Interest rate rising for ten years?

[Milton Kuo]

Re: Interest rate rising for ten years?

this is an assertion i've seen many times: they're reloading their "ammunition" for the next downturn. could someone please explain how this course of action would be better than just keeping the rates low? i don't see how having first raised rates, lowering rates back to current levels is more stimulative than KEEPING rates at current levels.

it seems to me they are just preparing to DO SOMETHING visible when the next downturn occurs, so that they are not perceived as helpless.

It seems to me that the Federal Reserve is sort of doing what it should have done decades ago: lean into the wind and run a counter-cyclical monetary policy. That is, during boom times (and the asset markets have most certainly boomed since 2009), monetary policy should be tightened; while during a weakening economy, monetary policy can be loosened.

If the Fed were to keep ZIRP and the easy money policy going, I suspect we would get another hyper bubble whose popping would be even more painful than the 2008 crash. As it is, perhaps the Fed doesn't see a bubble or sees a bubble small enough (ha!) that they think they can manage it (double ha!).

[GRG55]

Re: Interest rate rising for ten years?

this is an assertion i've seen many times: they're reloading their "ammunition" for the next downturn. could someone please explain how this course of action would be better than just keeping the rates low? i don't see how having first raised rates, lowering rates back to current levels is more stimulative than KEEPING rates at current levels.

it seems to me they are just preparing to DO SOMETHING visible when the next downturn occurs, so that they are not perceived as helpless.

It might be more a matter of trying to maintain/manage some positive slope to the yield curve so the financial sector can be protected with a certain amount of risk free profits.

I think the Fed (unlike Larry Summers) wishes to avoid the severe economic dislocations of NIRP if at all possible. If it keeps short rates low when long rates fall into the next recession they will find themselves trapped by the zero-bound. At which point it may face becoming a BoJ-like entity buying equities and equity ETFs in an effort to prop up over-leveraged asset prices.

[DSpencer]

Re: Interest rate rising for ten years?

this is an assertion i've seen many times: they're reloading their "ammunition" for the next downturn. could someone please explain how this course of action would be better than just keeping the rates low? i don't see how having first raised rates, lowering rates back to current levels is more stimulative than KEEPING rates at current levels.

it seems to me they are just preparing to DO SOMETHING visible when the next downturn occurs, so that they are not perceived as helpless.

The case could be made they have kept rates low. I think one claimed reason is that low rates and a strong economy will lead to inflation above their "target".

I believe there is a good reason to not artificially suppress interest rates. But that's because I believe that it's a form of price control that has similar negative consequences to other forms of price control only with interest rate controls those effects are widespread. However, I'm not sure the Fed buys that reasoning or they wouldn't continue manipulating the markets.

I think there is truth to what you said at the end. They have to do the economic rain dance.

[charliebrown]

Re: Interest rate rising for ten years?

By their own goal seeked numbers y-o-y inflation is at 2.5%. Oil prices have the first rolling 12 month increase in years. Of course the 20% of the economy that they only count as 8% (health care) is up again big time. It now costs $30.00 for a family of four to eat at McDonald's.

I now see that interest costs of the u.s. govt are rising. This is after years of declining interest costs as rates cratered after 2008. Are we at the point of no return now?
Where interest costs keep rising into a exponential curve?
Federal deficit is at 650B, so besides the rising rates, each year there is debt owed on another 650B. Empire building still running full steam, after Trump's promise of pulling back troops.

I think we are approaching the final act.

I hope to see you all on the other side.

CB.

[thriftyandboringinohio]

Re: Interest rate rising for ten years?

I'm still thinking about all this.
Found a series of six articles that discuss things here.

https://monetary-metals.com/the-theo...aper-currency/

The author claims that it's foolish to accept a simple linear relationship between quantity of money(or it's equivalent, interest rates) and price levels.
Instead he claims the situation is non-linear, multivariate, discontinuous, and has some built-in feedback loops.

We are using some big words here, so we must be onto something good!

To me the articles seem to fit well with the Janszen Scenario (the old ka-POOM theory).