Why Would the Fed Even Consider Raising rates? (real estate, companies, interest)

[carolinadawg2]

The Fed is forecasting 2% GDP growth and 2% inflation (or less) for the next 3 years. Why would they even consider raising rates in that environment. There's no justification, nor need, to raise rates.

[chrisCD]

0% to 0.25% was supposed to be an emergency measure. We are not supposed to be in an emergency situation any longer. A Fed Funds rate of 1.00% would still be more than accommodating and the Fed should have taken the opportunity to begin moving in that direction. cd :O)

[Chango]

'Nuff said.

[HappyTexan]

The recession was officially over June 2009. Why are we still near 0% six years later ?

[Goinback2011]

Originally Posted by HappyTexan

The recession was officially over June 2009. Why are we still near 0% six years later ?

We have an affirmative action economy.

The truth won't be spoken until O is out of office.

[Thatsright19]

Originally Posted by HappyTexan

The recession was officially over June 2009. Why are we still near 0% six years later ?

"Years of current account deficits - deficits induced not by the decisions of private savers looking to maximize returns but by foreign public sector entities seeking to maintain export growth - has literally resulted in a US economy that, on net, is unable to produce the goods its citizens want to consume.

South Korea, Russia, and other emerging markets that go through severe crises usually undergo a sharp depreciation in the inflation-adjusted value of the currency, making them hypercompetitive, at least for a while. This makes it easier to replace imports with domestic goods and services and much more attractive to export.

In contrast, the global financial crisis actually strengthened the U.S. dollar as it was seen as a haven. Currency depreciation - of substantial magnitude - is a mechanism by which economies recover from financial crisis. But we shouldn't underestimate that challenges that accompany such an adjustment.

Put simply, the Federal Reserve is positioned to declare war on Bretton Woods 2. November 3, 2010. Mark it on your calendars.

So perhaps Bretton Woods does not end because foreign governments are unwilling to bear ever increasing levels of currency and interest rate risk or due to the collapse of private intermediaries in the US, but because it has delivered the threat of deflation to the US, and that provokes a substantial response from the Federal Reserve. A side effect of the next round of quantitative easing is an attack on the strong dollar policy.

The rest of the world is howling.

Consider the enormity of the situation at hand. The Federal Reserve is poised to crank up the printing press for the sake of satisfying their domestic mandate. One mechanism, perhaps the only mechanism, by which we can expect meaningful, sustained reversal from the current set of imbalances is via a significant depreciation of the dollar. The rest of the world appears prepared to fight the Fed because they know no other path.

Bad things happen when you fight the Fed. You find yourself on the wrong side of a whole bunch of trades. In this case, I suspect it means that Bretton Woods 2 finally collapses in a disorderly mess. There may really be no other way for it to end, because its end yields clear winners and losers. And the losers, in this case largely emerging markets, and not prepared to accept their fate.

Bottom Line: The time may finally be at hand when the imbalances created by Bretton Woods 2 now tear the system asunder. The collapse is coming via an unexpected channel; rather than originating from abroad, the shock that sets it in motion comes from the inside, a blast of stimulus from the US Federal Reserve. And at the moment, the collapse looks likely to turn disorderly quickly. If the Federal Reserve is committed to quantitative easing, there is no way for the rest of the world to stop to flow of dollars that is already emanating from the US. Yet much of the world does not want to accept the inevitable, and there appears to be no agreement on what comes next. Call me pessimistic, but right now I don't see how this situation gets anything but more ugly

We've often seen the phrase, "Saved by WWII" when seeing the analogy between now and the 1930s. Then the world was in disarray, based on economic constraints rooted in WWI reparations, the expansion and bursting of the stock market, and world wide abject poverty.

Saved by a war that cost 60 million lives? What was the option? The starvation of the poorest had begun in Eastern Europe, and revolution was in the air in United States. No one can contemplate the extent of the disaster that is coming now, since we don't conceptualize WWII as being caused by economics.

Perhaps it's time to promote this explanation, so it would be clearer just what kind of a precipice we are now looking over."

[zoomzoom3]

They never will. 10 years from now the rate will still be exactly the same.

[LeavingMA]

Why does GDP even matter, the Fed said it doesn't. Their inflation number is bogus, just an excuse for them to do what they want. They first said they were waiting for unemployment to get under 6% or something and when it did, they came up with a new excuse why to keep interest rates low. The Fed is a joke and has no credibility.

[bpollen]

Originally Posted by carolinadawg2

The Fed is forecasting 2% GDP growth and 2% inflation (or less) for the next 3 years. Why would they even consider raising rates in that environment. There's no justification, nor need, to raise rates.

Because the low rate is hurting the economy and the stock market. There are many businesses that rely on interest to pay the bills, like financial institutions, companies that deal in real estate, etc. Those things snowball, and so the companies that rely on financial institutions and such to make money are affected, too. And so on down the line.

People aren't making any interest to speak of on their savings. This means they have less money to spend (it's a pay cut to them).

There are also effects of our interest rate on the rest of the world. Everything is global, now.

Because everyone knows a rate hike is coming, but the fed doesn't do it, the stock market is crazy volatile, always expecting a rate hike around the corner.

The fed needs to raise the rate just a bit and get it out of the way, so everyone can relax and things can go back to normal.

[k374]

Originally Posted by HappyTexan

The recession was officially over June 2009. Why are we still near 0% six years later ?

They can't raise it. The entire economy is based on the premise of 0% interest rates. Housing prices, stock prices, Wall st. speculating with cheap money and pouring money into assets etc. etc. everything... raise the rates and all of the players will throw a major fit, the entire economy grinds to a halt. You know what happened with the rates went up .25% last time? Wall St. had a MAJOR moment...