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January 27, 2015
MORGAN STANLEY: The Fed Isn't Raising Rates Until March 2016
Based on our outlook, a rate hike as early as the Fed's mid-2015 guidance looks increasingly implausible.
Big shocker.
This coincides well with my long standing Murphy's Law of Fed Rate Hiking theory. The timing of the first rate hike will always be twice as far out as you think it will be.
Should you attempt to factor this theory in and therefore double your estimate, then the actual timing of the rate hike will double again as well. Murphy's Law will not be denied!
This does pose a problem for my personal estimate though. I've always thought there was a very high probability we'd be trapped in ZIRP until just this side of forever. Good luck doubling that, lol. Sigh.
Good thing we're not following Japan into a long-term economic death spiral! As we know, long-term interest rates can only go up from here! It was true heading into the 1980s and it is still true today! How will we ever break the consumer price hyperinflationary cycle? What? The price of oil crashed again? Quick! Someone alert ShadowStats! Now is not the time for them to raise subscription prices!!
For all that is holy, beware the sarcasm bubble! ;)
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13 hours ago
4 comments:
I don't think we'll be trapped forever, just until the current monetary system collapses and is rebooted. Historically, we're overdue.
Mark,
I have thought about this point quite a lot. While I agree that there is quite a consensus in the financial world that the Fed will raise interest rates there are quite a few that say that they cannot do this without damaging the economy.
My thoughts, however flawed, are that the banks have been recapitalized and are not lending, Money is flowing into some areas creating bubbles (oil).
The Fed although they deny the existence of bubbles certainly know they are there.
Perhaps they have really decided to put the break on this experiment. Perhaps they have decided the business cycle cannot be defeated. Perhaps they will pull the rug out from under all the speculators.
Mr Slippery,
Forever is a long time. I think it is safe to say that nothing lasts forever. That's especially true of major appliances made in China. Go figure.
Anonymous,
As currently seen in the oil industry, the rug is already being pulled out from under the speculators, even with ZIRP.
As it turns out, asset prices could not permanently inflate even with 0% interest rates. Perhaps oil is simply the first shoe to drop.
For what it is worth, what the Fed did or did not do was not even in my thought process when I was buying long-term inflation protected treasuries over the years. I was buying because I was fairly convinced that long-term real growth would slow over complete business cycles.
I do not believe the Fed is all powerful. I do not have any interest in micro-analyzing every word they say (except from a sacastic perspective). Rather, I believe that if the economy wants to slow over the long-term then there's not a thing that monetary policy can do to prevent it.
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