Why the Fed isn’t trying to lift interest rates, ex-insider says; Ex-Fed policy adviser Athanasios - General

whisperer 2015.06.05 14:43 #41

Is that traders hoping or trying to order to IMF?

Why don't they ask Yellen who is ordering IMF

thenews 2015.06.11 11:59 #42

The Fed fears lifting interest rates, ex-insider says

An expert who’s been involved in internal debates at both the Federal Reserve and the European Central Bank says the U.S. central bank is already behind the curve in lifting interest rates.

Athanasios Orphanides, now a professor of global economics and management at MIT, was head of the Central Bank of Cyprus for five years, ending in 2012. He started his career as an economist in the Fed’s monetary policy division and later became senior adviser to board of governors.

St. Louis Fed President James Bullard noted that Orphanides is probably the only person on the planet who has attended Fed monetary policy meetings as well as European Central Bank governing council meetings.

In a speech at the St. Louis Fed earlier this month, Orphanides discussed the Fed’s fear of liftoff and what the causes might be. MarketWatch talked to him about why the Fed seems reluctant to raise interest rates.

This conversation has been edited for length and clarity.

MarketWatch: Your academic career has focused on how monetary policy is made in real time, can you explain that a bit.

Orphanides: I started working on the difficulties associated with real time monetary-policy-making while I was at the Federal Reserve. I was one of the people who happened to be involved in policy rules work very early on, right after John Taylor’s famous rule came out and people started monitoring it. So it was in the process of trying to use monetary policy rules and try to identify how systematic policy can be formulated. I found it useful to try to do counterfactual historical experiments and I started asking questions such as “well, if we identify something that we believe today is a good framework, can we test whether this framework would have delivered good results had it been adopted in earlier episodes like the 1930s, 1960, 1970s, depending on the episode?” And to do that one needs to have detailed information about what is known and what is not known by the policymakers at the time when the decision is made. This is why being at the Federal Reserve was quite important because it allowed me to do this work. I had access to a lot of the information that was not that easy to get to for someone on the outside.

MarketWatch: And your research has led you to think the Fed is already late in raising interest rates?

Orphanides: Let me mention why I am worried about the current cycle. Monetary policy operates with a substantial lag and it is very important to be preemptive in policy action. What this means is the Federal Reserve should try to steer policy towards what is normal, meaning not excessively accommodative and not excessively contractionary, before the economy actually reaches the state of full strength. In the current environment, since we are now a few years after the end of the recession, what this means is that policy should have started being normalized long before we reached the situation where the economy is almost at full strength. And this is what hasn’t happened this time. On this occasion what is the striking difference is that the Fed has not done anything to start the process of normalization yet, and, indeed, until last year it was injecting additional monetary policy accommodation in the economy and the economy has reached a situation where it is very close to its full strength.

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morro 2015.06.12 15:04 #43

Yellen is more likely to hike her underwear than rates !

thenews 2015.07.03 03:40 #44

Unemployment Rate Decline Could Have Yellen's Fed Scrapping Projections

By one measure, the U.S. labor market has already met the Federal Reserve's expectations for 2015: The jobless rate fell to 5.3 percent in June, matching the policy makers' projection for the end of the year, a Labor Department report Thursday showed.

The Federal Open Market Committee said in June that unemployment would ease to 5.2 to 5.3 percent in 2015, elevated just slightly from their expectation of a 5-to-5.2 percent longer-run natural rate (the joblessness that exists because of factors like labor market churn rather than due to cyclical weakness in the economy). The fact that the labor market has reached the committee's 2015 estimate already — and has done so without spurring stronger wage gains — may prompt officials to lower both the 2015 and the long-run estimate at their September meeting.

"If the unemployment rate continues to drift lower and we don't get any wage growth, that would signal that the natural rate of unemployment is even lower than we, and the Fed, think it is," said Ryan Sweet, senior economist at Moody's Analytics Inc. in West Chester, Pennsylvania. "In the next round of FOMC projections, you're going to see them cut their estimate of full employment. It's likely south of 5 percent.''

The Fed's natural-rate projection, which they left unchanged from March, is an important signal to monetary policy-watchers because it indicates how much further Fed officials believe the economy can improve. Once the FOMC is satisfied that the U.S. labor market has tightened sufficiently and believe that inflation will soon start to rise, they will be able to raise interest rates for the first time since 2006.

Still, the unemployment rate decline will be taken with a grain of salt and may be short-lived: It dropped because people left the workforce in June, not just because companies added employees. If Americans jump back into the job search in coming months, the decline could reverse.

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thenews 2015.08.10 19:22 #45

Did The Apolitical Fed Just Admit It May Not Be Raising Rates Before The Election?

The supposedly independent, apolitical Federal Reserve - facing serious pressures from Republicans over leaks and transparency - may have just accidentally admitted it will not be raising rates any time soon (if ever):

LOCKHART: ECONOMIC OUTLOOK TO INFLUENCE HOW U.S. VOTES IN 2016

One can only wonder how this will factor into The Fed's "make it up as we go along" strategy as credibility dwindles but survival trumps any populist backlash.

source

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morro 2015.08.11 11:33 #46

Pathetic

If we had any doubts about FED, they are gone now

thenews 2015.08.12 10:37 #47

Dollar Tumbles As Fed Rate Hike Suddenly Looking Very Uncertain To Goldman, Bank Of A

After China's shocking currency devaluation, which some more conspiratorially-minded observers have concluded was China's retaliation to the west for the IMF's recent snub that pushed back China's evaluation for inclusion into the SDR to some indefinite point in 2016, the only question on everyone's mind is whether the Fed will delay or outright cancel any imminent "data-dependent" rate hikes as a result of the implicit tightening of monetary conditions thanks to China, and the dramatic appreciation of the USD which would not have taken place without China.

And while we await the first Fed speaker to hit the public circuit since Monday's night's dramatic event, which is Goldman's NY Fed's Bill Dudley speaking in a few minutes, here is what two of the most influential banks have to say on the topic.

First, here is Goldman:

We expect that Fed officials would evaluate the recent news in a similar way. All else equal, the unexpected appreciation of the yuan implies downside risks to inflation and an additional tightening of financial conditions that may affect growth--beyond the effects from the sizable appreciation in the dollar before this week. There could be some potential offsets, such as a healthier Chinese growth outlook and/or lower US interest rates. But on balance, the PBOC action marginally lowers the odds of Fed liftoff in September, in our view, and December liftoff remains our call. The FOMC’s post-meeting statement already indicates that the committee will take into account “readings on financial and international developments,” so we do not think any additional language would be needed at this stage. Fed Chair Yellen’s press conference would be a more natural venue for discussing the dollar’s impact on financial conditions, if this remained a concern at the time of the September 16-17 meeting.

And here is Bank of America:

The timing of Fed liftoff has always been a relatively close call in our view — and with the devaluation of the Chinese yuan this morning, it just got a little closer. A stronger US dollar is both disinflationary and a drag on US growth. While the depreciation of the yuan increases the uncertainty around the upcoming FOMC meetings, at this point it does not lead us to fundamentally shift our expectations for liftoff in September. However, the effects of a stronger USD may well slow the subsequent pace of rate hikes even if they do not delay liftoff. Of course, Fed policy remains data dependent. We thus recommend paying close attention to upcoming speakers to see how they assess the risks to the Fed’s objectives and expected policy path from this regime shift in China.
A stronger dollar is also disinflationary, but Fed officials have been largely unconcerned by weak commodity and import prices to date. The smaller estimated impact on core inflation in the staff’s model — about a 0.1-0.3pp drop following a 10% appreciation — may help explain the Fed’s reaction. We expect a larger and more persistent impact. In addition, Fed officials had cited stabilization of the dollar and energy prices as supporting their view that these disinflationary forces were “transitory.” Today’s market reaction may lead them to reconsider, as stocks, oil prices and inflation expectations all fell. The larger and more sustained these moves, the more likely the FOMC will react.

Today’s events won’t likely impact the incoming data before the September FOMC meeting. Instead, we think that the Fed will need to make a risk assessment: is the greater uncertainty after the Chinese yuan depreciation enough to warrant postponing liftoff? The FOMC also has the option to slow the pace of subsequent hikes, should downside risks be realized. Fed officials will need to weigh these risks against the realized cumulative improvement in the US labor market. The Fed call is now closer than before, but it may take a significant reaction by global markets for the FOMC to stay on hold in September.

The Fed is heading for another catastrophe - page 5