- The Finance Gourmet

What Will Interest Rates Do Now?

January 22, 2024 by Finance Gourmet

It’s January 2024, and nobody expects the Fed to cut interest rates at its January meeting. Interest rates will stay the same until the March meeting, when the only option is to stand pat, or to cut rates. An interest rate hike is off the table under all foreseeable scenarios. What Should I Do About Interest Rates Now? Under these conditions, it is important to understand two concepts. First, some interest rates move only when the Fed cuts or raises interest rates. Other interest rates move with the market. The first kind of interest rates are generally most types of revolving debt such as credit cards, home equity lines of credit, and personal loans. These kinds of credit are almost always tied to the Prime rate. The Prime rate is set banks, and typically moves in lock step with the Federal Reserve Fed Funds Rate. The second category of interest rates moves with the market. When people talk about interest rates and the market, they mean the bond market where all manner of debt trades hands just like stocks in the stock market. Just like stocks, these rates move every day, and just like stocks, more than a little bit …

Federal Reserve Holds

September 26, 2023 by Finance Gourmet

The Federal Reserve Board voted not to raise interest rates at their October meeting, finally realizing that the runaway freight train of interest rate hikes might be more detrimental to economy than the inflation that they are supposedly fighting. Did the Fed Stop Too Late The big question on everyone who actually participates in the economy’s mind is did the Fed stop raising interest rates too late. Already the housing market is seizing up as home buyers realize they have been priced out of homes by higher interest rates and sellers find that they no longer can sell their home in a weekend, or maybe within several weeks. Higher food prices are still cutting deep, but so are those credit card bills. Variable rate credit cards and HELOCs have spent the last year delivering higher and higher payments to borrowers. Many borrowers who were perfectly fine servicing their debt suddenly find themselves staring down bankruptcy. And we all know what happens when a huge chunk of America goes and declares bankruptcy. The only high point in all of this is rising wages and low unemployment are keeping more people above water than in the past. In states with rising minimum …

Should the Fed Stop Now?

July 30, 2023 by Finance Gourmet

Below is a quick belt out of information and opinion before I head off with the family on a last-of-summer vacation. Don’t bother letting me know about other links, grammatical errors, or the like. I’ll go back to normal when I get back next week. Should the Fed stop raising interest rates now? Even the staid financial press is starting to ask the question that obsequious interest rate hawks insisted was off the table, is it time to stop raising interest rates? Inflation Is Down In the carefully written narrative of the Federal Reserve fighting inflation, the Fed bank must raise interest rates, longer, and more painfully than the lesser economic hawks can stomach. Only then can inflation be brought under control by the tough love of inflation hawks. But, as they like to say, a funny thing happened on the way to the forum. It seems that if the economy were overstimulated into inflation by various temporary economic measures such as government checks from a larger child tax credit, and student loan borrowers unleashed temporarily from their burdensome payments, then the boost to inflation was temporary as well. The result is that with a tap on the brakes in …

S&P 500 Hits 52-Week Low

May 9, 2022 by Finance Gourmet

Now, things are getting interesting. There is a new SP500 52-week low. I’ve spent most of the first part of this year making the argument that the 2021 stock market run, especially the October 21 to January 22 was overdone and that the corresponding downturn in the markets from around February 2022 to April 2022 could be considered more of a return to “normal” than any sort of market correction. Reasonable minds may differ. Market Downturn Gets Real Today, the S&P 500 took out its 52-week low. From here on out, everything down, is truly down. Our one big sideways stock market ends here, and we really are heading for a potential correction here. This is why people calling for the Fed to raise interest rates so fast are dead wrong. The signs of the economy slowing, but not declining, are everywhere. That is exactly where you want to be. That is what a soft landing is. An economy gliding back to normal growth, normal employment, and normal interest rates all without triggering layoffs, housing crashes, and so on. All the Fed needs here is a little tap on the brakes. If it were me, I would skip a rate …

Did Mortgage Rates Hit 12-Year High?

April 21, 2022 by Finance Gourmet

The press loves a good scare story, and mortgage rates hitting a 12-year high is just the ticket. Mortgage rates did hit a 12-year high, and I suppose for those who are newer to the world of finance that probably seems like a big deal, but the reality is a little different. The 30-year fixed mortgage averaged 5.11% last week. That isn’t remotely a historically high mortgage interest rate. In fact, it wasn’t that long ago that a 5% mortgage was a great rate. It still is. But, these haven’t been normal times. The U.S. economy seems to lag on differently than it once did. The inflation we see today is the only real inflation we have seen in decades. Every time the American economy looked it like might get going back to “normal” something happened to smack it back down turning what used to be crazy, historically low interest rates into normal interest rates to the newest generation hitting financial literacy. This 10-year chart of the Federal Funds rate shows that we haven’t seen a Fed Funds rate above 2.5% in the last decade. In fact, just when we got close to something that might be considered normal or …

The Fed’s Balance Sheet

April 6, 2022 by Finance Gourmet

The Federal Reserve is best known for setting the Fed Funds Rate which is the interest rate that the Federal Reserve charges banks for overnight loans. That, in turn, influences, or outright directly adjusts, several other interest rates that have a meaningful impact not only on business, but American citizens and consumers as well What Is the Fed’s Balance Sheet? What is the Federal Reserve’s balance sheet? Well, that’s a tiny bit complicated. To understand you have to accept the concept that there is a certain amount of money floating around in the U.S. economy at any one time. That amount is not fixed. One day, you have $50,000 in your checking account, and a $50,000 loan, for a total of $100,000 floating around in the overall money supply. The next day, you use that $50,000 in your checking account to pay off the loan, essentially removing that $50,000 from the economy. The U.S. economy is enormous, and at any one time there are trillions of dollars floating around in the economy. However, some of that money is moving and doing something and some of it is stuck. Think of all those gold coins in Scrooge McDuck’s vault. They exist. …

How Do Rising Interest Rates Affect Credit Cards?

March 17, 2022 by Finance Gourmet

How Does The Federal Reserve Raising Rates Affect My Credit Cards? You heard that the Federal Reserve raised interest rates. How does the Fed increasing interest rates affect your credit cards personally? It’s actually pretty easy to tell. First off, your credit cards are most likely tied to something called the prime rate, not the federal funds rate. The rate the Federal reserve raises is the rate the Fed charges banks for overnight loans. The prime rate is the interest rate that banks charge their most valuable (wealthy) customers. The prime rate moves in step with the Fed Funds rate. Before the Fed raised rates, the fed fund rate was 0% (technically 0% – 0.25%), now it is 0.25% (technically 0.25% to 0.50%). The prime rate was 3.25% and now it is 3.50%. How do rising interest rates affect your credit cards? Simple. Your credit card interest rate is the prime rate plus another amount. The other amount is made up by the credit card issuer and you agreed to it when you signed the credit card application. Finding out how much your interest rate is, is easy. Just check your statement or log on to your credit card’s website. …

Fed Day 2022 – Fun and Rates

March 16, 2022 by Finance Gourmet

It’s Fed Day, boys and girls, and the markets are feeling pretty good this morning, having already priced in negativity from Russia’s invasion of Ukraine. Markets are up, although they trimmed the earlier pop. All eyes are on the Federal Reserve Board meeting where the Fed is expected to raise interest rates. Usually, rising interest rates mean putting the brakes on business and stocks, so why is the market happy? Inflation is higher than anyone would like, and the biggest, baddest, bluntest, tool in the inflation fighting basket is higher interest rates. In other words, everyone wants higher rates in order to fix inflation, and everyone is expecting the Fed to give them what they want. So, the markets are up. What’s the catch? Well, higher rates really do slow down the economy, and while inflation has surged as of late, remember it’s coming off of years of very low inflation and a pandemic. It may be that the inflation we see is a temporary surge. While it cannot be ignored, it can be overreacted to, and this is where things get tricky. Raise interest rates too high, too fast, and crash the economy. Raise rates too slowly and let …

Blaming the Fed

January 27, 2022 by Finance Gourmet

Selective amnesia and analysts dying to be “right” is contributing to a flood of inaccurate articles seeking to blame the Fed. I saw this in my Twitter feed this morning and I just couldn’t let it go by. It’s filled with the kind of half-truths and misinformation that builds an analyst’s career, unfortunately, but that doesn’t make it true. Here we go. According to this tweet, The Fed spent 12 years creating an “everything bubble,” a term so bizarre that it requires quotes. Oh, and the Fed didn’t spend 12 years creating this so-called everything bubble. Oh, and before we start pointing fingers, until THIS YEAR neither this analyst, nor almost any other was asking for the Fed to tighten monetary policy because the economy was teetering on a cliff and every bit of the stimulus was required to prevent the Great Recession II, or worse. Yep. For exactly, ONE MONTH, inflation has been a bit crazy. Too bad the graph they posted as “evidence” is so far zoomed out that you can’t see what really happened. Maybe they couldn’t find one that showed more recent events. Oh, wait! Here’s one. The crazy, reckless Fed that has been pumping up …

Fed Raising Rates 2022 Inflation and Economy

January 11, 2022 by Finance Gourmet

At all times the Federal Reserve’s Open Market committee has a dual task. One task is to guard against inflation. The other task is to not make the economy implode. In most cases, this isn’t as hard as it sounds as long as you have strong Federal Reserve bankers who don’t cave to Wall Street’s pressure (or dance like monkeys to in the first place.) For 2022, The Fed has one of the tricky times. This is what Wall Street pressure looks like: December payroll data showed a far fewer than Wall Street said it would be addition of 199,000 to payrolls, but wages did increase 4.7% year over year. There is a very big catch here. Remember that the economy got messed up rather good with Covid and it really isn’t done with Covid, so all of these numbers have to be taken against the fact that last year was not good and this year isn’t so much a raging economy as it is putting the pieces that fell off the board back up on it. Don’t forget to read our Zelle review. That being said, inflation is up, even compared to pre-Covid and you don’t want to fall …