Up Up and Away Interest Rates Will Go — Until The Next Recession Hits — Fed Debates Use of Word Patient — It Is The Economy Stupid, Not The Stock Market and Wealth Effect — The Coming Deflation Caused By The Fed? — The Failure of Command and Control of Money’s Price — Interest Rates — Videos

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The Pronk Pops Show Podcasts

Pronk Pops Show 427: March 16, 2015

Pronk Pops Show 426: March 6, 2015

Pronk Pops Show 425: March 4, 2015

Pronk Pops Show 424: March 2, 2015

Pronk Pops Show 423: February 26, 2015

Pronk Pops Show 422: February 25, 2015 

Pronk Pops Show 421: February 20, 2015

Pronk Pops Show 420: February 19, 2015

Pronk Pops Show 419: February 18, 2015

Pronk Pops Show 418: February 16, 2015

Pronk Pops Show 417: February 13, 2015

Pronk Pops Show 416: February 12, 2015

Pronk Pops Show 415: February 11, 2015

Pronk Pops Show 414: February 10, 2015

Pronk Pops Show 413: February 9, 2015

Pronk Pops Show 412: February 6, 2015

Pronk Pops Show 411: February 5, 2015

Pronk Pops Show 410: February 4, 2015

Pronk Pops Show 409: February 3, 2015

Pronk Pops Show 408: February 2, 2015

Pronk Pops Show 407: January 30, 2015

Pronk Pops Show 406: January 29, 2015

Pronk Pops Show 405: January 28, 2015

Pronk Pops Show 404: January 27, 2015

Pronk Pops Show 403: January 26, 2015

Pronk Pops Show 402: January 23, 2015

Pronk Pops Show 401: January 22, 2015

Pronk Pops Show 400: January 21, 2015

Pronk Pops Show 399: January 16, 2015

Pronk Pops Show 398: January 15, 2015

Pronk Pops Show 397: January 14, 2015

Pronk Pops Show 396: January 13, 2015

Pronk Pops Show 395: January 12, 2015

Pronk Pops Show 394: January 7, 2015

Pronk Pops Show 393: January 5, 2015

Pronk Pops Show 392: December 19, 2014

Pronk Pops Show 391: December 18, 2014

Pronk Pops Show 390: December 17, 2014

Pronk Pops Show 389: December 16, 2014

Pronk Pops Show 388: December 15, 2014

Pronk Pops Show 387: December 12, 2014

Pronk Pops Show 386: December 11, 2014

Pronk Pops Show 385: December 9, 2014

Pronk Pops Show 384: December 8, 2014

Pronk Pops Show 383: December 5, 2014

Pronk Pops Show 382: December 4, 2014

Pronk Pops Show 381: December 3, 2014

Pronk Pops Show 380: December 1, 2014

Story 1: Up Up and Away Interest Rates Will Go — Until The Next Recession Hits — Fed Debates Use of Word Patient — It Is The Economy Stupid, Not The Stock Market and Wealth Effect — The Coming Deflation Caused By The Fed? — The Failure of Command and Control of Money’s Price — Interest Rates — Videos

Janet Yellennot completeFederal Reserve Board Of Governors Commemorates 100th Anniversary Of Federal Reserve Act
stay the3 coursefederal funds rate

Fed-Funds 03_Fed Balance SheetCentral-bank-balance-sheetsfed_funds_rate_qe_1_2_3Fed-AssetsFed-Balance-sheetFed-Balance-Sheet-SP500-010815 Fed-Balance-Sheet-VS-SP500-112013Federal-Reserve-Asset-Composition-QE (1)
gold federal balance sheet Mortgage-Backed-Securities-held-by-the-Federal-Reserve-All-Maturities.1 peter-catranis-fed-funds1 sp federal balance sheet

Up Up and Away

Fifth Dimension – Up Up & Away , My Beautiful Balloon

Janet Yellen’s Senate Testimony in Two Minutes

The Fed is Trapped in ZIRP World

Keiser Report: Derp-like policy of ZIRP and NIRP (E613)

Federal Reserve Chair Janet Yellen: 5.7% Unemployment Rate Paints Rosier Picture Than U-6 Rate

Yellen Says Fed Still ‘patient’ on Raising Rates

Peter Schiff on The Strong Dollar, U.S. market risk and Fed Chair Janet Yellen

Jim Rickards on Fed Chair Janet Yellen and The Strong Dollar

What is QUANTiTATIVE EASING | Federal Reserve (Central Banks)

Fed Caused Oil Crash, Stocks Next

The Fed, interest rates, and the markets

When will the Fed raise interest rates

Plosser: Deflation not a risk to US economy

Michael Snyder- Deflation then Inflation Through the Roof

ECONOMIC COLLAPSE Gold Manipulation, Wages Decline, Inflation, Deflation. Print

Milton Friedman – Abolish The Fed

Peter Schiff: Why We Should END the Fed?

Milton Friedman Explains the Cause of the Great Depression

Milton Friedman On John Maynard Keynes

Murray Rothbard on Economic Recessions

Deflation the Biggest Risk of the Economic Crisis? – Janet Yellen

Fed Reserve Janet Yellen Wont Raise Interest Rates To Fight Bubbles

The Fed and Fractional Reserve Banking Caused the Great Depression – Milton Friedman

Milton Friedman – Money and Inflation

Milton Friedman – Monetary Revolutions

Milton Friedman on Money / Monetary Policy (Federal Reserve) Part 1

Milton Friedman on Money / Monetary Policy (Federal Reserve) Part 2

Booms and Busts, Mises vs Keynes – And Religion As a Bulwark against Tyranny

NEW WORLD ORDER 2015 ECONOMIC COLLAPSE

Colorful Time-Lapse of Hot Air Balloons in New Mexico

Abba – Money, Money, Money

WHAT IT MEANS IF FED NO LONGER SAYS IT’S ‘PATIENT’ ON RATES

For the Federal Reserve, patience may no longer be a virtue.

Surrounding the Fed’s policy meeting this week is the widespread expectation that it will no longer use the word “patient” to describe its stance on raising interest rates from record lows.

The big question is: What will that mean?

Many economists say the dropping of “patience” would signal that the Fed plans to start raising rates in June to reflect a steadily strengthening U.S. job market. Others foresee no rate hike before September. And a few predict no increase before year’s end at the earliest.

Complicating the decision is a surging U.S. dollar, which is keeping inflation far below the Fed’s target rate and posing a threat to U.S. corporate profits and possibly to the economy. A rate increase could send the dollar even higher.

In a statement it will issue when its meeting ends Wednesday and in a news conference Chair Janet Yellen will hold afterward, the Fed isn’t likely to telegraph its timetable. Yellen has said that any decision to raise rates will reflect the latest economic data and that the Fed must remain flexible.

Still, nervous investors have been selling stocks out of concern that a rate increase – which could slow borrowing and spending and weigh on the economy – is coming soon.

“I think the odds are better than 50-50 that the Fed … will drop the word `patient’ at the March meeting, and that would put an initial rate hike in play, perhaps as early as the June meeting,” said David Jones, author of several books about the Fed.

Historically, the Fed raises rates as the economy strengthens in order to control growth and prevent inflation from overheating. Over the past 12 months, U.S. employers have added a solid 200,000-plus jobs every month. And unemployment has reached a seven-year low of 5.5 percent, the top of the range the Fed has said is consistent with a healthy economy.

The trouble is that the Fed isn’t meeting its other major policy goal – achieving stable inflation, which it defines as annual price increases of around 2 percent. According to the Fed’s preferred inflation gauge, prices rose just 0.2 percent over the past 12 months. In part, excessively low U.S. inflation reflects sinking energy prices and the dollar’s rising value, which lowers the prices of goods imported to the United States.

It isn’t just inflation that remains below optimal levels. Though the job market has been strong, the overall economy has yet to regain full health. The economy slowed to a tepid 2.2 percent annual rate in the October-December quarter, and economists generally think the current quarter might be even weaker. Manufacturers are struggling with falling exports, partly because of the strong dollar, and consumers – the drivers of the economy – have seemed reluctant to spend their windfall savings from cheaper energy.

What’s more, pay for many workers remains stagnant, and there are 6.6 million part-timers who can’t find full-time jobs – nearly 50 percent more than in 2007, before the recession began.

For those reasons, some analysts think it would be premature to raise rates soon.

“The last thing the Fed wants to do right now is spook the markets and the economy into an even slower growth trajectory,” said Brian Bethune, an economics professor at Tufts University.

After it met in December, the Fed said for the first time that it would be “patient’ about raising rates. Yellen said that meant there would be no increase at the Fed’s next two meetings. And in testimony to Congress last month, she cautioned that even when “patient” is dropped, it won’t necessarily signal an imminent rate hike – only that the Fed will think the economy has improved enough for it to consider a rate increase on a “meeting-by-meeting basis.”

Some economists say the Fed may tweak its policy statement this week to signal that a higher inflation outlook would be needed before any rate hike. And they expect the Fed to go further in coming months to ready investors for the inevitable.

“The process is going to be glacial,” said Diane Swonk, chief economist at Mesirow Financial in Chicago. “They want to prepare the markets for change, but they don’t want to scare them.”

Though Swonk thinks the Fed will drop “patient” from its statement this week, she doesn’t expect a rate hike before September. Even then, she foresees only small increases in its benchmark rate.

Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University, suggested that the Fed’s strategy in beginning to raise rates won’t be to slow the economy. Rather, he thinks the goal will be to manage the expectations of investors, some of whom weren’t even in business in 2004, the last time the Fed began raising rates.

“The Fed is just trying to send a message that the world is about to enter a new age after a long period of low interest rates to a period of rising rates,” Sohn said.

http://hosted.ap.org/dynamic/stories/U/US_FEDERAL_RESERVE?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2015-03-16-12-46-02

Fed Watch: The End of “Patient” and Questions for Yellen

Tim Duy:

The End of “Patient” and Questions for Yellen, by Tim Duy: FOMC meeting with week, with a subsequent press conference with Fed Chair Janet Yellen. Remember to clear your calendar for this Wednesday. It is widely expected that the Fed will drop the word “patient” from its statement. Too many FOMC participants want the opportunity to debate a rate hike in June, and thus “patient” needs to go. The Fed will not want this to imply that a rate hike is guaranteed at the June meeting, so look for language emphasizing the data-dependent nature of future policy. This will also be stressed in the press conference. Of interest too will be the Fed’s assessment of economic conditions since the last FOMC meeting. On net, the data has been lackluster – expect for the employment data, of course. The latter, however, is of the highest importance to the Fed. I anticipate that they will view the rest of the data as largely noise against the steadily improving pace of underlying activity as indicated by employment data. That said, I would expect some mention of recent softness in the opening paragraph of the statement. I don’t think the Fed will alter its general conviction that low readings on inflation are largely temporary. They may even cite improvement in market-based measures of inflation compensation to suggest they were right not to panic at the last FOMC meeting. I am also watching for how they describe the international environment. I would not expect explicit mention of the dollar, but maybe we will see a coded reference. Note that in her recent testimony, Yellen said:

But core PCE inflation has also slowed since last summer, in part reflecting declines in the prices of many imported items and perhaps also some pass-through of lower energy costs into core consumer prices.

Stronger dollar means lower prices of imported items. The press conference will be the highlight of the meeting. Presumably, Yellen will continue to build the case for a rate hike. Since the foundation of that case rests on the improvement in labor markets and the subsequent impact on inflationary pressures, it is reasonable to ask:

On a scale of zero to ten, with ten being most confident, how confident is the Committee that inflation will rise toward target on the basis on low – and expected lower – unemployment?

Considering that low wage growth suggests it is too early to abandon Yellen’s previous conviction that unemployment is not the best measure of labor market tightness, we should consider:

Is faster wage growth a precondition to raising interest rates?

I expect the answer would be “no, wages are a lagging indicator.” The Federal Reserve seems to believe that policy will still remain very accommodative even after the first rate hike. We should ask for a metric to quantify the level of accommodation:

What is the current equilibrium level of interest rates? Where do you see the equilibrium level of interest rates in one year?

A related question regards the interpretation of the yield curve:

Do you consider low interest long-term interest rates to be indicative of loose monetary conditions, or a signal that the Federal Reserve needs to temper its expectations of the likely path of interest rates as indicated in the “dot plot”?

Relatedly, differential monetary policy is supporting capital inflows, depressing US interest rates and strengthening the dollar. This dynamic ignited a debate of what it means for the economy and how the Fed should or should not respond. Thus:

The dollar is appreciating at the fastest rate in many years. Is the appreciating dollar a drag on the US economy, or is any negative impact offset by the positive demand impact of looser monetary policy abroad? How much will the dollar need to appreciate before it impacts the direction of monetary policy?

Given that the Fed seems determined to raise interest rates, we should probably be considering some form of the following as a standard question:

Consider the next six months. Which is greater – the risk of moving too quickly to normalize policy, or the risk of delay? Please explain, with specific reference to both risks.

Finally, a couple of communications questions. First, the Fed is signaling that they do not intend to raise rates on a preset, clearly communicated path like the last hike cycle. Hence, we should not expect “patient” to be replaced with “measured.” But it seems like the FOMC is too contentious to expect them to shift from no hike one meeting to 25bp the next, then back to none – or maybe 50bp. So, let’s ask Yellen to explain the plan:

There appears to be an effort on the part of the FOMC to convince financial markets that rate hikes, when they begin, will not be on a pre-set path. Given the need for consensus building on the FOMC, how can you credibly commit to renegotiate the direction of monetary policy at each FOMC meeting? How do you communicate the likely direction of monetary policy between meetings?

Finally, as we move closer to policy normalization, the Fed should be rethinking the “dot plot,” which was initially conceived to show the Fed was committed to a sustained period of low rates. Given that the dot-plot appears to be fairly hawkish relative to market expectations, it may not be an appropriate signal in a period of rising interest rates. Time for a change? But is the Fed considering a change, and when will we see it? This leads me to:

Cleveland Federal Reserve President Loretta Mester has suggested revising the Summary of Economic Projections to explicitly link the forecasts of individual participants with their “dots” in the interest rate projections. Do you agree that this would be helpful in describing participants’ reaction functions? When will this or any other revisions to the Summary of Economic Projections be considered?

Bottom Line: By dropping “patient” the Fed will be taking another step toward the first rate hike of this cycle. But how long do we need to wait until that first hike? That depends on the data, and we will be listening for signals as to how, or how not, the Fed is being impacted by recent data aside from the positive readings on the labor market. http://economistsview.typepad.com/economistsview/fed_watch/

Fed Watch: ‘Patient’ is History

Tim Duy:

Patient’ is History: The February employment report almost certainly means the Fed will no longer describe its policy intentions as “patient” at the conclusion of the March FOMC meeting. And it also keep a June rate hike in play. But for June to move from “in play” to “it’s going to happen,” I still feel the Fed needs a more on the inflation side. The key is the height of that inflation bar. The headline NFP gain was a better-than-expected 295k with 18k upward adjustment for January. The 12-month moving average continues to trend higher:

NFPa030615

Unemployment fell to 5.5%, which is the top of the central range for the Fed’s estimate of NAIRU. Still, wage growth remains elusive:

NFPb030615

Is wage growth sufficient to stay the Fed’s hand?  I am not so sure. Irecently wrote:

My take is this: To get a reasonably sized consensus to support a rate hike, two conditions need to be met. One is sufficient progress toward full-employment with the expectation of further progress. I think that condition has already been met. The second condition is confidence that inflation will indeed trend toward target. That condition has not been met. To meet that condition requires at least one of the following sub-conditions: Rising core-inflation, rising market-based measures of inflation compensation, or accelerating wage growth. If any were to occur before June, I suspect it would be the accelerating wage growth.

I am less confident that we will see accelerating wage growth by June, although I should keep in mind we still have three more employment reports before that meeting. Note, however, low wage growth does not preclude a rate hike. The Fed hiked rates in 1994 in a weak wage growth environment:

NFPg030615

And again in 2004 liftoff occurred on the (correct) forecast of accelerating wage growth:

NFPf030615

So wage growth might not be there in June to support a rate hike. And, as I noted earlier this weaker, I have my doubts on whether core-inflation would support a rate hike either. That leaves us with market-based measures of inflation compensation. And at this point, that just might be the key:

NFPe030615

If bond markets continue to reverse the oil-driven inflation compensation decline, the Fed may see a way clear to hiking rates in June. But the pace and timing of subsequent rate hikes would still be data dependent. I would anticipate a fairly slow, halting path of rate hikes in the absence of faster wage growth. Bottom Line:  “Patient” is out. Tough to justify with unemployment at the top of the Fed’s central estimates of NAIRU. Pressure to begin hiking rates will intensify as unemployment heads lower. The inflation bar will fall, and Fed officials will increasingly look for reasons to hike rates rather than reasons to delay. They may not want to admit it, but I suspect one of those reasons will be fear of financial instability in the absence of tighter policy. June is in play.

https://www.youtube.com/watch?v=pvYh53vbD3g

The Pronk Pops Show Podcasts Portfolio

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