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- Nov 30, 2016
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Just wondering what effect will raising interest rates effect the mutual fund/stock market future?
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The Fed also disclosed specific details of their planned great balance sheet unwind which they still say will start this year - most assume that means December. Markets don't seem to have reacted to this yet. I suspect they don't believe the Fed will get around to starting the process this year.
Is there a good tutorial of what the "great balance sheet unwind" IS, how it's done, possible ramifications for investments, inflation, who is most likely to be helped/harmed, etc.? Thanks for any help understanding this.
This article goes into the plan details of lowering the Fed balance sheet from $4.5 trillion to $2-2.5 trillion over about 4 years. This balance sheet was built up by the Fed buying Treasuries and mortgage and Agency debt during the various quantitative easing that occurred through 2014. You would expect this to put pressure on interest rates as a buyer shrinks its portfolio.Is there a good tutorial of what the "great balance sheet unwind" IS, how it's done, possible ramifications for investments, inflation, who is most likely to be helped/harmed, etc.? Thanks for any help understanding this.
Me too. The main downside has been stock markets higher than they perhaps should be, so perhaps more pain to come as they finally "normalize". Still probably better than running aground a few years ago.Whether QE was even a net positive is still debated by some. (Not me: I think QE allowed the financial markets negotiate some pretty rocky shores without running aground completely - MHO.)
So, the Fed has now raised rates 1%... yet both short and long term banking interest rates for consumer are still stagnant. When are we going to see a rise in CD rates?
This article goes into the plan details of lowering the Fed balance sheet from $4.5 trillion to $2-2.5 trillion over about 4 years. This balance sheet was built up by the Fed buying Treasuries and mortgage and Agency debt during the various quantitative easing that occurred through 2014. You would expect this to put pressure on interest rates as a buyer shrinks its portfolio.
Interest rates addressed at Fed meeting with Janet Yellen
Even though the Fed has been talking about starting this process since March, and now the plan details and timeline have been released, I have read very little speculation about how this might impact various markets. It could be that few investors believe the Fed is really going to do this unwind, or that think it will get put off due to weaker economic conditions.
Unwinding as I understand it: you just stop buying new bonds, and as the old ones expire your balance sheet shrinks.
QE for extreme dummies: You buy bonds in the open market. The Federal Reserve issues IOUs to the sellers of those bonds. Because they are the Federal Reserve, these IOUs are actually called USD.
Net intended effect = you make more dollars, and increase demand for bonds. So inflation goes up, bond interest goes down.
Bond market is not concerned with inflation. If the fed keeps raising simply to show they can without any good reason I don't think the stock matket will like a watered down punch once sobriety kicks in.