Fed Policy Change

[longranger]

What are the predicted effects when the fed eases up on it's stimulus programs? Have read predictions all over the place in online financial forums. I am concerned both for equities and real estate. On the other hand modest inflation to boost bond and CD yields would be nice.

 

[brewer12345]

The FOMC has been steadily reducing stimulus for some months now. Look around and tell us what you think the effect is...

 

[longranger]

Good point but response to economic change is almost never linear. At some point the artificial stability created by this prolonged period of printing $$ and borrowing will show up in our inflation and interest rates. Sure makes me uncomfortable.

 

[brewer12345]

Good point but response to economic change is almost never linear. At some point the artificial stability created by this prolonged period of printing $$ and borrowing will show up in our inflation and interest rates. Sure makes me uncomfortable.

So they are transitioning to no more money printing and you get to see in real time what impact that has on things as they do it. The bond market watches all of this with rapt attention and you can look at the term structure of interest rates to see what the consensus of the best and brightest observes is on future rates and inflation. What more do you need?

 

[robnplunder]

What are the predicted effects when the fed eases up on it's stimulus programs? Have read predictions all over the place in online financial forums. I am concerned both for equities and real estate. On the other hand modest inflation to boost bond and CD yields would be nice.

There's a good reason why predictions are all over the map. That's b/c no one knows for sure. After 30 years of investing & tracking the equity market, the only thing I am sure about global/US economy is that it is far more complex than beyond anyone's imagination.

 

[HFWR]

I think we'll survive.

But anyone who hasn't de-levered with these historically low rates deserves to go broke...

 

[marko]

The FOMC has been steadily reducing stimulus for some months now. Look around and tell us what you think the effect is...

Agreed. I believe the effect has already been baked into the market.

I would expect a minor freak-out (a few days) near October based on some knuckleheaded comment by some know-nothing...followed by another backfill.

 

[Jager]

As brewer points out, there has been very little impact to the first small steps at removing the stimulus. The Fed itself acknowledges that the current stimulus is having little beneficial effect. It stands to reason that removing it would, likewise, have little effect.

The larger question is how the Fed can reduce its balance sheet. I'm of the opinion that they will not be able to do so.

And the larger question beyond that is where will the debt and deficit model of all major economies lead? I suspect it won't end well.

 

[longranger]

Jager if history is a guide, which in this unique case it may not be, it will end poorly for greater than 99.9% of us. The others will be dumbfounded as to what all the complaining is about.

 

[brewer12345]

Just guessing, but I am expecting that the Fed bond holdings will probably just sit there and let the bonds mature. That allows them to keep a hammer handy in case inflation gets out of hand, but if it does not turn out to be needed letting the bonds simply mature avoids some unpleasant political issues that stem from the dividends the Fed send up to Congress as a slush fund every year suddenly stopping.

 

[youbet]

So far it's been interesting that the early movers to lower duration bonds and bond funds have suffered due to their expediency. Although, those moves will likely pan out in the long run.

This is one of the few times I'm glad I procrastinated.

 

[Helena]

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Speaking of the Federal Reserve...

Because of rising food prices, the Federal Reserve Bank of Chicago
is raising prices in its cafeteria.

Federal Reserve Admits Truth In Internal Memo: "Prices Continue To Rise Between 3% And 33%" | Zero Hedge


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[M Paquette]

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Speaking of the Federal Reserve...

Because of rising food prices, the Federal Reserve Bank of Chicago
is raising prices in its cafeteria.

Federal Reserve Admits Truth In Internal Memo: "Prices Continue To Rise Between 3% And 33%" | Zero Hedge


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After holding prices flat since 2006 on the menu (ex sugar-based junk which they hiked a while back as part of the dietary incentives program).

I'm reasonably sure that we haven't just encountered a burst of food-related inflation of 3% to 33% in the past year.

 

[Helena]

I'm reasonably sure that we haven't just encountered a burst of food-related inflation of 3% to 33% in the past year.

" May 23 (Reuters) - U.S. food price inflation is expected to rise by 2.5 percent to 3.5 percent in 2014, higher than 2013 but roughly in line with long-term norms, the U.S. Department of Agriculture said on Friday. "

U.S. faces higher food price inflation 2014, led by meats -USDA | Reuters



CPI-W [which is used to calculate the Social Security COLA] has risen the past two months.

Consumer Price Index (CPI-W)


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[REWahoo]

Whatever happened to the looming doom of deflation?

 

[Helena]

Whatever happened to the looming doom of deflation?

It's cyclic...

We have been in deflation. Whether the current rise in prices are a fluke... or if inflation is ready to take off... remains to be seen.

After going down the past several years, home prices here in DFW have increased the past several months and houses are selling fast. A neighbor bought his home three years ago and just sold it in record time for a $40,000 profit. He did nothing to increase the value... prices have gone up that much in the past several months. Another family I know put their house on the market and sold it within a week.

Have you noticed the price of beef lately ?

The price of eggs [a good, cheap protein] has gone up at least 50% from a year ago.


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[MichaelB]

We have been in deflation. Whether the current rise in prices are a fluke... or if inflation is ready to take off... remains to be seen.

Well, technically, we had deflation in '09 and we've been in low inflation since then. The price of residential housing is not part of CPI but rent and imputed rent is considered.

 

[M Paquette]

Meh. Still no velocity of money.

All that cash has to be moving through the economy to produce inflation. If it's just parked on bank balance sheets, it doesn't interact in the economy.

Food prices are cyclic and weather driven, among other things. Out here in drought-land, ranchers knew that they wouldn't have very good grazing pastures, and that feedlot fodder would become expensive, so a fair amount of the beef herds were slaughtered several months ago.

The price of beef regionally went down. OMG! Teh deflations!

Now that the herds are smaller, and less beef than normal is coming to market, the price is rising.

Gosh. It's almost like it fluctuates for some reason or another. Probably the Fed. Or maybe HAARP... Bavarian Illuminati!

Hasty generalizations... We has them!

 

[NYEXPAT]

Does anybody here believe that Belgium just "magically" became the World's third largest buyer of treasuries since the taper began?

 

[Helena]

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" With much hotter CPI & PPI reports the last two months and another hot set coming right before the Fed meeting with the PPI coming on Friday June 13th, and CPI coming out on Tuesday June 17th. We anticipate these reports to be on the high side of estimates with higher food, energy and rising wage cost pressures; and that the Fed will probably have to address these new inflation pressures in their statement and the following press conference by Janet Yellen. "

Hot Inflation Reports to Dominate Next Fed Meeting | EconMatters


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[MichaelB]

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" With much hotter CPI & PPI reports the last two months and another hot set coming right before the Fed meeting with the PPI coming on Friday June 13th, and CPI coming out on Tuesday June 17th. We anticipate these reports to be on the high side of estimates with higher food, energy and rising wage cost pressures; and that the Fed will probably have to address these new inflation pressures in their statement and the following press conference by Janet Yellen. "

Hot Inflation Reports to Dominate Next Fed Meeting | EconMatters

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Is this your view, that inflation is going to rise sharply in the next few days, the Fed is going to raise rates, fixed income prices are in a bubble and are going to burst?

 

[Helena]

Is this your view, that inflation is going to rise sharply in the next few days, the Fed is going to raise rates, fixed income prices are in a bubble and are going to burst?

When I post an article it's because I think it is interesting
and the information worthy of discussion.

The only thing certain is change.

Sooner or later the Fed will raise rates.


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[REWahoo]

When I post an article it's because I think it is interesting
and the information worthy of discussion.

The only thing certain is change.

Sooner or later the Fed will raise rates.


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It is customary and expected when you post something you think worthy of discussion that you provide your perspective on the topic to begin that discussion.

 

[Helena]

It is customary and expected when you post something you think worthy of discussion that you provide your perspective on the topic to begin that discussion.

Those interested in the economy and how it may affect their money, their lifestyle and their retirement should weigh a lot of various information and opinions so they can make educated decisions about their personal finances. That is what I do. I like thinking outside the box. As I posted previously, deflation/inflation is cyclic and economic trends change. When I first came to this forum, I posted about deflation which was not yet part of the accepted mantra. On this topic, I have posted an article about inflation, which is now being reintroduced to the financial collective consciousness.


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[MichaelB]

Those interested in the economy and how it may affect their money, their lifestyle and their retirement should weigh a lot of various information and opinions so they can make educated decisions about their personal finances. That is what I do. I like thinking outside the box. As I posted previously, deflation/inflation is cyclic and economic trends change. When I first came to this forum, I posted about deflation which was not yet part of the accepted mantra. On this topic, I have posted an article about inflation, which is now being reintroduced to the financial collective consciousness.

Always happy to have another voice to add to the forum financial collective consciousness, but the discussion and debate about (and between) deflation and inflation has been fully underway for years.

There are some very good threads going back a couple of years for anyone interested. A search for "deflation+inflation+Fed" should bring up quite a few.