Fed. May Raise Interest Rates soon

Wall Street Journal ^ | 03/25/11 | Greg Robb

[PSYCHO-FREEP]

By Greg Robb WASHINGTON (MarketWatch) - The Federal Reserve should hike interest rates from current range near zero to 2.5% within a year under a plan unveiled Friday by Charles Plosser, the president of the Philadelphia Federal Reserve Bank.

Plosser did not give a specific time when this exit would begin but said it would have to start in the "not-too-distant future." In a speech to economists from the monetarist school on Friday, Plosser laid out an aggressive plan where the Fed would sell $125 billion of assets for each 25 basis point increase in the funds rate.

A slower approach could last 18 months rather than a year, he said. This would require only $67 billion of conditional sales between meetings but the funds rate would rise to 3.5%. Plosser, a voting FOMC member this year, said he did not think this strategy would disrupt markets.

[PSYCHO-FREEP]

Get your marbels back in the bag. The bully is back and on the playground!

[Tolsti2]

Rates have been too low for too long. There’s no excuse for it being this close to 0.

[RockinRight]

This is probably a healthy rise - they NEED to go up, but this proposal will be slow enough as to not put too much a damper on things IMHO.

[PSYCHO-FREEP]

I agree. They should have raised them in 2007 and let the markets handle the economy. There would never have been a Bail-out and the economy would be booming again as well as UE would be below 6%.

[Marie Antoinette]

We’ve been waiting for this. This is not bad news for savers.

[Tolsti2]

It would’ve been a shock to the system and will now, but it’s needed badly. The fed now has no leverage at all which is awful business in the long term.

[PSYCHO-FREEP]

I see this as too late. The damage the Fed has done is beyond repair by simply raising Interest rates.

Because of that unprecedented delay, hyper inflation may start to kick in. Once it starts, the fear is that it will not stop.

[Starboard]

Commodities, gas prices, food, etc. are all rising. The Fed is not ahead of the curve, inflation is already here.

[PSYCHO-FREEP]

Here again, the result may be that the Stock Market tanks once investors head for the hills and start buying CD’s again.

This will be Carter redux. The overall economy may wind up on it's back in short order.

[PSYCHO-FREEP]

It also does not help the situation that they are not including food and fuel increases into the statistic.

This alone guarantees the fact that they will never get ahead of the actual rate. The lies and misinformation will surely bite them on the end.

[al baby]

We are savers

[E. Pluribus Unum]

They've turned it into play money anyway.

[Fido969]

This will wipe out half the business that are struggling.

[chuckee]

Not a bad idea.We have to raise rates sometimes and tighten up before hyper inflation sets in.I do not think a slow gradual increase in rates will hurt business This will also give a boost to the dollar as well.

[mlocher]

Raising the interest rates that the Fed Directly controls to 2.5% over a 1 year to 1.5 year range should not dampen the economy that much.

Of much greater concern is how the Fed has used the Treasury Bond market to pump liquidity into the system. Without their QE1 and QE2, US Treasuries would have higher interest rates -- which means the US debt would be much higher today. Bad news you say? No, it would highlight the debt problem and get more folks on board to resolve the problem.

[MrPiper]

but this proposal will be slow enough as to not put too much a damper on things IMHO.

Yes,, its hard to stop something that is not moving....

[Hoodat]

Plosser, a voting FOMC member this year, said he did not think this strategy would disrupt markets.

That confirms it. This strategy absolutely positively WILL disrupt markets.

[AmusedBystander]

Well that should add quite a boat load of interest expense on obama’s debt.

[TomGuy]

This is not bad news for savers.

In the mid-90s, I had a money market drawing about 8%, which was moderate-low.

Two years ago, I had some 4% CDs mature. The renewal rate was 2%. When those 2%-ers matured, the renewal was 1%. I was regretting that I hadn't bought longer-term CDs when I first bought the 4%-ers. lol.

The rates have been so low for so long that they have kept cash coming into saving accounts, thus providing loan money for financial institutions.

[evaporation-plus]

The housing market might find this to be problematic !