STAFF NEWS & ANALYSIS
'Employment Data Key to Hike' Just a Diversion
By Daily Bell Staff - December 04, 2015

Yellen signals growing likelihood of a December rate … Federal Reserve Chair Janet Yellen told Congress Thursday that economic conditions appear to be improving enough for policymakers to raise interest rates when they meet in two weeks — as long as there are no major shocks that undermine confidence. Yellen said that even after the first rate hike, the Fed expects future rate increases will be at a gradual pace that will keep borrowing costs low for consumers and businesses. In testimony before the Joint Economic Committee, Yellen warned that waiting an extended period of time to start raising rates would carry risks. – AP/Yahoo

Dominant Social Theme: We've steered this vast US economy (the biggest in the world) properly and competently, and now we're going to make the right decision at the right time.

Free-Market Analysis: The consensus once again seems building that finally, this time, Yellen and company are going to hike. Her testimony to Congress yesterday seems to have sealed the proverbial deal. She spoke notably about "overshooting."

"Were the FOMC to delay the start … for too long," she said, "we would likely end up having to tighten policy relatively abruptly to keep the economy from overshooting" the Fed's goals for unemployment and inflation.

This is one of Yellen's big concerns, shared by others on the Federal Open Market Committee. Nonetheless, today's s employment data from the Labor Department may shift the Fed's consensus. Yellen admitted it yesterday:

"Between today and the next FOMC meeting, we will receive additional data that bear on the economic outlook. These data include a range of indicators regarding the labor market, inflation and economic activity," Yellen told the [Committee]. "When my colleagues and I meet, we will assess all of the available data and their implications for the economic outlook in making our decision."

Yellen, reportedly, is looking for "a continued solid trend of job creation," though Friday's numbers are not necessarily going to provide it.

This is because, as John Crudele recently pointed out in the New York Post, the end-of-week numbers from the Fed aren't going to be inflated by Labor Department "guesstimates."

Unlike October's figure, the November data will not be boosted by a hefty Labor Department guesstimate on the number of jobs being created by newly formed companies. These jobs are phantoms because the Labor Department can't prove they exist when they are reported each month. October's 271,000 gains included a hefty 165,000 of these phantom jobs, generated by a computer program called the birth/death model.

Crudele believes that even now Fed officials including Yellen haven't decided for sure on a hike. He writes that if anyone suggests a hike is a certainty, one ought to "look them straight in the eye, crack a little smile and say, 'You're an idiot.' "

Even the Fed doesn't know what it is going to do. Indeed, Fed Chair Janet Yellen and her band of confused academics probably won't be able to come to a decision until the very last moment. Let me be clear about one thing: The Fed wants to raise rates and needs to raise them. This has been true for years now. But each time the central bank gets close to pulling the rate trigger, it loses its nerve.

We've suggested in the past that the Fed is pursuing a "jawboning" strategy that involves manipulating expectations via statements rather than actions. Creating expectations without follow-through can help damp market averages at least in the short-term and even have an impact on some of the asset bubbles the Fed has already created with its low-rate policies. How long a jawboning strategy can have a real impact is an open question, though.

In his article, Crudele points out various reasons why raising rates is fraught with almost paralyzing significance. While proponents of the "efficient market" theory may believe a rate hike is already priced into expectations, no one fully knows what the impact would be going forward. Crudele writes:

The Fed also will have to consider some other important things before making its move. For one thing, higher borrowing costs here will boost the value of the dollar and hurt companies doing business overseas. Also, the US will be raising rates while the rest of the world is lowering them.

Being that out of sync with the rest of the world economy isn't good. What's more, higher rates will cost the debt-ridden US government a lot of extra money when it borrows. Low rates have actually been a secret tax on savers that has been subsidizing Washington.

It is Crudele's belief that the Fed should have hiked after the artificially inflated number of 271,000 jobs in October. And the next time the numbers will be similarly inflated by Labor Department guesswork will be in the spring. So perhaps spring is the next real window of opportunity for the Fed to act rather than now.

Step back to look at the proverbial "big picture" and the entire speculative debate is a kind of exercise in futility. The Fed – central banks in general – have been staggering from one low number to another when it comes to interest rates. Even now most central banks rate-mandates are headed down rather than up. Another phony business cycle is in play with all the attendant bubble damage that will become visible once this latest economic inflation inevitably subsides.

Could this truly be "end days" for this horrible century-long, economic experiment? Around the world central banks are trapped in the mire of easy money creation. No matter what the Fed does in the short term, in the longer term the policy is one of endless money printing. That's what central banks do, after all.

Central banking policy is a chimera, a sleight-of-hand focusing our attention on the shell game in front of us while much more important activities take place away from the table. Around the world, monetary policy is being reshuffled and the dollar is being willfully toppled from its perch as the international reserve currency.

The long term consequences of the latest bout of hyperactive money printing, which began in earnest in 2008, will sooner or later have the consequence of creating another catastrophic downturn. By then, the next step in globalism will surely be positioned.

After Thoughts

It has already begun with the ascension of the yuan to the International Monetary Fund's SDR basket. It won't stop until a neo-bancor is announced and made available around the world. Between now and then an awful lot of ruin may be inflicted on us all. Plan accordingly.

Posted in STAFF NEWS & ANALYSIS
  • Jim Johnson

    World: “Pay us in gold”
    Janet: “We can’t”
    –click.
    End of story.

    • dc.sunsets

      The entire stock, bond and asset market is kind of like the gold futures market; There are vastly more claims on oz of gold in that market than there are oz of gold on the planet. As long as people are maniacally optimistic (as revealed by the high level of asset prices), a universe of illusory claims on a finite (and much tinier) amount of real capital can exist in people’s minds, leading to visions of vast wealth that they can reach for any time they want.

      When the time finally does arrive that this period of absurd complacency and optimism ends, a few too many people will try to cash in those claims and the entire edifice will collapse, taking all those dreams of great wealth with it. Real capital won’t disappear, but the astronomical amount of “wealth” trying to claim it will. What is a bond worth if no one trusts its issuer any more? What’s a stock worth if the illusions underpinning it’s “story” evaporate? What’s a bank account worth if suddenly everyone wants to cash out? What if that bank is the Central Bank?

  • dc.sunsets

    Please look at the current yield of the 3-month T-bill.
    http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=&symb=3_month&x=47&y=11&time=8&startdate=1%2F4%2F1999&enddate=7%2F13%2F2011&freq=1&compidx=aaaaa%3A0&comptemptext=&comp=none&ma=5&maval=13&uf=0&lf=4&lf2=32&lf3=256&type=2&style=320&size=3&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=11

    It has been known for quite some time (to those willing to look) that the Fed changes the Discount and Fed Funds rates to FOLLOW, not LEAD the 3-month T-bill rate. As long as the rate was near zero, all discussion of a “fed rate hike” was hot air. Now that rates have broken out to the upside, a Fed hike is likely. The Fed is a paper tiger. The market for debt securities is astronomically larger than the Fed (or any central bank.) Fed governors are like clowns who jump in front of a parade, begin to wave a baton and thus convince onlookers that they are directing the march.

    Once, when criticised about holding rates low “too long,” Alan Greenspan let the cat out of the bag, responding, “The market kept rates too low, too long.”

  • James Clander

    The official Govt employment stats are a figment of their imagination. I much prefer John Williams:
    http://www.shadowstats.com/alternate_data

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