Mark Wilson/Getty ImagesFederal Reserve Board Chairman Jerome Powell speaks during the news conference following the Fed’s September meeting.
On October 17, 2018, Greg Robb writes on Market Watch:
A majority of top Federal Reserve officials believe that interest rates will have to continue to increase until the economy slows down from the rising cost of borrowing, according to minutes of the central bank’s September meeting released on Wednesday.
Just how long policy would have to be restrictive was an open question, the minutes showed. A “few” officials thought policy would have to remain “modestly restrictive for a time” while an additional “number” thought policy would need to be restrictive only “temporarily.”
On the other hand, just a “couple” of officials indicated they would oppose a restrictive policy stance “in the absence of clear signs of an overheating economy and rising inflation.”
The minutes did not specify the level of rates that Fed officials believe would start to slow the economy.
Paul Ashworth, chief U.S. economist at Capital Economics, noted that the rate projections submitted for the meeting showed 11 of the 16 participants in the Fed interest-rate meeting expected the actual fed funds rate to be at or above 3% by end-2021.
“Policy makers seem more emboldened to extend the tightening cycle,” added Sal Guatieri, senior economist at BMO Capital Markets.
U.S. stocks sank after the release of the minutes with the Dow Jones Industrial Average DJIA, -1.38% ending down by 92 points.
Fed officials have said that a 3% fed funds rate would be the “long-run” neutral level of interest rates, neither boosting nor retarding growth. But they haven’t said that applies in the short run.
According to the minutes, officials only said “there is considerable uncertainty surrounding all estimates of the neutral federal funds rate.”
At the meeting, Fed officials voted to lift their benchmark federal-funds rate to a range between 2% and 2.25%. Officials agreed that, beyond September, “further gradual increases in the target range for the federal funds rate” would be needed. That’s a sign that another rate hike in December is likely.
A gradual approach would balance the risk of tightening policy too quickly and causing the economy to stall, and tightening too slowly, which could boost inflationary pressures, officials said.
The Fed has penciled in three moves for 2019. At the moment, the financial market has only one rate hike priced in for next year.
Concern that the Fed would slow the economy was behind the recent volatilityVIX, +10.64% in equity markets. Those fears have eased a bit and the yield on 10-year Treasury notes TMUBMUSD10Y, -1.98% has slipped from highs seen earlier this month. President Donald Trump has been warning the Fed not to move to quell the expansion, on Tuesday calling the central bank “the biggest threat” he faced.
According to the minutes, there were widespread reports from contacts and surveys of a “firming” in inflationary pressures.
Fed officials agreed there had been “some acceleration” in labor costs, but added that wage gains remained moderate by historical standards.
Still, “several” Fed officials said they now expected inflation to “modestly exceed” the Fed’s 2% annual inflation target “for a period of time.”
Uncertainty over the trade disputes and a stronger dollar DXY, -0.13% from divergence between U.S. and foreign economic growth were seen as downside risks.
At the meeting, Fed officials removed the sentence indicating “the stance of monetary policy remains accommodative.” Officials said the language was outdated and it was better to take it out before rates approached neutral that “could convey a false sense of precision” about when the Fed had reached a neutral level of interest rates.
Gary Reber Comments:
“A majority of top Federal Reserve officials believe that interest rates will have to continue to increase until the economy slows down from the rising cost of [GOVERNMENT] borrowing…” They leave out government borrowing, which has been steadily amounting over decades to pay for government spending, instead of taxing citizens to pay for government spending. And taxing corporations at rates of at least 90 percent should be the norm, with the escape provision that the tax is exempted when a corporations pays out 100 percent of its earnings to its owners, who then would be taxed according to their income group rates.
The Federal Reserve should implement Section 13(a) and unleash interest-free new money creation strictly tied to the formation of new, viable capital asset investment, with capital credit loans repayable strictly out of the earnings of the new viable investments in the growth of our economy. Capital credit risk insurance and reinsurance (ala the FHA concept) should be implemented to satisfy bank requirement that the capital credit loans they facilitate are insured against failure (the substitute for past savings equity).
Such new capital credit loans should be allocated equallyoan an annual basis to EVERY child, woman and man, via Capital Homestead Accounts, the amount tied to the investment value of the yearly growth, without the requirement of pledging past savings equity to secure the loans or guarantee the loans against projected performance default. In this way, we will be able to create new productive capital asset owners, with their individual CHAs growing every year, as well as seeing their ownership portfolio of productive capital assets grow, creating personal wealth and producing personal income. Thus, EVERY citizen would become a productive contributor to our economy via their contribution of the productive capital assets they own as individuals. Facilitating this plan would empower the economy to really rev up and simultaneously create new productive capital asset owners, who then would be the “customers with money” to buy what the economy produces. Also, as a result of the new non-government stimulus to our economy, millions and millions of new jobs would be created, as we all, together build a future economy that can produce and support general affluence for EVERY citizen.
We need to enact the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/wp-content/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/learn/capital-homesteading/ch-vehicles/capital-homestead-accounts-chas/.
