Interest rates in the next few years

[Dwhit]

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Originally Posted by brewer12345 Stagflation is always the most dangerous outcome. Every ER plan should contemplate the possibility of extended high inflation/stagflation.

I was a much younger man during the Jimmy Carter days. High interest rates and inflation ruled the day, as I recall it. Stock and bond markets were not very attractive, but real estate and high interest cd's, etc. we're more favored investments. It was hard to stay ahead of inflation. Very different than today's 60/40 type asset allocation model investing.

Then I remember jumping on bonds as the Fed pounded down the interest rates, and enjoyed a profitable ride. But that was a long time ago, and I really knew very little about investing. Could be my memories are not really that accurate, but that's the way I recall it.

[Montecfo]

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Originally Posted by brewer12345 Stagflation is always the most dangerous outcome. Every ER plan should contemplate the possibility of extended high inflation/stagflation.

I think deflation is the most dangerous. We are pretty good inflation fighters. Just my opinion.

On short term rates, I seriously doubt we get 3 hikes next year. If we do, it should be pretty good news meaning economic growth has quickened.

Long-term rates i think will remain moderate. The drivers of low rates in this country remain in place, chiefly demographics.

[Senator]

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Originally Posted by Montecfo I think deflation is the most dangerous. We are pretty good inflation fighters. Just my opinion. On short term rates, I seriously doubt we get 3 hikes next year. If we do, it should be pretty good news meaning economic growth has quickened. Long-term rates i think will remain moderate. The drivers of low rates in this country remain in place, chiefly demographics.

You are right, inflation can be cured by raising rates. Raising rates makes the dollar stronger, making imports cheaper and US goods more expensive. Jobs (and profits) go to other countries.

The economy is great for about 20% of Americans. If the economy slows, the other 80% of the population get even more crushed. The majority of the new population growth is low-wage, low skill workers. Higher wage people are retiring and dying. As automation improves further, there is even a lesser need for as many STEM jobs, and those jobs can be done in any country in the world. We are in the beginning states of global wage equalization.

I doubt that we will get any significant rate increases next year either, but banks make more money in a higher rate environment, and the Fed is made up of many member banks. Plus the Fed wants inflation, as it helps wipe out debt. Maybe starting higher rates can trigger inflation. Inflation also leads to higher tax revenues.

If rates go up and the economy doesn't improve dramatically, look for stagflation.

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Definition: Stagflation is when the economy experiences stagnant economic growth, high unemployment, and high inflation. It's an unusual situation. A sluggish economy usually reduces demand enough to keep prices from rising. As workers get laid off, they buy less. As a result, businesses lower prices to attract whatever customers remain. Slow growth in a normal market economy prevents inflation https://www.thebalance.com/what-is-stagflation-3305964

[Danmar]

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Originally Posted by beanctr88 I expect 2017 will be volatile across all types of financial instruments and investments.

This is a common prediction. More volatile than recent past? More volatile than option pricing implies? Otherwise this prediction is a throw away.

[beanctr88]

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Originally Posted by Danmar This is a common prediction. More volatile than recent past? More volatile than option pricing implies? Otherwise this prediction is a throw away.

Yes to both. I think it is going to be a very wild ride for at least the next year as it is hard to tell what Congress and our new President will actually do and reactions to proposals, whether passable or not, will be very severe. With the Congress and White House being controlled by different parties the last four years it was clear that nothing of consequence would pass, thus reducing that driver of uncertainty.

Also adding to that uncertainty is our Fed tightening when everyone else is still loosening monetary policy. What do they see that we don't see here in the states? Meanwhile the European banks, China's and others have massive bad debt problems. Headlines and worries about those bad debt issues will likely lead to many wild swings.

[HFWR]

Strictly speaking, the FRB has a dual mandate of keeping inflation in check, and unemployment rates low. However, I'm sure they want to normalize, heh, rates higher, and many on the FRB board have opined that the problems that need addressing are fiscal, i.e. political, and shouldn't/can't be "solved" with monetary policy.

As others have said, rising rates will strengthen the dollar, especially given the Johnny-come-latelys in Europe and Asia still in QE mode. And while not a stated mandate, the Fed will still have to navigate those muddy waters.

So, rates up maybe one more percent, but unlikely much further in the next year or two. This prognostication is worth what you paid for it...

[UpAnchor]

Quote:

Originally Posted by beanctr88 I expect 2017 will be volatile across all types of financial instruments and investments.

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Originally Posted by Danmar This is a common prediction. More volatile than recent past? More volatile than option pricing implies? Otherwise this prediction is a throw away.

Which reminds me of when our local meteorologist claims, "We could see some changes in the weather in the next few days..."