Or close to it, says the self-declared 'abnormal' US Fed...
SO the U.S. FED is going to start "normalization" of its balancesheet,
writes Adrian Ash at BullionVault.
When?
How soon?
"Relatively soon."
Ah, right. Which is when?
"Provided that the economy evolves broadly as anticipated."
Okay. Let's pick this apart, and see what the Fed is trying to tell us.
First, the word "normal". It keeps cropping up in Fed statements, like the policy committee just want to fit in and stop getting gawped at by passers-by. Only, not yet.
If you need reminding, normal doesn't look like this.
The Fed's own statement pretty much called this 'abnormal' on Wednesday. Again.
"[The Fed's top committee] anticipates...keeping [its] holdings of longer-term securities at sizable levels...until normalization of the level of the federal funds rate is well under way."
That's what it said
back in May, repeating the line used after every meeting since the Fed first yanked its key interest rate off the floor of zero in
December 2015.
Come June 2017, however, the Fed
changed that wording...after 18 months and 4 baby-steps hikes of 0.25 percentage points in its key interest rate.
"The Committee currently expects to begin implementing a balance sheet normalization program this year."
Now in July, it's going to get to work reducing its QE bond holdings "relatively soon".
Maybe that still means "this year". Maybe not. But the change of wording over the last 3 months clearly says that interest rates – if not quite "normal" just yet – are "well on the way".
Maybe they are. But on their way to where? What kind of normal should US savers, investors, business people, creditors and Dollar-users (everyone, everywhere) really expect?
Over the last 6 decades, for instance, the
Fed Funds rate has shown a mean average of 5.03%. The median (meaning half higher, half lower) was 4.83%. Whereas the mode – meaning the single most common reading – was 0.09%, thanks of course to the zero-rate policy of 2009-2015.
More telling perhaps, and lagging inflation by 0.6 percentage points, today's "normal" rate (or "well on its way") lags the typical rate of the last 6 decades by a good stretch, too.
Adjusted for CPI inflation, Fed rates have only been lower in 167 months across the last 720. So this new normal (or something very much on its way to it) is significantly lower than post-WWII history wouldn't point and laugh at.
First to get the memo as ever, any wonder Wall Street is
behaving accordingly? Or that the Dollar has been sinking? Or that
gold prices are finding traction again as the Fed's new normal message gets through?
And any doubt that cash in the bank...now confirmed as "zero risk" by the 2008 bail-outs...must continue to mean "zero return"?
