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Fed Ends Zero-Rate Era

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Re: Fed Ends Zero-Rate Era

#91

Post by lintiness »

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?

low rates have spurred demand and inflation RELATIVE to where they would have been at much higher rates.

Re: Fed Ends Zero-Rate Era

#92

Post by quadrangle »

jstalin wrote: post #66
PaulWillis wrote: post #61

Earlier quoted context omitted.

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.

Hah. Someone should write a bot that evaluates trite simplistic aphorisms (regardless of sarcastic or whatever) and replies with something like "real life is more complex" or something of that ilk.

Re: Fed Ends Zero-Rate Era

#93

Post by dragonwriter »

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…

> 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

The second part is true, but doesn't support the first. The fact that move was expected and priced in doesn't make it meaningless, since if it didn't occur as expected, the fact that it was priced in would mean that the market would then have to adjust to the inaccurate expectation that had been priced in.

Re: Fed Ends Zero-Rate Era

#94

Post by hodwik »

alttab wrote: post #75
jstalin wrote: post #66

Earlier quoted context omitted.

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

Can't tell if this is sarcasm or not. Sign of the times I guess.

Has to be sarcasm.

People who actually believe that wouldn't say "politicians", they'd use some other euphemism, because they believe in some abstract trustworthy organization that's always being hampered by those damn politicians.

Statists love their euphemisms: “investment” instead of “government spending” “shared sacrifices” instead of "wealth redistribution" "government officials" instead of "un-elected bureaucrat" and lastly, "public sector" instead of "The State".

Re: Fed Ends Zero-Rate Era

#95

Post by dragonwriter »

vezzy-fnord wrote: post #86
toomuchtodo wrote: post #80

Earlier quoted context omitted.

I argue my ideas only need to hold water for another 10-30 years, depending on if technology advancement keeps up. Japan's been running structural deficits for decades, and still has a very high quality of life. > but in reality politics and the economy don't exist in frictionless vacuums and there are political costs to pork barreling, logrolling, unsound investments and so forth. As basic minimum income solves this…

I argue my ideas only need to hold water for another 10-30 years, depending on if technology advancement keeps up. Given that the AI community's prediction making skills have been just slightly better than those of Nostradamus, that's a very tough gambit to rely on. Japan's been running structural deficits for decades, and still has a very high quality of life. Except for the aftermath of the whole Lost Decade thing…

> > I argue my ideas only need to hold water for another 10-30 years, depending on if technology advancement keeps up.

> Given that the AI community's prediction making skills have been just slightly better than those of Nostradamus, that's a very tough gambit to rely on.

That's a weird comment; "technology" is a lot broader than "AI".

Re: Fed Ends Zero-Rate Era

#97

Post by jrmurad »

roymurdock wrote: post #83
PaulWillis wrote: post #61

Earlier quoted context omitted.

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.

Bonds are government debt. When you buy a bond, you are giving the government your money now in order to receive a return on that money later, with the expectation that the government will do something useful with the money in the meantime. So if the government is allocating its budget well, then yes, purchasing bonds is a good thing. If it is not, you are making a bad loan to someone who may not be able to pay you b…

>> Isn't investing in bonds putting money to work in the economy?

> Bonds are government debt ...

Could be referring to corporate bonds.

Re: Fed Ends Zero-Rate Era

#98

Post by quadrangle »

mikeryan wrote: post #27
javiayala wrote: post #12

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

The Average Joe's home loan just got a slight bit more expensive.

Woohoo, that means that less people will be able to afford the highest prices, which means the bubbling up sales prices will go down, and those of us who have been saving up for a home will have a better shot instead of getting priced out by folks willing to take on extreme loans because of low interest rates.

Re: Fed Ends Zero-Rate Era

#99

Post by itchyouch »

MarlonPro wrote: post #9
johnz133 wrote: post #2

It'll be interesting to see how this affects the lending models spawned from low interest rates.

Looks like the stock market reacts positively to the rate hike. But its effect on the general population remains to be seen, specially in the mortgage industry. Will more people shun buying houses? Banks are more willing to lend money with higher interest rate.

I would imagine that housing will stay flat. New mortgages and new rentals will both increase in cost as lending costs rise. IIRC, generally, a higher interest rate environment will incentivize people to go from renting to home ownership as rents increase due to increase lending costs & lowered/flatter housing costs.

Each 1% hike in interest reduces the leveraged buying power of all buyers about ~$21k per $1000 mortgage payment.

$1000 @ 4% = 209k loan (30 yr) $1000 @ 5% = 188k loan (30 yr) $1000 @ 6% = 167k loan (30 yr)

The maximum monthly payments for a mortgage are capped at 36-44% Debt-to-Income (DTI) ratio. At the 36% DTI, a hypothetical Joe with no debt making 10k/mo, will be approved for about $2000/mo mortgage. Today's market at 4% means Joe can get a $418k loan. By 2018, with interest rates moved up 2%, he would only be able to get a $334k loan with that same $2k.

Banks make money on the rate arbitrage. Currently, they get money at .25% and loan it out at around 4%. I'm guessing they will be borrowing from the fed at 2% and loaning it out for around 5.75-6% if we stick to the 2% rate by 2018. But I think long-term mortgages are tied to treasury bonds.

If it causes enough people to affect the lending volume, the mortgage lenders may be willing to take a small hit to their margins and try to make up for it in volume.

I guess we will see. People generally aren't willing to sell their homes for a loss, so I'd imagine that realestate will stay relatively flat for a little bit.

Re: Fed Ends Zero-Rate Era

#100

Post by vezzy-fnord »

dragonwriter wrote: post #95
vezzy-fnord wrote: post #86

Earlier quoted context omitted.

I argue my ideas only need to hold water for another 10-30 years, depending on if technology advancement keeps up. Given that the AI community's prediction making skills have been just slightly better than those of Nostradamus, that's a very tough gambit to rely on. Japan's been running structural deficits for decades, and still has a very high quality of life. Except for the aftermath of the whole Lost Decade thing…

> > I argue my ideas only need to hold water for another 10-30 years, depending on if technology advancement keeps up. > Given that the AI community's prediction making skills have been just slightly better than those of Nostradamus, that's a very tough gambit to rely on. That's a weird comment; "technology" is a lot broader than "AI".

I made some perhaps overly hasty generalizations. HN is a community that is heavily skewed towards a belief in transhumanism (especially that AGI will be coming very soon) and moreover that high rates of technological unemployment are upon us, necessitating a UBI or stronger reforms to make sure the general-purpose labor saving of AGI doesn't cause social unrest from crowding humans out of the labor market.

I can't imagine what else could the GP have been referring to other than mass automatized labor for most sectors, hence either AGI or lots of narrow AI.

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