Fed will overshoot rate increases

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  • Federal Reserve Chairman Jerome Powell on Friday pushed back on market expectations for aggressive interest rate cuts ahead.
  • “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said in a speech.
  • However, the remarks gave some credence to the idea that the Fed at least is done hiking as the string of rate hikes since March 2022 have cut into economic activity. Powell noted that inflation “is moving in the right direction.”
  • Markets largely took Powell’s comments as dovish, with stock up and Treasury yields down sharply.
It seems like the markets are not taking Powell seriously about "higher for longer". Markets expect a rate cut by middle of next year. I think the Fed is looking more toward the end of '24 or maybe early '25. Of course things could change as new information comes to light.

Powell speech today @ 1:30 CT:

Committee currently thinks rates could drop to 4.6% by end of 2024 - so a .5 to .6% cut across 2024.
JPow said that committee did discuss a timeline on when it would be appropriate to start cutting rates. That's the first time they have acknowledged such a discussion.
They have to cut so Biden can get a bump toward election day.
The trouble with that strategy is, after this election, is another. And another after that.

And meantime the mal-investments, done on ZIRP, are adding up. And the Free Money madness - everything from mindless war, to a Depopulation Jab campaign, all paid for by CTRL+PRNT.

When something is unsustainable, it WILL stop.
Market Watch

Wall Street has discovered what’s really driving U.S. stocks higher in 2023. The explanation isn’t as simple as one might expect.​

As the year draws to a close, stock-market professionals can recite a litany of explanations for why the U.S. market has marched higher this year.

But a group of Wall Street strategists believe chalking up the equity market’s gains to signs that the U.S. economy is heading for a “soft landing,” or that the Federal Reserve could cut interest rates next year, doesn’t tell the full story.

Those who have been trawling about for a more comprehensive explanation have found their answer by closely scrutinizing the balance sheets of the world’s largest central banks, with a particular emphasis on the Fed.

Here’s what they found: While the Fed has been paring back the size of its balance sheet, beneath the surface, central banks have boosted support for markets by allowing bank reserves to expand, increasing the amount of capital available to be deployed into markets and the economy.

Historically, when this happens, securities prices rise, even if their advance doesn’t seem justified based on the strength of the economy, or the outlook for corporate earnings, according to research from former Citigroup strategist Matt King, who now runs Satori Insights, his own independent research shop.


Short, interesting read.

High US interest rates add to headwinds for small businesses​

Dec 19 (Reuters) - After Ron Hall took out a $407,000 Small Business Administration loan last year to open a franchised sandwich shop in his hometown in Tennessee, business boomed.

He hired 15 employees and even snapped up a used Honda CR-V that he covered in his store's logos to sell sandwiches in the parking lots of local factories during lunch hours. Early on, the 49-year-old father of two said he was seeing $3,000 a day in total sales.

But monthly payments on his SBA loan, which carried a 7% interest rate in May 2022, snowballed by almost $1,000 a month to $6,000 as the rate rose to more than 11% over the past year, in step with aggressive Federal Reserve rate hikes to tame high inflation.


Atlanta Fed President Bostic said today that he sees an initial rate cut in Q3.
In addition to plugging the hole torn by deficits, the US government needs to refinance existing debt coming due — which is a lot. An astonishing 85% of Treasury debt issued in 2023 is due within one year or less. This leads to constant refinancing needs. ...


The elephant in the Fed's rate policy decision room.

The elephant in the Fed's rate policy decision room.
Their only goal is to prop up the American consumer to ensure corporate profits. They don't really care about the well-being of the Amerian citizen beyond our ability to continue enriching them. This is probably also the prime motivation for student loan forgiveness. "Stimulus" (however it can be achieved) so that the consumer can consume (enrich corporations and banks). Same with reparations. They know that would-be recipients of reparations are notorious spenders.

Fed in a trust-but-verify moment as inflation falls​

WASHINGTON (Reuters) - In economic projections issued after their December meeting U.S. Federal Reserve officials on balance saw a measure of underlying inflation ending 2024 at 2.4%, with the lowest of individual estimates at 2.3%.

Economists note that would require inflation to reaccelerate from its current six-month trend of just 1.9%, something many consider unlikely given the underlying math is already leaning towards at least a few more months of slowing.

If central bankers have penciled in three-quarters-of-a-percentage-point in interest rate cuts on the basis of December's outlook, what happens in their next projections in March when they may well have to reduce inflation estimates another notch?

"Every member of the Federal Open Market Committee envisions and expects a reacceleration relative to the past six months," said Luke Tilley, chief economist at Wilmington Trust. "I don't think it is likely...The baseline is too high."


Inflation is not falling. The rate of inflation is falling. Past inflation is still FUBAR.
Economics is a wizardry of semantics. Now they talk about "disinflation"... is this anything like Hypertiger's "Inflation less than previous inflation until implosion"?
Economics is a wizardry of semantics. Now they talk about "disinflation"... is this anything like Hypertiger's "Inflation less than previous inflation until implosion"?

Outta the time machine...........

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.

They claim that QT will continue. Interesting.
Inflation is not falling. The rate of inflation is falling. Past inflation is still FUBAR.

Hey, don't bring details around here we have a narrative to distribute.

They will always protect their Debt based Money. That is all they care about.

Fed Chair Jerome Powell: The 2024 60 Minutes Interview​

Feb 4, 2024
Federal Reserve Chair Jerome Powell gives his thoughts on inflation risks, the economy, the timeline for cutting rates, the health of the country’s banks and more. Scott Pelley reports. 13 minutes 20 secs long.

The 60 Minutes interview seems to me to be a full on media blitz by JPow/Fed to reset market expectations on rate policy. We'll see how committed they really are to tough love (high rates + QT) when the economy stumbles and banks start failing.
Harbingers of (higher interest rate) doom?

Bold emphasis is mine:
The Federal Reserve Board on Thursday released the hypothetical scenarios for its annual stress test, which helps ensure that large banks can lend to households and businesses even in a severe recession. Additionally, for the first time, the Board released four hypothetical elements designed to probe different risks through its "exploratory analysis" of the banking system. The exploratory analysis will not affect bank capital requirements.
This year's exploratory analysis includes four separate hypothetical elements that will assess the resilience of the banking system to a wider range of risks. Two of the hypothetical elements include funding stresses that cause a rapid repricing of a large proportion of deposits at large banks. Each element has a different set of interest rate and economic conditions, including a moderate recession with increasing inflation and rising interest rates, and a severe global recession with high and persistent inflation and rising interest rates.

If the fed were truly smart, they'd have not stopped raising rates when they did.
....and in fact should have raised more aggressively when they did.
If the fed were truly smart, they'd have not stopped raising rates when they did.
....and in fact should have raised more aggressively when they did.
If any of those GD airheads were smart, they'd have never TRIED ZIRP.

They'd have allowed the 2009 bubble-collapse to work through, as a correction. And it would be forgotten now.

This is what and where Financialization take us...takes an economy.
Some businesses need to fail to cleanse the system and strengthen it in the long run. Problem is politics and campaign contributions and voting blocs have invaded everyday life.

Fed Chair Jerome Powell: The 2024 60 Minutes Interview​

Feb 4, 2024
Federal Reserve Chair Jerome Powell gives his thoughts on inflation risks, the economy, the timeline for cutting rates, the health of the country’s banks and more. Scott Pelley reports. 13 minutes 20 secs long.
Here is a comment of that interview

Could This Black Swan Trigger a Gold & Silver Rally?

Posted 15th February 2024
Dave Kranzler

The Federal Reserve has removed the sentence “The U.S. banking system is sound and resilient” from the FOMC Policy Statement released on January 31st.
If the Fed was unwilling to make that assertion, the bank crisis from early 2023 is likely rearing its ugly head again. Note that the Fed “stabilized” the banking system back then by printing money, and injecting $400 billion in reserves into the banking system.
It also set up the Bank Term Funding Program without a ceiling, with $167.7 billion drawn from it as of January 25th.

US Banking Activity

The removal of that sentence from the policy statement could not be a coincidence. The day before the statement was released, the New York Community Bank (NYCB) announced a massive loan loss reserve provision and slashed its dividend. The stock plunged 37.6% the day the policy statement was released.
Fed Chairman Jerome Powell was featured on “60 Minutes” four days after the FOMC meeting and after NYCB blew up. When asked about the possibility of a real estate-driven bank crisis like the one in 2008, Powell asserted (with a straight face) that this was unlikely and assured the audience that the big banks were in good shape. It was strikingly reminiscent of when then-Fed Head, Ben Bernanke, in 2007 assured the country that the raging subprime debt problem was “contained.”
The relevance of Powell’s appearance on such a prime-time, nationally-televised show making that assertion cannot be overlooked. The next day, one of the larger Japanese banks with heavy exposure to U.S. office building loans, Aozora Bank, announced that it was slashing the book value of its U.S. CRE loan portfolio and it hiked its loan-loss reserve ratio to 18.8% from 9.1%.

Commercial Real Estate Crisis

While everyone was discussing the potential for a commercial real estate debt crisis this year, the NYCB and Aozora earnings reports confirm that it has already begun. $117 billion in CRE office debt needs to be refinanced this year and $1.5 trillion matures or needs to be refinanced before the end of 2025.
The problem with refinancing this debt is that, based on recent market transactions, many buildings are worth 50% or less of their book values, which means the outstanding loans are worth far less than the original amount of the loan.
The loan-to-value for many buildings is 100% to 200%, which means some of the loans are close to worthless. Losses of this magnitude will not be confined to just the regional banks – this will blow holes in big bank balance sheets. In addition to this, large public pension funds have heavy exposure to CRE loans.


If that is accurate... So much for central bank independence...
That's no bet.

The Fed is now fully politicized. And has taken over much of what should be free-market functions.

Powell likes his job. So Powell gonna give the Alzheimer patient what he wants.

On we go to ANOTHER five years of malinvestment and zombie companies, living off no-cost debt.

These morons can't understand...putting off the resolution just adds, exponentially, to the cost, in terms of chaos, failure, loss of economic standing.
Consumers increasingly doubt the Federal Reserve can achieve its inflation goals anytime soon, according to a survey Monday from the New York Federal Reserve.

While the outlook over the next year was unchanged at 3%, that wasn't the case for the longer term. At the three-year range, expectations rose 0.3 percentage point to 2.7%, while the five-year outlook jumped even more, up 0.4 percentage point to 2.9%.

All three are well ahead of the Fed's 2% goal for 12-month inflation, indicating the central bank may need to keep policy tighter for longer. Economists and policymakers consider expectations as a key factor in viewing the path of inflation, so the Survey of Consumer Expectations for February could be bad news.

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