Fed Raises Benchmark Rate 25 Basis Points, Says 'Gradual' Instead of 'Measured'

The distinction is that 'gradual' means as needed, or as seen to be necessary by the ongoing data.

'Measured' was meant to imply a steady 25 basis point at a time rate of increases to an objective which some thought to be 100 bp.

The Fed also raised the interest paid to the Banks on Required and Excess Reserves to 50 bp.

In the second press release below, the NY Fed says that they have about $2 Trillion at the ready to back up the Fed's targets.

As suspected, the Fed raised, but it is very likely to be quite gradual, since the data does not fully support it despite all the verbage which has been put out there to justify it.

So to accentuate a very important point, this is not your father's interest rate tightening cycle.

The Fed is raising rates in order to 'end' ZIRP and to begin to provide themselves some maneuvering room out of the policy corner into which they had painted themselves in their thrashing within a credibility trap of lack of reform, top down stimulus, and thereby a continuing lack of broad, organic recovery which is apparent to all those who are not blinded by an ideological bias, a preoccupation with abstract and otherworldly models, and/or their paychecks.

Federal Open Market Committee - December Policy Statement
Release Date: December 16, 2015

Information received since the Federal Open Market Committee met in October suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft.

A range of recent labor market indicators, including ongoing job gains and declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; some survey-based measures of longer-term inflation expectations have edged down.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen.

Overall, taking into account domestic and international developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely.

The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.

Approximately $2 Trillion is available to the NY Fed to implement this policy change, although I would hesitate to think of this as anything near a hard limitation to the Treasury's willingness to spend or the Fed's willingness to monetize, and to tinker with the markets through their trading desks and those of their associated Banks.

Federal Reserve Bank of New York
Statement Regarding Overnight Reverse Repurchase Agreements
December 16, 2015

During its meeting on December 15–16, 2015, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York (New York Fed), effective December 17, 2015, to undertake open market operations as necessary to maintain the federal funds rate in a target range of ¼ to ½ percent, including overnight reverse repurchase operations (ON RRPs) at an offering rate of 0.25 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account (SOMA) that are available for such operations and by a per-counterparty limit of $30 billion per day...

...the Desk anticipates that around $2 trillion of Treasury securities will be available for ON RRP operations to fulfill the FOMC’s domestic policy directive.   In the highly unlikely event that the value of bids received in an ON RRP operation exceeds the amount of available securities, the Desk will allocate awards using a single-price auction based on the stop-out rate at which the overall size limit is reached, with all bids below this rate awarded in full at the stop-out rate and all bids at this rate awarded on a pro rata basis at the stop-out rate.

Charles Dickens: Christmas, As We Grow Older

"Dickens' Christmas message in the 1851 Christmas edition of his weekly magazine, Household Words, reminds readers to remember those who have passed and to cherish their memory as part of the celebration of the holiday.

Dickens himself had recently lost his father John Dickens, his infant daughter Dora, his sister Fanny, and her crippled son Henry Jr. He also remembers, as always, Catherine's sister Mary, a dear girl--almost a woman--never to be one, who had died in 1837."

David Perdue, On Charles Dickens

Christmas is more than a time of joy and gift-giving and receiving presents.   It is a time to recall our blessings and to gain strength in the grace and bosom of our families.

And above all it is a time to remember that greatest, almost incomprehensible gift in all history, how our Lord made himself as us, and as we are of him, and came to us in the flesh, the incarnation of selfless love.

And thereby those of us who are no longer present in body at the Christmas hearth may still be there in spirit with us, as we will some day be with them.   Not bound up in crippling self-pity, not immobilized by faceless fear, not fleeting as a merely morose remembrance, but to be there vitally in our lives as our good angels, reminding us that the Christmas spirit is to be found in 'active usefulness, perseverance, cheerful discharge of duty, kindness and forbearance.'   This is how we may not only honor and cherish their memory, but actually live again in love with them.

What greater gift could we possibly desire to receive, than the ability to do good, to persevere in love, and to thereby live in the love of those for whom we care and who care for us, always?  That gift is there, if only we will not shut the door of our hearts, and be open to it.   It is not always easy, because love is too often clumsy, and turns back on us when we serve it out of selfish expectations.  But if we serve it in its true Christmas spirit, for the right reasons, then it will light a fire in our hearts.

In the end this is the only real tragedy, when out of fear mostly, or pride, or feelings of disappointment we harden our hearts, and destroy our selves while thinking to preserve them, pinned to boards like dead specimens in our own dark rooms of selfishness, unrecalled at the hearths of even friends and family.

Christmas is a time of life, remembrance, forgiveness, tolerance, and love.   And so may God bless us, everyone!

What Christmas Is As We Grow Older
By Charles Dickens
Household Words, 1851

Time was, with most of us, when Christmas Day encircling all our limited world like a magic ring, left nothing out for us to miss or seek; bound together all our home enjoyments, affections, and hopes; grouped everything and every one around the Christmas fire; and made the little picture shining in our bright young eyes, complete...

And is our life here, at the best, so constituted that, pausing as we advance at such a noticeable mile-stone in the track as this great birthday, we look back on the things that never were, as naturally and full as gravely as on the things that have been and are gone, or have been and still are? If it be so, and so it seems to be, must we come to the conclusion that life is little better than a dream, and little worth the loves and strivings that we crowd into it?

No! Far be such miscalled philosophy from us, dear Reader, on Christmas Day! Nearer and closer to our hearts be the Christmas spirit, which is the spirit of active usefulness, perseverance, cheerful discharge of duty, kindness and forbearance! It is in the last virtues especially, that we are, or should be, strengthened by the unaccomplished visions of our youth; for, who shall say that they are not our teachers to deal gently even with the impalpable nothings of the earth!

Therefore, as we grow older, let us be more thankful that the circle of our Christmas associations and of the lessons that they bring, expands! Let us welcome every one of them, and summon them to take their places by the Christmas hearth...

Welcome, everything! Welcome, alike what has been, and what never was, and what we hope may be, to your shelter underneath the holly, to your places round the Christmas fire, where what is sits open- hearted! In yonder shadow, do we see obtruding furtively upon the blaze, an enemy's face? By Christmas Day we do forgive him! If the injury he has done us may admit of such companionship, let him come here and take his place. If otherwise, unhappily, let him go hence, assured that we will never injure nor accuse him.

On this day we shut out Nothing!

"Pause," says a low voice. "Nothing? Think!"

"On Christmas Day, we will shut out from our fireside, Nothing."

"Not the shadow of a vast City where the withered leaves are lying deep?" the voice replies. "Not the shadow that darkens the whole globe? Not the shadow of the City of the Dead?"

Not even that. Of all days in the year, we will turn our faces towards that City upon Christmas Day, and from its silent hosts bring those we loved, among us. City of the Dead, in the blessed name wherein we are gathered together at this time, and in the Presence that is here among us according to the promise, we will receive, and not dismiss, thy people who are dear to us!

Yes. We can look upon these children angels that alight, so solemnly, so beautifully among the living children by the fire, and can bear to think how they departed from us. Entertaining angels unawares, as the Patriarchs did, the playful children are unconscious of their guests; but we can see them--can see a radiant arm around one favourite neck, as if there were a tempting of that child away.

Among the celestial figures there is one, a poor misshapen boy on earth, of a glorious beauty now, of whom his dying mother said it grieved her much to leave him here, alone, for so many years as it was likely would elapse before he came to her-- being such a little child. But he went quickly, and was laid upon her breast, and in her hand she leads him.

There was a gallant boy, who fell, far away, upon a burning sand beneath a burning sun, and said, "Tell them at home, with my last love, how much I could have wished to kiss them once, but that I died contented and had done my duty!" Or there was another, over whom they read the words, "Therefore we commit his body to the deep," and so consigned him to the lonely ocean and sailed on. Or there was another, who lay down to his rest in the dark shadow of great forests, and, on earth, awoke no more. O shall they not, from sand and sea and forest, be brought home at such a time!

There was a dear girl--almost a woman--never to be one--who made a mourning Christmas in a house of joy, and went her trackless way to the silent City. Do we recollect her, worn out, faintly whispering what could not be heard, and falling into that last sleep for weariness? O look upon her now! O look upon her beauty, her serenity, her changeless youth, her happiness! The daughter of Jairus was recalled to life, to die; but she, more blest, has heard the same voice, saying unto her, "Arise for ever!"

We had a friend who was our friend from early days, with whom we often pictured the changes that were to come upon our lives, and merrily imagined how we would speak, and walk, and think, and talk, when we came to be old. His destined habitation in the City of the Dead received him in his prime. Shall he be shut out from our Christmas remembrance? Would his love have so excluded us?

Lost friend, lost child, lost parent, sister, brother, husband, wife, we will not so discard you! You shall hold your cherished places in our Christmas hearts, and by our Christmas fires; and in the season of immortal hope, and on the birthday of immortal mercy, we will shut out Nothing!

The winter sun goes down over town and village; on the sea it makes a rosy path, as if the Sacred tread were fresh upon the water. A few more moments, and it sinks, and night comes on, and lights begin to sparkle in the prospect. On the hill-side beyond the shapelessly-diffused town, and in the quiet keeping of the trees that gird the village-steeple, remembrances are cut in stone, planted in common flowers, growing in grass, entwined with lowly brambles around many a mound of earth. In town and village, there are doors and windows closed against the weather, there are flaming logs heaped high, there are joyful faces, there is healthy music of voices.

Be all ungentleness and harm excluded from the temples of the Household Gods, but be those remembrances admitted with tender encouragement! They are of the time and all its comforting and peaceful reassurances; and of the history that re-united even upon earth the living and the dead; and of the broad beneficence and goodness that too many men have tried to tear to narrow shreds.

Gold Daily And Silver Weekly Charts - FOMC Tomorrow, Cargo Cult Economics

Gold and silver went sideways to slightly lower in a choppy trade today ahead of the FOMC announcement tomorrow afternoon. There is a heavy lean towards believing that the Fed will raise rates 25 basis points.

Fed Funds futures are indicating expectation of a move to 100 basis points total by the end of next year. Let's see if they can pull that one off. It seems aspirational,  as if one wishes to have room to cut recently risen rates when their latest folly falls back upon them.  And so I think this is that sort of self-referential exercise.

The idea that since recoveries are often accompanied by inflation, if we can only use monetary policy to create inflation then the recovery will come, is so wrong-headed that it leaves me aghast.

Even Keynes recognized that the point of stimulus was to provoke aggregate demand, which is the organic form of growth in the economy that will provide all the inflation that one might expect.  It is stimulus from the bottom up, from the productive side up.

But to pursue this effete, top down stimulus focused primarily on the still unreformed Banking system and the wealthiest top few percent is beyond policy error, and more like policy malpractice. 

And of course, if one puts austerity and financial parasitism into the mix, then we just aren't in Kansas anymore, Toto.  We are in the makings of a kind of a policy hell on earth.

So let's see how things go this week, keeping in mind that there may be antics aplenty after the Fed announcement and into the quad witch for stocks on Friday. The miners have been beaten bloody.

The Bucket Shop was dead quiet for silver yesterday, but there was another large house-to-house delivery of gold from Nova Scotia to JPM.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - FOMC Tomorrow, hi ho

Stocks tried to rally heartily today, but faded into the afternoon, still managing to hold on to some decent gains.

The economic news this morning was poor, but not quite as weak as expected.

FOMC tomorrow, and the big reveal.

Have a pleasant evening.

Charles Dickens: A Christmas Carol 1954

“You are fettered,” said Scrooge, trembling. “Tell me why?”

“I wear the chain I forged in life,” replied the Ghost. “I made it link by
link, and yard by yard; I girded it on of my own free will, and of my
own free will I wore it. Is its pattern strange to you?”
Scrooge trembled more and more.

“Or would you know,” pursued the Ghost, “the weight and length of the
strong coil you bear yourself?  It was full as heavy and as long as this,
seven Christmas Eves ago. You have laboured on it, since. It is a
ponderous chain!..."

“But you were always a good man of business, Jacob,' faltered Scrooge, who now began to apply this to himself.

Business!' cried the Ghost, wringing its hands again. "Mankind was my business; charity, mercy, forbearance, and benevolence, were, all, my business. The deals of my trade were but a drop of water in the comprehensive ocean of my business!”

Charles Dickens, A Christmas Carol