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Finally! Fed Raises Interest Rates

Chomsky

Chomsky

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"The Federal Reserve raised its key interest rate on Wednesday from a range of 0% to 0.25% to a range of 0.25% to 0.5%.

The rate hike is a small one, but it will affect millions of Americans, including investors, home buyers and savers. Savers will eventually see a little more interest on their deposits at the bank, and mortgage rates will gradually rise.

The move was widely expected. It is a sign of how much the economy has healed since the Great Recession. The central bank believes the U.S. economy is strong now and no longer needs crutches."

Source: CNN - "Finally! Fed raises interest rates"

--

So, finally!

After nearly a decade!

0.25%

I think it's good.

We can now think of being in a normal "growth economy".

Crazy as it sounds, I'm pretty excited (but also intrepid) about this.

But the psychological barrier has been broken! :thumbs:
 
As a trader, I'm somewhat disappointed by the probable loss of volatility from the increase, but on the otherhand, I like pretty much everything else about it given the economic data as it stands.
 
Chomsky said:
"The Federal Reserve raised its key interest rate on Wednesday from a range of 0% to 0.25% to a range of 0.25% to 0.5%.

The rate hike is a small one, but it will affect millions of Americans, including investors, home buyers and savers. Savers will eventually see a little more interest on their deposits at the bank, and mortgage rates will gradually rise.

The move was widely expected. It is a sign of how much the economy has healed since the Great Recession. The central bank believes the U.S. economy is strong now and no longer needs crutches."

Source: CNN - "Finally! Fed raises interest rates"

--

So, finally!

After nearly a decade!

0.25%

I think it's good.

We can now think of being in a normal "growth economy".

Crazy as it sounds, I'm pretty excited (but also intrepid) about this.

But the psychological barrier has been broken! :thumbs:
Click to expand...

Far too long in coming. The Nominal rate needs to go to around 2%. One problem is that a zero rate policy since 2008 has caused US companies to become extremely levered significant interest rate increases will cause a problem in the short term. Still a step in the right direction
 
The problem is, $19 trillion in debt will become entirely unmanageable, so tax increases an inflation are right around the corner.
 
This rate hike comes exactly 7 years after the Fed had reduced its target federal funds rate to between 0% and 0.25%.

For those who are interested, the FOMC's monetary policy statement can be found at:

FRB: Press Release--Federal Reserve issues FOMC statement--December 16, 2015

For historical perspective, below is the 2008 monetary policy statement of December 16, 2008:

FRB: Press Release--FOMC statement--December 16, 2008

The economy has made remarkable progress since the FOMC reported on that date that:

Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
 
Erod said:
The problem is, $19 trillion in debt will become entirely unmanageable, so tax increases an inflation are right around the corner.
Click to expand...

Taxes should be raised. Inflation is not an issue we are in a long term disinflationary trend in large part due to technology advances. Commodities are going nowhere for a long time.
 
I like Yellen. I think she is whip smart, but man she's hard to listen to. I should record her for times when I can't get to sleep.
 
At some point they had to, only in the most extreme left theories of economics can you run interest rates so low and indefinitely without consequence.
 
Soho gator said:
Far too long in coming. The Nominal rate needs to go to around 2%. One problem is that a zero rate policy since 2008 has caused US companies to become extremely levered significant interest rate increases will cause a problem in the short term. Still a step in the right direction
Click to expand...
To the bolded:

I'm a bit intrepid, but not very negative at all.

It's a minuscule change, and as long as there's no major market psychology change, it gets us over the psych hump and allows us to operate in a more normal mode.

I've seen conjecture that the fed may move relatively quickly 1%, so this may very well have been a 'test the waters' psych ploy by the fed, IMO.

They also (apparently) made it clear they're fexible and willing to back down, too.

But 0.25% is still pumping tons of money into the economy.
 
wow they are targeting a 3.5% fed funds rate by 2018. If we get there the economy is going to be lights out the next couple of years....
 
Chomsky said:
To the bolded:

I'm a bit intrepid, but not very negative at all.

It's a minuscule change, and as long as there's no major market psychology change, it gets us over the psych hump and allows us to operate in a more normal mode.

I've seen conjecture that the fed may move relatively quickly 1%, so this may very well have been a 'test the waters' psych ploy by the fed, IMO.

They also (apparently) made it clear they're fexible and willing to back down, too.

But 0.25% is still pumping tons of money into the economy.
Click to expand...

I agree. However if in a years time we are at say 1.5% some companies will struggle.
 
Surrealistik said:
As a trader, I'm somewhat disappointed by the probable loss of volatility from the increase, but on the otherhand, I like pretty much everything else about it given the economic data as it stands.
Click to expand...

I know as a trader you like the market volatility but what are your thoughts on market volatility as being good or bad for the nation itself?
 
Erod said:
The problem is, $19 trillion in debt will become entirely unmanageable, so tax increases an inflation are right around the corner.
Click to expand...

Raising interest rates are done in part to stay inflation. So what makes you say that raising interest rates will cause inflation?
 
donsutherland1 said:
This rate hike comes exactly 7 years after the Fed had reduced its target federal funds rate to between 0% and 0.25%.

For those who are interested, the FOMC's monetary policy statement can be found at:

FRB: Press Release--Federal Reserve issues FOMC statement--December 16, 2015

For historical perspective, below is the 2008 monetary policy statement of December 16, 2008:

FRB: Press Release--FOMC statement--December 16, 2008

The economy has made remarkable progress since the FOMC reported on that date that:

Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
Click to expand...
Thanks for the links.

Yes - quite a contrast!

Here's one of the things I like from today's statement:

"The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation."

A small amount of inflation is no bad thing IMO, with the keyword being "small".

Plus, if the fed rates get back into some real-world positive operating levels (1%+,) we have some cushion to announce a possible rate cut in reacting to future economic changes, rather than having our backs against the wall.

I'm very happy about this.
 
poweRob said:
Raising interest rates are done in part to stay inflation. So what makes you say that raising interest rates will cause inflation?
Click to expand...

I understood that many countries- US-EU are looking for inflation???
 
I'm hoping this will be a boon to businesses needing capital. As I recall, since Glass/Steagall was destroyed late in the Clinton administration and banks can gamble on Wall St with customer money, when the economy tanked and they dropped the interest rates down to 0%, small businesses couldn't get any capital investment or loans in their businesses because these asshat banks would just pull money from the gov at 0% and throw it on Wall St. instead of dealing with consumer and business loans. Hopefully this will help stabilize this more.

If there is a down side it might be some of these giant banks throwing a temper tantrum about it and slowing stock trade a bit.
 
JANFU said:
I understood that many countries- US-EU are looking for inflation???
Click to expand...

I dunno. I haven't read anything about that yet.
 
Soho gator said:
I agree. However if in a years time we are at say 1.5% some companies will struggle.
Click to expand...
Perhaps.

But for the fed to move multiple times to 1.5% would ostensibly imply a steadily improving economy. We've already seen wage increases.

So, I would expect the viable companies will rise due to the rising economy.

Those whose success is completely dependent upon free or near-free money may have troubles though, but I would argue those organizations would normally fail in a normal economy. So in fact, they may have been getting a bit of a free ride here, and it may be time to put an end to it.
 
Soho gator said:
wow they are targeting a 3.5% fed funds rate by 2018. If we get there the economy is going to be lights out the next couple of years....
Click to expand...
Whoa!

I didn't know/see that!
 
Chomsky said:
"The Federal Reserve raised its key interest rate on Wednesday from a range of 0% to 0.25% to a range of 0.25% to 0.5%.

The rate hike is a small one, but it will affect millions of Americans, including investors, home buyers and savers. Savers will eventually see a little more interest on their deposits at the bank, and mortgage rates will gradually rise.

The move was widely expected. It is a sign of how much the economy has healed since the Great Recession. The central bank believes the U.S. economy is strong now and no longer needs crutches."

Source: CNN - "Finally! Fed raises interest rates"

--

So, finally!

After nearly a decade!

0.25%

I think it's good.

We can now think of being in a normal "growth economy".

Crazy as it sounds, I'm pretty excited (but also intrepid) about this.

But the psychological barrier has been broken! :thumbs:
Click to expand...

"5% unemployment" and people are nervous about a measly 25bp rise off 0%? That just proves what a BS indicator the unemployment rate is of the true health of Obama's economy. Corp/business borrowing cost have never been lower for this long, and a measly 2.5%+/- GDP is all they could muster? The bubble of free money is about to hit the fan.

The Fed was just desperate to re-load the ammo for the next looming recession.
 
poweRob said:
I'm hoping this will be a boon to businesses needing capital. As I recall, since Glass/Steagall was destroyed late in the Clinton administration and banks can gamble on Wall St with customer money, when the economy tanked and they dropped the interest rates down to 0%, small businesses couldn't get any capital investment or loans in their businesses because these asshat banks would just pull money from the gov at 0% and throw it on Wall St. instead of dealing with consumer and business loans. Hopefully this will help stabilize this more.

If there is a down side it might be some of these giant banks throwing a temper tantrum about it and slowing stock trade a bit.
Click to expand...
To the bolded: Exactly!

Let's give the banks a reason to put that money out there.
 
I'm concerned that this comes at a volatile time in inflation. I would have hoped that the FED would play it safe and wait untill january to see how how much inflation we could reasonably expect in the future. look at this chart, it's practically unpredictable. What is the Current U.S. Inflation Rate?
 
Chainsaw said:
"5% unemployment" and people are nervous about a measly 25bp rise off 0%? That just proves what a BS indicator the unemployment rate is of the true health of Obama's economy. Corp/business borrowing cost have never been lower for this long, and a measly 2.5%+/- GDP is all they could muster? The bubble of free money is about to hit the fan.

The Fed was just desperate to re-load the ammo for the next looming recession.
Click to expand...
I won't disagree with the thrust of your post, but the fed did predict a slightly lower employment rate for 2016, and there's been measured (slight) wage growth in the last several quarters.
 
poweRob said:
I know as a trader you like the market volatility but what are your thoughts on market volatility as being good or bad for the nation itself?
Click to expand...

Market volatility is usually a bad thing in a broader economic context as it implies/reflects a perception or reality of uncertainty and/or instability.


My main concern with regards to the interest rate is the negative impact on consumer debt, spending and deflationary effects thereof, but I do trust in the Fed's judgment, particularly given Janet Yellen's dovish leanings; if someone like her is committed to an interest rate increase, that means there's a damn good reason for it. Further, inflation has had an increase in trajectory towards Fed targets, and though it is still well below them, that is at least somewhat reassuring.
 
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