China cut interest rates for a sixth time since November on Friday. That rate now stands at 0.25%; a Fed hike would take that rate to a still microscopic 0.5%.
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In that speech, Mr. Greenspan first uttered the phrase “island of prosperity” to describe what the US could not afford to become in an ailing world. Economists had been expecting another unchanged reading.
In an op-ed published by The Los Angeles Times, The Economy Hub’s Michael Hiltzik started by citing the timing of the Fed’s next two meetings, which are set to adjourn on October 28 and December 16.
The policy-setting Federal Open Market Committee is expected to hold the fed funds rate near zero when it meets Tuesday and Wednesday. Many USA policymakers still believe that rates could rise this year but almost all want to see back to back strength in US data from here on forward before tightening. It matters because where it lies in relationship to the Fed’s actual benchmark overnight federal funds rate determines how much support monetary policy is giving the economy. And Fed governor Daniel Tarullo concurs that “under these circumstances, it’s probably not wise to be counting so much on past correlations, things like the Phillips curve”. That may or may not happen, and the view of many market observers I respect is that interest rates are likely to stay low for many years, and may even go lower.
Co-authors John Williams and Thomas Laubach estimated in a newly revised study that the rate has fallen sharply since the recession began in December 2007 – reaching minus 0.2 percent in the first half of 2015 – and shows no sign of recovering toward its pre-recession level of 2 percent.
“I’m not too concerned right now about a small interest rate increase, though it’s in the back of the mind and could affect the cost of supplies we buy to build houses”, said Jim Zarling, whose American Dream Builders construction company builds custom homes. A different approach might be required if the interest rate environment shifts to one where rates trend higher. So consider this period as a buying opportunity to strengthen your stocks and defend your bonds, while also reducing any cash surplus.
“But if interest rates are raised gradually by several percentage points, it could definitely reduce all types of construction”, Zarling said. The rate unexpectedly fell below zero in September.
Steven Major, head of fixed-income research, said we’re experiencing unconventional policy that will have unconventional outcomes.
Bloom said either the Fed or the market is wrong. The Fed uses interest rates to manage the economy; it cuts them to spur borrowing and spending when the economy is weak, and raises them when the economy is gaining steam to prevent overheating.
Con: The punch from this stimulus could be limited because short-term yields, the place where the Fed can most credibly guide investors on rates, are already low.
The post-GFC reduction in market-making activities by investment banks because of more onerous capital requirements has added to the potential for critical mismatches between buyers and sellers.
“If rates are distorted, the reactions to any event will also be amplified and exaggerated, because so much leverage is out there”, he said.
It now trades on a 6.6 per cent yields and if all goes to plan, Clime believe ARF is capable of at least maintaining this rate of distribution growth into the medium term.
Higher boosts in interest rates would boost monthly and overall costs considerably, Vukasin said.
The MSCI Emerging Markets index is up around 8.5 percent so far this month, although it remains down around 10 percent year-to-date.
Federal Reserve chief Janet Yellen will appear at the Joint Economic Committee of the U.S. Congress on December. 3, a committee spokeswoman said on Saturday. “So, that would be the argument for going ahead and getting ahead of the curve”, he said.
About 90 percent of the Montana college students who borrow money for their educational expenses do so under the Federal Direct Loan Program.
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The conventional wisdom is that the gold price is bound to fall sharply as well when United States interest rates are hiked.
