to rise in YIELD. Prices for 10-year notes should decline.

  67. W P Gardner commented on Jun 13

    Remember that the Fed Funds futures market, like any hedging market, is not driven by what people want to happen. Nor is it driven by what they think is likely. It is driven by how much exposure people already have. Players who would be very exposed to a rate hike now are going to “bet” that there will be one, as a kind of insurance. I believe there will be no rate hikes in the US in 2008 and that you are just seeing players hedge their bets (because no one is very confident of any prediction right now).

  68. winslow commented on Jun 13

    The politicos led us to the abyss because it was good business. Now it is being demonstrated they were totally wrong…and yet, they will never see it.

  69. chris commented on Jun 13

    My factory builds 600 engines a day and is fully employed. You my friend would be one of the few, if you look at the big picture you would notice the greedy manufactures have gone abroad 15 yrs ago and now the manufactures with some morales see the can not compete with those same american companies which went abroad and now they have to follow.Would preparing them to work at McDonald’s help Explain this to the parents who spent for college on computer software/engineers and saw those jobs end up in india

  70. rockitz commented on Jun 15

    Bennie and the Feds
    (sung to Elton John and Bernie Taupin’s Bennie and the Jets)

    Hey kids, shake it loose together
    The shit’s hittin’ something
    That’ll turn us into debtors
    He’ll kill the US dollar tonight
    So stick around
    You’re gonna hear lotsa fast talkin’
    But it won’t rebound

    Say, B’rack and Johnny, have you seen them yet
    But they’re so spaced out, Bennie and the Feds
    Oh but they’re r’vered and they’re wonderful
    Oh Bennie he’s printin’ green
    He’s got a new ruse you can’t refute
    You know I read it in a magazine
    Bennie and the Feds

    Hey kids, plug into dollar distress
    Insiders are unwindin’
    Since Bennie makes them worthless
    We shall survive, let us take the Euro long
    As we fight our leaders out in the streets
    To find who’s right and who’s wrong

  71. Winston Munn commented on Jun 15

    “I gloomily came to the ironic conclusion that if you take a highly intelligent person and give them the best possible, elite education, then you will most likely wind up with an academic who is completely impervious to reality.” – Halton Arp

Read this next.

Posted Under