Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Fed Up: Yellen’s Mouth Is Moving But She’s Not Telling Us Anything

  by    0   0

Federal Reserve chair Janet Yellen spoke to Congress yesterday. She talked. But she didn’t say a whole lot.

Most analysts seemed to view Yellen’s speech as “more dovish.” She expressed concerned that inflation my not be rising fast enough to meet the mythical 2% target, and that could slow the pace of rate hikes.

It’s premature to reach the judgment that we’re not on the path to 2% inflation over the next couple of years. We’re watching this very closely and stand ready to adjust our policy if it appears the inflation undershoot will be persistent.”

The Fed chair also hinted that we may be close to the end of the interest rate tightening cycle.  In a written statement released before her congressional testimony,  Yellen said the Fed would not need to raise rates “all that much further” to reach current low estimates of the neutral fed funds rate. (More on this in a moment.)

Just a day before, Fed Governor Lael Brainard foreshadowed Yellen’s comments, backing off talk of numerous future rate hikes. She said the Fed “may not have much more to do” in terms of raising the interest rate.

In light of recent policy moves, I consider normalization of the federal funds rate to be well under way.”

So, a few weeks ago we were ratcheting up rates at breakneck speed. Today it looks like the Fed might take its foot off the accelerator. This is typical Fed-speak. The central bankers shift back and forth like the ocean tides. Vague statements and lack of any firm consistent direction are by design. By keeping everything open-ended, the Fed can pretty much do as it pleases and justify any move based on whichever past statement happens to be convenient. “We told you so!” But they never really told us anything.

Back to this idea of a “neutral” interest rate. Ryan McMaken at the Mises Institute focused in on this idea of a “natural” or “neutral” interest rate that Yellen mentioned in her remarks. This is one of the smokescreens the Fed throws up to justify its low-rate policy. The theory is that there exists this natural rate of interest and it has fallen to a lower level in recent years.  This means the interest rates we saw in in the past at around 3 to 5% would be way to high today.

So, what the point? McMaken explains.

Politically speaking, identifying this ‘natural rate’ as being very low allows the Fed to create the perception that its very-low target rates aren’t really all that stimulative at all. They’re practically neutral! Just look at the natural rate, they’ll tell us. The problem however, is that all good economic theory tells us that the Fed has no idea what the natural rate actually is.”

In other words, the whole thing is smoke and mirrors.

Make no mistake; Yellen and company love smoke and mirrors. It muddies the water and keeps everybody wondering. That bodes well for central planners who really have no idea what they’re doing, but want to give the impression of having everything under control. McMaken puts the whole thing into proper perspective.

All this talk about the natural/neutral interest rate thus provides political cover for the Fed, and allows the FOMC to claim that they’re using economic science in determining the ‘correct’ target rate. In truth, the Fed has no idea what the natural rate is but is really just proceeding with great caution because the Fed’s leadership knows that allowing interest rates to increase beyond the current low levels would upset the fragile economy.”

So, what will the Fed do? Will it keep raising rates? Will it hold relatively steady? Or as some have predicted, will there be a crash that forces the Fed to lower rates again and launch more quantitative easing?

We really have no clue. We should be ready for anything.

Don’t Miss an Incredible Buying Opportunity

For a limited time, SchiffGold has an incredible buying opportunity on pre-1965 silver quarters, dimes and half dollars. This is the prefect time to prepare for the future and invest in junk silver. For more information on this special, limited-time deal, click here!

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Troubling Signs in the Bond Market: Yield Curves Going Flat

There are some troubling signs for the economy in the bond market. Yield curves are going flat. On Wednesday, the yield curve from 5 to 30 year bonds flattened to as little as 29 basis points. That represents the narrowest spread since 2007. The yield curve between 2-year and 10-year Treasuries also narrowed, touching 41 […]

READ MORE →

Gold Could Play Key Role in Cancer Treatment

In recent years, gold has been increasingly valued for its use in various technological applications. In a report late last year, the World Gold Council reported the demand for gold in the technology sector has been growing since 2016 and that growth is continuing to accelerate due to new innovations. Some of the most amazing developments utilizing […]

READ MORE →

In a World Drowning in Debt the US Stands Out

a bomb with US DEBT written on it and a hand lighting the fuseIn a world drowning in debt, the US stands out, according to the International Monetary Fund. Global debt has reached record levels. According to a recent IMF report, the world has amassed $164 trillion of debt. That comes to 225% of global debt to GDP, levels not seen since the peak of the 2008 financial […]

READ MORE →

The Petroyuan Is For Real

Late last month, China finally launched its much anticipated yuan-denominated oil futures contract. Many analysts think this is yet another sign that the mighty dollar’s world dominance is coming to an end. Related

READ MORE →

“A-List” Economists Agree: The US Is Going Broke

Jim Rickards called them “A-list of top-tier economists.” Michael Boskin, John Cochrane, John Cogan, George Schultz and John Taylor are all senior fellows at the prestigious Hoover Institute. And they all agree on one thing. The US is going broke. Related

READ MORE →

Comments are closed.

Call Now