NBER & The Fed – Lagging Announcements Create a Great Rate Hike Indicator

Today, the committee in charge of declaring the beginning and end of recessions announced that it was too early to declare the current economic slump over.

In a statement on NBER.org, the Business Cycle Dating Committee said, “Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature.”

This comes as no surprise to us here as IntegrityFX Plus’ Joshua Habben wrote in August of 2009 about the NBER’s lagging approach and the Fed’s subsequent action:

So under Greenspan, the Fed averaged a delay of 33 months between the recession ending and raising rates. There was even an average delay of 12 months between the NBER announcing the recession and the Fed raising rates. The Fed, despite its need to anticipate and act quickly, was unexpectedly behind the ball. One might wonder if the NBER would do a better job of monetary policy, but I’ll keep the focus on the timing, not the competence, of the Fed.

This data can be used to make a projection of when Bernanke will raise rates, specifically the earliest he would do so. The earliest the recession could reasonably be declared to have ended would be Q2 2009. So, under the assumption that the end of the recession occurred in June 2009, that yields the following projection:

1) The NBER will announce June 2009 was the end of the recession in February or March 2011.

2) The Federal Reserve will begin raising rates in March 2012.

Read the Entire Article From August Here

We’ll have to wait to find out if Joshua’s projections hold true, but judging from the lack of interest from NBER up to this point and the Fed’s staunch dovish stance, it seems right on track and can be used as a great indicator for interest rate expectations and the strength of the Dollar.