A Fed Raise Conundrum, Pt 2 - Would There Be Pain?
Summary
Discussion of August 27th Q2 GDP estimate and ECB M1 measures.
Analysis of long term Fed employment and inflation targeting; and economic growth since 1998 by Fed inflation measures.
Discussion of current contractionary monetary policy and Keynesian equilibrium rate doctrine.
Discussion of the Fed toolkit; FFR (Fed Funds Rate), IOER (Interest On Excess Reserves and RRP (Reverse Repo).
In Part 1 we concluded:
- 75% chance of a Fed raise before the end of the year.
- 25% chance of a Fed raise on Sept 17th, 2015.
- 25% chance of no Fed raise in 2015.
- All TBD
But there are mitigating circumstances... Aside from media narrative, the word on main street is, what we have is something less than a meaningful recovery and still suffering from the affect of very tight or contractionary monetary policy.
In fact, markets aren't just saying that tightening policy is a bad idea; they are saying that policy is tight now and getting tighter. That's what falling interest rates and a rising dollar - falling commodity prices - mean. If monetary policy was sufficiently loose, those things would be going in the opposite direction. - Joseph Y. Calhoun
With the advance Q2 GDP number +3.7% released on Aug 27th, this was probably the discussion going on in Jackson Hole. Many Fed members skipped the conference, perhaps to avoid discussing this very sensitive matter with other attendees.
The Aug 27th US Q2 GDP est. at +3.7. Upon further review, +3.1 was +85B in gasoline savings spent as PCE by cash starved (wages are not rising) consumers on automotive and durable goods one off repairs and purchases. Clothing and eating out also got a nod. The Fed would raise?
Discussion of August 27th Q2 GDP estimate and ECB M1 measures.
Analysis of long term Fed employment and inflation targeting; and economic growth since 1998 by Fed inflation measures.
Discussion of current contractionary monetary policy and Keynesian equilibrium rate doctrine.
Discussion of the Fed toolkit; FFR (Fed Funds Rate), IOER (Interest On Excess Reserves and RRP (Reverse Repo).
In Part 1 we concluded:
- 75% chance of a Fed raise before the end of the year.
- 25% chance of a Fed raise on Sept 17th, 2015.
- 25% chance of no Fed raise in 2015.
- All TBD
But there are mitigating circumstances... Aside from media narrative, the word on main street is, what we have is something less than a meaningful recovery and still suffering from the affect of very tight or contractionary monetary policy.
In fact, markets aren't just saying that tightening policy is a bad idea; they are saying that policy is tight now and getting tighter. That's what falling interest rates and a rising dollar - falling commodity prices - mean. If monetary policy was sufficiently loose, those things would be going in the opposite direction. - Joseph Y. Calhoun
With the advance Q2 GDP number +3.7% released on Aug 27th, this was probably the discussion going on in Jackson Hole. Many Fed members skipped the conference, perhaps to avoid discussing this very sensitive matter with other attendees.
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