US Federal Reserve

While many "conventional" indicators of US economic vibrancy and strength have lost their informational and predictive value over the past decade (GDP fluctuates erratically especially in Q1, employment is the lowest this century yet real wage growth is non-existent, inflation remains under the Fed's target despite its $4.5 trillion balance sheet and so on), one indicator has remained a stubbornly fail-safe marker of economic contraction: since the 1960, every time Commercial & Industrial loan balances have declined (or simply stopped growing), whether due to tighter loan supply or decl

While a June rate-hike is baked in the cake no matter how badly the economic data that The Fed is "dependent" upon collapses, it appears traders are losing faith in the rest of the year as the odds of a hike occuring in December is now above that of September (as both drop to around 25%).

As economic data has crashed since The Fed hiked rates in March, so the markets expectations has dropped to just 1.44 rate-hikes this year (one in June guaranteed), well below The Fed's guidance of 2 more rate-hikes minimum...

Authored by Frank Shostak via The Mises Institute,

According to the president of the Federal Reserve of St. Louis James Bullard the current level of US prices is noticeably lower than what it would be if the Federal Reserve had delivered on its 2% inflation target, calling the trend “worrisome.” The yearly growth rate of the consumer price index (CPI) eased in April to 2.2% from 2.4% in March. 

In its latest weekly Economic Indicators Update, Goldman charts the ongoing paradoxical divergence between the Fed's professed tightening path and what is actually taking place in the US stock market, where it finds that financial conditions are the easiest they have been in two years.

One month ago, Goldman discussed this topic in depth when Jan Hatzius implicitly asked if Yellen has lost control of the market, and warned that in order to normalize fin conditions, the Fed may be forced to follow through with a "policy shock."

On Friday, Pimco's Mohamed El-Erian referenced one of our recent charts showing the dramatic divergence between Treasury yields and stocks, which he said "this (simple yet powerful) chart from @zerohedge warrants a PhD thesis in Finance."

This (simple yet powerful) chart from @zerohedge warrants a PhD thesis in #Finance #stocks #bonds #markets pic.twitter.com/w61rDBFkPT

— Mohamed A. El-Erian (@elerianm) June 2, 2017