What Happened to the Data-Dependent Fed?

-edited

The Fed will cut tomorrow and likely it will not be enough to satisfy Trump or those looking for shock-and-awe.

Somehow the Fed went from auto-pilot hikes and balanced sheet reduction, to wait-and-see, then to numerous Fed governors discussing the need not for one cut but more.

Just Do It

Former Fed chairs are also in on the "Just Do It" mantra.

Janet Yellen

Former Fed Chair Janet Yellen chimed in.

Greenspan Wants Insurance

Data Dependent?

What the hell happened?

The only data that supports a rate cut is the yield curve itself.

Insurance?

The notion that a rate cut offers insurance against anything is total silliness.

The bubbles have been blown. One cannot insure against what has already happened.

Nor will an extra 25 basis points stop a recession. It's already baked in the cake.

Mike "Mish" Shedlock

Comments (25)
No. 1-17
Tony Bennett
Tony Bennett

"The Fed will cut tomorrow and likely it will not be enough to satisfy Trump or those looking for shock-and-awe."

...

My only quibble (agree with rest of post) - I think DJT "wins" even with a 25bps cut. Every tweet/comment DJT makes concerns staking out the high ground.

He is privvy to non public data and likely guesses things fall apart at some point (before election). A FR not doing his bidding will make it his scapegoat when the INEVITABLE occurs.

...

Let me add my voice to those who find this comment system - pathetic

Carlos_
Carlos_

"The notion that a rate cut offers insurance against anything is total silliness"

That depends on your perspective... For the Fed that may be enough to deter Trump from firing them intermediately or force their resignation. So yes it is employment insurance..

FromBrussels
FromBrussels

The race to the bottom this is.... Good luck everyone, try to make a buck or two while getting sucked into the irreversible downward spiral...

Jojo
Jojo

Bad news for savers who were hoping that interest rates were finally on course to getting back to normal.

thimk
thimk

@Jojo you got that right ! A thumps down for Orange mans efforts to suppress interest rates prior to election to the chagrin of us savers.

Maximus_Minimus
Maximus_Minimus

The usual suspects (sans Bernanke) offering their superior wisdom, after wrecking the financial system forever.

2banana
2banana

Eight years of ZIRP under the previous administration. In addition to $4 trillion in QE.

The first rate hike almost corresponding to some kind of election in 2016.

The great QE unwind beginning shortly after that.

And you ask these question with the straight face???

Data Dependent?

What the hell happened?

ColoradoAccountant
ColoradoAccountant

Isn't Fed Funds the overnight rate for buying bank reserves? It seems that 95 percent of my friends finance autos and houses. QE was the gift to them and QT was the right idea to normalize, even if the overnight rate goes to zero.

CautiousObserver
CautiousObserver

IMHO, the Fed should not consider cutting unless Federal deficit spending as a fraction of US dollar denominated GDP is less than the prevailing interest rates (except in the event of having to finance an openly declared major war). Holding interest rates below percentage deficit spending sends a very bad message to the Congress: the Fed will enable your irresponsible budgets until faith in the US Dollar and the US banking system is utterly and completely destroyed. If the Fed is really an independent financial steward as they claim to be, then they should only cut 0.25% (because they promised) and they should simultaneously issue guidance that rates cannot be cut any further unless the US Congress reins in deficit spending.

I know, I know, Powell wants to extend the economic cycle and thinks he can navigate a sweet spot on policy. Well Mr. Powell, President Trump and Congress just raised the stakes when they passed their latest budget. Answer this: What is the ultimate fate of the US dollar (and the US banks) if US Federal deficit spending goes vertical while interest rates are pegged to zero? Are you and the Federal Reserve OK with that?

Webej
Webej

The fact that they realize they urgently need to buy more time indicates that they are not as clueless as it seems. They know the day of reckoning must be delayed at all costs. How to keep the debt mountain from collapsing just a little longer ... buy bonds, less interest costs, buy stocks, emergency liquidity ... and pray for miracle to come just in time before any actual reckoning.

Bam_Man
Bam_Man

Anybody that is not buying all the Gold they can get their hands on RIGHT NOW is a fool.

HubbaBuba2
HubbaBuba2

Gundlach essentially recently noted over-exuberance in the bond markets causing 'some' possible misread by the Fed. B/e WE have to live with bubble fallout we REALLY SHOULD care about overstimulation. Speaking of overstimulation - farmer pork in the new bailout bill is off the charts. Get paid JUST FOR HAVING ACRES - CRAP, YOU DON'T EVEN HAVE TO PLANT IT!! Where's my apartment square footage payments??!? "WASHINGTON (Reuters) - More than half of the Trump administration’s $8.4 billion in trade aid payments to U.S. farmers through April was received by the top 10% of recipients, the country’s biggest and most successful farmers, a study by an advocacy group showed on Tuesday." The payment ceiling was also raised to $500k from $150. F' that. Should be $150k cap. If you can't make it on that sell some land.

Salmo Trutta
Salmo Trutta

Rates-of-change in monetary flows, volume X's transactions velocity = RoC's in P*T (where N-gDp is a proxy and subset) in American Yale Professor Irving Fisher's truistic "equation of exchange.

The inflation indices peak in September 2019. But during 2020, inflation is resurrected.

The FOMC should not lower its policy rates. Congress should drive the commercial banks out of the savings business. What would that do? It would make the banks more profitable. It would raise the real rate of interest. It would increase R-gDp relative to inflation (the exact opposite of stagflation).

Matt3
Matt3

I agree with Mish that it makes no difference. I'm not sure we have recession on the horizon but Japan and Europe are leading the way to a world of MMT. That's uncharted waters and when and were it takes us is not known.

Tater-Man
Tater-Man

Not sure I agree the US is headed for a recession, but the term "recession" has become a bit of a red herring in any event.

The financial economy (Wall Street trades, San Fransisco does IPOs) is over levered and as a whole is completely lacking in substance. There are parts that do important things for the broader economy, but most of it is nonsense.

Meanwhile, "Main Street" (as opposed to Wall Street) seems to be doing OK -- in spite of Washington DC's efforts to crush it. More and more corruption in Washington (both parties) is causing Americans to realize the federal government cannot (IS NOT ABLE TO) fix most things. And a lot of state governments are no better, quite a few in the northeast, plus IL and CA are in worse shape than the federal government. One has to be brain dead to think a bloated welfare system and endless wars will solve society's problems.

Playing on the bank mantra... The federal government is too big NOT to fail

It doesn't really matter what the Fed does tomorrow. Most loans in the economy don't hinge off Fed Funds. And the money center bank business model is broken, and will remain broken at any FF rate.

Bullying down Fed Funds rate is about buying more time for a failing government. Lower rates won't fix the broader economy anymore than they did in Japan or EU -- both of which are failing even at 0%.

The fed IS completely data dependent :) All the data says big government is collapsing throughout the G7, and big government doesn't like that answer

Casual_Observer
Casual_Observer

The rate cut is data dependent. It's just not US data. The global economy is in serious trouble because of a debt super cycle that is coming to an end. Governments have no answers anymore. The best thing would be net out debt between countries and let deflation occur. The problem is derivatives and other opaque markets on which debt is based will collapse.

Six000mileyear
Six000mileyear

The yield on the 10yr UST went from 3.23% to 2.0% in less than a year. The FED was pretty much forced to lower its rate.