Economics of fed rate decisions

sharkhunter
Janet Yellen is going to talk about when rates might rise or tapering might start today or tomorrow.
Here's one clue. The fed doesn't set the rate. They use what the market sets and then adjust accordingly trying to talk the market up or down before they adjust.
Look at the 3 month treasury rate. If the market rate hasn't adjusted yet before the meeting, it won't happen. Doing anything else would cause wild market gyrations and the fed isn't doing that. Janet could try to talk the market into a December rate increase but who knows? Will she raise in December? Only if she can talk the market 3 month treasury rates up another quarter point between now and then. Tv people spends day's like they don't know. A September rate hike is not priced in the market. If Janet wanted to make the market dive, she could do it I guess. Then probably hear Trump say, you're fired.

I've read studies showing central banks around the world adjust rates to match their countries 3 month treasury rates. Then act all technical in describing when they may adjust rates again. Markets used to work fine without central banks. Now we get everyone waiting to hear what they are going to do every month.

15 comments

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Mate27
7 years ago
Stop watching financial news. They know nothing about what's going to happen. They financial news are the same business model as all other news sources. They push your buttons and get u all worked up just so you watch and increase their ratings in order to sell more advertising. No real content or provided.
RandomMember
7 years ago
Seems like inflation is so tame; why not postpone raising rates?

Yellen might get replaced early next year, anyway. If the stock market keeps going up, Trump will take credit and Yellen stays on. If the market tanks, Trump will blame Yellen.
Bj99
7 years ago
This article is from December, but I think it's really good.


https://www.economist.com/news/finance-a…

mark94
7 years ago
With rates near zero, it's a fantasy economy. Getting rates to 4% would still be cheap for strong businesses but get rid of the free money funny business from marginal operations. The foundations of the economy would be stronger and longer lasting.
Dougster
7 years ago
We may be in long term deflation now thanks to technological advances. I think oil is the first evidence of this but there will be more to come. To counteract this the Fed should print money and pay it to people as basic income.
Dougster
7 years ago
IMO, only reason they would raise is so that is there room to do rate cuts in case of some market turmoil in the future.
mark94
7 years ago
Basic Income may make sense around the time we have Warp Drive and Dilithium Crystals. By then, we'll have incredible wealth and automation. We're not there yet.

On its face, Basic Income might sound reasonable but it would rip apart society. For most of the population, there would be no incentive to work or be productive. We'd become a nation of TV watchers and stoners. Those that did work would be condemned as the fortunate 1%. Talk about income inequality and division !

If we do reach a point where automation does most of the work, a better solution would be to offer government service, with jobs like the Civilian Conservation Corps under FDR.
Dougster
7 years ago
mark94: "We're not there yet."

Getting close. Some think machines will pass a Turing Test in 2029. Only 12 years off.

mark94: " For most of the population, there would be no incentive to work or be productive. We'd become a nation of TV watchers and stoners."

Overly cynical. I think less 10% of the population would fall into that bucket if basic income was enough to live off of. No way it would be 50%. Believe it or not, most people's motivation for work is not just to make money. There are other levels on Maslow's Pyramid they are trying to fulfill. And some also might not do "work" in the classical sense, but would still do stuff of benefit to society. An example might be people choosing to work on (free) open source software projects.

Finally, if we started it right now, might be able to pay that much, but the amount will increase as time goes on.
mark94
7 years ago
Color me cynical. For all the talk of philosophy, art, and volunteering, I think a lot of people with too much time on their hands turn to porn, pot, and general mischief. That's especially true for those who've never had the discipline to find a job at any point in their life.
mark94
7 years ago
I just ordered a used copy of Heinlein's Future History short stories. He projected this time as the Crazy Years, a time of chaos after rapid technological advancement. He predicts that period will be followed by a charismatic Religious leader ( con artist ). So, we've got that to look forward to.
sharkhunter
7 years ago
Universal basic income would be great if it covered some form of basic health care, if you want extra you pay or the company you work for pays, plus enough to cover some rent and food. However for many people that basic cost might be 2500 a month with health care added in and no way is our government going to pay all that. Plus there would likely be restrictions on the money like it can't be spent at strip clubs, can't buy soda, etc, etc. we live in the nanny state.
mark94
7 years ago
The most expensive stuff in the world is "free". It's just that someone else pays the bill.
rickdugan
7 years ago
It's time. Having rates so low for so long is going to have a number of long-term consequences and perhaps already has in terms of bubbles. Nothing is free, including cheap money. The longer interest rates remain so depressed, the bigger the ultimate bill will be.
Dougster
7 years ago
RickDugan who called stock ticker RICK a "dogshit stock" when it was trading $8.8 in early 2013 and said it was going to zero in a few months has spoken. (In actuality everything was just fine and it's nearly tripled since then. Really good call, RickyBoy, really good call.)
sharkhunter
7 years ago
The real deal today is that Janet knows she's leaving and didn't say much.
The next possible fed chief, Trump's economic guy has been pressured to leave but is hanging in there. I forgot his name but heard he was getting pressured to resign by his wife because he is a Jew and thought Trumps remarks last week defended the side that said something like Jews go home. Trump has said he condemns hate groups but then made that comment about defending both sides which many took to mean he defended the hate groups saying there were good people on both sides.

I just hope they raise the debt ceiling quickly and get some tax cuts quickly and get rid of health care penalties at a minimum. They should treat Heath care as a form of tax relief in my opinion and get something that works done quickly but raise the debt ceiling first so that markets and governments aren't shut down leaving investors wondering if this time, will ther be a default? Since low interest rates are causing many to invest in stocks, it might have created a bit of a bubble. I don't think it will end well if they raise rates and taper at the same time.
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