Interest rate prediction thread

[Blackjack200]

Today is the big day. At 2 PM the Federal Reserve will announce if there is any change to the current monetary policy (Zero Interest Rate Policy, or ZIRP). Rates cannot go lower, and 1/2 point is almost unthinkable. So the two main possibilities are that they leave rates alone or hike 1/4 point.

The market clearly believes they will leave them alone. I agree:

- In my view, the primary purpose of monetary policy is to control the amount of money in circulation. There is practically no inflation in the economy, which suggests that the money supply is low. 1/4 point wouldn't have a dramatic effect on the money supply, but it would send a signal that the fed is so anxious to get away from ZIRP that they will raise rates despite the very low rate of inflation

- The biggest argument for raising rates is that is allows you to cut them again if growth slows. But growth is already slow. If growth slows more, we will need more quantitative easing and more government spending. No two ways about it.

- There are positive signs in the economy that suggest we might see inflation return before too long (housing starts, new unemployment applications). Why raise them now? Wait until it's appropriate.

So my prediction:

No change to interest rates. ZIRP continues.

 

[fskimospy]

Today is the big day. At 2 PM the Federal Reserve will announce if there is any change to the current monetary policy (Zero Interest Rate Policy, or ZIRP). Rates cannot go lower, and 1/2 point is almost unthinkable. So the two main possibilities are that they leave rates alone or hike 1/4 point.

The market clearly believes they will leave them alone. I agree:

- In my view, the primary purpose of monetary policy is to control the amount of money in circulation. There is practically no inflation in the economy, which suggests that the money supply is low. 1/4 point wouldn't have a dramatic effect on the money supply, but it would send a signal that the fed is so anxious to get away from ZIRP that they will raise rates despite the very low rate of inflation

- The biggest argument for raising rates is that is allows you to cut them again if growth slows. But growth is already slow. If growth slows more, we will need more quantitative easing and more government spending. No two ways about it.

- There are positive signs in the economy that suggest we might see inflation return before too long (housing starts, new unemployment applications). Why raise them now? Wait until it's appropriate.

So my prediction:

No change to interest rates. ZIRP continues.

My vote is for no increase as well, but a strong indication that they will raise them in December. (that's also probably a bad idea, but such is life)

 

[glenn1]

Today is the big day. At 2 PM the Federal Reserve will announce if there is any change to the current monetary policy (Zero Interest Rate Policy, or ZIRP). Rates cannot go lower, and 1/2 point is almost unthinkable. So the two main possibilities are that they leave rates alone or hike 1/4 point.

The market clearly believes they will leave them alone. I agree:

- In my view, the primary purpose of monetary policy is to control the amount of money in circulation. There is practically no inflation in the economy, which suggests that the money supply is low. 1/4 point wouldn't have a dramatic effect on the money supply, but it would send a signal that the fed is so anxious to get away from ZIRP that they will raise rates despite the very low rate of inflation

- The biggest argument for raising rates is that is allows you to cut them again if growth slows. But growth is already slow. If growth slows more, we will need more quantitative easing and more government spending. No two ways about it.

- There are positive signs in the economy that suggest we might see inflation return before too long (housing starts, new unemployment applications). Why raise them now? Wait until it's appropriate.

So my prediction:

No change to interest rates. ZIRP continues.

Obama would resort to scorched earth against the Fed if they started raising rates in earnest. That would completely cripple his ability to spend money as the interest servicing costs on the debt would spike huge.

 

[Londo_Jowo]

No change

 

[fskimospy]

Obama would resort to scorched earth against the Fed if they started raising rates in earnest. That would completely cripple his ability to spend money as the interest servicing costs on the debt would spike huge.

What do you think Obama would do, specifically?

 

[dank69]

Obama would resort to scorched earth against the Fed if they started raising rates in earnest. That would completely cripple his ability to spend money as the interest servicing costs on the debt would spike huge.

So keeping the rates low is a conspiracy by the Obama admin so they can keep spending? Nothing to do with keeping the economy afloat?

 

[Attic]

The FED is in a tough position because their bluff has been called.

"The Economy is strong because the FED saved the day with ZIRP and Trillions of stimulus money printing!"

What is implied with no rate increase in 9 years is that the economy is still weak. Folks are now able to read between the lines and realize the FED's weakness in no rate increase for the past 9 years indicates a generally weak economy despite the Media and White House obsession with the economic recovery.

The FED is indicating they have a choice here with the rate decision. They really don't. They can't raise interest rates because the economy is still too weak.


But, it's important the FED appears strong enough and important enough to have a choice here....


I think we'll get a token 1/8 rate increase or no increase.

Eventually we'll need more stimulus to ignite the 99%. Previous QE simply raised asset prices of the 1% and reinflated Bank Asset sheets, largely trickle down type thinking... save wall street and then main street can pick up the bread crumbs.



This should have been a much larger topic in Repub debates and hopefully it will get lots of attention between Hilary, Biden and Sanders. What we are really getting at is how to properly handle rewards for production in this country. Rewards of production has gotten severely unequal and out of whack and it's causing fissures in our economy. ie) producers get less and less, owners get more and more. It needs more balance.

 

[glenn1]

What do you think Obama would do, specifically?

Yellen can serve out the remainder of her term as could the individual bank governors, but Obama (and his successor) can and would attack them relentlessly from the bully pulpit. FDR couldn't do much directly against the SCOTUS either but likewise his political assaults on them eventually had their desired effect. Regardless, if the Fed gets serious about raising rates I think any pretense about the supposed norm of protecting them from "undue pressure and influence" of politicians goes out the window.

 

[Newell Steamer]

My prediction: Barack Hussein Obama will be looking at the Fed's GUI on the rate off his Islam Computer (which is behind his Muslim curtains). He will be hovering over the "Increase It Until The Working Class Bleeds To Death" button. And just as he is about to click on it, Donald J. Trump will kick down the door and yell; "Don't you DARE, you clown!!"

Then the dictator of the ACLU will jump up from under Obama's desk and scream; "YOU ARE A RACIST!!!"

Trump will reply; "No, YOU are the racist!!" And he will impale the ACLU fascist on a wooden pike that says 'Made In America'.

Obama will then panic and call for ISIS to invade the US. But, Trump knew he was going to do that, and he had Marine Todd and his Marines waiting for them at Ground Zero in NYC (that 'mosque' that was built on the dead bodies of murder Americans on 9/11, it is really a doorway to Islam that Muslims use to enter the US and kill Christians) - where they will defend NYC (even though NYC constantly spits and attacks any military service people that set foot in that city).

Trump will then kick the crap out of Obama. But, Obama will sic Hillabeast against Trump. Just as Hillabeast is about kill Trump, Vladamir Putin rappels through the White House roof and stomps on Hillabeast. "Don't worry Don," says Vlad, "I got this bitch - you take care of the other bitch".

And Trump does take care of that other bitch.

He defeats Obama, puts him in hand cuffs and sends him off to prison - on the way, Americans (who are in tears over finally being free) will be tossing rotten vegetables at former King Obama. Before Obama is placed in prison, a little girl will walk up to him and say; "You almost had me aborted, by allowing women of the USA to kill innocent children - but, since Trump stopped you - I am a nuclear scientist who has proven Climate Change is not real and have solved the energy crisis, by allowing Americans to buy more gas for their cars".

Obama then lunges forward and tries to bite the little girl - Trump then pulls out an Israeli Desert Eagle and puts a round into the former tyrant of America.

Vladimir Putin then says; "Shoot, is good."

And then America finally becomes great - forever and ever.

Oh,... sorry; the rates will remain as is. For a very long time.

 

[Attic]

snip

That is correct.

 

[sm625]

They do a token hike, to 0.25%. It sounds like a hike but it is really not, since rates were already 0.13%.

 

[dank69]

My prediction: Barack Hussein Obama will be looking at the Fed's GUI on the rate off his Islam Computer (which is behind his Muslim curtains). He will be hovering over the "Increase It Until The Working Class Bleeds To Death" button. And just as he is about to click on it, Donald J. Trump will kick down the door and yell; "Don't you DARE, you clown!!"

Then the dictator of the ACLU will jump up from under Obama's desk and scream; "YOU ARE A RACIST!!!"

Trump will reply; "No, YOU are the racist!!" And he will impale the ACLU fascist on a wooden pike that says 'Made In America'.

Obama will then panic and call for ISIS to invade the US. But, Trump knew he was going to do that, and he had Marine Todd and his Marines waiting for them at Ground Zero in NYC (that 'mosque' that was built on the dead bodies of murder Americans on 9/11, it is really a doorway to Islam that Muslims use to enter the US and kill Christians) - where they will defend NYC (even though NYC constantly spits and attacks any military service people that set foot in that city).

Trump will then kick the crap out of Obama. But, Obama will sic Hillabeast against Trump. Just as Hillabeast is about kill Trump, Vladamir Putin rappels through the White House roof and stomps on Hillabeast. "Don't worry Don," says Vlad, "I got this bitch - you take care of the other bitch".

And Trump does take care of that other bitch.

He defeats Obama, puts him in hand cuffs and sends him off to prison - on the way, Americans (who are in tears over finally being free) will be tossing rotten vegetables at former King Obama. Before Obama is placed in prison, a little girl will walk up to him and say; "You almost had me aborted, by allowing women of the USA to kill innocent children - but, since Trump stopped you - I am a nuclear scientist who has proven Climate Change is not real and have solved the energy crisis, by allowing Americans to buy more gas for their cars".

Obama then lunges forward and tries to bite the little girl - Trump then pulls out an Israeli Desert Eagle and puts a round into the former tyrant of America.

Vladimir Putin then says; "Shoot, is good."

And then America finally becomes great - forever and ever.

Oh,... sorry; the rates will remain as is. For a very long time.

I hope your prediction comes true because I am scheduled to be forcibly gay married to my uncle this afternoon in Benghazi.

 

[Blackjack200]

My vote is for no increase as well, but a strong indication that they will raise them in December. (that's also probably a bad idea, but such is life)

I believe they did something similar at the last meeting. I don't see it having a big effect. People understand that the interest rate policy in December will be driven by circumstances, just like this one.

The FED is in a tough position because their bluff has been called.

"The Economy is strong because the FED saved the day with ZIRP and Trillions of stimulus money printing!"

What is implied with no rate increase in 9 years is that the economy is still weak. Folks are now able to read between the lines and realize the FED's weakness in no rate increase for the past 9 years indicates a generally weak economy despite the Media and White House obsession with the economic recovery.

People love to suggest that the Fed is toothless because all their measures have led to a tepid recovery.

Compare our recovery from late '09 to '15 to what happened in the 1930s. The Fed has $4.5 trillion on its books from quantitative easing, yes, but 2008-2009 saw the destruction of $14 trillion in wealth (housing and stocks combined).

I agree that there's not much more the Fed can do, what is needed is fiscal stimulus. Our legislature is probably far too broken to provide that though.

This should have been a much larger topic in Repub debates and hopefully it will get lots of attention between Hilary, Biden and Sanders. What we are really getting at is how to properly handle rewards for production in this country. Rewards of production has gotten severely unequal and out of whack and it's causing fissures in our economy. ie) producers get less and less, owners get more and more. It needs more balance.

Definitely agree with this.

 

[dullard]

The Fed needs to (1) raise rates by March or (2) break their tradition and understanding that they won't interfere during an election. I think they are going to go with #1, but in a very timid way. They will have a token interest rate rise which is for show and has no significant impact either this meeting or the next. I'm leaning slightly towards it happening this meeting. I'll say 60% chance they do it this time. By token, I think they'll raise it 0.125% or 0.25%.

But, if I were in charge, I'd start just using decimal points instead of the silly 1/8, 1/4, 1/2 percent amounts. I would personally raise it by 0.1% today and do it again on the next 2 meetings.

I think what is more likely is that they'll announce that they will start curtailing the quantitative easing. Sure they stopped expanding it a while ago, but they have kept it large ever since. I think this meeting will have them announce that they will start reducing the size of it.

 

[theeedude]

They may increase rates in the near term, but I don't think the economy can sustain a substantial increase in the long run. A lot of the confidence and economic activity is due to rising asset values, especially housing values. There are a lot of flips and remodeling going on. Take away the low interest rates, and affordability would drop and bring housing prices with it. That would bring down the rest of the economy.

 

[dullard]

There is practically no inflation in the economy, which suggests that the money supply is low.

I've been flamed before on this forum for stating it, but I think that quoted statement is just too simplistic. I think we need to realize that we now have two money supplies: one for producers and one for consumers.

A) Low interest rates that are used by producers to expand production leads to LOWER inflation.

B) Low interest rates that are used by consumers to expand purchases leads to HIGHER inflation.

In my view, we can't just lump (A) and (B) together and make blanket statements any more. In the last decade the lower interest rates were in general, not making it into the hands of consumers. Thus, the lower interest rates gave us predominantly the effect of case (A). Thus, in this environment low rates lead to low inflation. And, if true, the only way to get back to the inflation goals is to gradually raise the interest rates. History also shows this, there is not a time in recent history where low interest rates actually lead to high inflation in the following year. Not one time.

Millenials weren't rushing out and getting cheap loans, if they had loans at all they were at high student loan rates. They didn't even see the low rates at all. The poor and middle class didn't see the low rates either. No one would lend money to them, so the low rates couldn't spur them into buying. Instead, the bulk of the borrowing at the extraordinary low rates was by businesses. Businesses don't borrow money for entertainment. They do it to become more competitive and that tends to lower prices.

Flame away again Eskimospy.

 

[Genx87]

Difficult to see how they raise it given we haven't hit full employment and the inflation that comes with it.

 

[fskimospy]

I've been flamed before on this forum for stating it, but I think that quoted statement is just too simplistic. I think we need to realize that we now have two money supplies: one for producers and one for consumers.

A) Low interest rates that are used by producers to expand production leads to LOWER inflation.

B) Low interest rates that are used by consumers to expand purchases leads to HIGHER inflation.

In my view, we can't just lump (A) and (B) together and make blanket statements any more. In the last decade the lower interest rates were in general, not making it into the hands of consumers. Thus, the lower interest rates gave us predominantly the effect of case (A). Thus, in this environment low rates lead to low inflation.

Millenials weren't rushing out and getting cheap loans, if they had loans at all they were at high student loan rates. They didn't even see the low rates at all. The poor and middle class didn't see the low rates either. No one would lend money to them, so the low rates couldn't spur them into buying. Instead, the bulk of the borrowing at the extraordinary low rates was by businesses. Businesses don't borrow money for entertainment. They do it to become more competitive and that tends to lower prices.

Flame away again Eskimospy.

Everything that needs to be said about this has already been said. The overwhelming majority of the empirical evidence and economics literature disagrees with you that low rates are causing low inflation.

If you want to adhere to a radical reinterpretation of monetary economics that's certainly your business, but Europe is a great example of what happens when people take these foolish steps and raise rates in a low inflation environment.

 

[dullard]

The overwhelming majority of the empirical evidence and economics literature disagrees with you that low rates are causing low inflation.

Except that you have yet to ever find any empirical evidence that disagrees with me in economies like we have now.

 

[glenn1]

I believe they did something similar at the last meeting. I don't see it having a big effect. People understand that the interest rate policy in December will be driven by circumstances, just like this one.



People love to suggest that the Fed is toothless because all their measures have led to a tepid recovery.

Compare our recovery from late '09 to '15 to what happened in the 1930s. The Fed has $4.5 trillion on its books from quantitative easing, yes, but 2008-2009 saw the destruction of $14 trillion in wealth (housing and stocks combined).

I agree that there's not much more the Fed can do, what is needed is fiscal stimulus. Our legislature is probably far too broken to provide that though.

Definitely agree with this.

It's basically impossible to compare the events of the 30s to today. First of all, the percentage of government spending to GDP in the 1930s is a small fraction of what it is today. We are at and past the point of diminishing returns for increasing government spending further, which is the complete opposite of the situation back then. Secondly, the money supply was significantly reduced during the Great Depression (35% by many estimates) which again is the exact opposite of today's circumstances. And finally, the levels of aggregate consumer demand were completely different in the 30s vs. today, as was the level of debt being carried by every actor in the system whether individuals, corporations, or governments.

 

[fskimospy]

Except that you have yet to ever find any empirical evidence that disagrees with me in economies like we have now.

We've been over this, and that's flatly untrue. If you want to look at my critique of your research methods go visit that previous thread.

 

[fskimospy]

We are at and past the point of diminishing returns for increasing government spending further, which is the complete opposite of the situation back then.

What is your basis for this?

 

[Blackjack200]

It's basically impossible to compare the events of the 30s to today.

I don't know what the agenda is of "USgovernmentspending.com" but in FY 2014 we had gov't expendatures $3.5 trillion vs. an $18 trillion gdp, or in line with the 20% from the 30s and 40s.

 

[dullard]

We've been over this, and that's flatly untrue. If you want to look at my critique of your research methods go visit that previous thread.

No need. Your critiques summarized for everyone else:
1) The study wasn't written by someone with good enough English.
2) The data, while repeatedly backing me up, is just exceptions and that eventually (maybe) you'll be correct.
3) You don't like the author.
4) Etc. with tons of other really "valid" critiques.

You have not a shred of evidence. Tell us this: if producers get cheap loans and expand their production to expand supply, when consumers rarely get the cheap loans, why should prices go up? Let me guess, your answer will be that smart people you probably won't name might disagree.

 

[glenn1]

What is your basis for this?

Why do you care? As a Keynesian you support spending money on whatever the fuck you can, from digging holes then filling them, to an imaginary alien invasion.