Posted on 02/02/2005 11:42:34 AM PST by presidio9
The Federal Reserve raised its short-term interest rate target by a quarter of a percentage point for the sixth time, and signaled little change in its plan to continue raising rates gradually in the months ahead.
The rate change, which was expected, brings the target for the federal-funds rate, charged on overnight loans between banks, to 2.5% from 2.25%. It was 1% last June.
The statement accompanying the rate change was almost identical to that issued after its last meeting on Dec. 14. Economic growth is "moderate," the jobs market is improving "gradually," and inflation is "well contained." It said it could continue to raise rates at a "measured" pace, and that risks to both economic growth and price stability were "roughly equal."
The move was unanimous among the 12 voting members of the 19-member Federal Open Market Committee, the central bank's decision making body.
The lack of change to the Fed's message reflects the fact that the economy and inflation have largely progressed as expected for the last few months.
(Excerpt) Read more at online.wsj.com ...
You need to question your sources. After the lousy January that we had, the only possiblity other than +25 was nothing.
People who rent also pay that tribute. The reality is owners do own something with market value, and they almost always do better than renters over the long run.
I'd argue that the fed needs to remain as independent as possible from the executive branch, as it has been for the last couple of centuries or so.
A boost in short-term rates could cause long-term rates to fall by slowing the economy down over the long haul. However there is no immediate direct correlation between fed hikes in the discount rates and interest rates for long term loans like mortgages.
The bigger pressure on long-term rates comes from federal borrowing, which shows no signs of abating. From numerous reports it sounds like Bush will call for a freeze in about 1/6th of federal spending tonight, what about the other 5/6ths? Well, most of that goes to Medicare, SS, defense and interest on the debt, which nobody has a plan to reduce (instead the plans are to increase spending on SS and Medicare).
Can you explain that in more detail please ?
With all due respect that is incorrect. I have 3 substantial commercial mortgages pending closing right now. 20-30 year rates are up even more than the corresponding Fed rate hikes. I could fix a 20 year amortization-five year balloon at 5.00% last year. Now the same loan is 6.5%....25 basis points over the hikes. They are doing this to cushion the trend upwards. Greenspan is extremely legacy conscious about inflation. I think he likes to keep a governor on both the debt and equity markets a wee bit much. Of course what he does affects my cash flow markedly so I'm prejudiced. I just don't see an overheated economy that needs reigning back....the only inflationary items are the usual....petro, medical care and education. Of course petro hikes doppler the whole shebang but that is cyclical. I'm going 3 year balloons for now. I assume Prime is now 5.5% as of this latest hike.
Residential mortgages are a somewhat different animal but also reflect the Fed rate as well....among other factors.
They like a lot more than 50 basis points above 10 year Ts on commercial...sadly.
Life is not fair.
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but that's just because I'm a chart/info freak.
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The Fed is less than 100 years old.
You may be thinking of the 3 previous Central Banks that failed.
And yet there has been no better place to invest during the last six years than real estate, even if the mortgage seller owns more than half the home. I'd hardly consider that even a bit of a joke.
"No, inflation is an increase in the money supply. The nonlinear effect on prices depends on the past history of the system."
No. So long as your increase in money supply is *less* than your GDP growth, you'll actually get deflation, not inflation...even though your money supply grew.
But whenever you have *inflation*, by definition, asset prices have increased.
That holds true for your home, too. Homes go up in price when you have inflation. Homes go up in value when you devalue the Dollar.
It's a b!tch, but it's fair because more commercial businesses default than do private homeowners. Thus, different risk profiles.
Different risks, different interest rates. Fair is fair, after all.
Along those lines of thought, I've got a local banker here in Alabama who is leaving his big mega-bank to start his own small private bank.
He found a clause in the 401(k) law that allows him to contribute his entire 401(k)...via collateral...so that he's loaning himself 3% money...that can in turn be leveraged for more money for his bank.
That's mighty cheap commercial paper.
It only takes $10 million in private start-up capital to qualify for an Alabama state bank charter, so he's well on his way there even before he opens it open to other investors.
Life is good. I hope that he makes a fortune.
Bank start-ups have been really good in Middle Tennessee in the past 10 years.
All that growth and all.
Yes...a business even real estate is riskier than a house purchase.
No, its entirely possible to have your money supply grow faster than the GDP and not experience broad price increases for quite some time.
You keep assuming that a GDP increase is somehow homogeneous, its not. Its entirely possible to experience rapid advances in semiconductors with very little improvement in, say, energy production.
Increasing money supply to match a GDP increase will not effect all asset classes proportionally.
I think Greenspan is an obsessive-compulsive when it comes to inflation, to the point of killing the overall economy.
This is unnecessary and unwanted.
The point is that inflation *will* have some level of impact on *everything*, proportional or not.
That includes your house.
The impact need not be positive due to the long time constants of previous actions.
Japan has been inflating the money supply faster than GDP growth for the last 10 years but housing prices are still falling.
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