Fed Up Friday: Oct. 15 – 21

Once again, the Fed is predicting a rate hike by the end of the year. The problem is they’re notoriously bad at predicting their own rate hikes.

The Fed’s Lackluster Success at Predicting Rate Hikes

At the start of 2016, Fed members had predicted more rate hikes than we’ve experience so far. That’s not a surprise to anyone who has followed the Fed for any period of time. Recently, Business Insider posted in-depth dot graph plotting the Fed’s missed marks when predicting its own hikes over the past three years.

Peter Boockvar: “The Fed has a Problem”

According to Peter Boockvar of the Lindsey Group, the Fed still has some bad data within their “dependency” model that will likely play a role in whether it’s a go or no go for a December rate hike. With unemployment at roughly 5% overall and inflation edging closer to the target 2%, the Fed should be primed for a rate hike if you judge the situation by traditional means. However, the overall growth of the economy has fallen nearly 1%, which is contrasted with the Fed’s initial prediction of 3.8% growth by year’s end. “Under those scenarios, the Fed should actually be cutting interest rates.” said Boockvar, “They’re really stuck here.”

Inflation Targeting is a Mess Thanks to the Fed

Alasdair Macleod, Head of Research at Goldmoney, shared an article on inflation targeting where he discusses the chaos central banks cause when they attempt to target inflation and full employment at the same time. The fundamental flaw, as he puts it is this:

“By making the vast majority of people worse off, monetary policy actually increases unemployment. So as the massive monetary inflation of recent years works its way into rising prices, unemployment will rise too. How any highly paid macroeconomist can believe otherwise is wholly irrational.”

Betting on a Rate Hike? Prepare to Be Disappointed

Financial markets seem to be pricing in a Fed rate hike already even with little evidence or confidence that it will arrive. Lindsey Piegza, chief economist at Stifel Fixed Income, believes the Fed won’t raise rates this year, which will probably surprise some. Piegza stated to MarketWatch: “I think we are going to see continued volatility in the market as I don’t expect the Fed to actually pull the trigger in December.”

Similar to Boockvar, Piegza believes the Fed’s own benchmarks aren’t supporting the recent optimistic view: “If the Fed is focused just on the data, just on their dual mandate,” she states, “there is no reason to raise rates at this point.”

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