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Fed Raises Rates On Schedule

August 18, 2021September 26, 2018 by Finance Gourmet

The Fed has been telegraphing a September (2018) rate hike for quite some time now, and they followed though with another 0.25 increase today. They also anticipate a December rate hike still this year as well. I mentioned last time, this increase marks the end of the “free” rate increases that really didn’t do much to affect the economy as the rates were laughably low so much so that getting any commercially available rate meant a lot of “padding” in the rate from the Fed rates. This rate increase pretty much ends that. From here on out, ever quarter percent increase goes right into the economy as an increasing headwind. Between political uncertainty, a burgeoning trade war, and an economic expansion getting long in the tooth, it’s my opinion that the Federal Reserve is acting recklessly here pushing ahead with its rate increase timeline without any evidence of inflation, and no evidence of wage growth. In other words, the Fed is raising rates despite there being almost no inflation. Traditionally, this does not work out for the American economy. Every time the Fed starts raising rate for reasons OTHER than fighting inflation, the result is a recession, often a big one. …

Interest Rates Rising Into the End of the Year

August 18, 2021August 17, 2018 by Finance Gourmet

The Federal Reserve did not increase interest rates at its August 1st (2018) meeting. That was widely expected after the increase from the pervious meeting. Traditionally, the Fed tries not to raise rates in back to back meetings unless it feels like the economy is getting away from them. It allows the markets, and just as importantly, the economic data The Fed relies on to adjust to the previous hike before implementing another one. Rate Hike In September The Federal Reserve Bank did try and telegraph that it is currently looking at another rate hike for September. While the Fed did not raise rates, it did repeatedly say how “strong” the economy was, and how strong all the economic data was. Check out our Digit App review. And, for the first time in a long while, inflation is actually running near the Fed’s so-called target rate of 2%. While the Fed’s actions seem much more like 2 percent is a ceiling, rather than a target, recent data does suggest that inflation is running solidly near the two percent mark, so action is likely warranted. Will Higher Rates Trigger the Recession? Here is where things get tricky. While the Federal Reserve …

The Fed, Inflation, The Economy

July 8, 2018 by Finance Gourmet

Here is where things start getting tricky. For the better part of the last decade, the U.S. economy has been on an expansion back from the Great Recession. Various measures of recovery show the economy having regained its footing and moving forward. That’s all well and good, but it puts us in a rather odd spot today. The Coming Recession Economies contract and expand. Period. End of discussion. There is no new normal, not this time, not the last time, not the time before that. Every economy eventually runs out of steam and pulls back. Sometimes it’s a brutal collapse. Sometimes, it’s a more gentle, pull back, but there will be a recession. On a strict time-basis, this economy’s expansion is now very old. The official start of this economic expansion is June 2009. That makes it the second-longest expansion in U.S. history. On the one hand, YEA!, on the other hand, it’s like your dog living to be 17-years old. It’s great, but you know there aren’t many years left. If this expansion makes it to mid-2019, it would be the longest in history. Before you break out the champagne, you probably want to know that the longest expansion …

Vacation Almost Over

June 20, 2018 by Finance Gourmet

Wow. What a crazy time to be on vacation. Let’s see… The Fed raised interest rates. There was a bit of hiccup regarding that. In my humble opinion, this is the last “freebie” interest rate hike the Fed has in its quiver. In other words, this interest rate hike probably doesn’t have the possibility of tanking the economy. But, the next one might be a different story. If the Fed pulls the trigger on the next hike too quickly, that could be the one that pops the whole economic expansion and heads us into the next recession. If you are a conspiracy theorist, it’s too late to affect the mid-term elections, but a series of ill-timed rate hikes toward the end of this year, and into the next drops the economy into recession just in time for the next Presidential election. That’s pretty far fetched, that they would do it on purpose, but it could happen nonetheless. (I like that nonetheless is one word 🙂 Also, a trade war! Again. Not just with China this time, but with Europe and Canada?!? Actually, there are a few glitches in our trade with Canada, but this taking a club to some pealing …

Is Inflation Real Finally?

February 16, 2018 by Finance Gourmet

The Fed has been raising interest rates over the last few years based on fears of inflation that never seemed to come to pass. But, with monetary policy still very loose, and investors in a good mood pushing the stock market higher and higher (with a few days of correction last week), the rising rates seemed to have no real effect on the economy. Unfortunately, this is the way economic policy works. Nothing happens, until it does, and then you have to hope that you already got it right. Inflation in January The 12-month rate for wholesale inflation rose to 2.7% for January. That’s a pretty big number, and it’s the first one that actually suggests the Fed’s long feared inflation might actually be real. Before the data came out, the markets (and the Federal Reserve’s dot plot) anticipated three rates hikes in 2018. The current rate is 1.5%, and assuming the Fed follows it’s recent history by raising rates a quarter-percent (0.25%) each time, that means that interest rates would end the year at 2.25%. That’s hardly high, historically speaking, but definately higher than anything this market has seen in a long time. Add-in the fact that the Fed …

December Rate Hike (Again)

December 11, 2017 by Finance Gourmet

The Fed has now completely given up the pretense that it’s interest rate increases have anything to do with its 2% inflation target. Now, it is about tightening up the financial conditions, and in particular trying to put the breaks on the stock market. As noted over at Market Watch Reinhart said current policy is not dissimilar to the steady quarter-point rate hikes seen from 2004-2006. The only thing missing is the phrase “measured pace,” he said. Beginning in the summer of 2004, the Fed raised its short-term rate target from 1.25% to 5.25% in 17 straight quarter-point moves. But the policy failed to trigger tighter financial conditions, Harris noted. And, this is what should be terrifying. From 2004 to 2006, the Fed insisted on raising rates right into what would become the Great Recession. By raising rates when there is no inflation, the Fed becomes a really powerful group of market timers who have decided the stock market (this time, the real estate market last time) is “too high.” Ironically, this all becomes a self-fulfilling prophecy. When the Fed’s interest rate hikes finally do get the attention of Wall Street, it comes in the form of a knife slashing …

Yellen Admits 2% Target Is Phony

September 27, 2017 by Finance Gourmet

Janet Yellen admitted that the Fed’s two percent inflation target is largely phony. She didn’t say that in as many words of course. What she actually said was It would be imprudent to keep monetary policy on hold until inflation is back to 2 percent On the one hand, that makes sense. The levers that steer the economy do so more like those that control a supertanker, and less like the steering wheel of a Tesla. So, the Fed Chairwoman is right that you can’t simply wait for inflation to hit 2% and then start raising interest rates. That could lead to a hard landing, or worse, not work at all. Stealth Inflation But, that isn’t what she meant. What she meant was that there is no data indicating that inflation will be 2% anytime soon, but that doesn’t square with what she thinks is/maybe/will be happening in the economy. You see, she is convinced that inflation is hiding somewhere, cloaked in stealth mode, undetectable by economic statistics, like some sort of cloaked Klingon finance battleship. That seems to be a popular theory because of two factors. One, the stock market keeps going higher, and people are starting to worry …

Inflation Disappears (Again)

August 11, 2017August 11, 2017 by Finance Gourmet

Update: Yea! It looks like I was right, and everyone has come around. It’s August now, and it looks like those low inflation numbers were neither an aberration, nor temporary. There simply is no inflation, the job market, while full, is not hot, and there is no need to raise rates the rest of 2017, so say we all 🙂 The Fed has been working to raise interest rates because of the specter of inflation. However, with the exception of energy prices, there really hasn’t been much in the way of inflation. As a result, the Fed keeps explaining that they think that all those reports of low inflation were temporary. That all took a bit of knock today as the U.S. Government reported that inflation in June was zero. That’s right, zero, as in no inflation (again). And that comes after the actual 0.1% drop in inflation in May. This is of course, a far cry from the Fed’s so-called target of 2.0% inflation, and calling two months in a row of data temporary starts to look like ignoring data, so the tone has changed. A lot hinges on the July report. Check out my Credit Sesame review. Fed …

Mortgage Rates Climbing

July 13, 2017 by Finance Gourmet

Mortgage rates have ticked up in the this month. Despite stories saying that rates have “jumped” the rise has been rather tepid, and still hasn’t taken rates back to their post election highs in the 4.25% range. Rates had peaked back in January when some analysts still suspected that Crazy Trump was all an act and that the newly elected President would settle into the office as a regular business-friendly, regulation-busting, Republican. However, the Russia scandal has plagued the administration and health care has twice stalled out, pushing any pro-business legislation off. As a result, rates have basically trended eastbound and down, if you will. Do Mortgage Rates Really Matter? It’s always dangerous to say, “This time it is different,” in the world of finance. Such sentiments are typically used to justify things that should not be justified. However, is the world really different this time around with regards to mortgage interest rates? Consider that rates are still historically low, and that they will continue to be so long as they stay below the 5.0% to 5.5% range. A full percentage point is several Fed interest rate hikes away (a year… two?), or an economy that shakes off its slow …

What Interest Rate Hikes Mean for Young People

June 20, 2017 by Finance Gourmet

I got an email excitedly saying that I should be explaining how interest rate increases will affected younger investors and the personal finances of young people. I didn’t really think that was necessary, but it keeps popping up elsewhere with even more breathless writing copy, so it’s time for a real recipe for Federal Reserve interest rate hikes. Interest Rates and Young People Let’s start from the beginning. Neither interest rates, nor money, nor investments, care how old you are. It all works the same for every age. That being said, it is true that interest rates have been so low, for so long, that anyone under 35 probably has never experienced higher interest rates. So, let’s go over what higher rates are like. History of Interest Rates First, remember that while the Fed has raised interest rates several times since December 2016, they have all been small 0.25% interest rate hikes. The current rate is 1.25% (technically, the Fed sets a range of 1.0% to 1.25%, but for graphing purposes, you’ll see 1.25%.) This is not remotely “high.” In the 1980s, the Fed Funds rate was an astounding 18% to 20%, as they tried to reign in inflation, and …