FED And The First Rate Hike

PROFILE PIC

Fed has a dual mandate
1. Control Inflation
2. Facilitate Employment
I like to  joke that they have a DUEL mandate; count the steps to 10, aim to kill and be first to shoot.
So, we are well below their unemployment metric which triggers a rate hike.

Via Doug Short

http://www.advisorperspectives.com/dshort/updates/Employment-Report.php
U RATE

– In an interview with Bloomberg  I said they need to change their metric because unemployment is dropping too fast due to the Labor participation rate  and that wage growth won’t likely come until 2015 based on their data metric of ECI wage inflation metric.
CPI inflation is not  at a comfortable level for them but they don’t seem to mind this as much.

Via Doug Short
http://www.advisorperspectives.com/dshort/updates/CPI-Headline-and-Core.php
CPI-headline-core-since-2000

– Another view I’ve held for years is that they should raise their inflation metric 2.25%-2.50% on CPI.
In any case they haven’t. So in reality keep a close eye on 2’s — it’s itching to break out to an 80 handle.
It appears they are headed toward  their first-rate hike in years.

If you wanted to ask a provocative question ask people what do they believe they will achieve with rate hikes now. You will get some real interesting answers.

I am sticking to my model that 3% FED Funds and 4.7% on 10’s are recessionary rates with some duration after these levels. Those rate metrics would be the lowest rate curve to create a recession post WWII. The best way to counter this call is to get more dollars into labor’s pockets.

Long Term Perspective On Federal Funds Rate, 10 year Yield and Inflation

Via Doug Short
http://www.advisorperspectives.com/dshort/updates/Treasury-Yields-in-Perspective.php

treasuries-FFR-since-1962

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1988 and is in a partnership with ZeneHome.com