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Message
re: Oct 29th Fed Statement
Posted on 10/30/14 at 4:24 pm to LSU0358
Posted on 10/30/14 at 4:24 pm to LSU0358
quote:
I'm guessing on interest rate increase in the next 12 to 18 months.
Still looking like the June/July FOMC meeting, Yellen one time indirectly clarified the "considerable time" clause to mean somewhere in the range of 6-10 months which lands us right around those summer meetings.
Interestingly enough the markets seem to be pricing in later, around October. It was about 60-70% priced in for the first hike in June before the recent correction, then Eurodollar and OIS curves indicated a December hike following the risk sell-off and corresponding Fed member speeches acknowledging the sell-off. Now it seems to have settled half-way between.
I still think a July hike is the most probable, and if we keep getting economic data as strong as we have then June looks even more likely.
1
Posted on 10/31/14 at 12:29 am to BennyAndTheInkJets
Would velocity give us any indication of increasing inflation / rate hikes? I don't understand how inflation can increase if velocity is still so low.
To attempt an answer, my understanding is that velocity is a ratio of GDP to money supply. With the $5.6+ trillion of QE supply since 2008, it's easy to see why velocity is currently so low. To paraphrase Sen. Dirkson, a trillion here and a trillion there, pretty soon we're talking about real money.
So now that QE has tapered off and ended, there are two questions -
How is the boosted supply absorbed into the system without causing inflation? and
Once velocity turns upward, what will this tell us about the when and how much of inflation?
To attempt an answer, my understanding is that velocity is a ratio of GDP to money supply. With the $5.6+ trillion of QE supply since 2008, it's easy to see why velocity is currently so low. To paraphrase Sen. Dirkson, a trillion here and a trillion there, pretty soon we're talking about real money.
So now that QE has tapered off and ended, there are two questions -
How is the boosted supply absorbed into the system without causing inflation? and
Once velocity turns upward, what will this tell us about the when and how much of inflation?
This post was edited on 10/31/14 at 2:43 am
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