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Fed expected to raise interest rates and signal more hikes are coming, what will it mean to us?

HumblePi

HumblePi

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https://www.cnbc.com/2018/09/25/fed-expected-to-raise-interest-rates-and-signal-more-hikes-are-coming.html

The Feds are expected to announce an increase in the federal interest rates. Trump is not going to like it. The American economy is strong right now, wages are rising. It looks on the surface to be the ideal time to raise rates, but for the future it's a whole different story. There's going to be a lot of challenges out there particularly for the American consumer, the trade war of course being one of them.

What does an increase in the federal interest rate really mean? It means that borrowing money will cost more. We've already got mortgage rates hitting the states at a 7 year high. Combine that with companies out there that are already saying they might have to raise prices for consumers as a result of the trade war. All of these things hurt American consumers. Jay Powell who is the federal reserve chairman is going to have to weigh all his data against the risks to American consumers.

When the Federal Open Market Committee (FOMC) sets the target for the federal funds rate at which banks borrow from and lend to each other, it has a ripple effect across the entire U.S. economy, not to mention the U.S. stock market. And, while it usually takes at least 12 months for any increase or decrease in interest rates to be felt in a widespread economic way, the market's response to a change (or news of a potential change) is often more immediate.
 
HumblePi said:
https://www.cnbc.com/2018/09/25/fed-expected-to-raise-interest-rates-and-signal-more-hikes-are-coming.html

The Feds are expected to announce an increase in the federal interest rates. Trump is not going to like it. The American economy is strong right now, wages are rising. It looks on the surface to be the ideal time to raise rates, but for the future it's a whole different story. There's going to be a lot of challenges out there particularly for the American consumer, the trade war of course being one of them.

What does an increase in the federal interest rate really mean? It means that borrowing money will cost more. We've already got mortgage rates hitting the states at a 7 year high. Combine that with companies out there that are already saying they might have to raise prices for consumers as a result of the trade war. All of these things hurt American consumers. Jay Powell who is the federal reserve chairman is going to have to weigh all his data against the risks to American consumers.

When the Federal Open Market Committee (FOMC) sets the target for the federal funds rate at which banks borrow from and lend to each other, it has a ripple effect across the entire U.S. economy, not to mention the U.S. stock market. And, while it usually takes at least 12 months for any increase or decrease in interest rates to be felt in a widespread economic way, the market's response to a change (or news of a potential change) is often more immediate.
Click to expand...

mortgage rates will increase affecting the housing market.

price of short term money will rise affecting small business.
 
HumblePi said:
https://www.cnbc.com/2018/09/25/fed-expected-to-raise-interest-rates-and-signal-more-hikes-are-coming.html

The Feds are expected to announce an increase in the federal interest rates. Trump is not going to like it. The American economy is strong right now, wages are rising. It looks on the surface to be the ideal time to raise rates, but for the future it's a whole different story. There's going to be a lot of challenges out there particularly for the American consumer, the trade war of course being one of them.

What does an increase in the federal interest rate really mean? It means that borrowing money will cost more. We've already got mortgage rates hitting the states at a 7 year high. Combine that with companies out there that are already saying they might have to raise prices for consumers as a result of the trade war. All of these things hurt American consumers. Jay Powell who is the federal reserve chairman is going to have to weigh all his data against the risks to American consumers.

When the Federal Open Market Committee (FOMC) sets the target for the federal funds rate at which banks borrow from and lend to each other, it has a ripple effect across the entire U.S. economy, not to mention the U.S. stock market. And, while it usually takes at least 12 months for any increase or decrease in interest rates to be felt in a widespread economic way, the market's response to a change (or news of a potential change) is often more immediate.
Click to expand...

The Fed is building up a buffer as the economy continues to exhibit requisite growth, so they have ammunition to combat future economic downturns.

Monetary normalization however cannot come at the expense of real future growth expectations. The Fed pays close attention to the real yield curve, which has steepened dramatically this year:

real Treasury yields

In the beginning of January 2016, the spread between the 30 year and 5 year inflation indexed treasury was 83 basis points. As of yesterday, that is as narrow as 11 basis points, which is a signal the yield curve is in danger of inverting.

Furthermore, a critical mass has been reached as the Fed removed language from their statement that has been there since the economic downturn; they no longer label current monetary policy as accommodative. The neutral Fed Funds rate, which is the FFR that is neither accommodative or tight is assumed to be between 2% and 2.5%. U.S. GDP growth will need to maintain our current pace in order for rate increase schedules not to induce some extreme financial volatility.
 
Kushinator said:
The Fed is building up a buffer as the economy continues to exhibit requisite growth, so they have ammunition to combat future economic downturns.

Monetary normalization however cannot come at the expense of real future growth expectations. The Fed pays close attention to the real yield curve, which has steepened dramatically this year:

real Treasury yields

In the beginning of January 2016, the spread between the 30 year and 5 year inflation indexed treasury was 83 basis points. As of yesterday, that is as narrow as 11 basis points, which is a signal the yield curve is in danger of inverting.

Furthermore, a critical mass has been reached as the Fed removed language from their statement that has been there since the economic downturn; they no longer label current monetary policy as accommodative. The neutral Fed Funds rate, which is the FFR that is neither accommodative or tight is assumed to be between 2% and 2.5%. U.S. GDP growth will need to maintain our current pace in order for rate increase schedules not to induce some extreme financial volatility.
Click to expand...

I think the announcement by Fed Chair Jerome Powell is scheduled for 3:00 and it can't be an easy decision for him. He has to weigh a lot of data before making such a move. We'll have to wait and see how, if any, it affects world markets.
 
Kushinator said:
What's changed since the last FOMC statement?

https://www.cnbc.com/2018/09/26/heres-what-changed-in-the-new-fed-statement.html
Click to expand...

This interest rate hike is going to be passed on to the consumers who are going to pay for it through their credit card interest rates. People will be seeing that in about 60 days, or two statement cycles. The bad thing is that banks have no obligation to inform their customers that their interest rate has been increased. Most people will barely notice but those with large amounts of credit card debt on multiple cards are surely going to notice. For savers, it's good news. Savings account rates will likely increase slightly, which should help consumers, especially since interest rates on savings accounts are at historic lows.
 
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