The Fed has officially pulled a Roy Young - Interest rates to rise 0.25%

[verdo]

U.S. Federal Reserve raises interest rates for the first time since 2006

I really didn't expect them to do this given the data, pressure against rate hikes from the world bank/IMF and the decline of the major economies at the moment...but i guess they don't really see the severity of the bubble that they've blown up. But i suppose this wouldn't be the first time, huh? Curious to see what you all think about this. Is this the beginning of the end for the U.S. stock market? Apparently, this was a unanimous decision by the FOMC, which astonishes me.

[shiny!]

Re: The Fed has officially pulled a Roy Young - Interest rates to rise 0.25%

I was also surprised by the unanimity. Can't remember seeing that before. But I think they have to raise rates now so they have room to cut them when the market inevitably tanks again.

[LorenS]

Re: The Fed has officially pulled a Roy Young - Interest rates to rise 0.25%

Wow, my savings accounts might yield 0.2% now. So my mortgage at 4.5% is only 18x the fed funds rate. The Fed really went out on a limb with this hike.

[thriftyandboringinohio]

Re: The Fed has officially pulled a Roy Young - Interest rates to rise 0.25%

Wow, my savings accounts might yield 0.2% now. So my mortgage at 4.5% is only 18x the fed funds rate. The Fed really went out on a limb with this hike.

LOL!

I see your point, LorenS, and agree.
Still, the end of ZIRP can have important effects in other ways.

Many of the more exotic types of arbitrage, from the carry trade to credit default swaps to the stock buyback programs at giant corporations, can all be affected by a tiny hike in interest rates. I am hopeful that we might see some giant piles of money taken out of these schemes and put back into traditional uses for capital, like investing in plant and equipment.

Of course, the Federal Reserve is a creature of the banks, by the banks, and for the banks. There must be a consolation prize for the banks hidden somewhere, like some pretty substantial interest payments on excess reserves, that can fund some bonuses on Wall Street.

[LorenS]

Re: The Fed has officially pulled a Roy Young - Interest rates to rise 0.25%

LOL!



Many of the more exotic types of arbitrage, from the carry trade to credit default swaps to the stock buyback programs at giant corporations, can all be affected by a tiny hike in interest rates.

.

It's probably not a 25 sigma event though:

The paper reminds us that the 25 sigma quote came from David Viniar, CFO of Goldman Sachs, who actually said in the Financial Times in August 2007 that

We were seeing things that were 25-standard deviation moves, several days in a row.

[BillBoard]

Re: The Fed has officially pulled a Roy Young - Interest rates to rise 0.25%

The credit system has been over blown, they don't really have a clue at what to price interest rates.

I think they will increment it until there is a response in the market, they are shocking the system for price discovery.

My gut is they will look at the bankruptcy rates, and see if retail demand for credit increases.

[LorenS]

Re: The Fed has officially pulled a Roy Young - Interest rates to rise 0.25%

Borrowers' interest rates already rising, but savers' rates aren't

http://www.usatoday.com/story/money/...rent/77441588/

[BillBoard]

Re: The Fed has officially pulled a Roy Young - Interest rates to rise 0.25%

I was expecting it. Savers' returns rate are disconnected from interest rate credit pricing. The way credit is manufactured, who knows what the true cost of "money" is.