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US central bank keeps rates near zero; forecasts a rise this year; USD plunges against NZD before creeping back to 63.8 US¢; UST 10yr yield 2.29%; oil unchanged, gold up; TWI-5 = 67.7

US central bank keeps rates near zero; forecasts a rise this year; USD plunges against NZD before creeping back to 63.8 US¢; UST 10yr yield 2.29%; oil unchanged, gold up; TWI-5 = 67.7

Here's my summary of the key events overnight that affect New Zealand, with news the Federal Reserve has kept interest rates unchanged, but has indicated a rise is still on the cards this year.

The US central bank has held back from making the first rate hike in nearly a decade, amid fears global instability could slow the economy.

It’s sitting tight as it’s concerned China’s economic turmoil and US stock-market volatility will put more downward pressure on inflation.

Policy makers aren’t convinced inflation will move back to their 2% target. This is despite continued gains in the labour market, with unemployment in August falling to 5.1% – its lowest level in more than seven years.

Yet the Fed’s indicated it still has its sights set on raising rates at either of its next reviews in October or December.

While its Open Market Committee voted 9-1 to hold its benchmark federal funds rate at 0 to 0.25%, it forecasts an interest rate of 0.40% by the end of the year.

According to the latest dot-plot, 13 of the 17 Fed officials think the bank will raise rates at least once before the end of the year.

The Fed’s announcement has sparked a flurry of activity in the currencies market.

The US dollar initially plunged over a cent against the New Zealand dollar, but has since regained some ground to reach 63.8 US¢.

The US dollar has made a similar move against the Australian, while it continues to weaken against the euro.

In New York, the UST 10yr yield benchmark is up to 2.29%.

The US benchmark oil price remains at US$47/barrel while the Brent benchmark is at US$49/barrel.

The gold price has risen again today to US$1,124/oz.

The New Zealand dollar has strengthened slightly from this time yesterday to 88.6 AU¢ and weakened to 55.9 euro cents. The TWI-5 remains unchanged at 67.7.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here »

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29 Comments

I think this result was a foregone conclusion weeks ago.
What would the effect on the USA economy and globally be, if the rate rise went ahead? 1,2,3

Look at the magnified stall of NZ economy that the RBNZ caused from last years hikes
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1151...

What has ZIRP delivered for the majority of US citizens?

Let's be rid of these unaccounted for academic central bank charlatans.

I think this is the best comment on yesterday's FOMC decision, by Danielle Park (Juggling Dynamite blog):

The US Fed has bluffed again, promising a rate hike and chickening out. In doing so they admitted that the global economy is faltering and they believe that any move off zero rates will quicken its demise. If Ms Yellen were honest her statement would say:

” We messed up. We lowered rates for years to keep pushing debt-fueled consumption and we bankrupted the world. Then we bailed out the most reckless actors with public funds and have been funneling cash to those same criminals ever since. Now the system is so broken we are powerless to improve it. All we can do is talk brave and hope for miracles before people realize the magnitude of our errors and come after our heads.”

All we can do is talk brave and hope for miracles before people realize the magnitude of our errors and come after our heads.”

People are fully aware of their constrained circumstances - as democratic presidential candidate hopeful Bernie Sanders noted;

Earlier this week, Senator Sanders tweeted that, “it is unacceptable that the typical male worker made $783 less last year than he did 42 years ago.” His huge crowds enthusiastically embrace that populism, which is a direct contradiction to the dominant, complacent rhetoric about the economy parroted out from the FOMC and that which is being similarly claimed by the current administration of his own party. Read more

http://www.telegraph.co.uk/finance/economics/11869701/Jeremy-Corbyns-QE-...

Variants of People's QE were tried in the inter-war years. Japan's Christian prime minister Takahashi Korekiyo instructed the Bank of Japan in 1932 to fund a blitz of fiscal spending until deflation was defeated, pulling his country out of the Great Depression remarkably quickly.

Lord Turner, the former head of the Financial Services Authority, says it is perfectly possible to create a new regime in which the Bank's Monetary Policy Committee decides how much fiscal funding to permit, calibrating the dosage in exactly the same way that it now regulates bond purchases or sets interest rates.

Whilst I love Ambrose's commentary and grasp of history, I do think he should mention what happened to the venerable Takahashi Korekiyo. Having saved Japan from the depression, he then started to reign in spending. Result, the military chopped off his head whilst he slept.

https://en.wikipedia.org/wiki/Takahashi_Korekiyo

the point is however sufficient "spending" usually works. this was a simialr outcome in the USA where Haylek etc convinced the US govn to cut back too early, sending the US economy back into the depression.

http://krugman.blogs.nytimes.com/2011/03/29/friedrich-hayek-zombie/

Truely we see examples of the "haylek like) suggestions being put forward today that and rinse and repeats of the 1930s....

awesome....

PS I think the Yanks hanged the next one....

So are you hoping to see a depression or something? mass un-employemnt? clearlythe answer looks to be yes. awesome, just awesome.

Arguably ZIRP has fended off a second Greater Depression making their and our pain not as bad as it could have been. So we have had Goldspan pushing to the zero bound trap repeatedly and now we sending us into this mess and now the same wonky economics wants to finish the job,

yes awesome indeed.

Steven, can you please clarify where in history QE on mass has been implemented successfully?

It may work short term but I would be interested to hear where it has worked medium to long term?

Define successful? if it the outcome is we didnt go into a second Great Depression then the actions for the past 7 years have been successful. However we are clearly not back on a growth path. That can be answered with a) it has not been big enough and b) the underlying problems eg the corrupt banks were not fixed.

Personally I suspect QE is indeed marginal, as the money didnt get into main street to be spent.

Agree MortgageBelt , now grab yr popcorn and lets watch the debt ceiling issue unfold , those shorting the kiwi i wonder if they are now going long now ! dipped half at cent at closing lets see if we get a moonshot with the longs !! ha ha great entertainment

there will be no rise this years most of the committee has moved more negative and if anything you will not see a rise until spring USA time at the earliest.
the new issue is world debt, it has exploded off the back of cheap money

The trend in interest rates remains firmly down, as of course logic predicts it has to.

Don't forget the US Philly Fed Manufacturing Index (one of the more important US regional indexes) - collapsed from +8.3 to -6.0 (predicted to come in at +6.1).

Following on from the US Empire State Manufacturing Index on Tuesday (stuck at -14.7) it starting to look like US manufacturing is slumping......

http://www.nzherald.co.nz/technology/news/article.cfm?c_id=5&objectid=11...

1. Extradition requires evidence of a criminal conspiracy to infringe copyright
2. Criminal copyright infringement is an extension of civil copyright, ie: grounds for a civil case must exist first.
3. A specific instance must be proven. ie: A specific piece of copyrighted material, evidence the material was owned, evidence the offender copied it, the chain of evidence (digital track of the file), evidence the offense occurred in the USA, then further evidence that Dotcom conspired (communicated) with the copyist (not just provided the method for storage).
4. That 3. was wilfully committed knowing it was illegal must be proven (Mens Rea)

None of the above are supplied in the indictment. Further aiding and abetting an act of criminal copyright is not a recourse available in the US Justice system.

Professor Lessig breaks it all down quite well into simple terms in his affadavit, hopefully simply enough for our second rate judges to understand. It is worth a read.

You all know I correctly called the search warrant as deficient, although our courts failed to reverse the damage done by its execution.

Major US shale oil fracker goes bust:

http://www.bloomberg.com/news/articles/2015-09-17/kkr-s-samson-resources...

''Tulsa, Oklahoma-based Samson and its owners were stung by the price drop that put money into the pockets of consumers through lower gasoline and heating costs, while driving other producers, such as Sabine Oil & Gas Corp. and Quicksilver Resources Inc., into Chapter 11. Samson’s filing is among the biggest energy bankruptcies in the U.S. this year, but it probably won’t be the last.''

They are right, it won't be the last, US oil frackers are starting to fall like flies, and come October the banks that lent them all their cash re-set their loan terms based on paper 'resources' that have plunged in value.

Still they kicked the Saudi's ass didn't they?.....oh hang on a minute.....

They must be in-competant, profile promised us the shale players could make money even at under $40US a barrel. Still if so there is a great opportunity for a buy in.

"the Japanese company got $1 for its 25 percent stake in Samson -- for which it originally paid $1.04 billion."

maybe not,

XD

Profile lost a shed full buying shale oil company shares the first time around, even he can't be that stupid to throw more money in that direction - or can he?

Well if you are sure its all a hoax ie climate change and peak oil, then buying into these as the do goody "liberals" exit should make you a shed load of $s in the future, or, maybe not.

Interesting thing is the number of ppl in here over the years convinced the latest energy solution to our energy problem(s) would deliver on utopia for us all while making them filthy rich.

You guys are classic! How long have you been predicting the imminent demise of the shale gas industry, then the shale oil industry and of course the evergreen imminent energy crisis that is only two years away... Companies go broke when prices halve - creative destruction and all that.

Meanwhile the doers out there just get on with it.

"The industry's ability to find some workaround every time prices seem too low to keep pumping explains in part why 15 months into the downturn U.S. output stays near highs of around 9 million barrels a day and the government forecasts only modest declines through mid-2016.

Squeezing crude from shallow mature fields allows the shale companies to produce more at a lower cost. They can use less powerful rigs that are cheaper to rent and shorter wells can be bored and brought into production in as few as 10 days, whereas a big horizontal well would normally take a month or more to complete.

A simple vertical well can be drilled or refracked for around $1 million. Wells with about 10,000 feet of horizontal drilling cost from $5 million to $9 million even at discounts available during the downturn, company presentations show.

..."We've got a lot of low-hanging fruit in terms of little quick projects you can do and get your money back in six or seven weeks and add significant barrels," Christmann told the Barclays CEO Energy-Power Conference."

http://www.reuters.com/article/2015/09/16/oil-usa-fracking-idUKL1N11E1M5...

No I think you'll find that is not what we have been saying on gas at all and not really on oil (imminent demise). What we have been saying is much of this didnt make financial sense due to the geo-engineering issues and that the peak would be quite soon, so decline and not death of oil output. Indeed we have seen is quite a lot of ppl lose significant amounts of money and quite a few frackers and their support sectors go out of business due to lower than gambled for prices.

"modest" declines" yet only last year? we were arguing on the oil shale peak being about now or next year maybe 2018 with your view it was a considerable way off. "government forecasts only modest declines" well their forecasts didnt even see any drops...so lets see how that one goes.

Sure Christmann might well have some easy to get shale, doesnt seem to be helping the industry overall though.

--edit--
PS

""The industry's ability to find some workaround every time prices seem too low to keep pumping " v drilling?

Seems you have an ability to cherry pick. Once a well is drilled the energy and costs have been mostly committed and spent, so stopping makes no sense, however for some of the old stripper wells this is indeed the case. The thing is to watch how many new wells are being drilled which is way down.

But you know if you think you can make money in there go invest.

PPS

"So only after oil prices busted did natural gas production start to slow down. In fact, while the markets are eagerly watching for declines in oil production, few are noticing that natural gas production is also declining. The EIA reports that in October, several of the largest shale gas regions will post their fourth month in a row of production declines. "

hmmmm

http://peakoil.com/production/is-this-the-end-of-the-u-s-shale-gas-revol...

note not "demise" but a decline...

Meanwhile, in other news that might just have far reaching economic effects:

''The world has experienced record-breaking warmth every month so far in 2015, making this year virtually guaranteed to be the hottest on record, according to a US science agency.The National Oceanic and Atmospheric Administration (Noaa) said that 2015 was 97% likely to be the hottest year so far, eclipsing 2014, the current warmest year. Last month was the warmest ever August globally since records began in 1880, at 1.58F above the 20th century average. Every month this year has been the hottest on record, with the period of January to August 1.51F above the long-term average.''

http://www.theguardian.com/us-news/2015/sep/17/2015-hottest-year-on-reco...

that will hack off "there is no global warming" cruz.

Excellent, excellent. Negative rates coming to a town near you...soon.

Barfoots had their worst sell rate in at least three years at this weeks auctions - many passed in, no bids etc perhaps interest.co.nz could get the numbers directly from Barfoots - appears the sell rate under the hammer has dropped from 85% to around 40%.

Further to the expected Fed rate "hike" announcement; I'm interested in someone explaining why or how has QE consistently kept inflation low across major economies (that I know of).
My understanding albeit limited is that if you print loads of money eventually inflation devalues a currency resulting in the unprecedented purchase of wheelbarrows to carry enough cash to buy a loaf of bread.

Could someone in layman terms explain why or how the EU, USA, Japan etc have managed to keep inflation so low given the excessive printing of money to purchase assets?

Obviously, the knock on effect for NZ is the devaluing of assets (house, farms etc) when the credit bubble bursts.

I'm intrigued.

Re the non-effect of QE on inflation, very little of this money has gone into inflation-measured consumables. It has been piped elsewhere - 'downwards' into debt and 'upwards' into other asset classes.

Doubling the debt and halving the interest rate equates to the same "annual servicing costs" prior to the doubling effect.....it's a shame journalists don't seem to understand this....because if they did they would not be putting so much weight on unemployment figures but rather the participation rate and annual net earnings of the employed......and then they would consider average pay scales and other pertinent information from across borders as having a significant effect on all production and pricing.

Central Banks have a conundrum it is like a true Mexican stand off......balancing financially stability and inflation targets repel each other !! You cannot significantly increase wages (which is what pays the mortgage interest bill) when other countries can and will step in do the labour component for cheaper......