interest rates

What Interest Rate Hikes Mean for Young People

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interest rates young people

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 …

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Fed Raises Rates – More Coming

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fed raises interest rates march

The Federal Reserve raised interest rates one-quarter of a point, or 0.25%, in a widely expected move. The benchmark rate is now technically the range between 0.75 percent and 1.0 percent, although most people refer to this simply as 0.75%. As pretty much everyone predicted, the Fed raised interest rates at its March meeting. This is the second interest rate hike in just three months, and the third one overall since the Great Recession. Fed Chairwoman Janet Yellen said, “The simple message is, the economy is doing well.” What Happens Next? While some indicators are showing signs of inflation, there is also an increasing concern that the economy isn’t as robust as some might think. Things certainly look good right now, but few analysts look as this economy as a powerful train moving forward, so much as a boat drifting in the right direction and easily pushed off course. As a result, the guidance from the Fed continues to be for three total interest hikes in 2017, meaning that currently they expect two more hikes between now and December. Just when those hikes will come depends a great deal on how the economy fares. Another few months of good job …

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Fed To Raise Interest Rates

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jobs fed interest rates

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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Retail Stocks and 2017

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retail stocks 2017

Wheee! Well, looks like 2017 is going to be a lot of fun, and by fun, I mean volatile and sketchy all the way through. First up, are announcements by retail stocks such as Macy’s and Sears, both of whom announced that they would be cutting staff and closing stores. Kohls also announced sluggish holiday sales. That means that the 2016 holiday shopping season was not strong enough for a lot of traditional retailers. Look for earnings on the low side, that disappoint Wall Street for most retail stocks. This is a big deal, because this was supposed to be the “up” year for the economy. The stock market is up, closing in on 20,000. Job reports show that unemployment is as low as it’s been since before the Great Recession. The Fed even finally got to raise interest rates in December. If this holiday season wasn’t good, then things maybe aren’t going as well as everyone might have hoped. Of course, it is possible that there was still plenty of consumer spending and it just went different places like online retailers, or specialty stores, but so far, no one is pushing that theory. Trump, The Fed, Inflation and a …

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Fed Raises Interest Rates

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fed raises interest rates

As I’ve long pointed out on this blog, the Fed has been dying to raise interest rates in 2016, but each time a meeting came up that they were planning to announce an increase, something happened in the world that made the markets shaky, and rate hike even dicier. As a result, this December 2016 interest rate hike is the one and only rate hike for the year. The current interest rate increase takes the Fed’s main short-term interest rate to 0.50% (officially 0.5% to 0.75%) from 0.25 percent. The Fed and 2017 Ironically, inflation has been very contained for all of 2016 without any interest rate hikes. In face, inflation during 2016, even without a single interest rate increase, has been so low that the formula for Social Security benefits means that there well be no cost of living increase. That makes you wonder why the Fed has been so eager to raise rates, if the whole point of an interest rate increase is to hold back inflation, when there was no inflation at all. There still isn’t any inflation, but the Fed wants to raise rates for other reasons. One that keeps getting floated around is the idea that …

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Trump Election and the Economy

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Looks like Donald Trump will be the new President of the United States. Don’t think anyone saw that coming. The polls were way off. The world markets panicked, and it looked like U.S. markets might do the same, but then investors realized what everyone else is slowly figuring out. We don’t actually know what Donald Trump is going to do as President, and whatever it is that he does do, it won’t happen until January 2017, when he gets sworn into office. Even then, this isn’t an instant sort of thing. So, what should investors do regarding a Trump Presidency? As always, long-term investors should do nothing more than confirm that they have the right diversified portfolio setup for their risk tolerance. For shorter-term investors, there might be some increased volatility. The markets hate an unknown, and right now Trump is an unknown. However, there are plenty of things to deal with before that. The holiday shopping season is coming, and how it goes (or seems to be going) is going to be a big indicator for how the economy is doing. Retailers can expect a big boost, or a pretty decent beating depending upon whether holiday spending is up …

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Fed Wants To Hike Rates

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rush to raise interest rates

The Federal Reserve Open Market committee wants to hike interest rates so bad they can taste it. Realistically, the Fed has been dying all year to raise interest rates, it’s just that every time it was ready, something drastic happened to spook the Fed, the economy, and the markets enough to make it impossible. But, there has been a period of relatively basic news, and no big shocks, so now it’s basically, “Quick! Raise rates before something else happens.” I’m no economist, but the Fed’s supposed goals are full employment and 2% inflation. This makes the rush to raise interest rates kind of strange, since, the economy is nowhere near full employment, and inflation is nowhere near 2 percent either. I guess the Fed believes that the crawling, sputtering, stuck in neutral expansion that numerous analysts are actually worried is coming to an end, will fire up and take off before the Fed can act. Yeah, that doesn’t make any sense to me either. Which brings us to a Fed rate hike in December because they feel like it makes them look tough, or diligent, or something. What Happens When the Fed Raises Rates I should probably crank out a full article about …

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Fed Predictions

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interest rates federal reserve

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 …

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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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June Rate Hike Is Off

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fed interest rates caution

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 …

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