What is the FED doing?

[Intracoastal]

Inflation is rampant yet they refuse to raise rates. This morning I checked the US 10 year treasury rate and it's down to 1.1%. Both parties are guilty btw. How can anyone say the economy is healthy with rates like that? Institutions can't make money on that. The US treasury can't make money on that. Since 2008, spanning 3 different presidents, it's been steadily declining with some peaks and valleys.

Using rates to keep hitting record highs in the stock market is idiotic.
All it does is increase inflationary spending.
What happens when it gets to zero or negative which we appear to be on pace for in the 3-5 years using a linear trendline?

I'm not saying they need to knee jerk it up quickly but they should have been slowly raising it 1/10 of a point every month since the vaccines came out.

I'm just trying to understand the FED's long term strategy here because rates this low are not a good a thing.

 

[bp1999]

Unfortunately, I think our policy makers are addicted to the current methodology and don't have the stomach for the short term pain of reversing. Where is their incentive? All of them are focused on re-election, or re-appointment. And when you are 70 years old +, your long term horizon is warped by the short term goals or re-election. I know this is nihilist, but we have no good leaders anymore on either side. All the good leaders don't want to be part of the corrupted system.

 

[TigerDentGuy]

They have no strategy.

Printing machine go brrrrrrrrrrrrrrr

 

[CoffeeIsForClosers]

Inflation is rampant yet they refuse to raise rates. This morning I checked the US 10 year treasury rate and it's down to 1.1%. Both parties are guilty btw. How can anyone say the economy is healthy with rates like that? Institutions can't make money on that. The US treasury can't make money on that. Since 2008, spanning 3 different presidents, it's been steadily declining with some peaks and valleys.

Using rates to keep hitting record highs in the stock market is idiotic.
All it does is increase inflationary spending.
What happens when it gets to zero or negative which we appear to be on pace for in the 3-5 years using a linear trendline?

I'm not saying they need to knee jerk it up quickly but they should have been slowly raising it 1/10 of a point every month since the vaccines came out.

I'm just trying to understand the FED's long term strategy here because rates this low are not a good a thing long term.

To put it simply.....they are trying to thread the tiniest of needles. Get the economy back to pre-covid growth rates while keeping inflation transitory. For those concerned with increased national debt, just imagine how bad it will be in relation if the GDP were to slow to a crawl. I'm just glad there are people in those rooms a LOT smarter than me.

 

[tigerGUY]

The US Treasury? What a joke. Read the Creature from Jekyll Island.

 

[CUFam98]

I know nothing about monetary policy, but I can say that any rising rate is going to shock the economy. We've had low rates for so long that its engrained in the mindset of consumers. Its crack at this point. Is there a financial Methadone to wean folks into a more reasonable rate?

Our neighbor's daughter just bought her first house. Its a modest house that most folks would agree is a smart first home purchase. She was SHOCKED that our first mortgage was a whopping 6% (and change). Her exact quote was that she would be renting at that rate. What would taking out a whole generation of consumers do to the housing market or any "credit" related purchase?

 

[MFunkhouser]

It has turned political like everything else.

 

[Intracoastal]

I know nothing about monetary policy, but I can say that any rising rate is going to shock the economy. We've had low rates for so long that its engrained in the mindset of consumers. Its crack at this point. Is there a financial Methadone to wean folks into a more reasonable rate?

Our neighbor's daughter just bought her first house. Its a modest house that most folks would agree is a smart first home purchase. She was SHOCKED that our first mortgage was a whopping 6% (and change). Her exact quote was that she would be renting at that rate. What would taking out a whole generation of consumers do to the housing market or any "credit" related purchase?

Her credit must be absolutely horrid. Like really really bad...... All the first time home buyers I know are locking in Sub 3%. Most of them are in the 2.5-3% range with good credit. Excellent credit borrowers are getting 1.75-2.25% on 15 and 30 year mortgages.

I bought my first house when treasury rates were 3% (nearly 3x what they are now) and my first mortgage with 20% down was 4.25%.

 

[FranktheDank]

Inflation is rampant yet they refuse to raise rates. This morning I checked the US 10 year treasury rate and it's down to 1.1%. Both parties are guilty btw. How can anyone say the economy is healthy with rates like that? Institutions can't make money on that. The US treasury can't make money on that. Since 2008, spanning 3 different presidents, it's been steadily declining with some peaks and valleys.

Using rates to keep hitting record highs in the stock market is idiotic.
All it does is increase inflationary spending.
What happens when it gets to zero or negative which we appear to be on pace for in the 3-5 years using a linear trendline?

I'm not saying they need to knee jerk it up quickly but they should have been slowly raising it 1/10 of a point every month since the vaccines came out.

I'm just trying to understand the FED's long term strategy here because rates this low are not a good a thing.

Explain like I’m 5 why rates this low are not a good thing. Also what’s the correlation with rates and stock market? Does it boil down to simply consumers having more discretionary funds to throw into the stock market since they are able to get their debt at a lower rate?

 

[kperry2]

Her credit must be absolutely horrid. Like really really bad...... All the first time home buyers I know are locking in Sub 3%. Most of them are in the 2.5-3% range with good credit. Excellent credit borrowers are getting 1.75-2.25% on 15 and 30 year mortgages.

I bought my first house when treasury rates were 3% (nearly 3x what they are now) and my first mortgage with 20% down was 4.25%.

He's saying his first mortgage was 6%, presumably a many years ago.

 

[CUFam98]

Her credit must be absolutely horrid. Like really really bad...... All the first time home buyers I know are locking in Sub 3%. Most of them are in the 2.5-3% range with good credit. Excellent credit borrowers are getting 1.75-2.25% on 15 and 30 year mortgages.

I bought my first house when treasury rates were 3% (nearly 3x what they are now) and my first mortgage with 20% down was 4.25%.

No....MY first mortgage in 1999 was 6ish%. The one she just got was just under 3%. She was saying that she wouldn't have considered buying a home at 6%. 6% is a great rate from a historical perspective.

If consumers won't even consider a purchase at basically below the historical median, what would that do to the housing/auto/manufacturing sectors? What would that do to home values (granted highly inflated due to easy money)?

 

[Intracoastal]

No....MY first mortgage in 1999 was 6ish%. The one she just got was just under 3%. She was saying that she wouldn't have considered buying a home at 6%. 6% is a great rate from a historical perspective.

If consumers won't even consider a purchase at basically below the historical median, what would that do to the housing/auto/manufacturing sectors? What would that do to home values (granted highly inflated due to easy money)?

Lol reading comprehension is tough for me right now apparently. I see now.

 

[PawsFan_]

Makes folks have to put their money in the market to get a good return which makes corporations and big shareholders happy.

I agree, there's no reason not to raise rates a little right now.

 

[bp1999]

Rates and the markets are more about the corporations getting their debt cheaper, not necessarily the cosumer. This allows for their profitability to be strongly tied to their financing success, and not the fundamentals of their products or operations. Meaning that when an artificially low rate environment reverses, those companies become less profitable with absolutely no changes to their fundamentals.

Now you can add the investing side - you can't get real tangible earnings from deposit accounts, so stocks are attractive. But when those earnings start to tilt toward slower growth or negative, the market responds, and then stocks aren't attractive any more.

And like a wise man told me recently, you have to consider that there really isn't anything transitory about inflation when it leads to wage growth. Once wages grow, prices have to grow to cover. And wages don't ever move backwards. So why are people thinking that consumer goods and services (supported by the increasing wages) will move backwards? Even if the commodities reverse, the price for the finished goods will not.

 

[bp1999]

My parents tell me about when they financed a house at 18%

 

[CUFam98]

Lol reading comprehension is tough for me right now apparently. I see now.

No worries. Its early. The coffee/coke/bourbon hasn't kicked in yet!

 

[Intracoastal]

Explain like I’m 5 why rates this low are not a good thing. Also what’s the correlation with rates and stock market? Does it boil down to simply consumers having more discretionary funds to throw into the stock market since they are able to get their debt at a lower rate?

Part about discressionary spending is true.

As to the other part. Banks, holding companies, or any company that takes in premiums benefit from larger margins when interest rates are high by investing in short term notes and bonds. They don't make crap when rates are this low as the margins are razor thin.

 

[PAWrocka]

My parents tell me about when they financed a house at 18%

same with my parents ..... good ole Carter years

 

[areeves]

Inflation is rampant yet they refuse to raise rates. This morning I checked the US 10 year treasury rate and it's down to 1.1%. Both parties are guilty btw. How can anyone say the economy is healthy with rates like that? Institutions can't make money on that. The US treasury can't make money on that. Since 2008, spanning 3 different presidents, it's been steadily declining with some peaks and valleys.

Using rates to keep hitting record highs in the stock market is idiotic.
All it does is increase inflationary spending.
What happens when it gets to zero or negative which we appear to be on pace for in the 3-5 years using a linear trendline?

I'm not saying they need to knee jerk it up quickly but they should have been slowly raising it 1/10 of a point every month since the vaccines came out.

I'm just trying to understand the FED's long term strategy here because rates this low are not a good a thing.

They don’t want people putting their money into bonds where they can earn decent interest. Also, it’s to encourage loans, so they can call the loans in.

 

[areeves]

same with my parents ..... good ole Carter years

My father told me they were checking the bank balances on their business account 4-5 times a day in those days.

 

[Champs_16]

I know nothing about monetary policy, but I can say that any rising rate is going to shock the economy. We've had low rates for so long that its engrained in the mindset of consumers. Its crack at this point. Is there a financial Methadone to wean folks into a more reasonable rate?

Our neighbor's daughter just bought her first house. Its a modest house that most folks would agree is a smart first home purchase. She was SHOCKED that our first mortgage was a whopping 6% (and change). Her exact quote was that she would be renting at that rate. What would taking out a whole generation of consumers do to the housing market or any "credit" related purchase?

Uh, the pie is only so big. What will happen if we keep making bad economic choices as a country to ease a shocked sally?

 

[Clemson81]

Unfortunately, I think our policy makers are addicted to the current methodology and don't have the stomach for the short term pain of reversing. Where is their incentive? All of them are focused on re-election, or re-appointment. And when you are 70 years old +, your long term horizon is warped by the short term goals or re-election. I know this is nihilist, but we have no good leaders anymore on either side. All the good leaders don't want to be part of the corrupted system.

^^^ This.

Add in that the FED, though theoretically neutral, is under immense pressure to do what they are doing regardless of the long term ramifications. Inflation will eventually force rates up leading to uncertainty in the stock market, etc. It is, at best, a house of cards.

 

[Tiger Benny]

My parents tell me about when they financed a house at 18%

Rates were circa 18.5% when we were looking for our first house in Greer during November 1980. We thought we hit the lottery when we found a house with an assumable 12.5% FHA mortgage. Crazy!

 

[The Orange Wave]

Inflation is rampant yet they refuse to raise rates. This morning I checked the US 10 year treasury rate and it's down to 1.1%. Both parties are guilty btw. How can anyone say the economy is healthy with rates like that? Institutions can't make money on that. The US treasury can't make money on that. Since 2008, spanning 3 different presidents, it's been steadily declining with some peaks and valleys.

Using rates to keep hitting record highs in the stock market is idiotic.
All it does is increase inflationary spending.
What happens when it gets to zero or negative which we appear to be on pace for in the 3-5 years using a linear trendline?

I'm not saying they need to knee jerk it up quickly but they should have been slowly raising it 1/10 of a point every month since the vaccines came out.

I'm just trying to understand the FED's long term strategy here because rates this low are not a good a thing.

What do you mean the US Treasury can't make money with low rates? That is the rate at which they borrow. If the Fed raised rates today the 10 year would go below 0% and invert. The Fed only buys at the short end, they are not buying 10 and 30 years so if the market felt inflation was going to be pervasive there is no forces holding longer maturities down.

The fact is global rates are very low. Go look at rates in Japan and Europe and you will see why it is a great deal for foreign investors to buy in at 1.1%.

The Fed's QE is not inflationary. Everyone said 10 years ago to go buy gold since QE will cause inflation and gold has basically gone nowhere since while inflation has been >2% . There is no correlation between CPI and bond buying. QE does not cause inflation because most of the money stays trapped in the banking system and does not get into the general economy. What causes and increase in inflation is fiscal spending via stimulus, that puts money directly in peoples pockets and they spend it quickly (go look up a chart of M2), hence inflation. You also have to judge the current inflation with the backdrop of a once in lifetime disruption to the supply side coupled with massive fiscal stimulus.

 

[DaveRich1]

My father told me they were checking the bank balances on their business account 4-5 times a day in those days.

There is another part of the story tho ... My first mortgage in 1981 was 13.38, but my annual raises at work for 81 and 82 were 20+ percent. It was like being in a race and you just wanted to stay a little bit ahead. I can remember being so excited about refinancing to 8.5% a few years later.

 

[harristeeter]

What do you mean the US Treasury can't make money with low rates? That is the rate at which they borrow. If the Fed raised rates today the 10 year would go below 0% and invert. The Fed only buys at the short end, they are not buying 10 and 30 years so if the market felt inflation was going to be pervasive there is no forces holding longer maturities down.

The fact is global rates are very low. Go look at rates in Japan and Europe and you will see why it is a great deal for foreign investors to buy in at 1.1%.

The Fed's QE is not inflationary. Everyone said 10 years ago to go buy gold since QE will cause inflation and gold has basically gone nowhere since while inflation has been >2% . There is no correlation between CPI and bond buying. QE does not cause inflation because most of the money stays trapped in the banking system and does not get into the general economy. What causes and increase in inflation is fiscal spending via stimulus, that puts money directly in peoples pockets and they spend it quickly (go look up a chart of M2), hence inflation. You also have to judge the current inflation with the backdrop of a once in lifetime disruption to the supply side coupled with massive fiscal stimulus.

I do believe this is one area some people are overlooking. Rates are in the negative overseas so you do have foreign entities buying US paper just to make a little money. As I was told years ago, watch what happens in Europe because we will eventually be there ourselves. The 10 year will probably trend down for a period of time.

 

[Jam48Allay]

Just for shits and giggles their planning on passing a 3 trillion dollar budget for the year in which they claim will mostly be paid for by taxing the shit out of businesses...Smdh

 

[ChucktownK]

All I know is that I believe its going to catch up with us hard at some point, the Carter years will come back around again.

But for the short term, I do believe its mostly a series of supply chain issues coupled with too much stimulus.

 

[areeves]

There is another part of the story tho ... My first mortgage in 1981 was 13.38, but my annual raises at work for 81 and 82 were 20+ percent. It was like being in a race and you just wanted to stay a little bit ahead. I can remember being so excited about refinancing to 8.5% a few years later.

Thank goodness for Reagan

 

[athigpe]

Unfortunately, I think our policy makers are addicted to the current methodology and don't have the stomach for the short term pain of reversing. Where is their incentive? All of them are focused on re-election, or re-appointment. And when you are 70 years old +, your long term horizon is warped by the short term goals or re-election. I know this is nihilist, but we have no good leaders anymore on either side. All the good leaders don't want to be part of the corrupted system.

Addiction is a horrible thing to escape, whether it's drugs, alcohol, or artificially suppressed interest rates.

As mentioned above, we're basically stuck with the status quo which really will be disastrous if / when the next major downfall happens. Unfortunately, no leaders these days have the credibility or leadership to truly make the change as it would be a huge shock in the short-term, no doubt about that.

 

[The Orange Wave]

Addiction is a horrible thing to escape, whether it's drugs, alcohol, or artificially suppressed interest rates.

As mentioned above, we're basically stuck with the status quo which really will be disastrous if / when the next major downfall happens. Unfortunately, no leaders these days have the credibility or leadership to truly make the change as it would be a huge shock in the short-term, no doubt about that.

If the Fed removed itself from buying bonds, where would you guess interest rates would go? And how does that explain why long rates are so low?

 

[CUFever91]

Interest rates to stay low until at least end of 2023. Trying to get max employment first.

From 2020:

https://www.marketwatch.com/story/t...approach-your-savings-strategy-now-2020-10-01

 

[TigerRagCU]

Inflation is rampant yet they refuse to raise rates. This morning I checked the US 10 year treasury rate and it's down to 1.1%. Both parties are guilty btw. How can anyone say the economy is healthy with rates like that? Institutions can't make money on that. The US treasury can't make money on that. Since 2008, spanning 3 different presidents, it's been steadily declining with some peaks and valleys.

Using rates to keep hitting record highs in the stock market is idiotic.
All it does is increase inflationary spending.
What happens when it gets to zero or negative which we appear to be on pace for in the 3-5 years using a linear trendline?

I'm not saying they need to knee jerk it up quickly but they should have been slowly raising it 1/10 of a point every month since the vaccines came out.

I'm just trying to understand the FED's long term strategy here because rates this low are not a good a thing.

FED doesn’t control long-term rates, supply and demand does. The more concerning question is why are rates so low even after $10T in fiscal and monetary stimulus??? While there are distortions from QE, the roc of yields in the bond market is telling us that there’s no secular inflation and that there’s likely a growth scare on the other end of this sugar high. We can’t afford higher rates, (neither can the rest of the developed world) so we won’t get them anytime soon.

 

[Clemson Goat]

In November of 1978 my first home rate was 14%...

 

[gardentiger]

The US Treasury? What a joke. Read the Creature from Jekyll Island.

You mean the federal reserve.

 

[gardentiger]

Explain like I’m 5 why rates this low are not a good thing. Also what’s the correlation with rates and stock market? Does it boil down to simply consumers having more discretionary funds to throw into the stock market since they are able to get their debt at a lower rate?

The Treasury has a trading desk. They are currently buying mortgage backed securities, bonds and probably etfs to keep this thing afloat. At the same time they are tamping down precious metals prices and cryotos to give the appearance that there is no inflation. Gold is always the canary in the coal mine.
Mark my words the ship has sailed on inflation. You have to get out in front of it with interest rates to get it under control.
Listen to Peter Schiffs podcast. And if you think he's biased he lays alot of the blame on Trump who kept urging 0% rates from the fed.

 

[CUT93]

Interest rates to stay low until at least end of 2023. Trying to get max employment first.

From 2020:

https://www.marketwatch.com/story/t...approach-your-savings-strategy-now-2020-10-01

Quit paying people so much not to work and we will get to max employment rather quickly. There are plenty of employers trying to find employees.

 

[The Orange Wave]

The Treasury has a trading desk. They are currently buying mortgage backed securities, bonds and probably etfs to keep this thing afloat. At the same time they are tamping down precious metals prices and cryotos to give the appearance that there is no inflation. Gold is always the canary in the coal mine.
Mark my words the ship has sailed on inflation. You have to get out in front of it with interest rates to get it under control.
Listen to Peter Schiffs podcast. And if you think he's biased he lays alot of the blame on Trump who kept urging 0% rates from the fed.

The Treasury is buying securities? If gold is the canary in the coal mine, what has it told you over the last 10 years? Peter Schiff sure has been very timely in his predictions.

 

[tigeratty]

Housing market headed for huge crash. Lumber crazy so builders just add cost to buyer. Lumber you could get for $6. Now is $40. When lumber goes down people will be 30-40 k upside down

Bank will laugh if they want to refi or second mortgage. Spec houses going for 225 are worth about 175. Might not be 2008 bad. But will be hurtful

 

[gardentiger]

The Treasury is buying securities? If gold is the canary in the coal mine, what has it told you over the last 10 years? Peter Schiff sure has been very timely in his predictions.

Sorry. The fed is buying mbs, bonds and MAYBE etfs. It tells me that gold is manipulated.
Schiff also missed the 2008 housing crisis by 6 months.
Do you agree we've been in a secular bull market since 1982?