9 ms·

Fed Leaves Interest Rates Unchanged

52 points by nthitz 11y ago

carsongross 11y ago
Probably their last chance before the next crisis. It was already almost guaranteed, but we will probably see negative interest rates in the U.S. within a year. The beatings will continue until morale improves. https://pbs.twimg.com/media/CPH_BT3UYAQxP25.png https://pbs.twimg.com/media/CPH_BT3UYAQxP25.png
- throwaway1967 11y ago
  You shouldn't have been down-voted, as the latest FOMC report does indeed predict Negative Interest Rate Policy for 2015 and 2016. It is coming and it is coming fast.
- Nicholas_C 11y ago
  What evidence/knowledge/premonitions are you basing this claim on?
  - malchow 11y ago
    One of the dot plots from a FOMC member released today -- they are anonymous, so we do not know which one -- specifically forecast (i.e., advocated for) negative real interest rates. EDIT: Here it is: http://fm.cnbc.com/applications/cnbc.com/resources/files/2015/09/17/Screen%20Shot%202015-09-17%20at%202.03.10%20PM.png http://fm.cnbc.com/applications/cnbc.com/resources/files/201... And here is this past June's dot plot: http://fm.cnbc.com/applications/cnbc.com/resources/files/2015/09/17/june-dot-plot.jpg http://fm.cnbc.com/applications/cnbc.com/resources/files/201...
    - toomuchtodo 11y ago
      Savings rate in the US is already close to zero. Unlike other countries/fiscal unions where savings rates are higher, I'm not sure negative rates would do any good in the US (other than causing businesses with large cash positions to move them to other currencies). With that in mind, I can't think of a safe currency to move to outside of dollars. Strange times.
  - fweespeech 11y ago
    I'm assuming just the general business cycle which averages a recession every 6 years or so. Plus negative interest rates being the only tool available to the Fed during a new recession. http://www.investopedia.com/terms/b/businesscycle.asp http://www.investopedia.com/terms/b/businesscycle.asp
    - Nicholas_C 11y ago
      >I'm assuming just the general business cycle which averages a recession every 6 years or so. That's a rather large assumption IMHO. Prior conditions do not necessarily hold true in the future. We went ten years from 1991 to 2001 without a recession. We are due for a recession the same way Yellowstone is due for an eruption. >Plus negative interest rates being the only tool available to the Fed during a new recession. This does worry me.
    - dragonwriter 11y ago
      > I'm assuming just the general business cycle which averages a recession every 6 years or so. That may be an average, but its hardly consistent. The period (peak to peak) between recessions for the last 10 cycles has been: 81 months 128 months 100 months 18 months 74 months 47 months 116 months 32 months 49 months 56 months > Plus negative interest rates being the only tool available to the Fed during a new recession. OTOH, arguably, the reason that the Feds been forced to be so extreme with monetary policy that that might be the case is that the government has pretty much neglected fiscal policy responses. Which is, generally, not a positive thing, but it does mean that, as exhausted as the monetary policy options might be, the fiscal policy arsenal is well-stocked and untouched.
  - carsongross 11y ago
    I was just putting the obvious together: recession incoming (probably already here) interest rates at zero, QE obviously ineffective, only thing left that the fed can do is negative rates. But it was confirmed as a possibility a few hours later when the FMOC comments came out: http://www.zerohedge.com/news/2015-09-17/fomc-stunner-one-fomc-member-forecasts-negative-025-bps-interest-rate-2015-and-2016 http://www.zerohedge.com/news/2015-09-17/fomc-stunner-one-fo... It won't work, of course, but what else are they supposed to do?
- Amezarak 11y ago
  Most economists I'm familiar with didn't think QE would solve our problems. It was a stopgap measure, the only tool the Fed has left in the box. What we were supposed to have needed to really improve things is better fiscal policy, but instead we're stuck waiting it out because that's not going to happen for political reasons.
- go1979 11y ago
  I think so too. Guess real-estate prices will keep going up, up, up :( Not sure how this craziness will play out.
sandworm101 11y ago
I wish the fed allowed me to borrow at their rates. In fact, if I had access to such rates I could turn that money around and could loan it back to the fed for a substantial profit. I wonder if anyone else has though of that?
- humbleMouse 11y ago
  The illuminati has beat you to it
- phkahler 11y ago
  >> I wish the fed allowed me to borrow at their rates. Just pull up to the Discount Lending Window and ask for some cash.
  - irln 11y ago
    They have a drive-thru? :)
    - sslayer 11y ago
      Sure, they give you money for the title to your car. Of course the next time you won't be pulling up in a car.
- nerfhammer 11y ago
  the discount window lending rate is pegged to be 50 basis points above the federal funds rate, so, yes, they thought of that.
  - x5n1 11y ago
    Hell you could pay off everyone's credit card debt and charge them maybe 5%. You would be a multi-billionaire over night.
    - nerfhammer 11y ago
      That's called refinancing and it is already a thing that exists
rocketcity 11y ago
There was an interesting article on here yesterday talking about what an experiment this has been. It will be quite interesting to see what will unfold in the markets once the fed builds up the nerve to finally bump up interest rates.
- jkyle 11y ago
  Let me save up to buy a house first.
beatpanda 11y ago
That's good for most HN readers, as the tech industry depends entirely on low interest rates to make insane amounts of capital available to unprofitable businesses. If you're enjoying your inflated salary, thank Janet Yellen.
- quonn 11y ago
  Why call a salary inflated, if lawyers or doctors still make more? I have yet to meet one lawyer who feels his salary is undeserved or inflated. Unprofitable businesses (startups) don't even pay their employees that much. The established/big players pay higher salaries and do not depend on much credit at all.
  - dovereconomics 11y ago
    Even if unrealizable business don't pay very much(close to doctors/lawyers), it still is a distortion in the market that wouldn't be possible in a free market. Btw, big players are also dependent on a ZIRP, which goes beyond simply 'more credit'.
  - vonmoltke 11y ago
    According to Google[1], the median salary for a lawyer in the US is $113,530 and for a software engineer is $93,350. Considering a lawyer requires a Masters degree and a software engineer typically (but not necessarily) only has a Bachelors, I don't think there is much effective difference. On top of that, the median starting salary for lawyers is $62,000[2], which I think is significantly less than the median for software engineers. Lawyers also graduate with significantly higher debt load. Doctors are a different ball of wax. They require effectively PhD-level education plus a seriously underpaid multi-year residency before they can actually practice. They also have debt loads that make law degrees look cheap. [1] Search "lawyer salary" and "software engineer salary" [2] http://money.cnn.com/2014/07/15/pf/jobs/lawyer-salaries/ http://money.cnn.com/2014/07/15/pf/jobs/lawyer-salaries/
    - repiret 11y ago
      Lawyers have a doctorate - it's what the D in JD stands for.
kqr2 11y ago
It seems like the market has become addicted to low interest rates. Every time there is a hint that interest rates will go up, the market goes down, and then the federal reserve gets spooked and doesn't go through with the hike. At one time, it was the Federal Reserve's job: "to take away the punch bowl just as the party gets going" https://en.wikipedia.org/wiki/William_McChesney_Martin https://en.wikipedia.org/wiki/William_McChesney_Martin
- phkahler 11y ago
  >> It seems like the market has become addicted to low interest rates. Yeah, I laughed at this: "But they have expressed concern that the recent stock market downturn may be a sign of weakness in the domestic economy." The market is down because of the impending rate hike. They have to just bite the bullet and do it. It has to be slow of course, or they'll trigger housing collapse part II. See what the chart in TFA shows? After the dot-com bust and 9/11 they dropped rates drastically to stimulate things. Then after a couple years near zero they jacked them up. What happened is a bunch of people refinanced with low rates pumping up house prices and then they pulled the rug out from under them. Now after a prolonged time of near zero rates we're in a similar position with inflated home prices.
  - fweespeech 11y ago
    The market is down more because of commodities and China concerns than a rate hike. http://money.cnn.com/2015/08/24/investing/stocks-markets-selloff-china-crash-dow/ http://money.cnn.com/2015/08/24/investing/stocks-markets-sel... People are alot more concerned about trade with China than a token Fed Rate hike, sorry.
    - phkahler 11y ago
      >> People are alot more concerned about trade with China than a token Fed Rate hike, sorry. Wallstreet is terrified of the rate hike. If it is indeed the start of a ramp to 3.x percent in one year, shit is gonna fall apart again. There really is no way around it due to the inverse relationship between interest rates and housing prices. Better lending practices and stress testing will ensure the big banks can handle it this time. That doesn't help your 401k though. Looks like we'll see whose right on this by the end of the year. I'm betting on the rate hike in October.
irln 11y ago
It's really remarkable (in a good or bad way depending upon your perspective) that 12 people hold the fate of the world financial market in their decisions.
- Nicholas_C 11y ago
  I've heard it said that the Federal Reserve Chair is the second most powerful person in the world after the US President.
  - 6stringmerc 11y ago
    The President of the US may have bigger weapons, but I'm of the opinion the tools used by the Federal Reserve may be more dangerous by scope of impact...
    - throwaway1967 11y ago
      One thing that is often talked about regarding "the most powerful people" is their ethnicity. For instance, a big deal was made regarding President Obama being the first (half-)black president. So it's only fair that we do the same for the second most powerful person in the world. Let's start around 1970 since there was a pivotal shift in the US around that time (starting in 1967 - read The Culture of Critique for more information). 1970-1978 - Arthur F Burns - Jewish 1978-1979 - George William Miller - WASP (note: that's when Carter was president; this tenure lasted only one year) 1979-1987 - Paul Volcker - Jewish 1987-2006 - Alan Greenspan - Jewish 2006-2014 - Ben Bernanke - Jewish 2014-20?? - Janet Yellen - Jewish Considering Jewish people are around 2% of the US population this is a staggering coincidence, is it not? Can someone calculate the odds of this happening? I'm not that good with probability.
forgetsusername 11y ago
Unemployment is looking okay, but inflation is non-existent and Industrial Utilization is still below "normal". Why should rates be raised? For some reason people want a rate hike for the sake of a hike. I'm glad the Fed is being cautious.
- throwaway1967 11y ago
  You forgot the sarcasm tag.
- onion2k 11y ago
  People are concerned that very low interest rates for the long term will lead to an asset bubble[1]. It's a reasonable concern; it's happened in the past eg the 1980s Japanese real estate bubble[2]. [1] https://en.m.wikipedia.org/wiki/Economic_bubble#Identifying_asset_bubbles https://en.m.wikipedia.org/wiki/Economic_bubble#Identifying_... [2] https://en.m.wikipedia.org/wiki/Japanese_asset_price_bubble https://en.m.wikipedia.org/wiki/Japanese_asset_price_bubble
  - forgetsusername 11y ago
    >"People are concerned that very low interest rates for the long term will lead to an asset bubble[1] If people foresee the bubble, why do they participate in it? Why aren't the on the "short" side? I get bubble mechanics. What I don't agree with are forecasts like, "What about asset bubbles?" Well, what about the income gap from years of sub-optimal growth happening right now? Why does an asset bubble (which have occurred throughout history, regardless of rates) trump that scenario? The idea of damaging growth now to forestall a possible asset bubble in the future is not a good tradeoff.
    - Rmilb 11y ago
      >If people foresee the bubble, why do they participate in it? Why aren't the on the "short" side? From John Maynard Keynes himself, "The market can stay irrational longer than you can stay solvent.”
zerstroyer 11y ago
Well maybe it's time for them to acknowledge that money as form of credit should have an interest rate which is variable.
mizchief2 11y ago
The Fed will not raise interest rates. They will only say they might in the future then make excuses for it. The US cannot pay it's debts if the rates go up.

52 points by nthitz 11y ago

Probably their last chance before the next crisis. It was already almost guaranteed, but we will probably see negative interest rates in the U.S. within a year. The beatings will continue until morale improves. https://pbs.twimg.com/media/CPH_BT3UYAQxP25.png https://pbs.twimg.com/media/CPH_BT3UYAQxP25.png

throwaway1967 11y ago
You shouldn't have been down-voted, as the latest FOMC report does indeed predict Negative Interest Rate Policy for 2015 and 2016. It is coming and it is coming fast.
Nicholas_C 11y ago
What evidence/knowledge/premonitions are you basing this claim on?
- malchow 11y ago
  One of the dot plots from a FOMC member released today -- they are anonymous, so we do not know which one -- specifically forecast (i.e., advocated for) negative real interest rates. EDIT: Here it is: http://fm.cnbc.com/applications/cnbc.com/resources/files/2015/09/17/Screen%20Shot%202015-09-17%20at%202.03.10%20PM.png http://fm.cnbc.com/applications/cnbc.com/resources/files/201... And here is this past June's dot plot: http://fm.cnbc.com/applications/cnbc.com/resources/files/2015/09/17/june-dot-plot.jpg http://fm.cnbc.com/applications/cnbc.com/resources/files/201...
  - toomuchtodo 11y ago
    Savings rate in the US is already close to zero. Unlike other countries/fiscal unions where savings rates are higher, I'm not sure negative rates would do any good in the US (other than causing businesses with large cash positions to move them to other currencies). With that in mind, I can't think of a safe currency to move to outside of dollars. Strange times.
- fweespeech 11y ago
  I'm assuming just the general business cycle which averages a recession every 6 years or so. Plus negative interest rates being the only tool available to the Fed during a new recession. http://www.investopedia.com/terms/b/businesscycle.asp http://www.investopedia.com/terms/b/businesscycle.asp
  - Nicholas_C 11y ago
    >I'm assuming just the general business cycle which averages a recession every 6 years or so. That's a rather large assumption IMHO. Prior conditions do not necessarily hold true in the future. We went ten years from 1991 to 2001 without a recession. We are due for a recession the same way Yellowstone is due for an eruption. >Plus negative interest rates being the only tool available to the Fed during a new recession. This does worry me.
  - dragonwriter 11y ago
    > I'm assuming just the general business cycle which averages a recession every 6 years or so. That may be an average, but its hardly consistent. The period (peak to peak) between recessions for the last 10 cycles has been: 81 months 128 months 100 months 18 months 74 months 47 months 116 months 32 months 49 months 56 months > Plus negative interest rates being the only tool available to the Fed during a new recession. OTOH, arguably, the reason that the Feds been forced to be so extreme with monetary policy that that might be the case is that the government has pretty much neglected fiscal policy responses. Which is, generally, not a positive thing, but it does mean that, as exhausted as the monetary policy options might be, the fiscal policy arsenal is well-stocked and untouched.
- carsongross 11y ago
  I was just putting the obvious together: recession incoming (probably already here) interest rates at zero, QE obviously ineffective, only thing left that the fed can do is negative rates. But it was confirmed as a possibility a few hours later when the FMOC comments came out: http://www.zerohedge.com/news/2015-09-17/fomc-stunner-one-fomc-member-forecasts-negative-025-bps-interest-rate-2015-and-2016 http://www.zerohedge.com/news/2015-09-17/fomc-stunner-one-fo... It won't work, of course, but what else are they supposed to do?
Amezarak 11y ago
Most economists I'm familiar with didn't think QE would solve our problems. It was a stopgap measure, the only tool the Fed has left in the box. What we were supposed to have needed to really improve things is better fiscal policy, but instead we're stuck waiting it out because that's not going to happen for political reasons.
go1979 11y ago
I think so too. Guess real-estate prices will keep going up, up, up :( Not sure how this craziness will play out.

sandworm101 11y ago

I wish the fed allowed me to borrow at their rates. In fact, if I had access to such rates I could turn that money around and could loan it back to the fed for a substantial profit. I wonder if anyone else has though of that?

humbleMouse 11y ago
The illuminati has beat you to it
phkahler 11y ago
>> I wish the fed allowed me to borrow at their rates. Just pull up to the Discount Lending Window and ask for some cash.
- irln 11y ago
  They have a drive-thru? :)
  - sslayer 11y ago
    Sure, they give you money for the title to your car. Of course the next time you won't be pulling up in a car.
nerfhammer 11y ago
the discount window lending rate is pegged to be 50 basis points above the federal funds rate, so, yes, they thought of that.
- x5n1 11y ago
  Hell you could pay off everyone's credit card debt and charge them maybe 5%. You would be a multi-billionaire over night.
  - nerfhammer 11y ago
    That's called refinancing and it is already a thing that exists

rocketcity 11y ago

There was an interesting article on here yesterday talking about what an experiment this has been. It will be quite interesting to see what will unfold in the markets once the fed builds up the nerve to finally bump up interest rates.

jkyle 11y ago
Let me save up to buy a house first.

beatpanda 11y ago

That's good for most HN readers, as the tech industry depends entirely on low interest rates to make insane amounts of capital available to unprofitable businesses. If you're enjoying your inflated salary, thank Janet Yellen.

quonn 11y ago
Why call a salary inflated, if lawyers or doctors still make more? I have yet to meet one lawyer who feels his salary is undeserved or inflated. Unprofitable businesses (startups) don't even pay their employees that much. The established/big players pay higher salaries and do not depend on much credit at all.
- dovereconomics 11y ago
  Even if unrealizable business don't pay very much(close to doctors/lawyers), it still is a distortion in the market that wouldn't be possible in a free market. Btw, big players are also dependent on a ZIRP, which goes beyond simply 'more credit'.
- vonmoltke 11y ago
  According to Google[1], the median salary for a lawyer in the US is $113,530 and for a software engineer is $93,350. Considering a lawyer requires a Masters degree and a software engineer typically (but not necessarily) only has a Bachelors, I don't think there is much effective difference. On top of that, the median starting salary for lawyers is $62,000[2], which I think is significantly less than the median for software engineers. Lawyers also graduate with significantly higher debt load. Doctors are a different ball of wax. They require effectively PhD-level education plus a seriously underpaid multi-year residency before they can actually practice. They also have debt loads that make law degrees look cheap. [1] Search "lawyer salary" and "software engineer salary" [2] http://money.cnn.com/2014/07/15/pf/jobs/lawyer-salaries/ http://money.cnn.com/2014/07/15/pf/jobs/lawyer-salaries/
  - repiret 11y ago
    Lawyers have a doctorate - it's what the D in JD stands for.

kqr2 11y ago

It seems like the market has become addicted to low interest rates. Every time there is a hint that interest rates will go up, the market goes down, and then the federal reserve gets spooked and doesn't go through with the hike. At one time, it was the Federal Reserve's job: "to take away the punch bowl just as the party gets going" https://en.wikipedia.org/wiki/William_McChesney_Martin https://en.wikipedia.org/wiki/William_McChesney_Martin

phkahler 11y ago
>> It seems like the market has become addicted to low interest rates. Yeah, I laughed at this: "But they have expressed concern that the recent stock market downturn may be a sign of weakness in the domestic economy." The market is down because of the impending rate hike. They have to just bite the bullet and do it. It has to be slow of course, or they'll trigger housing collapse part II. See what the chart in TFA shows? After the dot-com bust and 9/11 they dropped rates drastically to stimulate things. Then after a couple years near zero they jacked them up. What happened is a bunch of people refinanced with low rates pumping up house prices and then they pulled the rug out from under them. Now after a prolonged time of near zero rates we're in a similar position with inflated home prices.
- fweespeech 11y ago
  The market is down more because of commodities and China concerns than a rate hike. http://money.cnn.com/2015/08/24/investing/stocks-markets-selloff-china-crash-dow/ http://money.cnn.com/2015/08/24/investing/stocks-markets-sel... People are alot more concerned about trade with China than a token Fed Rate hike, sorry.
  - phkahler 11y ago
    >> People are alot more concerned about trade with China than a token Fed Rate hike, sorry. Wallstreet is terrified of the rate hike. If it is indeed the start of a ramp to 3.x percent in one year, shit is gonna fall apart again. There really is no way around it due to the inverse relationship between interest rates and housing prices. Better lending practices and stress testing will ensure the big banks can handle it this time. That doesn't help your 401k though. Looks like we'll see whose right on this by the end of the year. I'm betting on the rate hike in October.

irln 11y ago

It's really remarkable (in a good or bad way depending upon your perspective) that 12 people hold the fate of the world financial market in their decisions.

Nicholas_C 11y ago
I've heard it said that the Federal Reserve Chair is the second most powerful person in the world after the US President.
- 6stringmerc 11y ago
  The President of the US may have bigger weapons, but I'm of the opinion the tools used by the Federal Reserve may be more dangerous by scope of impact...
  - throwaway1967 11y ago
    One thing that is often talked about regarding "the most powerful people" is their ethnicity. For instance, a big deal was made regarding President Obama being the first (half-)black president. So it's only fair that we do the same for the second most powerful person in the world. Let's start around 1970 since there was a pivotal shift in the US around that time (starting in 1967 - read The Culture of Critique for more information). 1970-1978 - Arthur F Burns - Jewish 1978-1979 - George William Miller - WASP (note: that's when Carter was president; this tenure lasted only one year) 1979-1987 - Paul Volcker - Jewish 1987-2006 - Alan Greenspan - Jewish 2006-2014 - Ben Bernanke - Jewish 2014-20?? - Janet Yellen - Jewish Considering Jewish people are around 2% of the US population this is a staggering coincidence, is it not? Can someone calculate the odds of this happening? I'm not that good with probability.

forgetsusername 11y ago

Unemployment is looking okay, but inflation is non-existent and Industrial Utilization is still below "normal". Why should rates be raised? For some reason people want a rate hike for the sake of a hike. I'm glad the Fed is being cautious.

throwaway1967 11y ago
You forgot the sarcasm tag.
onion2k 11y ago
People are concerned that very low interest rates for the long term will lead to an asset bubble[1]. It's a reasonable concern; it's happened in the past eg the 1980s Japanese real estate bubble[2]. [1] https://en.m.wikipedia.org/wiki/Economic_bubble#Identifying_asset_bubbles https://en.m.wikipedia.org/wiki/Economic_bubble#Identifying_... [2] https://en.m.wikipedia.org/wiki/Japanese_asset_price_bubble https://en.m.wikipedia.org/wiki/Japanese_asset_price_bubble
- forgetsusername 11y ago
  >"People are concerned that very low interest rates for the long term will lead to an asset bubble[1] If people foresee the bubble, why do they participate in it? Why aren't the on the "short" side? I get bubble mechanics. What I don't agree with are forecasts like, "What about asset bubbles?" Well, what about the income gap from years of sub-optimal growth happening right now? Why does an asset bubble (which have occurred throughout history, regardless of rates) trump that scenario? The idea of damaging growth now to forestall a possible asset bubble in the future is not a good tradeoff.
  - Rmilb 11y ago
    >If people foresee the bubble, why do they participate in it? Why aren't the on the "short" side? From John Maynard Keynes himself, "The market can stay irrational longer than you can stay solvent.”

zerstroyer 11y ago

Well maybe it's time for them to acknowledge that money as form of credit should have an interest rate which is variable.

mizchief2 11y ago

The Fed will not raise interest rates. They will only say they might in the future then make excuses for it. The US cannot pay it's debts if the rates go up.