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Did I hear the first [rate increase] shoe drop?
Old 12-01-2009, 10:28 AM   #1
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Did I hear the first [rate increase] shoe drop?

Quote:
Charles Plosser, the president of the Philadelphia Federal Reserve Bank, became the first top central bank official to call for higher interest rates in this cycle. In a speech on Tuesday, Plosser said the Fed had to start raising interest rates sooner rather than later and had to begin withdrawing excess cash from the financial system. If the Fed does not act soon "the inflation rate is likely to rise to levels that most would consider unacceptable," he warned.
Fed's Plosser calls for higher interest rates - MarketWatch

Plosser is not a voting member, but could be the guy the Fed is using to start breaking the ice for rate hikes.
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Old 12-01-2009, 10:31 AM   #2
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The Fed under Bernanke and Greenspan was notorious for two things regarding monetary policy:

(1) They tended to start reacting way too late;

(2) When they finally did act, they tended to grossly overreact.
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Old 12-01-2009, 10:38 AM   #3
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Quote:
Originally Posted by REWahoo View Post
Fed's Plosser calls for higher interest rates - MarketWatch

Plosser is not a voting member, but could be the guy the Fed is using to start breaking the ice for rate hikes.
Hooray! Personally, I'm finding the recession recovery tactics related to easy credit (of all types) a little scary at this stage of life. Time to start gently moving things towards historical norms.
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Old 12-01-2009, 10:45 AM   #4
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Quote:
Originally Posted by ziggy29 View Post
The Fed under Bernanke and Greenspan was notorious for two things regarding monetary policy:

(1) They tended to start reacting way too late;

(2) When they finally did act, they tended to grossly overreact.
For #1 I would agree with Greenspan's Fed. It would be hard to call Bernankes stint as slow to react - how long did it take to get to effectively 0%? As far as overreaction I guess that depends on whether you think his approach to deal with the financial crisis was correct or not. Personally I feel we would be in much worse shape had the Fed etc not been as aggressive as they were. Did they get everything right? No, but on the whole they got the job done.

I also agree with REWahoo - they are starting to test the waters of increased rates.

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Old 12-01-2009, 11:14 AM   #5
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Oh, ugh... I hope that if this happens, it is slow and gentle. Not looking forward to this one bit.
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Old 12-01-2009, 11:56 AM   #6
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I feel pretty certain that the Fed will NOT raise interest rates until it is clear that the unemployment situation has improved dramatically. So, IMO it will be quite a while yet.

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Old 12-01-2009, 12:02 PM   #7
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Originally Posted by audreyh1 View Post
I feel pretty certain that the Fed will NOT raise interest rates until it is clear that the unemployment situation has improved dramatically. So, IMO it will be quite a while yet.

Audrey
Good, I hope not! Besides, imagine what it would do to the housing market if mortgage rates followed suit and went up.
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Old 12-01-2009, 12:27 PM   #8
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Even if the Fed raised short-term rates, it is unlikely that mortgage rates would also rise. They might even go down instead, based on the expectation that the Fed put the brakes on the economic expansion by raising short term rates.

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Old 12-01-2009, 12:37 PM   #9
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Originally Posted by audreyh1 View Post
Even if the Fed raised short-term rates, it is unlikely that mortgage rates would also rise. They might even go down instead, based on the expectation that the Fed put the brakes on the economic expansion by raising short term rates.
Can you say "inverted yield curve," boys and girls? That's been one of the most reliable indicators of a coming recession.
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Old 12-01-2009, 12:45 PM   #10
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Originally Posted by audreyh1 View Post
Even if the Fed raised short-term rates, it is unlikely that mortgage rates would also rise. They might even go down instead, based on the expectation that the Fed put the brakes on the economic expansion by raising short term rates.

Audrey
That's right. And in today's situation there is plenty of room for sopping up a bit of the ocean of liquidity that's out there without materially impacting mortgage rates.

Regarding real estate, my own opinion is that housing prices now realistically relate to income whereas during the boom housing prices were too high vs. income. I'd like to see houses trade more readily (be more liquid) but not necessary go dramatically up in price. We need real growth in wages before prices for housing increase.

I'm sure others feel differently and I accept that.
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