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4 Charts: An Appraisal Of The Fed's Perennially Faulty Forecasts

4 Charts: An Appraisal Of The Fed's Perennially Faulty Forecasts - Hawk dove cartoon 06.06.2016


Do you believe the Fed's forecasts?


Well ... do you?


You shouldn't.


Take a look below at the downwardly-revised projections for the year-end 2016 Fed Funds rate (via the median of the FOMC's dot plot) in the green line below. At its height in 2014, the FOMC expected the year-end 2016 Fed funds rate to be just shy of 3%.


The FOMC's March forecast? Under 1%. 


Click to enlarge. 

4 Charts: An Appraisal Of The Fed's Perennially Faulty Forecasts - fomc dot plot revisions


Looking out a few years, via their latest projections from March, the Fed heads expected the Fed funds rate will be just below 2% in 2017 and, in 2018, hit 3%.


4 Charts: An Appraisal Of The Fed's Perennially Faulty Forecasts - fomc projections


Note: Less than 6 months into the year, the Fed has pivoted from hawkish (December) to dovish (March/April) to hawkish (May) and will now pivot back to dovish again. So the question now is what does that do to the dot plots?


Well, the market is guessing... 


The implied rate hike probability for June has been squashed to 0% today, versus 30% just eleven days ago the time span between which Fed head Janet Yellen flipped back to dovish again.


4 Charts: An Appraisal Of The Fed's Perennially Faulty Forecasts - fed funds futures 6 7


It's also worth reflecting on the historical market bets for a June rate hike, if only to visually understand the Fed's circuitous pivots from "hawkish to dovish." Six months ago, Fed funds futures put the probability of a June hike at a whopping 68%!


4 Charts: An Appraisal Of The Fed's Perennially Faulty Forecasts - fed funds history june


There's one key takeaway...


The risk to investors is believing the Fed's serially-overoptimistic forecasts.

U.S. Jobs Signaling Late-Stage Risk

Takeaway: While the market is taking a "bad news is good news" approach, the reality is that the labor market is slowing down.

U.S. Jobs Signaling Late-Stage Risk - Jobs cartoon 06.05.2015


Last Friday's weak non-farm payrolls report was the most important takeaway on the week. Surprisingly, it had only a nominal impact on many of the risk metrics we track. This was likely because the market took the bad news as a sign the Fed won't move on interest rates in June.


To be clear, the paltry 38,000 jobs added in May was the lowest NFP reading since September 2010. Even if you add back the approximately 35,000 striking Verizon workers, the "real" number was still sub-80K -- that's obviously well below potential and weak by any reasonable measure.


Bottom line? Coupled with the 60,000 downward revision to March/April NFP ... and the now growing (Y/Y) trend in initial jobless claims... the U.S. labor market mosaic is increasingly comporting with our cycle twilight narrative.


Watch U.S. Macro analyst Christian Drake discuss the “Labor Market Conditions Index” which just posted its 5th straight month of negative reading (worse since '09) and what it portends for Fed policy.

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INSIGHT: The Limits Of Global Monetary Policy via Council on Foreign Relation's Dr. Benn Steil

Takeaway: "I wish these guys [at the Fed] would stop being rock stars and be more honest about what they don't know."

"A record 23 countries — accounting for a quarter of world GDP — now have central-bank policy rates of zero or less.  A further six — including the United States — have policy rates of 1 percent or less," write Dr. Benn Steil and Emma Smith of the Council on Foreign Relations in a recent column for PBS. 


It's a thought-provoking read which calls into question the efficacy of additional, unconventional monetary policy measures. Steil and Smith conclude:


"In short, the world economy is running on monetary fumes. We had better hope it picks up steam on its own, because policymakers are unlikely to be of much further help."


Dr. Steil and Hedgeye CEO Keith McCullough discussed the significant challenges facing investors as global central bankers continue to manipulate markets in a recent installment of Real Conversations on HedgeyeTV. "I wish these guys [at the Fed] would stop being rock stars and be more honest about what they don't know," Steil remarked during the interview.


We wholeheartedly agree. 


Watch the complementary video replay below.




Hedgeye Potomac is hosting a call with Alexander Nicoll to discuss Brexit – will the UK vote to stay or leave the EU on June 23rd? 


Nicoll will discuss the events leading up to the UK vote and what the outcome of the vote spells for the UK and EU.  (Hint: he believes the UK will ultimately vote to stay...).


The call will take place on Wednesday, June 8th at 11am ET with Nicoll giving prepared remarks followed by Question & Answer.




  • How did the UK get to a vote and where do the divisions lie between political parties?
  • What are the arguments for staying and leaving?
  • Who will win?
  • What are the financial, political, and cultural impacts on the UK from Brexit?
  • What’s the impact of Brexit on the EU and Eurozone?  Could another country vote to break free?




Alex Nicoll is a Consulting Member of the International Institute for Strategic Studies, a London-based think-tank. Previously he was a member of the Directing Staff of the Institute as Director of Editorial, and also headed the defense program.  Before joining the IISS he was a journalist at the Financial Times newspaper for 18 years, with posts covering international capital markets, Asia, and defense. Earlier, he was a foreign correspondent for Reuters news agency, with posts in Hong Kong, Paris, Tehran and New York. 




Toll Free:


UK: 0

Confirmation Number: 13638701

Materials:  Click Here (available one hour prior to the call)


Ping for more information.

Call Invite: Don Kohn Previews the FOMC Meeting

Takeaway: Join us for this call!

Don Kohn Previews the FOMC Meeting

Thursday, June 9 at 11:00 a.m. ET


Please join us this Thursday for a call with former Fed Vice Chairman Don Kohn on the June 14-15 FOMC meeting. Don will offer his outlook on the jobs report, consumer spending, personal consumption, GDP growth, and other factors expected to influence the Fed's rate hike calculus. 


Participating Dialing Instructions

Toll Free:


UK: 0

Confirmation Number: 13638657

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