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Would you like to see interest rates rise in the U.S.?

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Author Topic: Would you like to see interest rates rise in the U.S.?  (Read 4923 times)

GU

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Would you like to see interest rates rise in the U.S.?
« on: March 21, 2017, 11:16:58 AM »
The Fed has decided to raise interest rates, with more planned increases in the near future.  https://www.nytimes.com/2017/03/15/business/economy/fed-interest-rates-yellen.html?_r=0

What do you think? 

fattest_foot

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #1 on: March 21, 2017, 11:37:24 AM »
Yes, it needs to be done. It needed to be done 5 years ago, really.

Leaving them low gives the Fed no flexibility for the next crisis.

thenextguy

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #2 on: March 21, 2017, 11:40:29 AM »
Leaving them low gives the Fed no flexibility for the next crisis.

That's like saying you're going to burn down half of your house right now so that you'll have less to put out if it ever catches fire in the future.

Scortius

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #3 on: March 21, 2017, 01:53:24 PM »
As someone who's looking to buy a house, I can't decide if I want them to stay low until I get a mortgage, or go up and cause another housing crisis (selfish, I know) so I can buy low and maybe refinance later.

As someone still in early accumulation mode, I would definitely like to see them go up.

As someone taking a longer-term view of the US and world economy, I think they need to go up a bit so we can take our medicine and then move forward towards more sustainable growth.

But then I remember that I probably know nothing compared to the people actually making the decisions, so it's probably better for me to forget about it and just live my life.

ysette9

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #4 on: March 21, 2017, 02:32:02 PM »
Quote
As someone who's looking to buy a house, I can't decide if I want them to stay low until I get a mortgage, or go up and cause another housing crisis (selfish, I know) so I can buy low and maybe refinance later.

As someone still in early accumulation mode, I would definitely like to see them go up.

As someone who is starting to talk about looking to buy a house (haha), I agree with you on the first point.

On the second point, can someone educate me on why I should care what interest rates are when my money is invested in the stock market?

Cranky

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #5 on: March 21, 2017, 02:43:18 PM »
I think interest rates do affect the stock market as they make bonds more attractive? I'm sure someone can speak to that in much detail.

Don't care. Don't plan to borrow any money. Don't owe any money. I do think it's a sign that the economy is in fairly good shape, though.

Scortius

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #6 on: March 21, 2017, 03:00:33 PM »
Leaving them low gives the Fed no flexibility for the next crisis.

That's like saying you're going to burn down half of your house right now so that you'll have less to put out if it ever catches fire in the future.

I'd say a better analogy is controlled forest fires.  Better to have some early burns to clear out excess vegetation than to wait and have the mother of all forest fires than burns down the entire countryside.

fattest_foot

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #7 on: March 21, 2017, 03:10:09 PM »
Leaving them low gives the Fed no flexibility for the next crisis.

That's like saying you're going to burn down half of your house right now so that you'll have less to put out if it ever catches fire in the future.

I'd say a better analogy is controlled forest fires.  Better to have some early burns to clear out excess vegetation than to wait and have the mother of all forest fires than burns down the entire countryside.

This. We know that there will be another bubble that posts or major recession. That's just the cyclical nature of our economy. Leaving interest rates near 0 means that when it inevitably hits, the Fed has nothing they can do except more QE. And I'd say that's really bad for most of us.

VoteCthulu

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #8 on: March 21, 2017, 03:45:15 PM »
Policy wise, yes higher rates are probably good.

Personally, I don't really care all that much, since I'm mostly in stocks and not planning to take out a loan.

RangerOne

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #9 on: March 21, 2017, 03:51:58 PM »
Quote
As someone who's looking to buy a house, I can't decide if I want them to stay low until I get a mortgage, or go up and cause another housing crisis (selfish, I know) so I can buy low and maybe refinance later.

As someone still in early accumulation mode, I would definitely like to see them go up.

As someone who is starting to talk about looking to buy a house (haha), I agree with you on the first point.

On the second point, can someone educate me on why I should care what interest rates are when my money is invested in the stock market?

From my basic knowledge:

1. The cost of borrowing money for pretty much anything will go up
2. As rates rise certain bonds may take a hit
3. If rising rates slow growth it could have a negative impact on market returns
4. It sounds like we aren't likely to see bank savings returns increase even if rates go above 1% as planned this year. But in theory everyone has at least a little money in a bank somewhere. Wouldn't it be nice to get 2-3% on a savings account with  small emergency fund? Would it be nice to have 5 year CDs with 3%-5% guaranteed returns.

A Definite Beta Guy

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #10 on: March 21, 2017, 03:59:53 PM »
In general, yes. Unemployment is pretty low and inflation will start kicking in. Interest rates have to start rising from these bare-bottom levels.

The real question is the tool. I haven't followed much, but in the past, the Fed bought and sold securities to target the overnight rate among banks. This has the effect of draining cash out of the market, and when cash is scarce, interest rates rise. "Open market Operations" they call it.

 It doesn't need to do that anymore, since it can just pay interest on reserves...basically a checking account for banks, at the Fed. Why engage in Open Market Ops when you can just raise interest on reserves?


I'm not a huge fan, interest rate hike doesn't benefit my company too much, but the economic needs are the economic needs...




thenextguy

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #11 on: March 21, 2017, 04:19:52 PM »
Leaving them low gives the Fed no flexibility for the next crisis.

That's like saying you're going to burn down half of your house right now so that you'll have less to put out if it ever catches fire in the future.

I'd say a better analogy is controlled forest fires.  Better to have some early burns to clear out excess vegetation than to wait and have the mother of all forest fires than burns down the entire countryside.

This. We know that there will be another bubble that posts or major recession. That's just the cyclical nature of our economy. Leaving interest rates near 0 means that when it inevitably hits, the Fed has nothing they can do except more QE. And I'd say that's really bad for most of us.

Yes, but the Fed should only raise rates when its called for, not just so they can having something to cut in the future.  I agree that rates should go up, but I believe that because I don't think monetary policy needs to be this accommodative at this point in the business cycle. If the economy were to go into another recession, monetary policy would still be accommodative and supportive of growth at current levels.  It's the level of interest rates that support growth, not the mere act of cutting rates.

ysette9

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #12 on: March 21, 2017, 04:20:57 PM »
Quote
Wouldn't it be nice to get 2-3% on a savings account with  small emergency fund? Would it be nice to have 5 year CDs with 3%-5% guaranteed returns.

I remember back in the day when I was first starting my career and building up an emergency fund. Those 5% interest rates on my money market account were awesome! But now, would it really matter that much? It would be cool to get $100 instead of $2 in interest at the end of the year, but I'm still keeping 99% of my assets invested in the stock market, so it makes little difference to my bottom line.

Spork

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #13 on: March 21, 2017, 04:40:26 PM »
Quote
Wouldn't it be nice to get 2-3% on a savings account with  small emergency fund? Would it be nice to have 5 year CDs with 3%-5% guaranteed returns.

I remember back in the day when I was first starting my career and building up an emergency fund. Those 5% interest rates on my money market account were awesome! But now, would it really matter that much? It would be cool to get $100 instead of $2 in interest at the end of the year, but I'm still keeping 99% of my assets invested in the stock market, so it makes little difference to my bottom line.

I'm old.  I remember CD rates > 12%.  And my first mortgage was 9 and change (and we were ecstatic because it had been over 10%.

RangerOne

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #14 on: March 21, 2017, 04:53:11 PM »
Quote
Wouldn't it be nice to get 2-3% on a savings account with  small emergency fund? Would it be nice to have 5 year CDs with 3%-5% guaranteed returns.

I remember back in the day when I was first starting my career and building up an emergency fund. Those 5% interest rates on my money market account were awesome! But now, would it really matter that much? It would be cool to get $100 instead of $2 in interest at the end of the year, but I'm still keeping 99% of my assets invested in the stock market, so it makes little difference to my bottom line.

Certainly true, that with no change it makes no difference. But if you are a conservative investor they would be willing to keep at a lot more cash at 5% than 1%. The current market is probably forcing conservative individuals to invest beyond their comfort zone in many cases.

Saving for big purchases like a home in a sub 5 year time span gets a lot simpler. Given my only hope of getting a 5% return is to do 20/80 or 40/60 portfolio with stocks and bonds, and even then I risk losing around 10% principle in a bad year cutting down my year to year flexibility.

If I have $50k sitting in a down payment savings 5% is nothing to sneeze at compounded over a few years compared to my 1%.

But if I am ever seeing 5% interest on a money market, we would probably be staring down double digit interest home loans, in which case I might need to save a lot longer to avoid getting slammed on interest.

RangerOne

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #15 on: March 21, 2017, 04:57:58 PM »
From a technical standpoint I here it is overdue. But I put unsure simply because from a personal perspective it will probably only hurt me in the short run.

Bank CD, savings and money market rates sound like they will be the last needle to improve as rates rise. And even then they need to go drastically higher before we even see that happen.

I would think in the age of online banks we could see some amazing rates.

But in the next few years I think I am more likely to get no savings boost and simply have to start planning for high interest on my potential future home loan. Sounds like lending rates will go up far in advance of personal savings rates.

The only possible counterweight to that is we might see some home prices come down once people are forced to realize the can afford less at the same monthly payment?

Scortius

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #16 on: March 21, 2017, 05:18:07 PM »
One thing to remember is that interest rates on savings accounts generally mirror inflation.  3% with higher rates vs 1% or less now will probably end up benefiting you about the same.

exterous

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #17 on: March 21, 2017, 06:07:47 PM »
On the second point, can someone educate me on why I should care what interest rates are when my money is invested in the stock market?

Well below average interest rates pushes people to seek out higher rates of return in riskier investments. Not only can that inflate the costs of those higher risk investments like stocks but it also can lead to a greater chance of damage to those investments and the companies\people that make them. Insurers and Pension funds tend to be hard hit by low interest rates, increasing the strain on their funding providers which can often be tax payers.

Why engage in Open Market Ops when you can just raise interest on reserves?

I would imagine its a two pronged approach. The first being that since stable prices (ie inflation targeting unless Janet has reversed Ben's preferred approach) and output\employment stats are improving raising the rate returns some ammo to the Fed in the event of a down turn later. Granted they have other tools but with narrow differences so this would theoretically allow the Fed to target more specific desired outcomes. The second is that there is a lot of influence their words and actions carry. Everyone likes consistent and steady Fed performances and an interest rate hike is the Fed playing along to the music that everyone was expecting to hear.

MoonLiteNite

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #18 on: March 21, 2017, 07:50:32 PM »
I would like to see the government not screw with money.

GU

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #19 on: March 21, 2017, 09:01:04 PM »
So far 68% of poll respondents answered "'yes" to interest rates rising. Just an update.

Bateaux

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #20 on: March 22, 2017, 12:27:31 AM »
I voted yes.  Raise rates.  Take away the punch bowl for a while.  A little slow down now could avert a meltdown later.

Schaefer Light

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #21 on: March 22, 2017, 08:56:27 AM »
I would like to see the government not screw with money.

Exactly.  I would prefer to get rid of the Fed and let interest rates rise and fall naturally in accordance with the money supply.

GU

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #22 on: March 22, 2017, 11:29:18 AM »
I voted yes.  Raise rates.  Take away the punch bowl for a while.  A little slow down now could avert a meltdown later.

That is pretty much my feeling as well.  I think there is a lot of overreaching in the residential real estate market in particular (not nationwide obviously, but in many cities).

A Definite Beta Guy

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #23 on: March 22, 2017, 12:14:54 PM »
I voted yes.  Raise rates.  Take away the punch bowl for a while.  A little slow down now could avert a meltdown later.

That is pretty much my feeling as well.  I think there is a lot of overreaching in the residential real estate market in particular (not nationwide obviously, but in many cities).

Probably won't fix the out-of-control real estate prices in those areas, unfortunately. Definitely happy I don't live in San Fran, where my home would probably sell for like $3 million.


Lack of housing appreciation doesn't bother me as long as we don't go under-water. I'm not depending on home equity for retirement.

Slee_stack

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #24 on: March 22, 2017, 12:26:07 PM »
I feel we have had artificially low interest rates for far too long.  I don't like government incentives as they tend to prompt irresponsibility and certainly don't help to discourage fraud.  Too much home.  Too many kids.  Too little incentive to work.  Whatever.  (I hate the mortgage interest deduction even though I continue to use it).

To me, these rock bottom rates have heavily distorted my asset allocation.  I don't like to be manipulated away from any asset class, but it's what these silly low rates have done to me.

Overall, and for most here, rate changes will likely have little bearing on folks' overall financial health, but will encourage diversity.

WGH

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #25 on: March 22, 2017, 03:36:48 PM »
The main advantage besides the increase in rates for savings accounts, CDs etc. is taming of inflation. Hopefully this will lead to a cooling off on the housing market bubble in markets like San Fran.

As others have mentioned loans, mortgages etc. will get more expensive. Working in public finance loans for schools, roads, and other necessary infrastructure will get more expensive meaning more of your tax dollars will go towards paying those higher interest rates. We have seen a massive amount of public debt refinancing in this low rate environment which has saved untold millions in costs to John Q Public. It will be nice to see public cash reserves earning higher rates however.

scottish

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #26 on: March 22, 2017, 05:05:50 PM »
When US interest rates go up, Canadian rates will follow.   Higher interest rates will cool off the exuberant housing markets in our big cities.

BTDretire

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #27 on: March 22, 2017, 06:20:18 PM »
  The Fed will use interest rate increases to slow the economy in an effort to control inflation.
 It was dropped for so long to get the economy moving, and it was slow to respond.
 It has, and inflation is near the Fed's target rate.
 I have no opinion on the rate, I just want the stock market to keep going.
Although if they did get high enough that bonds would generate good income,
 I would be happy to move some money there for my twilight years.

 Some news today that was spun both ways, home sales were down 3.5 %,
 on the other, home inventory is very low and buyers are not finding what they want.

PathtoFIRE

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #28 on: March 23, 2017, 09:15:21 AM »
I vote no.

The little reading that I've done argues that the natural interest rate for cash is zero, and government intervention is required to raise it. So then the question is whether intervention is good or necessary. I think both sides could be argued, but what we are really talking about is economic output. When there is too much money chases too few whatevers (goods, economic inputs, etc), you get inflation. This process repeated in specific areas leads to bubbles. Monetary policy tries to cool this down by limiting the supply of money by increasing the cost of loans. This is all very indirect, and very blunt. It would make far more sense to use fiscal policy to target areas that need intervention. Housing bubble? Limit reduce tax subsidies. Unemployment increase? Provide job guarantee or make specific investments in infrastructure or other lagging areas to direct some of that economic output to something useful.

I think the biggest arguments against this that I've seen is that since monetary policy by its nature is blunt and very simple, it seems to some degree apolitical, whereas fiscal policy necessitates the advice and action of the legislatures, i.e. the people, and maybe we the people can't be trusted with doing the right thing. Personally I don't buy it, but I think there could be a learning curve to this, after all it took many decades for the Fed to master monetary policy to the level it currently does, and it still doesn't always respond appropriately in hindsight. Maybe unleash the fiscal restraints we have now and let others have a go for a while.

patchyfacialhair

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Re: Would you like to see interest rates rise in the U.S.?
« Reply #29 on: March 23, 2017, 09:29:27 AM »
Keep trying to vote "don't care" but getting a forum error, repeatedly.

I try to look at these things from a practical as well as emotional perspective. Could the government pull strings to make certain investments more attractive? Sure. Could they do the opposite? Sure.

The only constant? I can only control what I can control. If it means I have to get a second job to make ends meet? No biggie. If I retire earlier? Cool, I guess. It's fun to learn about the workings of our nation from a macro perspective, but by and large, I have a hard time justifying putting too much brainpower into it.