federal open market committee

Fed Day 2022 – Fun and Rates

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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 …

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Blaming the Fed

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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 …

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Negative Interest Rates and The Fed

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negative interest rates

Like any type of news, sensational, click-bait news draws in a lot of clicks for financial websites. Unfortunately, this can lead to a lot of confusion, especially for folks who only read the headlines. I can often tell when this happens because my questions fill up with vaguely understood concepts and concerns about unlikely situations and issues. This is happening more and more with the topic of negative interest rates. Negative Interest Rates What are negative interest rates? Let’s start with what are negative rates. The concept is simple on its face. Interest rates are normally, “positive.” The borrower pays a (positive) interest rate on a loan to the lender. Or, in the case of a savings account, the bank pays a (positive) interest rate to the account holder. In a world of negative interest rates, this would theoretically reverse. The lender would pay the borrower to take out a loan, and the account holder would pay the bank to keep their money. If this sounds bizarre, you are right, and it wouldn’t really happen. — We’ll get to that in a moment. More abstractly, The Federal Reserve Bank pays banks a small amount of interest to hold deposited funds …

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Fed To Raise Interest Rates

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FINALLY! – That’s what your average Federal Reserve Board member is thinking on this fine Friday. The Fed has been almost dying to raise interest rates for over a year now. They projected in December 2015 that there would be multiple rate hikes coming in 2016, but it seemed every time they got ready to raise rates, some economic shakeup would pop up and force them to wait. Until, finally, in December of 2016, they got to raise interest rates, but only once. Interest Rates in 2017 The Fed did just get a rate hike a few months ago, but it wants more. It needs more. No one is really sure why, since the supposed target of 2.0% for inflation is still not being hit. See my review of Acorns app. But, today’s job report shows a lower unemployment rate, and an economy that added 235,000 jobs. Even bigger news is wages rose 6 cents in February, after rising 5 cents in January, which means that the labor market is finally, after years of sluggish, iffy growth, on solid ground. And so… the Rate Hike cometh! Futures markets are pricing in a near 90% certainty of an interest rate hike next …

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Interest Rate Hike in September?

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interest rates federal reserve

Here we go again. Last year, the Federal Reserve, desperate to get away from zero interest rates, raised its target benchmark interest rate from 0% to 0.25%. They proudly crowed about fighting inflation and predicted several rate hikes in 2016. Then, January happened. If you don’t remember, China’s economy had a freak out before the country’s masters could get it under control. Understandably, with the instability, the Fed backed off of its next interest rate hike, but still predicted more this year. And, then… and then… With the days of the year running out, the Fed, again desperate to raise interest rates despite inflation being nowhere near the supposed “target,” was planning a Summer increase but… The jobs report didn’t cooperate. And then… The jobs report didn’t cooperate. Oh, and there is more news of the economy being very, very sluggish. It almost seems as if the economy just isn’t that strong and stable, and that inflation is low, and that the smart thing to do is just leave interest rates alone. But, nobody wants to do that. They want to be HAWKS. Hawks fight inflation fast and hard, even when it isn’t there. And so, here we are. This …

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Fed Does Not Raise Rates Market Confused

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So, this is interesting. The Federal Reserve did not raise interest rates at its September (2015) meeting. This is not surprising, per se. There were numerous international banks and organizations, plus tons of U.S. economists who worried that an increase would be too soon for a fragile economy. Here is where it gets weird. The stock market LOVES to plunge in reaction to a rate increase. Sure, it only lasts a day or two, but there’s nothing quite as fulfilling to a stock market index as dropping 200 or 300 points whenever the Fed raises interest rates. The catch is that Wall Street actually secretly loves interest rate hikes. A Federal Reserve increasing interest rates is the equivalent of a stern father taking away our credit card for our own good. The market throws a temper tantrum, of course, but it’s better for everyone in the long term. If the Fed raises interest rates, then there won’t be an inflation boogeyman. Based on all the pundits and analysts out there, it sure seems like the stock market was expecting a rate increase and all ready to throw its fit and wring its hand, probably just until the weekend, but still. …

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First Ever Fed Press Conference

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Today marks the first time the Federal Reserve will hold a press conference to go along with it’s decision on whether to change interest rates. Most observers expect the Fed to leave interest rates unchanged (basically at zero percent), so the real action will be in the details that emerge from the press conference where questions about how the economy is doing, what the Fed is doing, and how long they think those things will last, will take center stage. In another change, the Federal Open Market Committee will also release the quarterly growth and inflation estimates that is uses to make its rate decisions today. Usually, the Fed releases those numbers weeks later. Today’s changes could make for a very volatile day in the markets because no one has ever done things this way before, so no one really knows how they are supposed to react. Will the markets over-react to something Fed Chairman Ben Bernanke says? Will the markets react less than they would otherwise given how fresh all the data is? Or is this all just a bunch of sound and fury signifying nothing? We’ll all find out later today.