Bob, I think the Key take away from the speech is that the central banks have concluded that the "EQUILLIBRIUM INTEREST RATE .......has fallen from what it has historically been since WWII or even going back 150 years or more. We know there is lower productivity.... or more accurately a global overbuild of plant, equipment and all parts of producing much of Global GDP
another take away... the FED has not that much experience working with it's Macro economic Policy tools beyond adjusting the short term interest rate.... also that the FED is considering possibly expanding their balance sheet in the future....
In his speech, Fisher, the Fed’s No. 2 policy maker, suggested that rates will probably eventually end up being lower than they have been in the past.
That’s because the equilibrium interest rate -- the rate after inflation that neither expands nor contracts the economy -- has fallen. Fischer cited a number of possible reasons for the drop in what economists dub “r*,” including slower productivity growth and excess savings in emerging market countries.
“A variety of models and statistical approaches suggest that the current level of short-run r* may be close to zero,” Fischer said. “Moreover, the level of short-run r* seems likely to rise only gradually to a longer-run level that is still quite low by historical standards.”
In the last credit tightening cycle by the Fed, which ran from 2004 to 2006, the federal funds rate targeted by the central bank reached a high of 5.25 percent.
Back to Zero
The low level of the equilibrium rate increases the likelihood that the Fed will be forced to cut its target rate back to zero in the future, Fischer said. As central bankers’ experience has shown in recent years, handling such a situation would be “challenging, to say the least,” he added
What the FED and Most of the Global Macro Asset Managers have pressed the FED on is that ZIRP and QE programs have simply liquefied Wall Street and using IBM as a signature example of what has transpired is
this has let Corporate American Issue massive debt and use the proceeds to repurchase there own company shares to create rising stock prices while we see actual revenues and earnings decline.
The SPX has had 4 consecutive quarters of declining earnings and declining revenues.
John
(btw...I very much enjoyed our early conversation today..... 2016 is going to be a very interesting year)
John |
