frayne
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If we have a robust economy, long term sustained growth, record low unemployment, low inflation, wage growth, what is the purpose of decreasing interest rates any more than where they are now ?
Question Concerning Fed and Interest Rates
- Thread starter frayne
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I totally agree. But it seems the Fed's job now is to keep the stock market up
One purpose could be to juice the market.
UnrealizedPotential
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Let me just write that there is someone in a rather high place that thinks that not lowering rates is hurting his growth agenda for the economy. Chairman Powell is feeling the heat. I could say more, but I probably already went too political. But that's how I see things.
Not saying it's right or wrong, it's just why I think things are the way they are.
Not saying it's right or wrong, it's just why I think things are the way they are.
target2019
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Bullard cast the dissenting vote, and wanted to lower the interest rate now. My crystal ball shows nothing in this area, though.
https://www.stlouisfed.org/on-the-economy/2019/june/bullard-explains-recent-fomc-dissent
As has been mentioned by E-R pundits, if you want to cut the interest rate, you need a healthy one to cut. IOW, you can run out of fuel if you have little or none on hand.
It sounds like the majority wants to wait for more economic data.
OldShooter
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Classically, monetary policy decisions are about unemployment and inflation. Low rates, again classically, reduce unemployment and encourage inflation. And vice versa. The situation in recent years is somewhat unusual because low rates have not resulted in inflation problems. Another consideration, again in recent years, is that central banks' holding rates low unnecessarily leaves them without any "dry powder" through which they can fight recessions. Lots of tradeoffs. Harry Truman: “Give me a one-handed Economist. All my economists say 'on hand...', then 'but on the other...”
Political factors complicate. Erdogan just fired his central banker because he refused to reduce the current 25% (IIRC) inflation-fighting rates in Turkey. Trump has repeatedly complained that our Fed is making a mistake by not reducing rates even though the economy is thought to be at full employment.
Is the situation getting any clearer? Tim Taylor's "The Instant Economist" is an overall good read and has a good section on macroeconomics. https://www.amazon.com/Instant-Economist-Everything-About-Economy/dp/0452297524
audreyh1
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I think that Powell decided they’d maybe been a bit too aggressive in Q4 and backpedaled a bit amid some concerns of early signs of economy slowing. Now economy not obviously slowing. The market quickly extrapolates Fedspeak to either extreme.
RetireBy90
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The fed has 2 jobs, low unemployment and price stability. Inflation of 2% is the target for price stability. Theory is that by lowering rates will increase inflation. However, rates are all relative to other returns.
One issue is that the market has already determined that rates are higher than needed.
Another impacting issue is that rates in the other “developed” economies are below zero. 2.5% doesn’t seem like a rate impeding growth until you compare it to the other rates. Not sure how this fits into the grand scheme of inflation.
One issue is that the market has already determined that rates are higher than needed.
Another impacting issue is that rates in the other “developed” economies are below zero. 2.5% doesn’t seem like a rate impeding growth until you compare it to the other rates. Not sure how this fits into the grand scheme of inflation.
brucethebroker
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A mortgage underwriter I know is up to his armpits in business as current rates are encouraging much re-financing. Housing values are up. Market is up. Keep stoking the furnace, I guess....
gcgang
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https://www.global-rates.com/interest-rates/central-banks/central-banks.aspx
Our rates are higher than pretty much every other developed economy.
This is weird.
Our rates are higher than pretty much every other developed economy.
This is weird.
Not so weird. Our economy is currently stronger than pretty much every other developed economy.
I wonder is a lot of the mortgage backed securities the fed is holding are dissipating with refi activity? Would be an easy way to get them off their balance sheet and put the risk back into other hands? Does it work like that?
I feel that interest rates are fine now. But the White House is putting constant pressure on the Fed to lower interest rates to prop up the stock market. Right now, a lot of people can put their money on money market and CD accounts that are 2.00% - 2.70%. If the Fed lowers rates and this go below 2.00% .. people will be looking to put their money on the stock market.
audreyh1
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Traditionally the Fed is independent of the White House and Congress. And for their future reputation they should ignore all the noise.
UnrealizedPotential
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That is easier said than done when you have a rather dominant personality in a highly influential position who goes his own way and tests the limits. I am not saying you are wrong, it's just that I don't think it's as simple as what you wrote.
RetireBy90
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My understanding is that they are purchasing securities to replace those that mature, subject to the draw down of total securities.
+1
Inflation is not where the FOMC wants it, but in total, there is no need for a cut as of today.
Traditionally, and also legally, the Fed is independent. They should ignore the noise, and so should we. That makes for a heathy discussion that is bacon free. Besides, there’s plenty to discuss about interest rates that doesn’t fall into rule breaking politics.
Back on track, the best analysis I’ve seen on Fed and interest rates in general is Tim Duy’s “Fed Watch”. His latest update was this morning and can be seen here https://blogs.uoregon.edu/timduyfedwatch/2019/07/08/insurance-cut-still-in-the-works/
His view is a slight reduction in rates is called for, due to slowing economic conditions.
+1. I just refi'd 15Yr @2.75 , talked to a quant banker buddy he went 100% cash/bonds with his taxable (assuming he is on the target 20XX as hes aid he lets his 401k ride) but told me he feels corporate debt is one reason the economy could slow. He also noted you cannot time the market, so I guess I could somewhat trust that he knows something beyond most of my other buddies lol. Funny I just met up with a group of them and 3 of them had bought new homes within the past few months. Upgrades. "Yeah that economy" as Jey Leno used to say...it's so bad...fill in the blank
Montecfo
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"Can't time market" but he just went to 100 pct cash. Hmm.
If he truly knew something the market didn't then why is he still hawking mortgages?
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