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Fed Predictions

October 24, 2016 by Finance Gourmet

Predicting the Federal Reserve and the actions it takes for monetary policy is tricky. In no small part, the difficulty lies with the fact that you are actually making a dual prediction. First, you are predicting what economic news, data, and figures the Fed will receive, and THEN you are predicting how the Fed will respond to them. Getting the second part right, is probably easier than the first part because you are dealing with established pasterns of rational beings, rather than the unknowable events of a future world economy. It seems in a speech Wednesday, Fed member Charles Evans said that he thinks there will be three one-quarter percentage rate hikes. That would essentially end up with the Federal Reserve’s Open Market Target Interest Rate by the end of 2017. Curious about Mr. Evans’ track record, I did a search for his remarks in the last quarter of 2015 to see how well he did at predicting what 2016 would look like. As it turns out, Mr. Evans is pretty good at his job (based on one year anyway) having predicted the U.S. economy would grow at about 2.5 percent during 2016, and with the Federal Funds Rate ending below …

Interest Rate Hike in September?

September 9, 2016 by Finance Gourmet

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 …

June Rate Hike Is Off

June 3, 2016 by Finance Gourmet

Last week, the April inflation numbers came in a little bit high. At the time, I (and several other analysts) pointed out that the higher number was almost all due to a long coming recovery in fuel prices, and that even with that higher number, inflation was nowhere near being a real issue. However, the Fed members went running to just about any media outlet that would listen telling everyone that those shaky numbers were the reason the Fed was very likely to raise interest rates in June. I wrote at the time, that it seems like this Federal Reserve is more interested in showing that they are inflation hawks than they are interested in following the actual data. The Federal Reserve has two official mandates, to keep inflation in check, and to keep employment as close to full employment as possible. This begs the question of why, exactly, the Fed seems so keen on raising rates right away. Employment is doing better, but nowhere near full, and wage growth is stagnant, so no issues there. The twelve month inflation rate, even with April’s increase, is just 1.1 percent, well short of the Fed’s supposed 2.0 percent inflation target. A …

June Fed Meeting – To Raise or Not To Raise

August 18, 2021May 25, 2016 by Finance Gourmet

This article is from 2016. The Federal Reserve is doing its best to alert investors (and others) that it plans to raise interest rates in June (2016). You know, unless something happens in China again, or whatever. Once upon a time, the Fed kept its thinking about interest rates to itself. These days, Federal Reserve Board members talk to anyone who will listen about how they are currently leaning toward whether or not to raise interest rates. While there is still virtually no inflation anywhere in the economy, the Fed got an excuse to raise rates from the April inflation numbers which showed a fairly high 0.4 percent seasonally adjust increase. Of course, every economist and analyst within a thousand miles quickly noted that virtually all of that increase came from fuel prices finally bouncing off of rock bottom, and not from any real inflation. Read about getting your real credit score for free. Still, the Fed seems intent on raising interest rates for some reason, most likely in order to keep from being considered too dovish, since we are still throwing that word around like an insult. Should The Fed Raise Interest Rates in June? The Federal Reserve has …

Fed Thoughts Economy and Interest Rates

February 10, 2016 by Finance Gourmet

Every six months, the Chairman of the Federal Reserve Board testifies before Congress. For the most part, the interesting, fact-based, information comes out in the Chairman’s open statement to Congress. After that, as all things Congress do, the hearing dissolves into a politically motivated bit of staged theater in which various Congressmen “ask questions” that end up being a lot more political posturing than actual questions. Still, there is often a lot of information in that opening statement, which is helpfully posted on the Fed’s website, if you want to read the whole thing without seeing it through the lens of the media. (or on a former financial advisor’s personal finance blog 🙂 The U.S. Economy and Interest Rates The Fed raised interest rates for the first time in many years in December. Since then, the employment picture in the U.S. continues to improve with the unemployment rate dropping to 4.9 percent in January. The economy is growing as well, with the real gross domestic product estimated to have increased about 1.75 percent during 2015. If that was the whole picture, then the rest of this talk would have been about inflation and raising interest rates. But, of course, the …

Fed Raises Interest Rates – Now What?

August 18, 2021December 16, 2015 by Finance Gourmet

This post was published in 2015. The Federal Reserve Raised interest rates today! It’s HISTORIC! It’s the FIRST ONE IN NEARLY A DECADE! WHAT HAPPENS NOW!?!?! AGGGGHHHHH!!!! No Real Changes From Interest Rate Increases As we’ve discussed a bit before, there really isn’t as much big news in today’s announcement as you might think. First of all, this has been the most expected interest rate hike in history, so there is no one out there making rash decisions. In fact, there might have been more trouble if the Fed had not raised interest rates since that would have actually been surprising. In other words, the stock market, the bond market, and every market in between was already planning for, and pricing in today’s interest rate increase. This is why the stock market basically kept going the way it was already going before the meeting’s results were announced. Increases In Consumer Loans? Theoretically, an increase in the target interest rate from the Feds should raise the cost of consumer borrowing as well. However, a lot of credit products these days have minimum interest rates, and many products are still going to be at that minimum rate. For example, a credit card …

Does Raising Interest Rates in December Matter?

November 19, 2015 by Finance Gourmet

Usually, I caution people against paying too much attention to the Federal Reserve and when they set interest rates. For most investors, this is a distraction that doesn’t really impact, over a longer term, their investments as much as the media suggests it does. However, since the Federal Reserve has not raised interest rates in a very long time, there are those who don’t really remember what happens, and even those who weren’t adults, or investors, the last time the Fed actually raised interest rates, so let’s review a bit. How The Fed Raises Interest Rates The Federal Reserve actually sets interest rates in two way. First, the Fed sets a discount rate, which is the rate the Federal Reserve itself charges to banks for lending them money overnight. The second interest rate is the Federal Funds rate. This rate is the interest rate that federally insured banks charge either other for overnight loans. (Exactly why, banks need to borrow money in this way is a topic for another day.) As you can see, neither of these interest rates directly affects you as a banking customer or investor. However, these interest rates heavily influence other interest rates that do apply …

Fed Does Not Raise Rates Market Confused

August 18, 2021September 17, 2015 by Finance Gourmet

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. …

What Happens When The Fed Raises Interest Rates?

March 27, 2015 by Finance Gourmet

There has been a lot of talk recently about the Federal Reserve raising interest rates. First, remember that the Federal Reserve only actually sets interest rates for banks. Specifically, the Fed sets two interest rates. The first interest rate, called the Discount Rate, is the interest rate the Fed charges banks for an overnight loan. The second rate is called the target rate, and this is the interest rate the Fed tries to achieve via the open market operations. Since the monetary crisis that started off the Great Recession, the Federal Reserve’s target interest rate has essentially been zero. The purpose of such a rate is to make it more worthwhile for banks to lend money. The idea is that more money in the economy stimulates additional growth. The economy is still growing very slowly, but it is still growing, which brings us to raising interest rates. Interest Rates Growth and Inflation In physics, basic equations come with the caveat that they are true, on a friction-less plane, in a vacuum. In other words, if there is no gravity or wind resistance. Such calculations are useful for understanding concepts, but would be devastatingly inaccurate for use in the real world. …

Is The Economy Good or Bad?

October 14, 2014 by Finance Gourmet

I occasionally get questions regarding the economy that sound frustrated in the inability to get a clear answer. That is understandable. The U.S. economy is getting better, but it isn’t really getting better fast enough for anyone to be able to benefit from the fact that it is getting better. Add in the fact that many news outlets have gone partisan and that their reporting is designed more to highlight certain aspects that make their guys look good and the other guys look bad, and you get a confusing picture about whether the economy is good or bad right now. Doesn’t make much sense does it? To really understand what is going on economically, it may help to read an article from The Economist. As an aside, whenever you really want a reasonable idea of what is happening in the U.S. it can be helpful to read non-U.S. publications such as The Economist, and to a lesser extent, the Guardian. The Economist leans toward the conservative side, but that doesn’t mean the same thing as it does here in the U.S. More specifically, the publication does not have an owner or readership with a dog in the hunt, so to speak, …