December 22, 2016
December 22, 2016
The U.S. Federal Reserve raised interest rates on Wednesday and signaled a faster pace of increases in 2017 as central bankers adapted to the incoming Trump administration's promises of tax cuts, spending and deregulation.
The increase in the federal funds rate to a range of between 0.50 percent and 0.75 percent was widely expected. But the prospect of a brisker monetary tightening contributed to a selloff in shorter-dated U.S. Treasuries and stocks.
In a news conference following the unanimous rate decision, Fed Chair Janet Yellen said Donald Trump's election had put the central bank under a "cloud of uncertainty" and already prompted some policymakers to shift their view of what's to come.
"All the (Federal Open Market Committee) participants recognize that there is considerable uncertainty about how economic policies may change and what effect they may have on the economy," Yellen said.
Though Trump's inauguration is still a month away, she said "some of the participants" had begun shifting their assumptions about fiscal policy. At least five of 17 Fed policymakers appeared to have boosted their interest rate outlook since September, according to the new "dot plot" of rate projections.
The Fed chief was peppered with questions about the president-elect, refusing to comment on his penchant for tweeting about companies or to give advice on how any fiscal, tax or trade plan should be structured.
"I am not going to offer the incoming president advice about how to conduct himself," Yellen said.
Trump, critical of Yellen during the campaign and considered likely to replace her when her term ends in early 2018, had not by late afternoon issued any comment about the Fed's rate decision, in line with his predecessors' practice.
Yields on shorter-dated Treasuries hit their highest levels in more than five years and U.S. stocks fell in choppy action. The dollar rose against a basket of currencies. Gold hit its lowest level in more than 10 months and oil prices also declined.
Partly as a result of the changes anticipated under Trump, the Fed sees three rate hikes in 2017 instead of the two foreseen as of September.
Yellen called that a "very modest adjustment" driven also by strong job gains and evidence of faster inflation. Wednesday's rate increase should be "understood as a reflection of the confidence we have in the progress the economy has made," she said.
Fresh economic forecasts, the first since Trump won the Nov. 8 election on promises of tax cuts and increased infrastructure spending, showed policymakers shifting their outlook to one of slightly faster growth, lower unemployment and inflation just under the Fed's 2 percent target.
The projected three rate increases next year would be followed by another three increases in both 2018 and 2019 before the rate levels off at a long-run "normal" 3.0 percent. That is slightly higher than three months ago, a sign the Fed feels the economy is still gaining traction.
Markets and the Fed appeared to be close on their rate outlooks, with Fed futures markets pricing in at least two and possibly three hikes in 2017.
The Fed's policy statement "didn't mention the fiscal stimulus but typically their aggressiveness does indicate that there's a little more confidence that they can get away with three hikes next year," said Aaron Kohli, interest rate strategist at BMO Capital Markets.
The central bank continued to describe that pace as "gradual," keeping policy still slightly loose and supporting some further improvement in the job market. It sees unemployment falling to 4.5 percent next year and remaining at that level, which is considered to be close to full employment. The economy is projected to grow 2.1 percent in 2017, up from a previous forecast of 2.0 percent.
U.S. bond yields had already begun moving higher following Trump's victory and as expectations of the Fed rate increase solidified. All 120 economists in a recent Reuters poll had expected a rate hike on Wednesday.
In the weeks following the election, Fed policymakers have said Trump's proposals could push the economy into a higher gear in the short run. Even though the details of the Republican businessman's plans remain uncertain, Wednesday marked a rare case in which the Fed moved its interest rate outlook higher in the era after the 2007-2009 financial crisis.
Risks to the outlook remain "roughly balanced" between factors that could slow or accelerate the economy beyond what the central bank anticipates, the Fed said, no change from its assessment last month.
The rate increase was the first since last December and only the second since the crisis, when the Fed cut rates to near zero and deployed other tools such as massive bond purchases to stabilize the economy.
Our corrupt economic system is what they call "debt based". Without debt (the more the better) everything would collapse. It is vital to the system that SOMEBODY be in debt to somebody else at all times. That one statement should be enough to show any reasonable person how rotten the system is.
Banking in this country is what they call "fractional reserve banking". What that means is banks are allowed to loan out more money than they own. I said "own", not "have".
In the Middle Ages, people who did not have their own vaults would leave their gold with their local goldsmiths who naturally had their own vaults. Jews dominated the goldsmith profession and charged a small storage fee. Customers were given a receipt for their deposit which was payable to the bearer.
The customers soon learned that rather than withdraw their gold to buy things, they could pay with these receipts. This was the beginning of paper money in western civilisation.
Also, goldsmiths realized that virtually never did all their storage customers come in and demand all their gold at the same time. This meant they could make loans to other people with this gold - as long as the owners of the gold didn't find out. In other words, goldsmiths were making loans with money that didn't really belong to them. This was the beginning of fractional reserve banking. At the time it was technically illegal, but with the forming of the first private central bank, the Bank Of England, this changed.
The danger of fractional reserve banking is perfectly demonstrated by the Great Depression of 1929. Stock markets crash all the time. It's only when people panic that it can turn into a depression. When the market crashed in 1929, everyone panicked. They rushed to the banks to withdraw their money as banks often invest in the stock market and as a result of the crash all their money might have been lost. The banks didn't have the money as it was either invested in the market or in loans. To meet the demands of depositers, banks had to call in their business loans. This caused many businesses to fold up and unemployment to rise. This spread like a disease, and in a nutshell, that's why this crash hit us so hard.
Since the crash of 1929, Federal Deposit Insurance was established which would pay depositers their money in case of another big market crash, and therefore depositers know their money is protected and there have been no more panics.
Inflation is another matter. It is our private central bank, the Federal Reserve Bank who decides what interest rates will be on ALL kinds of credit, cars, loans, mortgages, whatever. When interest rates are low, people borrow more. They use their credit cards more, mortgages are easier to obtain, and the money flows which is good for debt based economies. When interest rates are high, people charge less, and mortgages and other kinds of credit are harder to obtain and the money stops flowing. Often, the Fed will order the printing of more money to keep things artifically flowing. It works for the short term, but in the long run it makes money worth less and that is what inflation is.
In 2017, The Fed has decided to put interest rates way up. This will mean less credit, and less money flowing. They are bound to order more money printed and prices will soar. Why would they do this deliberately? Answer: $$$.
Inflation makes bankers wealthier. No matter whether we're having good or bad financial times, SOMEONE makes money. In hard times it's always the top economic level that profits, while the rest of us sink further into poverty. Oh, times will improve eventually and we will recover, but never to the point we were at before the hard times.
This cycle repeats itself over and over until in the end there will be the very rich and the very poor. That's what's happening right now.
The only solution is to end debt based economies. Hitler did it. For a short time, so did Abraham Lincoln. In his time, money was printed by various private banks. There were a number of them as there was no central bank at this time. He decided to order the Treasury to print their own money. It looked similar to what we call bank notes (money printed by private banks like the Federal Reserve Bank - look at your money - it says "Federal Reserve Note" as in a bank note).
This new money looked like bank notes but they did not say bank notes. They were a sort of grey on the front and green on the back - hence the origin of the term "green backs". Shortly after Lincoln was killed, the printing of green backs was discontinued, although they stayed in circulation until the beginning of the 20th Century. Indeed, some say that Lincoln's assasination was not because he ended slavery, but in order to get rid of the green back system which was not debt based. I think this is probable. John Wilkes Booth was no fool. He knew killing Lincoln would not bring back slavery or restore the South, but it could end the green back system. BTW, Booth, in addition to being an actor, was heavy into investments - including banking.
Unless we can reestablish a non-debt based system, we will never be free of economic slavery and the bankers will remain our masters.
Give me control over a nation's money and I care not who the ruler is. - Nathan Rothschild.