Ed’s Daily Notes for February 20th   6 comments

over-confidence-cat-eagle-demotivational-poster(hat tip to Untypically Jia for the pic)

Bloomberg: Fed to Change Rate Guidance as Unemployment Falls, Minutes Show

Want to know why the markets tumbled yesterday? Here you go:

Federal Reserve policy makers backed away from their year-old commitment to consider raising interest rates when unemployment falls below 6.5 percent.

With joblessness falling faster than expected even as other labor-market indicators show weakness, policy makers agreed it would “soon be appropriate” to revise their guidance about how long the era of record-low interest rates will remain, minutes of their January meeting showed.

Several policy makers also said that in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor” of continuing to trim the Fed’s bond purchases by $10 billion at each meeting.

Translation: The QE taper will continue as planned, AND they are considering raising rates this year. Mister Market was not pleased.

New Yorker: What I Saw When I Crashed a Wall Street Secret Society

The article above was written by a journalist named Kevin Roose. Remember that name, because it is one of the best pieces of journalism I have read in quite a while, even if it is from his book, “Young Money”.


Posted February 20, 2014 by edmcgon in Economy, Editorial/opinion, Federal Reserve, News

6 responses to “Ed’s Daily Notes for February 20th

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  1. Translation: The QE taper will continue as planned, AND they are considering raising rates this year. Mister Market was not pleased.

    Ed, I don’t come to the same conclusion. The Fed understands this is a jobless recovery and the 6.5% target for raising rates is meaningless because the current 6.6% unemployment rate is due to the lowest labor participation since WW2. I don’t see them raising interest rates until mid 2015 unless the job situation drastically improves, which is highly unlikely.

    • Zosa,
      While I agree with your economic analysis, I have one question for you: Why is the Fed talking about raising rates already? They have a much more optimistic view of the economy than you or I do.

      • They aren’t talking about raising rates; they are talking about changing the metrics for raising rates so they are not pigeon-holed into raising rates if unemployment “drops” to 6.5%. They understand this metric is no longer applicable because it would be achieved by more folks having stopped looking for work rather than increased employment. Now, if we start adding 400,000 to 500,000 jobs per month (highly unlikely), they will certainly look at raising short term rates.

      • zosa,
        From the article:

        ““A few” officials “raised the possibility that it might be appropriate to increase the federal funds rate relatively soon,” according to the minutes.”

        Yes, they are talking about raising rates. Whether the “few” are just a few hawkish outliers who really don’t have much pull, or if the few are close to half of them, the minutes don’t state.

  2. If they continue to taper and there is the thought of raising rates what does that do for commodity stocks, especially gold and silver, anything?

    • Bobb,
      It will come down to whether the market views the Fed’s moves as deflationary. If so, then gold and silver will probably tank with the equities. Same for commodity stocks in general.

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