Fed President Bullard Admits What We Have Been Saying All Along – Podcast

St. Louis Fed President James Bullard Says Only One Rate Hike Needed.

Bullard: U.S. is in a “high-liquidity-premium regime, in which investors are willing to pay premium prices for safe assets like government debt”.

No need to raise rates much when other sovereign regimes have interest rates at zero or negative.

Bullard has stated a few times in 2016, the Fed’s aggressive interest rate projections strain credibility.

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Fed Policy Driven by Preserving the Dollar and Demand for US Treasuries

Recent Fed policy has less to do with the economy and more to do with keeping a spread between sovereigns that have no or negative rates to keep demand for US Treasuries.

Fed Dual Mandate: maximize employment, stabilize prices and moderate long term interest rates.

One Rate Hike Should Do the Trick

St. Louis Fed President said yesterday that even though the Fed is near its inflation and labor market targets that only one rate hike is needed. This position differs from other Fed officials and Janet Yellen’s who state that the Fed is on a gradual path to ‘normalize’ (raise) interest rates.

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A review of Fed policy the past two years (mostly talk/yack attacks) reveals that the Fed has no intention of normalizing rates. Rather, they are content to just talk about doing so.

The Fed has stated that interest rates need to rise because QE worked and the economy is recovering, strengthening and is solid and robust. Since the economy is not strengthening using Fed logic there is no need to raise interest rates to cool a accelerating economy.

Here is a review of prior Fed actions that match their words and actions and show that the Fed has no intention of normalizing interest rates but that they will raise interest rates slightly as Bullard advocates.

April 2015

DOES THE FED NEED TO RAISE INTEREST RATES TO COMBAT DE-DOLLARIZATION INITIATIVES? Early 2015 – during aftermath of QE which really started the de-dollarization process rolling.

“A drop in foreigners holding U.S Treasuries may indicate declining demand.

The Fed’s top allegiances are to its shareholder banks and the U.S. Government. If higher rates are needed to help the U.S. Government raise revenue, they will raise rates, even if it harms the economy.”

June 2015


“The Fed will raise interest rates on the pretext/false narrative that the economy is doing well.

If data continues to come in negative the Fed will insist it is transitory and the economy will improve in the second half.

Higher interest rates are necessary to promote U.S. Treasury Bond sales and a strong dollar.

Higher interest payments can be covered by selling increased nominal amounts of Treasury Bonds.”

(ponzi 101- need to attract new capital constantly)

Was calling for A Fed rate hike even though many commentators insisted the fed couldn’t, wouldn’t or would even be impossible for them to do so

But they did they did.

December 2015


Many commentators insisted it was one and done and the next move would be a a rate cut.

The Fed then projected FOUR rate hikes in 2016. We said the Fed would talk about rate hikes but no way do four rate hikes in 2016.

“We believe the Fed will continue to push the concept that they are on a rate hike path (data dependent, of course) because the economy is improving and that “job gains” will eventually boost consumer spending and inflation. Having gained credibiity for raising rates, Ms. Yellen and Fed officials will talk about another rate hike for months sending conflicting signals that they might raise rates, might not raise rates or might lower rates.”

This talk and no action methodology is used when they pretend to hawkish and is the reverse of the action and no talk when they are actually dovish.

The Fed is very clever. If the Fed had said at the beginning of the first QE program launched in 2009 that they would print over $4 trillion over the next seven years to buy U.S. Treasury bonds and worthless mortgage backed securities and that they would keep interest rates at zero, the dollar would have collapsed. That is exactly, however, what they did but the dollar did not collapse and indeed is higher today than it was before they started QE in 2009!

I also wrote that the Fed would eventually cut rates again and perhaps go negative- I no longer think they will go negative preferring instead to buy assets like corporate stocks and bonds. (Donald Trump may change all this with a new Fed board).

May 2016


The Fed WILL raise rates if it has to:

“Protecting the dollar and demand for U.S. Treasury Bonds is more important than the Fed’s dual mandate of full employment and price stability. It’s also more important than funnelling favors to its too big to fail bank shareholders. Without demand for the dollar and Treasuries, the proper functioning the U.S. economy and its deficit fueled government become tenuous”

The Fed’s credibility, the dollar and demand for U.S. Treasury Bonds is on the line. Just talking about a rate hike won’t cut it. They’ll do another quarter point hike then start the yacking about doing another one.

We don’t buy the argument that the Fed can’t raise rates because it would increase the debt service to levels that the U.S. couldn’t afford. The U.S. already can’t afford its annual deficit, accumulated debt and unfunded liabiities. The only way they get paid is by issuing more debt. If raising rates attracts more demand for government issued debt, they will do it. How will the additional interest be paid? From the principal of the newly issued bonds.

The same people making the argument that the Fed can’t raise rates due to the higher debt service payments are the same ones who call the U.S. debt scheme a “Ponzi Scheme”. Ponzi 101 says you constantly have to raise more capital, however possible. If raising rates attracts more capital, the operator of a Ponzi scheme is compelled to do it.”

June 2016


A Dollar Not Too Strong, Not Too Weak

A dollar that is too strong makes exported U.S. military hardware too expensive for foreign purchases and dollar that is too weak can cause a lack of confidence in the dollar and can cause domestic inflation because the U.S. relies heavily on imports.

A point not made explicitly in the podcast – If an interest rate hike causes the equity markets to crash, demand for U.S. Treasuries will spike, thus furthering the Fed’s objectives of keeping demand high for U.S. Treasury bonds. (the plunge protection team/ESF can clean up the stock market mess if necessary)

Fed wont sacrifice the dollar for the stock market by cutting rates- they will just ask for power to buy shares! -which Yellen hinted at in August at Jackson Hole.

September 2016


The reporter asked Ms. Yellen given the low growth projections, why were the inflation projections as high as they were and why would that warrant such a big increase in interest rates over the next three years?

Ms. Yellen agreed that the growth projections were low, but noted they had revised down the Fed Funds rates too and that low growth is a concern for policy makers.

Because the interest rate projections for the next three years are as false as the ones the Fed made two years ago that projected six interest rate hikes by the end of 2016.

Bullard confirmed that view yesterday.

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