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Fed Ends Zero-Rate Era

bloomberg.com

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Re: Fed Ends Zero-Rate Era

#51

Post by toomuchtodo »

dsr_ wrote: post #50
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.)

Exactly correct.

The Federal Reserve has the knobs and levers to create asset bubbles, but not to stoke consumer demand.

Only Congress can do that with legislation increasing the minimum wage, changing corporate taxes so it behooves companies to pay employees more, or legislation increasing entitlements such as social security. Those in lower and middle classes are the ones who govern the velocity of money through the economy, not the most wealthy.

https://youtu.be/iJCcoF5K0SM?t=19m

Re: Fed Ends Zero-Rate Era

#52

Post by stanleydrew »

api wrote: post #35
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.

Not sure how much it will impact startups with saner valuations, but yes I do suspect we might see a unicorn apocalypse at some point in the future. If it happens it will unroll more slowly than a public market crash since these markets are mostly illiquid and private. What you'll see is former unicorns raising down rounds and a general regression of other valuations in proportion to how over-inflated they might be.…

You are not clueless. It's just nearly impossible to draw an actionable line in the sand where on one side your valuation is sane and on the other it isn't.

You certainly can't do that in any kind of general sense. Every startup is by definition unique. And there's almost always a way to justify a higher or lower valuation for any given company.

Re: Fed Ends Zero-Rate Era

#56

Post by pjungwir »

jfoutz wrote: post #30
javiayala wrote: post #12

Hi HN, can someone please explain what are the implications here for the average-Joe?

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…

Rising interest rates also mean that house prices should drop (or deaccelerate), right? If you figure a buyer has a fixed budget, the more they are paying in interest the less they can pay in principal. Not saying 0.25% will have much effect, but in principle don't they have that relationship?

Re: Fed Ends Zero-Rate Era

#58

Post by jbooth »

chollida1 wrote: post #48
tedsanders wrote: post #34

Earlier quoted context omitted.

(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…

Worth noting that the mainstream macroeconomic wisdom has been completely disconnected from what we've observed in reality the past 10 years or so -- having rates this low for this long is supposed to spur demand and create inflation, according to mainstream macro, right?

Re: Fed Ends Zero-Rate Era

#59

Post by jayess »

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.

Yes, this is precisely how central banking creates bubbles.

Re: Fed Ends Zero-Rate Era

#60

Post by gotchange »

Fed => Wall St. Bankers => Private Eguity/Venture Capital => Silicon Valley => Start-ups (disruption in labor market & layoffs) => leaner corporations and more profits $$$ => Wall St. Bankers => PE/VC ad infinitum

You get the picture by now where's the Fed's loyalty lies in this reverse Robin Hood wealth redistribution scheme. Isn't capitalism wonderful?

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