5 ms·

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 t

by 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.
  - VT_Drew 11y ago
    >People are alot more concerned about trade with China than a token Fed Rate hike, sorry. This is the most bogus thing I have read all day. The China argument is smoke-and-mirrors, and it doesn't hold any water. The real reason is because of the rate hike. Yeah it would be small rate hike, but the any country that has any stock in US dollars has been expecting rate hikes to gradually increase. So everyone is expecting that if the Fed raises rates, it will continue to do so for awhile. That is why the markets go down when there is talk of a rate hike. And now the jig is up, you can expect to see the dollar start to fall because the world now knows that the Fed doesn't have the galls to up the rates and any stock they have in US dollars is pretty much worthless.
    - forgetsusername 11y ago
      >This is the most bogus thing I have read all day. Says the guy claiming that everything in US dollars is going to be worthless... HackerNews on financial issues is like reading Yahoo Finance.
      - jeffwass 11y ago
        I've often thought that financial discussions on Hacker News are about as accurate as the portrayal of electricity in Hollywood movies.
Nicholas_C 11y ago
The party has been going for a while it seems. Although I am worried about what a rate increase might due I have a hard time believing that a 25 basis point rate "hike" would shatter the markets.
- TheGrimDerp1 11y ago
  Pretty much since Waterloo
dragonwriter 11y ago
> It seems like the market has become addicted to low interest rates. More, low interest rates are insufficient tools alone to achieve the goals for which the Fed deploys them, so that the conditions which motivate low interest rates are not sufficiently resolved by them to move the market to conditions where low interest rates would stop being desirable. Monetary policy isn't magic and even with herculean interventions has limited efficacy (basically, at the moment, limited to not making things worse); the problems it addresses often require simultaneous fiscal policy actions to achieve substantial, durable changes. > At one time, it was the Federal Reserve's job: > "to take away the punch bowl just as the party gets going" That's still basically true. The thing is that, even with a rather full punch bowl set out, the party steadfastly refuses to get started.
- hga 11y ago
  even with a rather full punch bowl set out, the party steadfastly refuses to get started Doesn't that depend on which party you're talking about? I'm under the impression that the Fed's current policies are correlated with an asset bubble, and that's a classic "party" central banks are known to end in preference to a much worse end being forced later.
  - eli_gottlieb 11y ago
    Yes, the problem is the even larger problem of a decorrelation between the economic "fundamentals" (eg: wages, energy prices, manufacturing outputs, service outputs, educational level) and the FIRE-sector asset markets. The latter got sky high before 2008, and have gotten pretty damned high again. The former started declining in the early 2000s, took a hard dive in 2008, and have basically never recovered. The former are also much more strongly affected by fiscal policy rather than monetary.
happyscrappy 11y ago
The US could certainly withstand a rate hike but the broader market would take a beating and that would boomerang around and bite. That said it has to happen relatively soon or larger risks loom.
cft 11y ago
I presume the rationale to increase the rates is that during the next crash there will be something to lower. What will they do if the market crashes and the rate is still 0?
- forgetsusername 11y ago
  >What will they do if the market crashes and the rate is still 0 Go negative. The idea that they should raise rates to slow the economy so that they can turn around and lower them to stimulate it defies reason.
  - FatalErrorr 11y ago
    https://www.youtube.com/watch?v=Ytx1P7P4XXk https://www.youtube.com/watch?v=Ytx1P7P4XXk
- dragonwriter 11y ago
  > I presume the rationale to increase the rates is that during the next crash there will be something to lower. The rationale for increasing rates is to forestall inflation rising above the targeted level; inflation remains below targets and is expected to in the short term, so there is no reason to raise rates. > What will they do if the market crashes and the rate is still 0? Whatever they do won't matter much, just as it wouldn't if the market crashed with the rate target raised to 1/4 - 1/2 percent instead of 0 - 1/4 percent where it is now. If the economy hasn't had the kind of strong, broad recovery that would support higher interest rates before the next crash, monetary policy isn't going to do much to deal with the next crash (and monetary policy isn't going to produce that kind of strong, broad recovery, either.) The Fed as an independent central bank, while it has important responsibility, has a fairly limited role; most of the strong economic policy levers are fiscal policy that is in the hands of the political branches of government, particular Congress.
sandworm101 11y ago
> At one time, it was the Federal Reserve's job: "to take away the punch bowl just as the party gets going" The feds job is to on occasion liven up a dieing party by making a beer run, sometimes a couple beer runs. It isn't the fed's job to drive everyone to the beer store and open a tab. Rather then deal with the reasons why the party is failing, this fed has given them the lift, bought the beer and hired some strippers. There is a fine line between fun and reckless.

by kqr2 11y ago

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.
- VT_Drew 11y ago
  >People are alot more concerned about trade with China than a token Fed Rate hike, sorry. This is the most bogus thing I have read all day. The China argument is smoke-and-mirrors, and it doesn't hold any water. The real reason is because of the rate hike. Yeah it would be small rate hike, but the any country that has any stock in US dollars has been expecting rate hikes to gradually increase. So everyone is expecting that if the Fed raises rates, it will continue to do so for awhile. That is why the markets go down when there is talk of a rate hike. And now the jig is up, you can expect to see the dollar start to fall because the world now knows that the Fed doesn't have the galls to up the rates and any stock they have in US dollars is pretty much worthless.
  - forgetsusername 11y ago
    >This is the most bogus thing I have read all day. Says the guy claiming that everything in US dollars is going to be worthless... HackerNews on financial issues is like reading Yahoo Finance.
    - jeffwass 11y ago
      I've often thought that financial discussions on Hacker News are about as accurate as the portrayal of electricity in Hollywood movies.

Nicholas_C 11y ago

The party has been going for a while it seems. Although I am worried about what a rate increase might due I have a hard time believing that a 25 basis point rate "hike" would shatter the markets.

TheGrimDerp1 11y ago
Pretty much since Waterloo

dragonwriter 11y ago

> It seems like the market has become addicted to low interest rates. More, low interest rates are insufficient tools alone to achieve the goals for which the Fed deploys them, so that the conditions which motivate low interest rates are not sufficiently resolved by them to move the market to conditions where low interest rates would stop being desirable. Monetary policy isn't magic and even with herculean interventions has limited efficacy (basically, at the moment, limited to not making things worse); the problems it addresses often require simultaneous fiscal policy actions to achieve substantial, durable changes. > At one time, it was the Federal Reserve's job: > "to take away the punch bowl just as the party gets going" That's still basically true. The thing is that, even with a rather full punch bowl set out, the party steadfastly refuses to get started.

hga 11y ago
even with a rather full punch bowl set out, the party steadfastly refuses to get started Doesn't that depend on which party you're talking about? I'm under the impression that the Fed's current policies are correlated with an asset bubble, and that's a classic "party" central banks are known to end in preference to a much worse end being forced later.
- eli_gottlieb 11y ago
  Yes, the problem is the even larger problem of a decorrelation between the economic "fundamentals" (eg: wages, energy prices, manufacturing outputs, service outputs, educational level) and the FIRE-sector asset markets. The latter got sky high before 2008, and have gotten pretty damned high again. The former started declining in the early 2000s, took a hard dive in 2008, and have basically never recovered. The former are also much more strongly affected by fiscal policy rather than monetary.

happyscrappy 11y ago

The US could certainly withstand a rate hike but the broader market would take a beating and that would boomerang around and bite. That said it has to happen relatively soon or larger risks loom.

cft 11y ago

I presume the rationale to increase the rates is that during the next crash there will be something to lower. What will they do if the market crashes and the rate is still 0?

forgetsusername 11y ago
>What will they do if the market crashes and the rate is still 0 Go negative. The idea that they should raise rates to slow the economy so that they can turn around and lower them to stimulate it defies reason.
- FatalErrorr 11y ago
  https://www.youtube.com/watch?v=Ytx1P7P4XXk https://www.youtube.com/watch?v=Ytx1P7P4XXk
dragonwriter 11y ago
> I presume the rationale to increase the rates is that during the next crash there will be something to lower. The rationale for increasing rates is to forestall inflation rising above the targeted level; inflation remains below targets and is expected to in the short term, so there is no reason to raise rates. > What will they do if the market crashes and the rate is still 0? Whatever they do won't matter much, just as it wouldn't if the market crashed with the rate target raised to 1/4 - 1/2 percent instead of 0 - 1/4 percent where it is now. If the economy hasn't had the kind of strong, broad recovery that would support higher interest rates before the next crash, monetary policy isn't going to do much to deal with the next crash (and monetary policy isn't going to produce that kind of strong, broad recovery, either.) The Fed as an independent central bank, while it has important responsibility, has a fairly limited role; most of the strong economic policy levers are fiscal policy that is in the hands of the political branches of government, particular Congress.

sandworm101 11y ago

> At one time, it was the Federal Reserve's job: "to take away the punch bowl just as the party gets going" The feds job is to on occasion liven up a dieing party by making a beer run, sometimes a couple beer runs. It isn't the fed's job to drive everyone to the beer store and open a tab. Rather then deal with the reasons why the party is failing, this fed has given them the lift, bought the beer and hired some strippers. There is a fine line between fun and reckless.