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Fed Ends Zero-Rate Era

bloomberg.com

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Re: Fed Ends Zero-Rate Era

#41

Post by ubercore »

myth_buster wrote: post #18

Would this end up being the pivotal moment of this decade? There is already speculation of recession in the 12-18 month time frame[0] and the energy sector [1] is going downhill since April. I'm seeing some cities and suburbs expanding unlike anything in a while but how much of that could be sustained? To word it differently, did the Fed blink or are the underlying indicators where they want it to be? [0] Given the c…

I've been understanding the energy market problems in terms of OPEC manipulations (both artificially high and low prices) more than anything else. I think renewable energy is possibly bubbling, but still doing well?

Re: Fed Ends Zero-Rate Era

#42

Post by monknomo »

arbitrage wrote: post #31
pen2l wrote: post #21

Earlier quoted context omitted.

Harder to buy a house, rents might go up, etc. Also, harder to raise capital for startups. Though that's probably a good thing that the bar is raised -- will be better in the long term for everyone.

No, likely easier. Think of it this way. Borrowing money costs you more, but makes the lender more money in interest. Lenders now have more of an incentive to loan out money, because they'll actually be earning more (eventually) on it.

But if pen2l was a marginal borrower before the rate hike, this might have disqualified him (without a bigger down payment anyhow)

Re: Fed Ends Zero-Rate Era

#43

Post by babuskov »

sharkweek wrote: post #36
jfoutz wrote: post #30

Earlier quoted context omitted.

The fed interest rate is the foundation for pretty much all loans, cars, mortgages, whatever. Low interest rates are good for borrowers. I want a car, or a house, or a power plant, or a jet, or whatever. I want to spend some money that i don't actually have. This changes the economy because more money is moving around. High interest rates are good for lenders. I've got this pile of cash that isn't doing anything. The…

Here's one thing I don't get, pardon my fundamental lack of understanding of macroeconomics here. How is there so much liquidity when fed rates are zero?

All the people/organizations that have extra money are incentivized to spend it instead of keeping it in banks as savings.

Re: Fed Ends Zero-Rate Era

#44

Post by erichurkman »

sharkweek wrote: post #36
jfoutz wrote: post #30

Earlier quoted context omitted.

The fed interest rate is the foundation for pretty much all loans, cars, mortgages, whatever. Low interest rates are good for borrowers. I want a car, or a house, or a power plant, or a jet, or whatever. I want to spend some money that i don't actually have. This changes the economy because more money is moving around. High interest rates are good for lenders. I've got this pile of cash that isn't doing anything. The…

Here's one thing I don't get, pardon my fundamental lack of understanding of macroeconomics here. How is there so much liquidity when fed rates are zero?

For lenders, low rates make it easy to borrow money to in turn lend to consumers. As the rate increases, lenders will pass the higher rate along to consumers, which in turn leads to lower borrowing by consumers due to higher rates.

Re: Fed Ends Zero-Rate Era

#45

Post by phdp »

sharkweek wrote: post #36
jfoutz wrote: post #30

Earlier quoted context omitted.

The fed interest rate is the foundation for pretty much all loans, cars, mortgages, whatever. Low interest rates are good for borrowers. I want a car, or a house, or a power plant, or a jet, or whatever. I want to spend some money that i don't actually have. This changes the economy because more money is moving around. High interest rates are good for lenders. I've got this pile of cash that isn't doing anything. The…

Here's one thing I don't get, pardon my fundamental lack of understanding of macroeconomics here. How is there so much liquidity when fed rates are zero?

Where else are you going to stash your cash? The likelihood of you losing it when your bank goes under is perceived to be higher than the US government defaulting on their debt obligations. US treasuries are the least risky assets out there, even more so that your bank account deposits for large amounts of cash.

Re: Fed Ends Zero-Rate Era

#47

Post by xienze »

SeoxyS wrote: post #17

This could have wide implications for the startup community. A lot of people think that the current really high late-stage startup valuations, and the money pouring into the seed stage is an effect of the low interest rates. With no way to get any decent yields with these rates; it incentivizes institutional money to chase returns in alternative investment classes.

Well, interest rates are still ridiculously low even after this "hike".

Re: Fed Ends Zero-Rate Era

#48

Post by chollida1 »

tedsanders wrote: post #34
chollida1 wrote: post #15

Nanex, an account that follow market micro-structure, had an interesting tweet that showed how the liquidity on 10 year Treasuries just dried up prior to the announcement. https://twitter.com/nanexllc/status/677202959030083584 I'm surprised this story has gotten so many votes so fast. This rate hike was widely predicted, as intentionally as the fed could by law so that they don't impact the markets too much. Alot of…

(1) Liquidity always dries up prior to the announcements. If you're a market maker, you don't want to get run over by someone moving the price on new information. (2) It's a myth that raising rates will give the Fed more ammunition. That's like saying you should exercise less now so that if you gain weight in the future you'll be able to make a bigger change in the amount you exercise. (Not the perfect analogy, but I…

I agree with your first point. Most people don't follow the markets so I thought it might be interesting to them.

As to your second point, we will have to agree to disagree. You might be right, I'm not a macro economist, but your opinion is a minority one and its definitely not the mainstream opinion.

Which is fine, it might be right, but I'd rather have the fed have room to cut rates than not have that option on the table.

Re: Fed Ends Zero-Rate Era

#49

Post by bmm6o »

fludlight wrote: post #40
pen2l wrote: post #21

Earlier quoted context omitted.

Harder to buy a house, rents might go up, etc. Also, harder to raise capital for startups. Though that's probably a good thing that the bar is raised -- will be better in the long term for everyone.

> Harder for me to buy a house. Bummer. Yes and no. Yes because the monthly payment on a new mortgage for a given purchase price just went up. No because that payment went up for everyone by the same amount at the same time, so purchase prices will (theoretically) adjust downward. Keep in mind that today's news means a bak will lend you money at 4% instead of 3.75%, so the effect is minimal. Other factors that influe…

> No because that payment went up for everyone by the same amount at the same time

The rate is more significant the more you borrow, and not everyone has to borrow the same amount to buy the same hypothetical home. Buyers who have to borrow more are less attractive to sellers, ceteris paribus, since there's a greater chance of the deal falling through.

But if we're talking about a .25% difference, it won't have a real measurable effect.

Re: Fed Ends Zero-Rate Era

#50

Post by dsr_ »

roymurdock wrote: post #28

Fed raising interest rates 0.25% and setting a goal of "normal" 2% by 2018 means little to nothing. Market already priced the miniscule rate hike in as the move was widely expected, and move did nothing to assure markets that the Fed is in control, or set credible, measurable goals for future hikes. Fed can continue to push on the supply side of money at the bank/institutional level all it wants. We need the Federal…

If you want to stimulate aggregate demand at the consumer level, you need more people to have good jobs, so they can make money, so they can spend money. This would represent a reversal of the trend since 1970 towards greater income inequality.

It is not clear to me that anyone is doing anything about that (except, of course, in the negative sense.)

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