from The Daily Bell:
Fed to hike at every meeting in 2017 … RBC chief economist Tom Porcelli forecasts … Markets are indicating about a 75 per cent chance of a US rate increase next month, the first in almost a decade. An interest rate increase by the United States Federal Reserve on December 16 is almost a “foregone conclusion” and the central bank looks set to lift rates at every second meeting in 2016, and then at every meeting in 2017, as inflation makes a startling return. That’s the view of Tom Porcelli, the chief US economist at RBC Capital Markets. A combination of real, top-line, economic growth of about 3 per cent, an unemployment rate falling towards 4 per cent and rising inflation “should embolden the Fed to tighten at every other meeting in 2016,” he said, meaning the Fed funds rate would finish next year at 1.5 per cent. – Sydney Morning Herald
Dominant Social Theme: Now the Fed will let loose. Goodbye haters!
Free-Market Analysis: Will the Fed really hike? Savvy market observers have maintained that the Fed is trapped due to the enormous size of the US national debt. It can’t hike too hard or too fast. Perhaps it can’t hike at all.
This is why we’ve been pointing out that it is preferable for the Fed to “jawbone” the economy. In other words, Fed officials travel out into the world with the words “rate hike” on their lips. But the hike never comes. It is telegraphed but not delivered. The idea is that by talking about it, Fed officials can influence markets without actually having to do anything.
One can make the argument that this has been the strategy throughout 2015. Will it also be the strategy in 2016? Theoretically, the Fed can go on mumbling about rate hikes without delivering any for as long as it wants. It has the power to do that.
But the public pressure is increasing on the Fed. Ralph Nader, on behalf of a “group of humble savers,” just wrote a letter to the Fed that was answered by no less than Janet Yellen herself. Nader complained about low rates stealing the income of people on fixed budgets. Yellen replied that low rates engineered by the Fed had helped stabilize and were now expanding the US economy.
Tom Porcelli, as we can see from the article excerpted above, does not believe that the Fed will continue to “jawbone” rates. He expects aggressive hiking in 2016. Yet we believe that the Fed knows that there is no real recovery.
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