2015-09-16

Wall Street and the World Are Watching: Will the Fed Make Its Move Now?

Second UPDATE Sept 17, 2015: "NO Liftoff"--the Fed keeps the Fed Funds Rate at Zero--
"When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."--from the Fed Statement Sept 17, 2015
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.

Quick Domain Mondo analysis: we (US, Europe, China, the world) may be in trouble. Looks like the Fed has trapped itself (and the markets) in a ZIRP-dependent "permanency," and cannot even impose 1/4% increase--read this--whenever the Fed tries "liftoff" in this environment, it won't be easy to "launch." Now going on 7 years in a "financial emergency" state?

UPDATE September 17, 2015The decision by the Fed's Federal Open Market Committee (FOMC) is expected on Thursday, September 17, 2015, at 2 p.m. ET (US) (1800 GMT).

2015 Members of the FOMC

Members
Janet L. Yellen, Board of Governors, Chair
William C. Dudley, New York, Vice Chairman
Lael Brainard, Board of Governors
Charles L. Evans, Chicago
Stanley Fischer, Board of Governors
Jeffrey M. Lacker, Richmond
Dennis P. Lockhart, Atlanta
Jerome H. Powell, Board of Governors
Daniel K. Tarullo, Board of Governors
John C. Williams, San Francisco

Alternate Members
James Bullard, St. Louis
Esther L. George, Kansas City
Loretta J. Mester, Cleveland
Eric Rosengren, Boston
Michael Strine, First Vice President, New York

About the Federal Open Market Committee: The Federal Reserve controls the three tools of monetary policy--open market operationsthe discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations. Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

Changes in the federal funds rate trigger a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit, and, ultimately, a range of economic variables, including employment, output, and prices of goods and services.

Since December 16, 2008 (including for the entire Presidency of Barack Obama), the U.S. has been under an historically unprecedented the Federal Reserve zero interest-rate policy (ZIRP), see charts below. The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States. A change in the U.S. federal funds rate has ramifications in markets globally and the world economy.
https://research.stlouisfed.org/fred2/graph/?g=1HR6



'Don't Fight the Fed' -- "Will Federal Reserve Chair Janet Yellen and her colleagues on the Federal Open Market Committee raise the federal funds rate at their Sept. 16-17 meeting, or not?"--Wall Street’s Favorite Guessing Game: When Will the Fed Make Its Move? - Bloomberg Business

Notwithstanding global problems, including in China and Europe, and warnings far and wide of "don't raise rates" the US Federal Reserve could make its move now and increase the federal funds rate--and if it does, it will most likely be due to the influence of Stanley Fischer on the Fed:
"We tend to underestimate the lags in receiving information and the lags with which policy decisions affect the economy. Those lags led me to try to make decisions as early as possible, even if that meant there was more uncertainty about the correctness of the decision than would have been appropriate had the lags been absent." --Stanley Fischer, 2014
"Guy Haselmann, a Scotiabank strategist, says that in his nearly three decades on the Street he’s never seen such confusion ... The Fed is slated to announce its decision on Sept. 17, at the conclusion of its two-day meeting. As of the close of trading on Thursday (Sept. 10, 2015), futures traders assigned a 28 percent chance that the rate will be lifted a quarter-point to a range of 0.25 percent to 0.5 percent. Analysts are a bit more sure there’ll be a hike, with about half of the 81 surveyed by Bloomberg predicting one." source: Bloomberg Business

Will it be one and done for the Fed? - MarketWatch: "... more traders now expect the Fed to raise rates in September ... the vast majority expect a "one and done" move from the Fed. Investors should note that historically, since 1970, the S&P 500 has rallied 92% of the time in the two years following the first rate hike..."

Why Hedge Fund Hotshots Finally Got Hammered | Wolf Street: "Why [do] we need an 81st month of ZIRP when 80 months so far have not succeeded ... the Fed will likely announce a “one and done” move in September, causing the casino to stage a short-lived, half-heated rally..."


Is the Fed Afraid of Playing Catch Up on Rates? Kevin Caron, market strategist at Stifel Nicolaus, talks with Olivia Sterns about expectations for a rate hike by the Federal Reserve, explains why the fed risks falling behind the curve is they don’t move rates higher, and offers his investment strategy on oil and gold. He speaks on "Bloomberg Markets," September 11, 2015.

In the United States, the federal funds rate is "the interest rate" at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis... The nominal rate is a target set by the governors of the Federal Reserve, which they enforce primarily by open market operations. That nominal rate is almost always what is meant by the media referring to the Federal Reserve "changing interest rates." The actual federal funds rate generally lies within a range of that target rate, as the Federal Reserve cannot set an exact value through open market operations. See: Federal funds rate (Wikipedia)

Principal and related domain names:
federalreserve.gov - Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551

12 Federal Reserve Banks were established by the U.S. Congress as the operating arms of the nation's central banking system:
Federal Reserve Bank of Atlanta frbatlanta.org
Federal Reserve Bank of Boston bos.frb.org
Federal Reserve Bank of Chicago chicagofed.org
Federal Reserve Bank of Cleveland clevelandfed.org
Federal Reserve Bank of Dallas  dallasfed.org
Federal Reserve Bank of Kansas City kc.frb.org
Federal Reserve Bank of Minneapolis minneapolisfed.org
Federal Reserve Bank of New York newyorkfed.org
Federal Reserve Bank of Philadelphia philadelphiafed.org
Federal Reserve Bank of Richmond richmondfed.org
Federal Reserve Bank of San Francisco frbsf.org
Federal Reserve Bank of St Louis stlouisfed.org

http://www.bis.org/country/us.htm Bank of International Settlements (BIS) page on the US Fed

BIS Directory of all Central Bank and monetary authority websites in the world




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