The Fed’s Rate Hike Cycle Is Likely Complete, Not Just Beginning
By Tyler Durden
Submitted by Chris Hamilton via Hambone's Stuff blog,
The Federal Reserve continues discussing the timing for a cycle of rate hikes and a return to “normal”… but I think there is more than ample evidence which points to exactly the opposite. Seems the adage “watch what they do…not what they say” is appropriate as ever. So where's the evidence?
1) FFR and Manufacturing Employment Growth Cycles
The chart below shows a 3yr moving average of the growth/decline in manufacturing jobs in the US vs. the same 3yr moving average of the Federal Funds Rate. Manufacturing job growth representing a proxy for business and economic expansion. Noteworthy are the blue arrows representing cycle peaks in manufacturing job creation all (except this present cycle) taking place during a rising rate environment and followed a couple years later by cycle interest rate peaks (dashed black arrows). This next round of rate cuts incented the next round of investment and manufacturing job growth. This has been a highly reliable indicator.
I draw your attention to the last blue arrow on the right of the chart. It doesn't seem to agree with the Fed that it's about time to start a rate hike cycle…in fact it seems historically to argue now is the point in time the Fed typically begins easing?!?
And a close-up since 1980…the pattern of rate cycle bottoms soon after corresponding with manufacturing job cycle tops is fairly plain (yellow dashed arrows). However, previously this was taking place during a rate hike cycle…but not this time.
Which seems to argue that the Fed is far more likely to start cutting interest rates (NIRP anyone?) than on the cusp of a rate hike cycle.
2) Fed Funds Rate and Shadow QE Rate
This rate cut rather than hike scenario seems to agree with the work done and posted on the Atlanta Fed's website (HERE) that QE was essentially the equivalent of negative interest rates (charted out below). This additional QE accommodation in addition to ZIRP peaked with negative 2.9% rates in early 2014. Upon the initiation of the taper of QE in early 2014, effectively the interest rate hike cycle began. And I suggest that the Fed's .25% hike early this year was the end of the hiking cycle…not the start.
This viewpoint finds significantly more evidence as one peruses the demographics of our situation…not the swelling ranks of old but the stalling young population, total employment among them, and full time employment (chart below).
3) Decelerating and Declining Core US Population and Employment
As of 2000, the 25-54yr/old segment of the US population made up 120 million persons and held approximately 75% of all jobs in the US. This critical core populations period of rapid growth from post WWII (and shown from 1980 in the chart below) ended just prior to the turn of the century. Since that time, the core group representing the vast majority of …read more
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