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18 Mar 2015
US data fails to make the case for rate normalization – Rabobank
FXStreet (Barcelona) - The Rabobank Team comments on the Fed’s rate hike/cut actions in the past, and further add that the present US data doesn’t make the case for rate normalization to begin.
Key Quotes
“For those who might think we should trust the Fed I would counter that their track-record is poor since 1937 too: they cut rates in 1998, fueling an equity bubble, then raised them in 1999-2000, causing that bubble to burst; they slashed rates to 1.0% in 2003, fueling a housing/credit bubble, then raised them to 5.25% and burst that bubble in 2008 (while saying the sub-prime mortgage problem was “contained”); they stopped QE1 - the economy swooned, so they started QE2; they stopped QE2 - the economy swooned, so they started QE3; and although we have finally seen QE tapered and a moderate recovery so far, overall US data-flow (except for payrolls) arguably still don’t make the case for rate normalization just yet.”
“Indeed, 2-year US yields edged up to 0.67% yesterday, while 10s drifted down to 2.05%, around 21bp off their recent highs: that’s a flattening trend we saw play out over the 2000s when the last ill-timed series of rate hikes were put in place.”
Key Quotes
“For those who might think we should trust the Fed I would counter that their track-record is poor since 1937 too: they cut rates in 1998, fueling an equity bubble, then raised them in 1999-2000, causing that bubble to burst; they slashed rates to 1.0% in 2003, fueling a housing/credit bubble, then raised them to 5.25% and burst that bubble in 2008 (while saying the sub-prime mortgage problem was “contained”); they stopped QE1 - the economy swooned, so they started QE2; they stopped QE2 - the economy swooned, so they started QE3; and although we have finally seen QE tapered and a moderate recovery so far, overall US data-flow (except for payrolls) arguably still don’t make the case for rate normalization just yet.”
“Indeed, 2-year US yields edged up to 0.67% yesterday, while 10s drifted down to 2.05%, around 21bp off their recent highs: that’s a flattening trend we saw play out over the 2000s when the last ill-timed series of rate hikes were put in place.”