- German Spy Agency Admits North Korean Rockets Can Hit Europe
Amid a relative detente in US-North Korea relations, Germany’s foreign intelligence agency told lawmakers that North Korean rockets tipped with a nuclear warhead now have the capacity to strike Germany and central Europe.
In a closed-door meeting, Deutsche Welle reports that BND Deputy Director Ole Diehl told members of parliament there is “certainty” that North Korea could now “reach Europe and Germany with its missiles,” according to the Bild am Sonntag newspaper, which first reported the briefing, citing participants.
Diehl also told lawmakers that the BND considers talks between North and South Korea a positive step.
There was no immediate comment from the BND in response to the media reports.
Meanwhile, negotiations were set to convene in Finland between a senior North Korean official and representatives of the United States and South Korea, according to the South Korean Yonhap news agency. Over the weekend, officials from the US, Japan and South Korea met in Seoul to discuss the complete denuclearization of the peninsula.
- A World War Might Sound Crazy, But It Could Be America's Last Act Of Desperation
Authored by Darius Shahtahmasebi via TheAntiMedia.org,
Though some have been warning about the catastrophic potential for a third global conflict for years, it wasn’t until recently that these warnings became more mainstream. The calamitous nature of the violence in Syria – which has one nuclear power defending a government that has been the target of a regime change operation led by the world’s superpower – combined with 2017’s threats of “fire and fury” against another state intently pursuing a nuclear weapons supply of its own, has pushed the issue of a third world war directly into the public discourse.
While certain hotspots throughout the Middle East, Asia, and Eastern Europe (i.e. Ukraine) have seen some notable escalations in the last few years, a direct conflict between Russia and the United States is still yet to emerge. That’s because the idea of a third world war in today’s world is completely insane. If the two countries that currently possess the world’s greatest supplies of nuclear weapons go to war, there may not be a world left for the victors to inhabit after the war is done, thereby making it an unthinkable proposal.
Then again, the U.S. did just recently bomb a significant number of Russian-linked forces in Syria, reportedly killing scores of them. The targets of these air strikes were also predominantly Iranian-backed militias (just in case there weren’t enough state actors already involved in this ongoing conflict).
Speaking of Iran, Donald Trump recently fired Rex Tillerson as secretary of state and immediately appointed CIA director Mike Pompeo to replace him. Pompeo is a notable anti-Iran hawk who will almost certainly go further than Tillerson was ever prepared to go with regard to the Iranian nuclear accord, a deal Pompeo believes is “disastrous.”
There are also reports now emerging that Donald Trump is planning to oust his national security advisor, General H.R. McMaster. McMaster originally replaced anti-Iran war hawk Michael Flynn, but apparently, McMaster’s non-stop allegations against Iran were not enough to please Trump.
McMaster was not on board with Trump’s attempt to completely derail the Iranian nuclear deal.
One should bear in mind that when Donald Trump made the decision to strike the Syrian government in April of last year in what amounted to one of the year’s most important and over-publicized geopolitical events, it was McMaster who drew up the strike plan options and presented them to Trump to choose from. If this is a man not hawkish enough for Trump’s administration, his looming removal from the administration is a worrying sign of what’s to come.
Donald Trump’s Nuclear Posture Review entails that, as Katrina vanden Heuvel noted in an article published in the Washington Post:
“The United States reserves the right to unleash nuclear weapons first in ‘extreme circumstances’ to defend the ‘vital interests’ not only of the United States but also of its ‘allies and partners’ — a total of some 30 countries. ‘Extreme circumstances,’ the review states explicitly, include ‘significant non-nuclear attacks,’ including conventional attacks on ‘allied or partner civilian population or infrastructure.’ The United States also maintains a ‘portion of its nuclear forces’ on daily alert, with the option of launching those forces ‘promptly.’ [emphasis added]
Considering that a former analyst for the Council on Foreign Relations, Micah Zenko, just warned that Pentagon officials are actively searching for a “big war” against Russia and China, the trajectory we are currently on starts to make a lot more sense.
In other parts of the world, we are witnessing a new era of hostilities towards Russia. The debacle taking place in the U.K. right now, which has seen allegations of a Russian chemical attack on British soil, has prompted the U.K., U.S., France, and Germany to band together and condemn Russia for something that hasn’t even been conclusively investigated yet.
After years of constantly being painted as the enemy, Russia just declared via Twitter that a “Cold War II” has begun, and who can blame them?
A third world war might sound crazy, but it is only crazy if we fail to understand the desperation that continues to plague the men in suits who pull the strings guiding American foreign policy. Consider that the Syrian government, with Russian and Iranian backing, has managed to stabilize significant parts of the country despite all odds so that refugees can return home safely. It should be clear that the best way to solve the Syrian crisis is to discontinue America’s regime change policy in Syria and allow the people of Syria to normalize their own lives without Washington’s interference. Yet, after seven years of brutal violence, the U.S. still refuses to admit defeat in Syria. If anything, the U.S. has now officially set its sights on directly combatting Iranian influence in the country, raising the potential for significant escalations.
Maybe, just maybe, the U.S. is that desperate. Apparently, the U.S. has to remain in Syria out of necessity. It cannot afford to sit on the sidelines as Russia re-emerges as the major power broker in the region, eating up all the major contracts coming out of Syria (together with Iran) as it looks to poach American allies left, right, and center.
Additionally, Russia recently warned the U.S. that it will not tolerate Washington’s aggressive attacks on the Syrian government and will respond with strikes of their own should the U.S. military threaten Russian personnel. One should expect that eventually, there will be a point where Russia will no longer allow these attacks to go unanswered.
As America’s power and influence wane, the time will come for both Russia and China to make their mark on the global stage. Just on a side note, it should come as no surprise that Trump’s nominated ambassador to Australia, Adm. Harry Harris, is a known anti-China war hawk who recently warned Congress to prepare for a war with China.
Why should we need to prepare for a war with China? Who talks and thinks like that? A nation on a slow and inevitable decline that cannot refuse to admit defeat in almost any battle theater since World War II, that’s who.
Realistically, nobody wants a third world war, but as the U.S. increasingly thrashes to maintain its control of the global financial markets, its network of over 1,000 bases worldwide, and its status as the world’s global policemen, a third world war may be Washington’s only hope at staying afloat as the world’s top power.
- US And South Korea Will Resume Joint Military Drills In April
Barely a month after Treasury Secretary Steven Mnuchin said he “couldn’t rule out” US forces physically boarding ships caught violating US sanctions against North Korea, RT is reporting that, despite the recent thaw in relations between the US, South Korea and North Korea, the annual “Foal Eagle” and “Key Resolve” joint military exercises involving US and South Korea forces will begin April 1.
Signs of a breakthrough in North-South relations ahead of last month’s Winter Olympics prompted the US to postpone the drills, which typically elicit a vehement condemnation from the North, as well as threats of retaliation.
But now that the Games are over, the Pentagon said the planned drills will resume as scheduled – despite North Korea’s offer to freeze its missile and nuclear tests ahead of a meeting between Kim Jong Un and President Donald Trump, which Trump hastily agreed to earlier this month.
South Korea’s Ministry of National Defense confirmed as much to Yonhap.
“The practice is slated to begin April 1, and it will be conducted on a similar size in previous years,” the Ministry of National Defense said, according to Yonhap.
The exercises are expected to conclude toward the end of May, the Pentagon said.
“Secretary of Defense James Mattis and the Republic of Korea Minister of National Defense Song Young-moo have agreed to resume the annual combined exercises including Foal Eagle and Key Resolve which were de-conflicted with the schedule of the Olympic Games. The exercises are expected to resume April 1, 2018, at a scale similar to that of the previous years,” Pentagon spokesman Colonel Rob Manning said in a statement.
The North Koreans have been notified about the drills by the United Nations Command. The Pentagon emphasized that the drills are not a response to a specific North Korean action.
“Our combined exercises are defense-oriented and there is no reason for North Korea to view them as a provocation,” Lieutenant Colonel Christopher Logan, a Pentagon spokesman, said in a statement.
Lieutenant Colonel Christopher Logan, a Pentagon spokesman, confirmed that the drills would involve about 23,000 troops and 300,000 members of the South Korean military.
After a round of successful negotiations with South Korea, Kim sent a letter that was hand-delivered to Trump by a South Korean delegation inviting him to engage in direct talks.
Trump agreed to meet with Kim “sometime in May”, ignoring pleas from diplomats and Pentagon officials that honoring the request would “legitimize” North Korea in the eyes of the world.
South Korea has assured the US that the North is “committed to denuclearization” of the Korean peninsula. Until this latest salvo, the North had insisted that it would never give up its nukes under any circumstances, while the US insisted that denuclearization would be a precondition for any lifting of sanctions.
Surprisingly, the North Korean leader suggested he’d be willing to countenance the latest round of military drills, even as the US offered no concessions in return.
* * *
A North Korea expert at the University of Chicago warned Tuesday that the US shouldn’t believe the North when it says it would consider giving up its nukes, according to Yonhap.
“North Korea is not going to give up its nuclear weapons and China will not push North Koreans to do so. The reason is that in international politics, you could never trust anybody because you cannot be certain of what their intentions are,” said John Mearsheimer, a professor at the University of Chicago, during a lecture in Seoul.
So, what do you think? Is North Korea trying to lure Trump into a diplomatic trap with the ultimate aim of embarrassing the US? Or have the many rounds of economic sanctions imposed against the regime finally started to work?
- Yes, Gun Confiscation Just Happened In Florida, And It Will Happen Nationwide
Authored by Jeremiah Johnson via SHTFplan.com,
For all those individuals who claimed door-to-door gun confiscation wouldn’t happen? Well, it just did… in Florida. The report came out on 3/16/18, entitled It Begins: Florida Resident’s Firearms, Ammunition Confiscated Under Gun Control Law.
Yes, here it is: Here it starts.
Apparently, the individual is a 56-year-old man who has not committed a crime: he just falls into a category of people that could “pose a harm to the public good.” Here’s an excerpt:
The Orlando Sentinel reports that “four firearms and 267 rounds of ammunition” were taken from the man, and he was “taken to a hospital for involuntary psychiatric treatment.”
The seized firearms were listed as “a Ruger LCP .380 pistol, an M2 Mauser .45 pistol, a Charter Arms .357 mag snub nose revolver and a Mossberg 500 12-gauge shotgun.”
The paper notes that “the civil ruling removing his access to guns and ammunition was granted under … new legislation — which permits confiscating guns from people who have not been committed but are deemed a potential risk to themselves or others, according to the order signed by Broward’s Chief Judge Jack Tuter.
What’s even worse is that they have incorporated wonderful elements of Communism, namely stoolpigeons and snitches within the family or by order of a judge. Yes, Communism is that system that many deny, along with Marxism, that concentrated on removing undesirables and nonconformists by sending them to psychiatric wards until they displayed “correct thinking.”
For those who are not aware: Communism is the end-state, resulting in the death of all the undesirables and the enslavement of the masses. For “primers” on Communism, read George Orwell’s “1984,” and J. Edgar Hoover’s “Masters of Deceit.” Yes, Communism is alive, well, real, and waiting…in the guise of labels such as “the Progressive Movement” and “Social Justice,” clarion calls for armies of fools and illiterates who wish to change the world to be utilized in the call.
Utilized, and then liquidated after their usefulness expires: History has shown it again and again, with the “showcase era” being the entire 20th century.
Here is an excerpt that illustrates how the Communists work…turning family members against one another, using the “gendarmes” of the police force outside of their normal role, and bypassing due process of law with the use of judges:
The confiscatory order also bars the man from making new firearm or ammunition purchases. On March 9, Breitbart News reported that Gov. Scott signed a $400 million gun bill that includes orders which allows a family member or law enforcement to petition a judge to order the seizure of an individual’s firearms. The bill also put waiting periods in place for long gun purchases, raised the minimum purchase age for long gun purchases (from 18 to 21), and banned bump stocks.
Neat term, huh? Confiscatory order. Right up there with “Eminent Domain,” and “Annexation.” Chef DeJure: “Stroke of the pen…law of the land.”
Instead of denouncing the order and upholding the Constitution, the judge, addressed as “Your Honor” but without any… is now selectively interpreting the law and bypassing the 2nd and 4th Amendments to the Constitution in one fell swoop. All of this has been initiated by a pseudo-Republican governor’s stroke of the pen… entrée de jure, courtesy of Rick Scott.
Illinois is passing a legislative ban and the mandatory turn-in of “prohibited” firearms by 18-20-year-olds. Other states are following. What is not accomplished by the federal government is being accomplished by the states. They’re using the youth and the pressure of the media and social media to mold the public into compliance. What they cannot engender in that department they’ll close with de jure legislation.
The problem with laws? Once they’re in place, they’re able to be enforced by men with badges and guns… forcing you to comply. By the time the law is scrutinized by the courts, it is too late. That court scrutiny is not a guarantee that things will be set straight: it’s most likely they will not be. They win by passing their laws, and you are a “subject.” You become the victim of the tyranny of the majority, and the “Your Honors” who are paid politicians and puppets, selectively interpreting, bypassing, and violating Constitutional law.
They are coming for the guns. Each new “venture” elicits a new response, an incremental shift of the paradigm, as they craft their socialist society. They must have the guns, and they will be coming door to door for them… as they have just done in Florida. Take your steps now while you still can. In the end, a fight is coming. To win, people need to be smart. They need to be aware of what is going on… when to hold ‘em, fold ‘em, walk away, and run… not just stand and fight.
The first battle is to admit to what is happening and prepare for what is to come.
- Russia Is Hoarding Gold At The Fastest Pace In 12 Years
De-dollarization is accelerating…
Russia is adding gold to its reserves at the fastest pace in 12 years …and dumping US Treasuries at the fastest pace since 2011.
The Central Bank of Russia (CBR) has been increasing its holdings of gold every month since March 2015. The country is currently the sixth-largest gold owner after the United States, Germany, Italy, France and China.
According to the CBR, gold reserves spiked to $455.2 billion between March 2 and 9 hitting a historic high not seen since September 2014.
“Our international reserves increased by $2.9 billion or 0.6 percent in a single week, mainly on the strength of positive re-evaluation,” said the regulator.
And in fact 2018 has seen the fastest increase in the value of Russia’s gold reserves since 2006…
In January, RT notes that Russia surpassed China, which reportedly held 1,843 tons of the precious metal at that time. Over the last 15 years, Moscow and Beijing have been aggressively accumulating gold reserves to reduce their dependence on the US dollar.
According to World Gold Council data, last year the CBR became a world leader in stockpiling gold.
The bank has more than doubled the pace of its gold purchases, statistics showed. It has been increasing Russia’s gold reserves to meet the goal set by President Vladimir Putin to make it less vulnerable to geopolitical risks. The Russian gold cache has increased by more than 500 percent since 2000.
And while the Russian central bank is buying gold with both hands and feet, it is dumping US Treasuries at the fastest pace for a January since 2011…
Is it any wonder that Washington is so pissed off at Putin?
- Californians Flee The State In Droves Over Taxation And Housing Costs
Authored by Mac Slavo via SHTFplan.com,
Californians are bailing on the Golden State in droves as the tax burden and housing costs make the price of living unbearable for far too many. Many of those fleeing are the hearty middle-class who are being pushed into poverty by the socialist policies forced on them by the state’s elites.
The trend is a symptom of the state’s housing crunch and the ever increasing taxation. Census Bureau data show California lost just over 138,000 people to domestic migration in the 12 months ended in July 2017. Lower-cost states such as Arizona, Texas, and Nevada are popular destinations for relocating Californians.
Housing costs and the tax burden is far less impactful in pretty much any place outside of California, whose socialist policies drive up poverty and continuously erode the middle class leaving only the extremely wealthy and those in abject poverty.
The surging number of those working in Silicon Valley and still unable to afford adequate housing should be a warning about big government, but it sure doesn’t seem like anyone is taking notice as their taxes continue to rise. As governments creep toward socialism though, poverty becomes the norm, not the exception. Silicon Valley has the highest median income in the nation. But a soaring tax burden and expensive regulations have caused housing prices to increase which has also caused homelessness to surge. –SHTFPlan
“There’s nowhere in the United States that you can find better weather than here,” said Dave Senser, who lives on a fixed income near San Luis Obispo, California, and now plans to move to Las Vegas.
“Rents here are crazy if you can find a place, and they’re going to tax us to death. That’s what it feels like. At least in Nevada, they don’t have a state income tax. And every little bit helps.”
Senser added that he previously lived in the east San Francisco Bay region, and said…
…housing costs and gas prices are “significantly lower in Las Vegas. The government in the state of California isn’t helping people like myself. That’s why people are running out of this state now.”
A USC Dornsife/Los Angeles Times Poll of Californians last fall found that the high cost of living, including housing, was the most important issue facing the state. It also found more than half of Californians wanted to repeal the state’s new gas tax, which raised fees by a whopping 40 percent further burdening those already living paycheck to paycheck.
During the 12-month period that ended in July of 2017, California saw a net loss of just over 138,000 people, while Texas had a net increase of more than 79,000 people. Arizona gained more than 63,000 residents, and Nevada gained more than 38,000.
“You can literally have a lot of buying power for the dollar in Southern Nevada versus Southern California,” said Christopher Bishop, president of the Greater Las Vegas Association of Realtors.
“So it has been a major trend over the year, year and a half, and we’re seeing it increase.”
- John Mauldin: Trade Wars Could Trigger "The Next Great Depression"
Last week on Erik Townsend’s Macrovoices podcast, Jim Grant, storied credit investor and founder of Grant’s Interest Rate Observer, explained the reasoning behind his call that the great secular bond bear market actually began in the aftermath of the UK’s Brexit vote during the summer of 2016 – when Treasury yields touched their all-time lows.
Surprisingly, Grant’s call isn’t rooted in the bold-faced absurdity of Italian junk bonds trading with a zero-handle (although that’s certainly part of it). Rather, Grant explained, a historical analysis reveals that bond yields fluctuate in broad-based multi-generation cycles of different lengths. And given the carte blanche allotted to economics PhDs to “put the cart of asset prices before the horse of enterprise”, the fundamentals are indeed worrisome.
But in this week’s interview, John Mauldin offered a much more sanguine view of the landscape for markets and the global economy.
Beginning with the stock market: The “volocaust” experienced by US markets wasn’t unusual, Mauldin explained. It was the 15 straight months without a 2% correction that was unusual, Mauldin said.
John Mauldin
More corrections will almost certainly follow during the coming months. But absent any signs of a recession, these should be treated as buying opportunities by investors.
Now let’s remember something: The last drawdowns that we had – the corrections if you will – were not the unusual part. They weren’t the odd part. The odd part was 15 months in a row without a 2% correction. Never happened, ever, ever. So that was the odd part.
That should have been what we were all looking at and going “this is scary.” It wasn’t a 5% or 6% correction. The type of correction we just went through was something that we normally get at least once every 12 to 18 months. You get a 5% correction every 90 days, every quarter. So that was the normal, if you will. The not normal was no corrections and just almost straight up.
And we’re going to see probably more corrections. We’re going to see more volatility. But I would argue that any correction we see now, absent indications for a potential recession, are buying opportunities. If you’re a trader you, you know, see things – when they get to the top you raise a little cash, and when they go down some it gets into your buying session. You buy some, you go back in.
Indeed, the market is probably only going to move higher, Mauldin said. Though the US economy is on the cusp of notching the second-longest growth period in its history, few people see a recession in the offing – a view shared by, among others, bond guru Jeff Gundlach.
The US market may in fact be getting a little long in the tooth. I think that’s fair to say. I think sometime this next month, or very shortly, we become the second-longest growth period in history. And it has to go for another year after that to be the longest. And it very well could.
If you’re looking for recession indicators, there just aren’t any. Several of my friends who really track this stuff – I mean they’re obsessed – and one of them has 18 recession indicators. And 17 of them are saying No. Another one has 11 recession indicators. By the way, they’re different. I found it fascinating. And the large preponderance of those are saying No.
These are nine months out – one of the interesting things is there’s only one really good longer-term recession indicator. And that’s the inverted yield curve. And we are nowhere close to an inverted yield curve in the US markets. That means when short-term rates go above long-term rates. And short-term rates have got to go up again, and again, and again. And the Fed is telling us they’re going to do that.
But that would still mean that long-term rates would have to drop an awful lot. There’s no
reason to think that we’re going to have a recession, absent something happening in Europe – Europe blowing up because of what’s happening in Italy or other places. Or China having some nasty, unexpected event. Which I don’t expect to happen. I think Xi’s got the world pretty much going the way he wants it.However, Maudlin sees one possible catalyst that could sink the US economy into the next depression – not just a recession, Maudlin emphasizes, but a prolonged period of contraction similar to the Great Depression.
And that, Maudlin argues, is runaway protectionism that leads to a global trade war.
After all, Maudlin explains, the Great Depression was – despite all that talk about buying on margin and the Black Monday – caused by Herbert Hoover’s ill-advised passage of the Smoot-Hawley tariffs.
Trade war, protectionism, if it gets out of hand, that could create a recession. And I am not unconcerned about that. I’ve said for 16–17 years in my writing, the thing that keeps me up the most at night, the thing that really worries me about the future of our economy and our kids and everything, that’s a signal for a depression, not a recession, a depression, is trade wars. Protectionism. Smoot–Hawley.
I mean, you get Herbert Hoover, who didn’t know anything, really, about a lot of the things that he was coming into, not unlike maybe some people would suggest our current president is like – he’s learning on the job. But Herbert Hoover let Smoot–Hawley get through and he signed it. And it was all over for the world. We had a depression. That worries me. In and of itself are these steel tariffs a problem? No. I mean, are some people going to lose their jobs over it because it makes their products too high? Yes.
The steel companies are already at record profits, for gosh sakes. I mean, it’s like, they don’t need any help. But it’s a little bitty market. In the grand scheme of things it’s not that big. And, by the way, under George W., he put steel tariffs in. Steel workers, now, there’s 160,000 of them.
That’s all we’ve got left. And people say, oh, my goodness, all those jobs have left. They’ve gone overseas. And I say, no they haven’t. We are producing more steel today than we have ever produced. It wasn’t the jobs that went to China or Mexico or whatever. It was technology. It’s just silly to think that you can make those jobs come back with tariffs. 80% of the manufacturing jobs that have been lost in the United States have been lost to technology.
The problem, Mauldin explains, is that manufacturing jobs in the US aren’t disappearing because of free trade – they’re disappearing because of technological advancements. So, the irony of the situation is that, by enforcing protectionism, the steel workers whom President Trump is trying to help will instead suffer – just like they did when George W Bush experimented with steel tariffs nearly 20 years ago.
Listen to the rest of the interview below:
- Mapping The 24 States Proposing Campus "Free Speech" Bills
Authored by Nikita Vladimirov via Campus Reform,
At least 24 states have now either introduced or passed legislation defending freedom of speech on public college campuses.
A total of eight states – Florida, North Carolina, Virginia, Kentucky, Tennessee, Colorado, Utah, and Arizona – have already passed bills into law that designed to protect free expression in higher education, with lawmakers from 16 other states campaigning to pass similar legislation.
Florida was the latest to pass such a measure, with Gov. Rick Scott signing a bill banning “free speech zones” on campuses last week. The legislation also included a “Cause of Action” mandate, allowing individuals to sue universities for violating their “expressive rights.”
Kentucky is the next state that could join the list, as the State Senate recently voted to pass a bill designed to protect the free speech of students and faculty alike.
“The problem with this free speech area is it’s not even close to a lot of activity on campus,” said Republican State Sen. Will Schroder, sponsor of the bill, according to WEKU. “It really restricts individuals to a certain location.”
Not all of the free speech bills, however, have found the necessary support to successfully navigate the legislative process.
According to the Kansas News Service, the Kansas freedom of expression measure fell just one vote short of passing the State Senate on Thursday, ultimately falling with a 20-20 vote.
“It is our intent – those of us who are voting for this bill – to protect the speech of all students, no matter their race, their color, their creed, their gender identity or their sexual orientation,” Senate President Susan Wagle commented.
The top Democrat and the Senate Minority Leader Anthony Hensley, however, vocally opposed the legislation, arguing that he “cannot support a bill that softens punishment for hateful harassment.”
- All You Need To Know About Tomorrow's FOMC Meeting
Earlier today, we laid out some of the key expectations and questions ahead of tomorrow’s hawkish FOMC decision, when new Fed chair Jay Powell is virtually guaranteed to raise rates by 25bps, with the only question being whether the FOMC “dots” will rise enough to indicate 4 rate hikes in 2018, or stay at 3, and whether the Fed will change the FOMC day format to add a press conference after every meeting.
Here, for those who missed it, or are still unsure what to expect, here is a preview of tomorrow’s main event with the help of RanSquawk:
RATE PATH: A 25bps hike to 1.50-1.75% is priced in with over 90% certainty by money markets. More interest will be on how many hikes the FOMC projects in 2018 (currently three), and over its forecast horizon (seven; federal funds futures barely price five over that horizon).
Unlike December 2017, where Kashkari and Evans dissented to lifting rates, BoAML expects the decision to be unanimous in March, given the hawkish rotation of FOMC voters.
HOW MANY HIKES: Consensus is split whether there will be three or four hikes in 2018. Goldman Sachs says recent hawkish remarks by Fed officials suggest a broad shift in the Committee’s outlook towards a faster pace of tightening, and it sees the Fed signalling four rate rises this year, although not in later in the year. Even so, UBS posits the theory that the doves’ forecasts may simply play catch-up – the hawks were always shooting for three/+ hikes – and, accordingly, the dots could just be narrowed at the lower-end of the spectrum, with the median remaining three. Additionally, the impact of fiscal stimulus will filter through later along the forecast horizon. By maintaining the three hikes view, the Fed would have more flexibility to better assess inflation trends and the likely impact of fiscal stimulus in later meetings, leaving the option to add the ‘fourth dot’ in June or September. And even if the Fed kept ‘three dots’ in 2018, it could still play a hawkish card by adding another rate rise to the 2019 profile, where it currently has two hikes pencilled in.
Morgan Stanley is far more lukewarm, and it expects that at the current rate of tightening, there will be a flat-to-inverted yield curve, which together with continued balance sheet runoff and tighter financial conditions, will warrant close examination of how much further the FOMC wants to push rates in this cycle. Thereafter, in early 2019, fiscal stimulus will push a very late-cycle economy to new heights Morgan Stanley believes, leading the Fed to hike two additional times—in March and June. The bank predicts that the midpoint of the target range will be near neutral (at 2.625%), at which point believes the hiking cycle will end.
Goldman meanwhile writes that while its own forecast is that the FOMC will deliver four hikes both this year and next year, it expects a more measured increase in the dots, as shown in the chart below.
As Goldman’s Jan Hatzius calculates four members would have to boost their projections above the December median (of three hikes) for the March SEP to show a four-hike baseline in 2018. Six individuals projected a three-hike 2018 pace at the December meeting (i.e. just one hike below four), and given the upbeat public remarks and encouraging data, Goldman believes such an increase is indeed likely, and also expects the 2020 median dot to increase, but by less than half of a hike.
Meanwhile, BofA’s baseline forecast is for the median dot to stick at three hikes for 2018 (2.125%), move up to three hikes in 2019 and hold at 1.5 hikes in 2020, leaving rates at 3.25% at end of 2020, and expects the long-term dot to shift up slightly to 2.875%.
* * *
SO WILL IT BE 3 OR 4 HIKES IN 2018? the 2018 median was 2.125% for the December 2017 dot plot. For this rate to increase 25bp, four of the dots at or below the median would have to shift to 2.375%. In other words, for the median path in 2018 to move to 4 hikes the dot plot would need at a minimum all but one participant currently at 3 hikes to move to 4.
The following table illustrates just what it might take.
FORECASTS: Growth projections will likely be nudged up in 2018 and 2019 on the back of fiscal stimulus. And this will be likely be accompanied by a lower unemployment rate (but not necessarily a lower NAIRU rate) and slight upward revisions to the Fed’s PCE/core PCE view, Pantheon Macro says.
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ECONOMIC PROJECTIONS: Financial conditions remain easy, but are broadly unchanged since the FOMC put together its last round of projections in December, with easing from moderately higher stocks and a weaker dollar almost fully offset by higher Treasury yields. As such, THE FOMC has little impetus to change its forecasts due to financial conditions. However, Morgan Stanley expects that policymakers will incorporate additional upside from fiscal policy into their March growth projections, with tax reform and fiscal spending packages having been finalized after the last projections were put together in early December. As Chair Powell noted in his congressional testimony, “my personal outlook for the economy has strengthened since December.” Indeed, other policymakers have expressed optimism about the economic outlook as well. Governor Brainard, for example, indicated that “[m]any of the forces that acted as headwinds to U.S. growth and weighed on policy in previous years are generating tailwinds currently.” On fiscal policy, Brainard noted: “.. on top of [December’s tax legislation], the recently agreed-to budget deal is likely to raise federal spending by around 0.4 percent of GDP in each of the next two years.” Fiscal impetus of such a magnitude easily poses upside risk to December’s GDP growth forecasts for 2018 and 2019 (more heavily weighted toward 2018). Meanwhile, with inflation data unfolding in line with expectations, financial conditions roughly unchanged in December, and the assumption that any added fiscal stimulus comes with growth in productivity (dampening the inflationary effects of faster growth), Morgan Stanley sees no need for the FOMC median forecast for core inflation to be revised at this meeting. The bank’s projected changes in the March Econ Projections table is below.
FEDSPEAK: Recent Fedspeak has raised hopes of an upward revision to the rate path; Trump’s fiscal stimulus plan, as well as nascent signs of inflation (wage growth has firmed, headline CPI is above 2.0%, though both core CPI and core PCE lag, PPI hints at inflation pressures) has seen dovish FOMC members like Brainard and Bostic (both voters) talk-up a higher trajectory, while centrist Dudley (voter) said four rate rises this year is consistent with gradual normalisation. Chair Powell struck a balanced tone at his recent dual-testimony to lawmakers; he retained the optionality of four hikes via an optimistic assessment of the economic outlook – commenting that recent data has increased his confidence that inflation will rise. He noted that “we” (implying the Committee) are not currently seeing strong evidence for a decisive move higher in wages. That view was ultimately corroborated by the latest earnings data in the Employment Situation Report, which saw the YY rate of wage growth ease back slightly following January’s upwards spike.
What other FOMC participants have said recently about the number of hikes this year:
- Boston FRB President Rosengren (3/9/18): To keep the economy on a sustainable path, I expect that it will be appropriate to remove monetary policy accommodation at a regular but gradual pace – and perhaps a bit faster than the three, one-quarter point increases envisioned for this year in the assessment of appropriate policy from the December 2017 FOMC meeting.
- Philly FRB President Harker (2/8/18): I still have penciled in two because I’d like to see us slightly overshoot our 2% inflation target, but I think there are some risks to the upside, where I would be open to three going forward.
- Dallas FRB President Kaplan (2/2/18): I’ve said that I think the base case for 2018 should be three removals of accommodation, and we’ll see—it could be more than that, we’ll have to see.
- NY FRB President Dudley (1/18/18): The forecast that the FOMC wrote down in December, in the December SEP, where the median was three rate hikes in 2018 seems like a very reasonable type of forecast…it could be more.
- NY FRB President Dudley (3/1/18): If you were to go to four 25 basis point rate hikes, I’d think it would still be gradual.
- Atlanta FRB President Bostic (3/7/18): According to Bloomberg, Bostic said that in December he was expecting two rate hikes this year, but has moved to three.
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NAME THAT DOT: As noted above, the greatest uncertainty is how many hikes take place in 2018, and that we would need to see four FOMC officials move from the three- to four-hike camp for that to happen. Based on BofA calculations, the most likely members in the three-hike camp in December were Yellen, Powell, Kaplan, Dudley, Williams and Quarles. The risk is that Quarles and Dudley move to the four-hike camp, but Kaplan will likely stay at three hikes. It is a close call for Powell and Williams. While the median forecast would therefore stay at 2.125%, the mean will move higher by just over half a hike, but with risks of a bigger gain.
POWELL PRESSER: It is hard to judge how Powell will handle his first press conference, but if his recent testimonies are anything to go by, he will deliver “an optimistic and positive tone” according to BofA. He will likely sound optimistic on the outlook, where headwinds are becoming tailwinds, BNP Paribas believes, while Deutsche Bank says that he may go further and say that risks are now shifting towards an overheating economy. That optimism will require a degree of hawkishness to justify, especially in the likely scenario that rate forecasts are raised. But Powell will still likely try and achieve a balance. There is an outside chance Powell will be quizzed on whether he intends to hold a post-meeting press conference after every rate decision, to which he might respond that it is a consideration; SGH Macro says this will convey a message that ‘every meeting is live’.
BofA expects Powell to field the following questions:
- Are long-run growth prospects improving? He will likely suggest the risks are increasingly skewed in that direction, but that it is prudent to wait for more evidence, emphasizing productivity and labor force expansion.
- How important are financial conditions? He may note that recent measures have revealed tightening with some signs of funding stress. It will be interesting to see how he links this back to monetary policy.
- Will the Fed allow inflation to overshoot the target? He will emphasize the symmetry of the inflation target, but likely offer little information about the alternative monetary policy frameworks that are under discussion.
- Will the FOMC move to a press conference at every meeting? BofA expects him to suggest it is under discussion without committing.
While it may not be directly touched upon in the presser, a key point of focus for the rates market will be any discussion around the tightening of financial conditions since the last Fed rate hike. Equities remain below their late January peak, credit spreads are wider, and the 3m LIBOR-OIS spread has blown out since the December FOMC meeting. However, BofA expects the Fed will not sound particularly concerned about the recent tightening in conditions, noting some contraction is to be expected with higher policy rates and a shrinking Fed balance sheet. The Fed would likely be much more concerned about the tightening in financial conditions and rise in LIBOR if it appears to more directly spill over into broader corporate borrowing/investment activity or begins to wane on consumer or business confidence. In other words, until stocks tumble because of the spike in Libor/L-OIS, the Fed will not lift a finger.
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MARKET REACTION: Lifting rates may see a modest rally along the front of the curve, BoAML says; and Rabobank adds that if inflation doesn’t materialise in the medium/longer-run, a curve inversion could be on the cards. A steeper curve will require the Fed to raise expectations of the terminal rate by notching up its long-term rate forecast, which could see underperformance in the five-year sector, BoAML says; the bank sees the 2s5s curve steepening, and the 5s30s flattening. Either way, BoAML – who has been more positive on the USD than the street – sees the risks skewed towards USD-bullishness. In a hawkish scenario, Barclays has recommended short NZDUSD to take advantage of the monetary policy divergence theme between the Fed and what is likely to be a dovish RBNZ (whose rate announcement follows the Fed’s on Wednesday). Refraining from raising the long-run rate view too aggressively (or at all) may be a recipe for risk assets to perform well, but not the USD given concerns about the toxic mix of both easy monetary and fiscal policy (SocGen).
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FOMC REDLINE: What will the Fed say? We leave readers with two blackline FOMC statement previews, one from Morgan Stanley and one from Goldman Sachs, laying out where the two banks expect to see changes to the Fed language. What is interesting is that while both banks expect a modest walk back of the current economic conditions – especially in housing – while leaving the rest of the statement unchanged, they still expect a 25 bps hike.
First, here is Morgan Stanley:
And here is Goldman’s preview:
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