We Must Keep the Fed Comfortable!

The following chart shows the 5-year moving average of an equal weighting of annual CPI growth and annual hourly earnings growth for production and nonsupervisory employees.


Click to enlarge.

If we watch what they do and ignore what they say, then as seen in the blue median, the Fed seems comfortable when wages and inflation are rising by an average of about 3%.

Let's zoom in for a closer look and remove the smoothing that a 5-year moving average provides.


Click to enlarge.

This chart would imply that the Fed is not as comfortable right now as it once thought it might be.

September 29, 2014
Fed’s Evans: Wait to 2016 to Consider Raising Interest Rates

“I am very uncomfortable with calls to raise our policy rate sooner than later,” Mr. Evans said in a speech in Chicago. “I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals.” Mr. Evans spoke before a gathering of the National Association for Business Economics. He made the comment about waiting until 2016 later, in remarks to reporters.

Release the Kraken! Savers must pay for their insolence!



November 17, 2014
Low rates not creating stock bubble: Fed's Powell

"I don't see bubble territory, and we don't see leverage building up."

The sacrifice has been made! Powell has deployed the "I Don't See Bubble Territory" shield that so many have deployed before him. Meanwhile, the Fed as a whole has opened the "We Don't See Leverage Building Up" floodgate! The Kraken is free at last to hunt on the infinite seas of liquidity!

November 17, 2014
The Japan Times: Germany’s secret credit addiction

With recent data showing that German exports fell 5.8 percent from July to August, and that industrial production shrank by 4 percent, it has become clear that the country’s unsustainable credit-fueled expansion is ending. But frugal Germans typically do not see it that way. After all, German household and company debt has fallen as a share of GDP for 15 years, and public debt, too, is now on a downward path. “What credit-fueled expansion?” they might ask.

The answer lies in the reality of our interconnected global economy, which for decades has depended on unsustainable credit growth and now faces a severe debt overhang. Before the 2008 financial crisis hit, the ratio of private credit to GDP grew rapidly in many advanced economies — including the United States, the United Kingdom and Spain. Those countries also ran current-account deficits, providing the demand that allowed China and Germany to enjoy export-led expansion.

Source Data:
St. Louis Fed: Custom Chart