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Tuesday, February 23, 2016

Fed Funds Rate Hike Cycle is Complete! And Now??? Down, Down, Down!!!

Just for giggles...

The chart below is a quick review of federal funds rate policy since 1972...the hikes and rate cuts in real and percentage terms.  In the below chart, I incorporate from the Atlanta Fed the Wu/Qia shadow rate incorporating the Fed's actions and effects on the term structure of interest rates (incorporating the impact of QE since 2008...this came to my attention thanks to an anonymous comment).  HERE...Atlanta Fed Data

When factoring in the taper began in early 2014 from the shadow rate of -2.9%, the Fed's hiking cycle is likely complete both in percentage terms and duration.  Obviously, the next cycle of Federal Reserve rate cuts and QE will look to push rates significantly lower (if the past 5 decades are any guide?!?).

The chart below highlights why further rate hikes are mighty unlikely.  The chart shows the annual growth of the 25-64yr/old US population (the working core of the US) vs. the Fed's FFR %.  The Fed is acting in a reactionary manner to the crests and troughs of population growth (initially resulting in inflationary surges in demand and now deflationary waning demand growth).

Same as above but showing the annual change as a percentage of growth of US working age population (25-64yr/olds) vs. federal funds rate.

And below, the diminishing impacts of those interest rate cuts on net full time job creation per cycle (shown on a quarterly basis) and the encouragement granted to take on federal debt (also shown in quarterly increments).

All data is via OECD.stat, US Census, and Federal Reserve.

Extra Credit I:
The chart below shows that all, 100%+ net, <45 global population growth is taking place in the poor nations of the world absent income, savings, and/or access to credit...and the poorer developing nations are dependent on the slowing developed nations of the world to provide growing markets and demand so the poor nations may export their way out of poverty.  The under 45yr/old populations of the 34 wealthy OECD member nations and likewise the BRIICS (Brazil, Russia, India, Indonesia, China, S. Africa) are outright shrinking every year now and the shrinkage (declining demand) is accelerating.

Extra Credit II:
Unfortunately for the developing world (as the chart below shows), the 25-64yr/old global population growth peaked in 2013 (at +63 million/yr) and is already decelerating fast.  Global demand growth is sliding away and the developing worlds export lifeline slipping away with it.


  1. Chris - Thanks for looking at the shadow rate. Really places a different perspective on the current rate hike cycle. Recession is here on the way soon. Get defensive.

  2. So... Interest rates go up and the fed fund rate goes down!! WTF?
    I don't mind telling you I am baffled. I guess in an upside down world anything is possible!


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