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"The Fed really wants to raise rates. They want to give themselves room to lower rates next time we have a recession. But they don’t want to cause a recession in the process, so I expect a rate hike of no more than 0.25% to 0.50%, making this the shortest tightening cycle in history."
If they raise 50 basis points and then have to go back to ZIRP, as far as I'm concerned, the game is over.
People don't say anything about ZIRP because they're okay with the status quo and take advantage of it even if they don't agree with it.
If you raise 50 basis points and have to go back to ZIRP, the story becomes "the economy can't even take 50 basis points" really bleeping quick.
I mean, honestly to me this still feels like the ultimate bubble, where things in the global economy look different on the other side because eventually, further measures have to be taken and it becomes apparent that QE and ZIRP were not the end but merely the beginning.
That's really the fear - that they raise only to have to go back to zero and then it gets interesting.
On the other hand, we can sit at ZIRP forever.
"A Taylor-rule central banker may be convinced that lowering the central bank's nominal interest rate target will increase inflation. This can lead to a situation in which the central banker becomes permanently trapped in ZIRP. With the nominal interest rate at zero for a long period of time, inflation is low, and the central banker reasons that maintaining ZIRP will eventually increase the inflation rate. But this never happens and, as long as the central banker adheres to a sufficiently aggressive Taylor rule, ZIRP will continue forever, and the central bank will fall short of its inflation target indefinitely. This idea seems to fit nicely with the recent observed behavior of the world's central banks"
Comments
"The Fed really wants to raise rates. They want to give themselves room to lower rates next time we have a recession. But they don’t want to cause a recession in the process, so I expect a rate hike of no more than 0.25% to 0.50%, making this the shortest tightening cycle in history."
If they raise 50 basis points and then have to go back to ZIRP, as far as I'm concerned, the game is over.
People don't say anything about ZIRP because they're okay with the status quo and take advantage of it even if they don't agree with it.
If you raise 50 basis points and have to go back to ZIRP, the story becomes "the economy can't even take 50 basis points" really bleeping quick.
I mean, honestly to me this still feels like the ultimate bubble, where things in the global economy look different on the other side because eventually, further measures have to be taken and it becomes apparent that QE and ZIRP were not the end but merely the beginning.
That's really the fear - that they raise only to have to go back to zero and then it gets interesting.
On the other hand, we can sit at ZIRP forever.
"A Taylor-rule central banker may be convinced that lowering the central bank's nominal interest rate target will increase inflation. This can lead to a situation in which the central banker becomes permanently trapped in ZIRP. With the nominal interest rate at zero for a long period of time, inflation is low, and the central banker reasons that maintaining ZIRP will eventually increase the inflation rate. But this never happens and, as long as the central banker adheres to a sufficiently aggressive Taylor rule, ZIRP will continue forever, and the central bank will fall short of its inflation target indefinitely. This idea seems to fit nicely with the recent observed behavior of the world's central banks"
http://www.zerohedge.com/news/2015-08-19/after-6-years-qe-and-45-trillion-balance-sheet-st-louis-fed-admits-qe-was-mistake