Be prepared for the next great transfer of wealth. Buy physical silver and storable food.
One of the big problems Janet Yellen has had in recent weeks is that she, and the Fed in general, are running out of excuses not to hike rates. Sure, they can delay rate hikes or outright cancel them, but that would suggest three things:
- that the Fed’s rate hike cycle was an error,
- that the US economy is far weaker than expected, and
- that the Fed remains a hostage to the market’s every whim.
Here is the Fed’s quandary in a nutshell: the Fed has had several anchor components on which to base its favorable assessment of the economy: a steadily dropping unemployment rate and a rising number of jobs (seasonally adjusted as they may be), driven by low-paying workers who comprise the bulk of the “waiter and bartender” recovery as we have dubbed it, and one which continues to ignore the labor bloodbath in the shale sector; wages which only recently have resumed rising on the back of minimum wage increases as an indicator of declining slack in the economy and which had been Yellen’s primary concern all throughout 2015; and finally inflation data which while crashing for most of 2015 due to plunging commodity prices, recently posted the biggest annual jump in core inflation in years and additionally with the base effect in energy prices about to anniversary, it is very likely that inflation prints are about to pick up substantially.
In other words, the only thing holding the “data-dependent” Fed back was the market’s reaction to its tightening cycle, resulting in a global bear market and the S&P’s infamous drop in recent weeks. But refusing to hike rates even as the economy continues to “improve” due to the market’s reaction would further dent the Fed’s credibility which would be once again seen as merely a pawn in the hand of the market.
So what the Fed did in recent weeks is find another loophole that could validate economic weakness, one first suggested by Deutsche Bank: namely that the US savings rate is rising dangerously high and suggests that the US population itself does not have faith in the recovery, by refusing to spend.
And sure enough, looking at the December savings rate, which had risen to a three years high of 5.5% validated these concerns.
Until moments ago, when in a wholesale data revision, the Bureau of Economic Analysis revised personal consumption and spending data for the period July-December.
This is what the BEA said:
Estimates have been revised for July through December… Estimates of wages and salaries were revised from July through December. The revision to third-quarter wages and salaries reflected the incorporation of the most recently available Bureau of Labor Statistics tabulations of the third-quarter wages and salaries from the Quarterly Census of Employment and Wages. Revised estimates for October, November, and December reflect extrapolations from the revised third-quarter level of wages. In addition, revisions to July through December reflect revised BLS employment, hours, and earnings data.
Instead of walking through the numbers, we present them visually: the chart below shows how over the past 6 months, while Personal Income was revised substantially lower on a cumulative basis, with a total of $36 billion in disposable personal income eliminated over this period, personal spending was in turn revised higher, adding a total of $9 billion to the revised December print. To wit:
To be sure incomes declining while spending is rising would be seen as a bad outcome to most except, of course, to the die hard Keynesian in the Marriner Eccles building, because the only thing they care about is the end result: the savings rate, and specifically a saving rate which is not rising. And with less income and more spending, the logical outcome is that the personal savings rate was just revised materially lower from 5.5% to 5.2% for December where it remained in January as well, and is no longer a disturbing trendline going from the “lower left to the upper right.”
In other words, the last “economic data dependent” loophole the Fed may have had to delay rate hikes, was just revised away.
As such, if indeed Yellen will not hike rates in March, she will have only two things to blame it on: the international environment, or the market, both of which will beg the question – if the US economy is strong enough to sustain more rate hikes, why is the Fed not doing so, and just who is the Fed serving: the international community (i.e., China), the capital markets, or the US population?
via zerohedge