What If Fed Rate Hikes Are Actually Sparking US Economic Boom?

[marko]

I'm enjoying some hefty deposits into my MM. I also moved a chunk into a floating bank rate currently paying ~8.6% which had been paying less that half that 18 months ago. Payments come tonight!

Of course for every receipt there's some poor bum paying 7%+ on some sort of loan, but it's always better to be signing the back of the check than the front of the check.

Having said that, I find it difficult to believe that there's enough "new income" in the form of simple interest to make a notable difference in our vast economy. Folks on this forum, sure, but the nation on a whole, I can't buy it.

As we live on just dividends/interest (and SS) I'm building up a nice buffer.

 

[almost there]

Was it really like WW2 from 2009 to 2020? No...

• Mesopotamia, c. 3000 BC: 20%
• Babylon, Code of Hammurabi, 1772 BC: codified earlier Sumerian custom of 20%.
• Persian conquest (King Cyrus takes Babylon), 539 BC: rates of 40+%.
• Greece, Temple at Delos, c. 500 BC: 10%
• Rome, Twelve Tables, 443 BC: 8.33%
• Athens/Rome: circa the first two Punic Wars, 300-200 BC: 8%
• Rome: 1 AD: 4%
• Rome, under Diocletian, 300 AD: 15% (estimated)
• Byzantine Empire, under Constantine, 325 AD: limit 12.5%
• Byzantine Empire, Code of Justinian, 528 AD: limit 8%
• Italian cities, c. 1150: 20%
• Venice, 1430s: 20%
• Venice, (Leonardo da Vinci paints "The Last Supper in Milan"), 1490s: 6.25%
• Holland, beginning of the Eighty Years' War, 1570s: 8.13%
• England, 1700s: 9.92%
• US, West Florida annexed by the US, 1810s: 7.64%
• US, circa World War II, 1940s: 1.85%
• US, Reagan administration, 1980s: 15.84%
• US, Fed does not hike rates in September 2015: 0-0.25%
• US, Fed does hike rates in December 2015: 0.25-0.5%

 

[Chuckanut]

Adam Smith’s Invisible Hand has to manage interest rates in the long run. You can run but not hide from the fallout of artificially very low or very high rates.

 

[maestro]

"Basically higher rates are helping not hurting the economy due to giving people more interest income..."

If our economy is going to survive on our 'reaping higher interest rates' on what we have, and 'injecting it', most people are in for a lotta hurt. Economics 101. ("lotta" is a technical term, BTW) Higher rates will throttle home buying, home equity, car loans, credit whatever. Powell is in a fix.

 

[Chuckanut]

My best fixed mortgage rate was 8 3/4%. The worst was 12 3/4%. My only variable rate was 1.6% above the one year T-bill rate. I kept my mouth shut and hung on to that rate as long as I could.

 

[bloom2708]

If the yield curve wasn't inverted it would be better.

If short rates are 5.25%, the 10 and 20 and 30 should be all higher.

Since most are borrowers, it hurts. The early retirement and Bogleheads are the exception most of the time.

As a saver, I love the higher rates. I can have a lower percentage of stocks which is good for my weak mind.

 

[Chuckanut]

Im not sure low mortgage rates are that great. IMO, they did a lot to drive up home prices. They also fueled the demand for homes by making purchases of homes for use as Airbnb short term rentals more economically favorable.

 

[ychuck46]

As others have stated, it depends. I carry a lot of higher dividend paying equities in tax-advantaged accounts, and I have layered a number of CDs at our bank, but not enough to move the needle overall. If I had my choice it would also be lower inflation and lower interest rates. The current times are tough on anyone having to borrow money and struggling to buy life's necessities, which tend to be the younger cohort of the population, which many of us are likely not a part of.

 

[indiajust]

I am uncertain of the better/worse dichotomy with rates. I have been leaning into Lyn Alden and Luke Gromen, of the mindset that rates that are "too low" kill the US debt market and push institutions carrying that debt toward insolvency. Likewise, "too high" impairs the stock market, which is the largest payer of taxes and pushes the fed toward insolvency. They describe the situation as threading a needle, or rock/hard place choice.

 

[marko]

Im not sure low mortgage rates are that great. IMO, they did a lot to drive up home prices. They also fueled the demand for homes by making purchases of homes for use as Airbnb short term rentals more economically favorable.

True, yet at least in my area home prices continue to go up, up up. Home are still on the market for only a few days. For now anyway. I really don't get it.

 

[Chuckanut]

True, yet at least in my area home prices continue to go up, up up. Home are still on the market for only a few days. For now anyway. I really don't get it.

FWIW, a home near me sold for 15% above asking in a matter of a few days. It’s the first house of its type to go on the market in nearly a year.