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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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The Rate Hike Cycle that Wasn’t


In summer of 2015 we declared that the “Fed’s rate hike plans are on a collision course with the economic cycle.” This was because the Fed was pressing for the long awaited “liftoff” from the zero lower bound at a time when ECRI’s leading indexes were pointing to a cyclical slowdown in U.S. economic growth, i.e., a growth rate cycle (GRC) downturn.

On December 16, 2015, the Fed did push through a rate hike in the face of a continuing slowdown in U.S. economic growth. The following day, we informed our members that, “[w]ith the GRC downturn set to deepen, a full-blown rate hike cycle remains improbable” (U.S. Essentials, December 2015). Please recall that, at the time, both the Fed and prominent Wall Street houses were projecting an additional four to five rate hikes in 2016.



The attempt at a rate hike cycle has been exceptionally ill-timed, starting a full year inside of a cycle slowdown – the longest lag ever between the start of a GRC downturn and the beginning of a Fed rate hike cycle. Now – no matter what – we would have seen the longest lag ever between the first and second Fed rate hikes.

Meanwhile, as we had expected, the slowdown has continued through the first half of 2016. Amidst slowing global growth we therefore reiterated in early June that a “rate hike cycle remains unlikely.”

It is in this context that, before Chair Yellen’s recent press conference on Wednesday, we explained that, “Unless a growth rate cycle upturn begins to take shape, its [the Fed’s] next move may well end up being a rate cut.”

The Fed and the consensus of economists did not foresee the “headwinds” that have effectively scuttled the Fed’s rate hike plans. This is because they were oblivious to the direction on the economic cycle, which remains the unwavering focus of ECRI’s leading indexes.

Related News & Events

Economic Cycle and The Fed

Reuters June 14, 2016

Unless a growth rate cycle upturn begins to take shape, its next move may very well end up being a rate cut. More

 

“It’s the economy, stupid!”

ECRI June 9, 2016

The Fed doesn't seem to realize that its rate hike plans are colliding with the economic cycle. More

 

Rate Hike “Cycle” Remains Unlikely

ECRI June 2, 2016

Cyclical slowdowns are more widespread globally than at any time in almost 3 years. More

 

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