interest rates

Market Falls, But… No Panic… yet?

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stock market price down facebook

So, interesting phenomenon happening in the stock market these last few days with the S&P 500 dropping over 5% (around 1,400 points) and even dipping below its 200-day moving average. In the right circumstances, this might be the trigger of a full-on rout in the stock markets. Here is what is missing though: panic. Markets Down – Does Anyone Care? I’ve been subtly (and not so subtly) hinting for about a year now that I think the Federal Reserve is too set in stone on its course to raise interest rates in the face of little to no inflationary pressure. To me, this recovery, as long as it is, doesn’t seem that strong. As such, one rate hike too many, could spell disaster. With this week’s market reacting poorly to rising interest rates in the bond markets, I was dusting off my “I Told You So,” posts. But, it looks like I’ll have to wait a bit longer. My Digit reviews. Despite the fairly big numbers in the Wall Street sell off as late, there isn’t much fear associated with it. When it comes to the economy, nothing matters more than how people FEEL about it. That’s why they try …

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Stocks Have Hard Day – Just Volatility, or the Recession Knocking?

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crystal ball stock market economy

Stocks had a pretty big selloff today in response to a big drop in the bond markets. For those of you keeping score (the baseball kind, not just the points scored), here is the way the game looks so far. Check out my review of Credit Karma. US economy is still expanding, making it one of the longest economic expansions The economy itself is cyclical. It ALWAYS goes up AND down. So, if it has been going up for a very long time, sooner or later, there will need to be a correction, or recession. How hard the recession ends up being is a function of how it hits. A “pop” leads to a hard (potentially shorter) recession. A “soft landing” means markets can regroup and reprice (usually with a lot of sideways movement) without shocking the system. The Fed keeps raising interest rates because… well, because they want to be “hawks” and not “doves” and just for the barest of moments, the supposed “target” of 2% inflation was touched, so here comes the Fed. The Fed not only keeps raising interest rates, it keeps saying it is going to raise interest rates more. One more hike this year, in …

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Fed Raises Rates On Schedule

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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. …

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Interest Rates Rising Into the End of the Year

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defenses economy

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 …

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Vacation Almost Over

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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 …

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December Rate Hike (Again)

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interest rates federal reserve

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 …

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Yellen Admits 2% Target Is Phony

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rate hike without data

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 …

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Inflation Disappears (Again)

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no inflation

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 …

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Economy Slowing Down?

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Only have time for a quick and dirty update, so here goes. It may not be the most accurate of headlines, but there were a couple of interesting numbers out today, especially when it comes to the hawks and doves inflation battle, so I thought it would be fun to take a break from all of the doomsday articles about the stock market. Still No Inflationary Pressure It seems that inflation is falling (not rising), countering the theory that such a drop in inflation earlier this year was only temporary. Oh, and jobless claims are up. In other words, the inflationary pressures are still not there. All of this adds up to a Federal Reserve that might just be figuring out that there is no need to raise interest rates any more this year. (And the previous increase was probably unnecessary as well.) This goes double if geopolitical trouble (Trump v North Korea) spooks business and investors. It may turn out that this global instability is just the pinprick the stock market needs to head back down for a correction. If so, remember that it wasn’t any stock chart, or Shiller PE ratio, or super-duper analyst investigation that said it …

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Mortgage Rates Climbing

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rising mortgage interest rates

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 …

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