February 13 -- Unanimous Fed Rate Hike

On June 13, 2018, 

Federal Reserve Bank Chairman 

Jerome Powell said:

“The economy is in great shape.”

That statement is too bullish, I say:

(1) 

Real GDP growth averaged 

only a little over 2.2%

from 3Q 2009 through 1Q 2018.

The 2.2% does not include 

any recession months.

When excluding recession months,

the Real GDP growth of 2.2%

is a huge TWO percentage points 

LOWER than the 55 year average 

from 1945 to 2000 !

(2) 

Average Hourly Earnings

were up 2.7%, 

year-over-year,

in May 2018, 

but not up as much as

the Consumer Price Index,

up 2.8%, year-over-year, 

in May.

Perhaps the Fed’s 

optimum economic goal, 

having inflation rising 

slightly faster than wages?

Most of the rise in wages 

is confined to salaries

of the top 10%, mainly in

professional / managerial jobs.

A great economy for who?

By an unusual unanimous vote

last week, the Federal

Open Market Committee

raised its federal funds rate 

by a quarter percentage point 

to a range between 1.75% and 2.0%. 

The unanimous vote was 

unlike prior rate hikes.

Expectation of the 15 members 

of the FOMC's:

- One member expects 5 rate hikes in 2018; 

- Seven members expect 4 hikes; 

- Five members expect 3 hikes, 

- Two members expect no more hikes. 

Two more hikes this year 

would bring the top end 

of the fed funds (very short term 

interest rate) target range to 2.5%. 

We are participating in what 

Jacob Rothschild described in 2016 

as “surely the greatest experiment 

in monetary policy in the history 

of the world”.

So far US economic growth has been

unusually slow since mid-2009,

but has lasted a long time.

The world is at record debt, 

record derivatives exposure,

record financial asset valuations

and record real estate asset price tags.

Records like that are usually temporary.