Tag: george yacik

Will There Be A November Surprise?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


In its most recent Beige Book, covering late August through early October, released last week, the Federal Reserve noted that although economic “outlooks are positive, contacts in several sectors cite the upcoming presidential election as a source of near-term uncertainty, delaying some business decisions.”

The same could be said for the Fed itself. How much uncertainty has it created and business decisions has it delayed by its endless dawdling and indecisiveness on whether or not to raise interest rates? No matter who wins the vote, the election will end – maybe not on November 8, if it can be shown that someone did, in fact, rig the voting – but eventually, Donald Trump or Hillary Clinton will become president. But we have no such certitude that the Fed won’t continue to tease the markets about when it will start normalizing monetary policy. Continue reading "Will There Be A November Surprise?" →

The Fed Tease Continues - But For How Much Longer?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Way back in high school, my freshman algebra teacher told us about Zeno’s Paradox, which the Greek philosopher (Zeno, not my teacher) explained through the story of Achilles and the Tortoise. According to the story, the two were engaged in a footrace, but no matter how much faster Achilles could run compared to the tortoise, he could never quite catch up to him. Why? Because while Achilles could consistently halve the distance between himself and the slower-footed reptile, the gap between the two could be reduced fractionally an indefinite number of times, so, therefore, he could never catch up – theoretically speaking, of course.

I was reminded of that story when I read the media headlines about the release last week of the minutes of the Federal Reserve’s September 20-21 meeting. Once again, the Fed said it was almost, but not quite, ready to tighten monetary policy. This time, the Fed used the words “relatively soon” to describe the timing of its next rate increase, which would be the first one since last December.

“Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as the committee expected,” the minutes said. Also, those members – still the majority – who still wanted to “await further evidence” before voting for a rate hike said it was a “close call” in their decision to wait.

In other words, like Achilles chasing the tortoise, the Fed just keeps getting closer and closer to raising rates but just never gets to that point. Continue reading "The Fed Tease Continues - But For How Much Longer?" →

Central Bank Chutzpah

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


We must be getting closer to the global asset bubble bursting or the end of central bank intervention, or both since the latter is likely to cause the former. How do I know? Central banks and the international agencies that support their policies have already begun the blame game, in order to deflect criticism from themselves when the bubble does burst.

European Central Bank President Mario Draghi started the process two weeks ago. With the troubles at Deutsche Bank, Germany’s largest bank, perhaps as his reference point, Draghi struck back at European bankers’ criticism of the ECB’s negative interest rate policies, which the banks blame for their difficulty in turning a profit. While accepting some of the responsibility for that, he instead said a good part of the blame belongs to the commercial banks themselves.

“Low-interest rates tend to squeeze net interest margins owing to downward rigidity in banks’ deposit rates,” Draghi admitted. “But over-banking is also a factor in the current low level of bank profitability. Overcapacity in some national banking sectors and the ensuing intensity of competition exacerbates this squeeze on margins.”

He was quickly seconded by other members of the European establishment, who make the rules that others have to live by the best they can. Continue reading "Central Bank Chutzpah" →

Is Data Dependency Dead At The Fed?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


While it was certainly gratifying to know that the Federal Reserve may, finally, be ready to raise interest rates and normalize monetary policy before the end of the year, its reason for doing so, elucidated after last week’s FOMC meeting and Janet Yellen’s press conference left me shaking my head. To put it in economic terms, it didn’t make a whole lot of sense, given the Fed’s past behavior.

As we all know by now, the Fed, as widely expected, left interest rates unchanged last week, but hinted strongly for the umpteenth time that it’s almost ready to raise rates, just not right now.

“The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” the post-meeting announcement said.

Yet, at the same time, the Fed lowered its estimate for U.S. economic growth this year to 1.8% from its June forecast of 2.0%, which is also its new long-term view of the economy. That’s certainly justified by the reports we’ve been getting the last several weeks, which show the economy slowing, not gaining strength, in the second half.

So why would the Fed say that the case for raising rates had “strengthened” even as it downgraded its view of the economy and most recent reports back that up? Continue reading "Is Data Dependency Dead At The Fed?" →

Top Five Reasons Why the Fed Won't Raise Rates This Month

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Eric Rosengren, the president of the Federal Reserve Bank of Boston, singlehandedly spooked the financial markets last Friday when he commented that “a reasonable case can be made” for the Fed to start raising interest rates soon, which traders and investors interpreted to mean as early as next week’s FOMC monetary policy meeting.

“If we want to ensure that we remain at full employment, gradual tightening is likely to be appropriate,” Rosengren said. “A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”

While I certainly don’t have any issue with what Rosengren said – I think the Fed should have started raising rates two years ago – I’m a little puzzled what exactly he said that put the markets to flight. He didn’t seem to say anything that other Fed officials, including Janet Yellen, hadn’t also said periodically recently, plus he didn’t offer any imminent schedule for raising rates. Yet that was apparently enough to get stock and bond traders to bail. Continue reading "Top Five Reasons Why the Fed Won't Raise Rates This Month" →