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Fed Ends Zero-Rate Era

bloomberg.com

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Re: Fed Ends Zero-Rate Era

#61

Post by PaulWillis »

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…

Isn't investing in bonds putting money to work in the economy? And how does the government really stimulate demand? Nobody demanded an IPhone before it existed. Good products stimulate demand.

Re: Fed Ends Zero-Rate Era

#62

Post by toomuchtodo »

pjungwir wrote: post #56
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…

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?

Correct. Home prices should come down a bit as interest rates move up.

Re: Fed Ends Zero-Rate Era

#63

Post by asr »

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…

Not sure I understand your question. Are you saying the fed is wrong here and raising rates into the teeth of a likely recession?

If that's your question, good luck finding someone who knows the answer, but I will note that when the energy sector goes downhill because energy is cheap, that helps, not hurts, a lot of the rest of the economy--energy is an input.

Re: Fed Ends Zero-Rate Era

#64

Post by o_nate »

lpage wrote: post #8

This was very much in line with expectations, ergo the muted reaction in the markets. It's worth noting that the Fed used gradual in lieu of measured to describe the increase. Measured implies a steady series of increases (announced every few meetings until the target rate is reached) versus a gradual approach in which there's a long term number in mind but no strict mandate on getting there - a dovish tone.

Agreed. Judging from the price action in emerging market currencies, which have been particularly sensitive to the Fed lately, it seems the statement was interpreted as being slightly more on the dovish end of expectations.

Re: Fed Ends Zero-Rate Era

#65

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…

One way this might affect ordinary people is the choice between investing or paying down a mortgage. The day you get the mortgage, it probably feels like a good risk-adjusted return to pay it down. "Risk-free 5% return!"[0] But if you have a low 30-year rate and interest rates rise enough, there might be low-risk investments that pay better than extra mortgage payments.

This is one doubt I've always had about Dave Ramsey-esque advice to aggressively pay down your mortgage: In every analysis I see the rate on investment is static, but we know that's not true, and for a long time it's seemed inevitable for rates to go up eventually.

[0] Not strictly risk-free if you wind up needing the cash or your house tanks in value, but that's the pitch.

Re: Fed Ends Zero-Rate Era

#66

Post by jstalin »

PaulWillis wrote: post #61
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…

Isn't investing in bonds putting money to work in the economy? And how does the government really stimulate demand? Nobody demanded an IPhone before it existed. Good products stimulate demand.

Politicians spending your money for you is better than you deciding how to spend it.

Re: Fed Ends Zero-Rate Era

#67

Post by jstalin »

gotchange wrote: post #60

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?

Central banking is essentially a price-fixing scheme and doesn't really have much to do with capitalism.

Re: Fed Ends Zero-Rate Era

#68

Post by nemanja »

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…

> ...move did nothing to assure markets that the Fed is in control, or set credible, measurable goals for future hikes

Markets respectfully disagree, see the uptick across all indices since the announcement.

As you point out, there is only so much Fed can do and they are taking a measured, responsible stance, well within expectations. The fact that Fed's actions are fully aligned with expectations is kind of the point - the last thing they want to do is spook the markets, so messaging and signaling is key.

Re: Fed Ends Zero-Rate Era

#69

Post by auntienomen »

jbooth wrote: post #58
chollida1 wrote: post #48

Earlier quoted context omitted.

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?

Given high demand, yes. But demand hasn't been high.

Re: Fed Ends Zero-Rate Era

#70

Post by gotchange »

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.

> This could have wide implications for the startup community.

More like a tempest in a teacup. I wouldn't qualify a meagre 0,25% interest rate increase as huge or potentially having wide implications on the market.

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