Low interest rates mean that many people have been adversely affected too - the incentive to save is diminished (on an 18K savings account last month I received the astounding interest payment of 31 cents.) Retirees on fixed incomes that are at a point where they shouldn't be playing the market have been hammered since their savings, CDs, and money market accounts have returned essentially nothing for years. I recently saw a financial guru lamenting that people are too heavy into cash - well, where exactly are they supposed to put it so they earn some interest on it??? Yes, Wall Street loves zero interest rates, but we need to start weaning them off of it. It's unnatural and has distorted the capital markets.
1
Low interest rates continue to benefit the Rattners of the world as it allows them to do their deals with cheap money, the administration elected to or was not allowed to spend the money on infrastructure that would have created good paying jobs and done something for the nation instead we have another day in the New York Times, the fed leaves the interest rates at zero,Wall Street loves it, Carl Icahn loves it, chicken hawk ash carter wants more boots on the ground as long as they aren't his, the middle class continues too erode, the economy continues to stumble along creating low paying jobs and savers continue to see their accounts dwindle, " heck of a job Janet,"I'm sure there's a book deal and big paying job in your future, oh and I almost forgot Golman got a slap. On the wrist, all the news that's fit to print.
1
Those of us who have saved for retirement have been subsidizing the banks and the borrowers far too long. Our plans have been decimated in favor of others, while we languish in a 'no-win' situation. The advice has been, as one nears retirement age, one should move toward less risk in investing. So, with the market going down, up and down over and over again, we really just tread water. Then the Fed destroys our savings by removing virtually all interest. We may as well have dug a whole in the back yard and tossed the money into it. Of course, my husband and I, cautious and responsible retirement savers that we are, we would have carefully wrapped it in a trash bag first.
Mr. Rattler, I admire your work, but I'm tired of hearing you and others promoting this policy. You can afford it. We can't. As they say, "We already gave."
Mr. Rattler, I admire your work, but I'm tired of hearing you and others promoting this policy. You can afford it. We can't. As they say, "We already gave."
This has been new normal for almost seven years . This eventually leading to punish savers , and reward big banks and borrowers . If the Senior s dependent upon fixed income from Social Security benefits , modest savings account interest etc . and millions of other people have been paying too long for this ? The Senators who have been e interested in the Federal Reserve 's Audit , have an opportunity to intervene and help make timely monetary policy decision . If the Federal Reserve Chair woman Yellen has missed opportunities to allow interest hike ! The extreme Winter and uncertain wild Spring weather , would hardly help bring thriving economic indicators, for a prolonged slow economic recovery , a growth rate for years 2. 0 - 3.1 per cent , unemployment hovering around 5.1 percent . What is next ?
The Fed is the whipping boy because some loud mouths and politicians believe in conspiracy theories and hate government. The reason growth and jobs are weak is because greedy bankers, real estate brokers and appraisers and lying borrowers crashed the world wide economy AND Congress has failed to stimulate the economy wth necessary spending with things like rebuildimg our ancient and crumblimg third world infrastructure. Its far more news making to bash the Fed.
I rarely agrew with the author but in this case I agree, interest rates should not be raised now. Note I personally am hurt by low interest rates but recognize the reality of the global economic crisis that still exists.
I rarely agrew with the author but in this case I agree, interest rates should not be raised now. Note I personally am hurt by low interest rates but recognize the reality of the global economic crisis that still exists.
2
If Mr. Rattner would like to live on a fixed income for several years, like millions of us, he would be able to see that everything, except gas, costs more than one year ago, while all savings are losing value, except when invested in high risk. We need a half point rise in interest rates, this year, and a half point next year. It's the majority of Americans who need this help, not the 1%.
1
What we have here at the Fed is a lady who goes into a hat shop,
buys three hats, takes them home for her husband to look at, decides not to get the one he likes, returns them all the next day
and buys three more.
buys three hats, takes them home for her husband to look at, decides not to get the one he likes, returns them all the next day
and buys three more.
1
Hahaha! Plutocracy much? The only thing ZRP does is let the rich keep stripping assets, killing off the middle class. I guess we know who the NYT really sides with, huh?
NYT, could you be more specific than "xyz is a Wall Street executive"? Perhaps there is a journalist somewhere in this city who could investigate which company he works for. I know "Wall Street" is all that most of the highly intellectual, not-at-all-lynch-mob readership at this newspaper needs to hear. But some of us are curious which class of Vampire Squid Mr. Rattner belongs to.
1
Not only is there no measurable indication of inflation, THERE IS NO SUCH EVIDENCE WHATSOEVER. The only people who will benefit from higher rates are the super rich, investment bankers, politicians and other crooks and scoundrels....
1
I was wondering if the oft quoted 'stagnant' wage growth is viewed in isolation, considering the added extra costs for benefits etc. for example, the company I work for gives you a view of your 'total compensation' (benefits, SS,etc) which if added to my salary makes me almost at six figures. I'm fortunate for that, but what effect does that count when determining the salary?
1
Paul Krugman ia partisan cheerleader, but he right on this issue. Their is not a hint of inflation anywhere, if you think so, go ahead and make your fortune betting on it. Commodity prices are dropping on almost everything. The unemployment rate published by the government is a hoax ( certain skilled professions are a different story, but they always are). Most available American workers are under or not utilized. A quarter or half point would not do anything other than raise mortgage rates on the middle class ARM's and certainly they would not see a rise in their savings account rates ( a boon for the banks) , and raise borrowing rates for businesses for no apparent reason.
1
Absolutely agreed. I can even come up with a couple of other points Rattner didn't mention. Raising rates will surely cause the dollar to rise in value. This may seem like a good thing, but in fact:
1. I will cause US exports to fall, hurting the economy. Indeed that is already the case. Why make it worse?
2. A number of countries and foreign businesses borrow in dollars. Raising the value of the dollar will make it harder for them to borrow (and to pay back existing loans). This will put pressure on a number of countries that are already borderline in recession.
1. I will cause US exports to fall, hurting the economy. Indeed that is already the case. Why make it worse?
2. A number of countries and foreign businesses borrow in dollars. Raising the value of the dollar will make it harder for them to borrow (and to pay back existing loans). This will put pressure on a number of countries that are already borderline in recession.
1
Yes, heaven forbid that the Fed raise interest rates before Goldman Sachs can distribute its holdings of over-valued stocks and bonds to the Muppets (as they so affectionately refer to their customers). The Fed should have raised interest rates in 2013 before the bubbles in the stock and bond markets got really out of hand. Now they don't dare raise rates in the face of a coming global recession for fear of being blamed as the proximate cause. Better to play along, keep talking a good game about raising rates at some indefinite point in the future, and then play the hero with helicopter drops of money after the markets crash back to earth.
2
I agree with much of Mr. Rattner's piece, but would call attention to the word "yet" as regards increases in wages. Their failure to rise, despite other indicators that the labor market is not all that slack, suggests a disequilibrium that may well begin to resolve one of these days. And wage increases once underway are likely not to stop quickly. The increase in minimum wages, certainly a bid to make up for lost time, will also push other wages higher, etc.
Sometimes the Fed should raise rates just to prove they can. Samuel Beckett would understand - waiting in vain for inflation.
Listening to thee same old, same old failed (but self serving) Republican messages is bad for the economy, the country, and the world.
Next to global warming that may be the 2nd most critical problem facing humanity today.
Next to global warming that may be the 2nd most critical problem facing humanity today.
The era of zero interest that we have been living in for so long has been wrongheaded in my opinion. The economy has not rebounded with cheap money. Business as a whole isn't expanding in America. They are stockpiling cash instead and buying other established business. Zero interest leaves the Fed with a hugely reduced ability to affect the economy if the need arises. We could be close to recession or worse, given history. Commodity prices of all kinds have tanked.
And more to the point from my personal situation, zero interest is a disincentive for saving and has directly meant that fixed income based on saving has born most of the pain from the policy. If inflation increases at all, even at a low percentage, zero return on savings means that the huge number of middle and lower class retirees who are risk averse are unable to rely on interest income for existence. Instead they have had to draw on savings principal which means that the savings principal has a good chance of not lasting for a full lifetime.
There is simply no reason for little people to save, since often the savings are in such small increments that other investments are impracticable. If interest on savings were at 4% or higher, the vast majority of the population would benefit, as opposed to the banks and investment firms that currently benefit from zero interest.
I honestly believe that retirees have born the cost of this anemic recovery, and the rich are the only ones who have benefited.
And more to the point from my personal situation, zero interest is a disincentive for saving and has directly meant that fixed income based on saving has born most of the pain from the policy. If inflation increases at all, even at a low percentage, zero return on savings means that the huge number of middle and lower class retirees who are risk averse are unable to rely on interest income for existence. Instead they have had to draw on savings principal which means that the savings principal has a good chance of not lasting for a full lifetime.
There is simply no reason for little people to save, since often the savings are in such small increments that other investments are impracticable. If interest on savings were at 4% or higher, the vast majority of the population would benefit, as opposed to the banks and investment firms that currently benefit from zero interest.
I honestly believe that retirees have born the cost of this anemic recovery, and the rich are the only ones who have benefited.
An analogy: The money that we use to do our business of life is like blood flowing through our body. If our extremities are shorted, they don't do well. Currently a small segment of the population has most of our money. The rest of us sort of get along. Hey, what about fiscal policy regarding our woeful infrastructure.
Wow!
Did Paul Krugman ghost write this column?!
Did Paul Krugman ghost write this column?!
Of course don't raise interest rates.
Why should Astoria and HSBC give me a fair return on the CDs I have there -- that is, that I have lent them? Especially since, if I wished to borrow money from them, they would charge me 4%?
No. They'd like me to "invest" with them. Doing so would gain me a higher interest rate, of course, but that would be swallowed up, and then some, by fees.
No reason why the interest rate on deposits can't be equal to the lending rate.
Why should Astoria and HSBC give me a fair return on the CDs I have there -- that is, that I have lent them? Especially since, if I wished to borrow money from them, they would charge me 4%?
No. They'd like me to "invest" with them. Doing so would gain me a higher interest rate, of course, but that would be swallowed up, and then some, by fees.
No reason why the interest rate on deposits can't be equal to the lending rate.
If we must accept the GOP framing, you know, the one that says deficits matter when there is Democrat in the White House, then we must cut the budget. In spite of that false imperative, we must stop cutting the budget in areas that create jobs, most notably infrastructure investment, and apply the cuts where they will do the least damage - tax subsidies for the rich and the corporations, and the ongoing wealth transfer to the war profiteers, I mean Defense contractors.
Regardless, with the economy still running in first gear due to GOP obstruction, the last thing we need is a rate increase.
Rattner has it right.
Regardless, with the economy still running in first gear due to GOP obstruction, the last thing we need is a rate increase.
Rattner has it right.
Low interest rates redistribute money from savers to nonsavers or from normal folks to rich folks. Raise the interest rates!
People are putting way too much importance on when short rates normalize as opposed to the trajectory of increases and the terminal funds rate.
There is no question that negative interest rates and near zero nominal interest rates are not normal.
Yet, unemployment at 5.1%, jobless claims at a 40 year low, and the highest unfilled job openings on record (JOLT survey) suggests the economy is at full unemployment.
Does full unemployment mean every person in America has a job or is working at the job of choice? No, it doesn't now and never has.
It just means interest rates have done what they can to address unemployment (cyclical unemployment) and other means - such as education and retraining - are required to fill job openings demanding different skill sets (structural unemployment).
Some suggest waiting for signs of increasing inflation. If the Fed waits for actual inflation to show before raising rates, heaven help us.
If markets sense the Fed needs to raise rates to head-off inflation, interest rate adjustments will be very rapid and stark. It will cause unnecessary capital market volatility and economic destruction.
That would be a truly terrible plan of action.
It would be eminently sensible, and consistent with long running Fed communications, to begin the slow process of short rate normalization at a time when economic data is healthy, but before inflation requires faster adjustments.
We don't need to move from one crisis into another.
There is no question that negative interest rates and near zero nominal interest rates are not normal.
Yet, unemployment at 5.1%, jobless claims at a 40 year low, and the highest unfilled job openings on record (JOLT survey) suggests the economy is at full unemployment.
Does full unemployment mean every person in America has a job or is working at the job of choice? No, it doesn't now and never has.
It just means interest rates have done what they can to address unemployment (cyclical unemployment) and other means - such as education and retraining - are required to fill job openings demanding different skill sets (structural unemployment).
Some suggest waiting for signs of increasing inflation. If the Fed waits for actual inflation to show before raising rates, heaven help us.
If markets sense the Fed needs to raise rates to head-off inflation, interest rate adjustments will be very rapid and stark. It will cause unnecessary capital market volatility and economic destruction.
That would be a truly terrible plan of action.
It would be eminently sensible, and consistent with long running Fed communications, to begin the slow process of short rate normalization at a time when economic data is healthy, but before inflation requires faster adjustments.
We don't need to move from one crisis into another.
2
We can call it full employment after we do everything necessary to make sure Americans are trained for those unfilled jobs. Today, that's not happening.
When the largest employers in the country are counting 100's of thousands rather millions of middle class jobs, it time to dial up Houston and let them know that we've got a problem. The problem in this particular cases is that we won't all be able to fit into the Republican 'backup plan (aka the lunatic lander). In their plan, there's only room for them, their relatives, and their pay-to-play friends. It's a tribal thing.
The Second Machine Age is upon us, only this time, the machines will be building and driving themselves (a business man and Republican's dream). If and until the government and corporate America wake up and notice, there won't be much long term benefit for the vast majority of humans in this new age.
The Second Machine Age is upon us, only this time, the machines will be building and driving themselves (a business man and Republican's dream). If and until the government and corporate America wake up and notice, there won't be much long term benefit for the vast majority of humans in this new age.
Rates should be raised but not for the reasons anyone here claims. This is because the accepted wisdom, by everyone, is dead wrong. Raising rates will RAISE inflation not lower it. It is crystal clear that times of low rates result in subsequent times of low inflation. Don't believe me? It is EXACTLY what has been going on the past 7 years. And this is not an anomaly. Raising interest NEVER results in lower inflation? Why? Because all interest is is the price of money. Money is used to buy everything. So raising rates causes the price of everything, all other things equal, to rise. This is the very definition of inflation.
Mark my words. Policy makers won't believe what I say (although all anyone needs to do is look at history, as I have done.) they will raise rates, 6 months later they will see inflation tick up. They will be convinced they must now raise higher and they will choke us into a recession with HIGH interest AND inflation.
But I at the outset said they should raise rates slightly? Why? Because for other reasons I don't have room to explain here the economy works best with about 2% routine inflation/interest.
Mark my words...
Mark my words. Policy makers won't believe what I say (although all anyone needs to do is look at history, as I have done.) they will raise rates, 6 months later they will see inflation tick up. They will be convinced they must now raise higher and they will choke us into a recession with HIGH interest AND inflation.
But I at the outset said they should raise rates slightly? Why? Because for other reasons I don't have room to explain here the economy works best with about 2% routine inflation/interest.
Mark my words...
2
Indeed. It's clear to many that ZRP is actually causing deflation.
Yea, that could work if anyone outside of the 10% had enough income to survive the rate increase + inflation.
The problem is not the Fed or the government, it is the fact that human productivity is basis of economic growth, and human productivity is becoming irrelevant. Robots and and artificial intelligence are delivering the advances in productivity, and they're just beginning to spread their wings. The good news is that in our economy, corporations can't survive without consumers so once the profits fall far enough, they'll have to figure out how too re-kindle consumption (and profits). Hopefully, it won't be accomplished using some Republican voodoo scheme designed to pay robots to consume (that would be a win-win for their corporate owners).
The problem is not the Fed or the government, it is the fact that human productivity is basis of economic growth, and human productivity is becoming irrelevant. Robots and and artificial intelligence are delivering the advances in productivity, and they're just beginning to spread their wings. The good news is that in our economy, corporations can't survive without consumers so once the profits fall far enough, they'll have to figure out how too re-kindle consumption (and profits). Hopefully, it won't be accomplished using some Republican voodoo scheme designed to pay robots to consume (that would be a win-win for their corporate owners).
What am I missing? The entire argument is always predicated on the truism that you prevent inflation by RAISING interest. Thus commenters thoughts are always based on their belief that if inflation is about to increase, because the economy is doing well, then we should increase interest rates to head it off. The question is always whether the low rates, then, are about to finally induce inflation.
But everyone is dead wrong. Raising rates CAUSES inflation, it doesn't ever lower it. Check the historical record as I have and you will never find a situation where a change to raising rates was followed by a future reduction in inflation. This is exactly what is going on now. Years of very low interest have resulted in low inflation not higher. Why is that?
It's simple. What is inflation? It is where a given item costs more than it used to. What is interest? It is the price of money. What is money? Money is everything, we trade money to acquire all our goods and services. Therefore higher interest means, all other things being equal, higher inflation. Mark my words. Policy makers won't listen to me. They will eventually start raising rates. Inflation will start to rise. They will say "look it's going up, we need to raise rates higher." And we will, again all things equal, plunge to recession.
The answer is rates SHOULD be slightly higher because, for other reasons, the economy works best at about 2% inflation. But do NOT raise rates to prevent inflation. It doesn't work.
But everyone is dead wrong. Raising rates CAUSES inflation, it doesn't ever lower it. Check the historical record as I have and you will never find a situation where a change to raising rates was followed by a future reduction in inflation. This is exactly what is going on now. Years of very low interest have resulted in low inflation not higher. Why is that?
It's simple. What is inflation? It is where a given item costs more than it used to. What is interest? It is the price of money. What is money? Money is everything, we trade money to acquire all our goods and services. Therefore higher interest means, all other things being equal, higher inflation. Mark my words. Policy makers won't listen to me. They will eventually start raising rates. Inflation will start to rise. They will say "look it's going up, we need to raise rates higher." And we will, again all things equal, plunge to recession.
The answer is rates SHOULD be slightly higher because, for other reasons, the economy works best at about 2% inflation. But do NOT raise rates to prevent inflation. It doesn't work.
"Raising rates CAUSES inflation, it doesn't ever lower it." Nonsense. Paul Volcker tamed inflation in the late Seventies and early Eighties by raising rates.
The FED is right to keep rates down until the slack in capital capacity and labor becomes absorbed.
Economic policy has two parts: federal tax/spending and monetary policy. Of those two, the federal budget is the more powerful lever. Federal fiscal action has been extremely contractionary for several years. The monetary policy of the FED has been extremely expansive in an effort to halt the recession and to counteract the contractionary stance of congress. If the congress were to embrace their responsibility to stimulate, then the FED could resume its usual role of providing interest rates high enough to restrain inflation.
The federal deficit is by far, the more powerful force so, it has been heroic of the FED to have barely kept us out of a massive depression. When low interest rates were not sufficient they invented quantative easing to halt the congressional pressure to spiral us back into a new "dark ages".
Economic policy has two parts: federal tax/spending and monetary policy. Of those two, the federal budget is the more powerful lever. Federal fiscal action has been extremely contractionary for several years. The monetary policy of the FED has been extremely expansive in an effort to halt the recession and to counteract the contractionary stance of congress. If the congress were to embrace their responsibility to stimulate, then the FED could resume its usual role of providing interest rates high enough to restrain inflation.
The federal deficit is by far, the more powerful force so, it has been heroic of the FED to have barely kept us out of a massive depression. When low interest rates were not sufficient they invented quantative easing to halt the congressional pressure to spiral us back into a new "dark ages".
1
Steve - I accept that the Fed is better equipped to fight inflation vs deflation so their bias is to overstay on the zero bound. However, you forgot to mention that the Fed is sitting on a $4.5T balance sheet the unwind of which will surely impact price levels so the notion that today's low inflation is sustainable is specious. There is also a cost to overstaying on the zero bound in the form of capital misallocation, a cost only measured in hindsight. The sooner the Fed gets out of its emergency posture, the better.
What on earth are "normal interest rate?" I fear that it is somewhat like the "normal" unemployment rate at conditions of "full" employment, which some Fed economists wrongly estimated at around 8% around the time of the Great Recession. Now "normal" is back to 5% unemployment, which is the way people thought of it through most of the post-war era.
Mr. Ratner, Lawrence Summers and Paul Krugman are correct, there is no cause except lenders' greed and the austerians' quasi religious beliefs to raise interest rates now. When inflation actually occurs, as it will some future day, the Fed will have reason to raise rates, but not now.
Mr. Ratner, Lawrence Summers and Paul Krugman are correct, there is no cause except lenders' greed and the austerians' quasi religious beliefs to raise interest rates now. When inflation actually occurs, as it will some future day, the Fed will have reason to raise rates, but not now.
3
What do near zero Fed interest rates mean? Nearly free money for bankers, easy money for take over artists, cheaper debt sales for the U.S. Treasury, and KILLING investment income for average people who are either trying to save for retirement, or trying to live on retirement investments now. Oh, Mr. Rattner forgot to mention that. In fact no columnists ever mention it. I suppose his answer is for "the little people" to try their luck in the Wall St casino, where folks like him can advise them, then short them to the poor house. If seven years of low interest rate solutions haven't fixed the economy, then maybe the Fed's medicine is bad medicine for everyone except bankers and home builders. Give us a break. We don't all have Ph.D's in economics, but we aren't stupid.
3
Mr. Rattner is obviously a pretty bright guy. But like all too many bright guys he sees the world through Wall Street tinted glasses. The economy is ripping along just fine for the country club elite but if they move out of the bar and take a look at the day to day struggles of all of the peons that clean the restrooms and serve the luncheon specials they might find themselves less confident that the economy has recovered with any evenness and fairness. And being bright guys they might decide that something should be done to give decent livings to those who cannot afford the country club style of eking out a living. Arguing about raising or not raising interest rates is as remote from the plodding lives of most of our working citizens as debates about the pros and cons of water on mars.
While some regularly concentrate on weighing Steve Rattner's suggestions against his personal portfolio every time he makes a case for the Fed not raising rates, others of us, who actually think Mr. Rattner is one of the few credible economic/business commentators that we hear from on a semi-regular basis, concentrate on the general economic picture and weigh his suggestions against it.
If one chooses to evaluate Mr. Rattner's advice thusly, he/she can come to no conclusion other than that he is right. An obstructionist, austerian Republican Congress has this country mired in the same low- or no-growth muck that has bedeviled Canada for the last decade (for the same reasons). What is needed is a massive, "go-big" public/private infrastructure commitment that stretches out for a decade (cf. Canada's liberals just won in a landslide by proposing the same thing). Though the austerians and their brain-dead followers here in the U.S. will never agree to it, low interest rates are what makes this possible in Canada. And the further things made possible by that infrastructure investment will be enormous economic expansion and massive job-creation. Like the U.S., there is no sector that generates generalized economic prosperity in Canada like the construction industry.
Keep the rates low. Throw the austerians out. Elect Democrats who, like Eisenhower, recognize both the need for infrastructure upgrades and the need for an economy that prospers a wider swath of the citizenry.
If one chooses to evaluate Mr. Rattner's advice thusly, he/she can come to no conclusion other than that he is right. An obstructionist, austerian Republican Congress has this country mired in the same low- or no-growth muck that has bedeviled Canada for the last decade (for the same reasons). What is needed is a massive, "go-big" public/private infrastructure commitment that stretches out for a decade (cf. Canada's liberals just won in a landslide by proposing the same thing). Though the austerians and their brain-dead followers here in the U.S. will never agree to it, low interest rates are what makes this possible in Canada. And the further things made possible by that infrastructure investment will be enormous economic expansion and massive job-creation. Like the U.S., there is no sector that generates generalized economic prosperity in Canada like the construction industry.
Keep the rates low. Throw the austerians out. Elect Democrats who, like Eisenhower, recognize both the need for infrastructure upgrades and the need for an economy that prospers a wider swath of the citizenry.
2
For every dollar a retiree makes in interest from savings, the banks will make ten dollars. Do not raise the rates now.
“She should raise rates,” the property mogul Barry Sternlicht said recently on “Bloomberg Go,” referring to the current Fed chairwoman, Janet L. Yellen. “Absolutely she should raise rates and return the markets to some semblance of normalcy.”
"Property mogul," Barry Sternlicht, seems to have no real understanding of the Fed's dual mandate, namely, to maintain full employment and to keep inflation under control. It is NOT charged with the responsibility of "returning the markets to some semblance of normalcy. If THAT'S what Mr. Sternlicht wants to happen, he should be calling on the SEC to step in and impose more stringent margin requirements on trading. Problem solved.
But more importantly, why should we be the least bit interested in what a property mogul thinks the Fed should do?
"Property mogul," Barry Sternlicht, seems to have no real understanding of the Fed's dual mandate, namely, to maintain full employment and to keep inflation under control. It is NOT charged with the responsibility of "returning the markets to some semblance of normalcy. If THAT'S what Mr. Sternlicht wants to happen, he should be calling on the SEC to step in and impose more stringent margin requirements on trading. Problem solved.
But more importantly, why should we be the least bit interested in what a property mogul thinks the Fed should do?
1
What does "normal" mean to those calling for the Fed to hike? Rates should be below zero but the Fed can't do that. With inflation low and interest rates all along the interest rate curve near record lows there does not seem to be any market demand for higher rates.
It would be helpful if Democrats started explaining to the public that the Federal budget is not like a home budget, and Social Security is not a pension plan.
It would be helpful if Democrats started explaining to the public that the Federal budget is not like a home budget, and Social Security is not a pension plan.
1
I agree except to point out that the Fed "technically" can go negative, but politically can't. The Swiss National Bank did "go negative" last Spring.
http://www.reuters.com/article/2015/04/22/us-swiss-snb-idUSKBN0ND1IG2015...
So, you're correct: "...the Fed can't do that." Imagine this KnowNothing Congress's reaction to a negative Fed move.
.
http://www.reuters.com/article/2015/04/22/us-swiss-snb-idUSKBN0ND1IG2015...
So, you're correct: "...the Fed can't do that." Imagine this KnowNothing Congress's reaction to a negative Fed move.
.
2
Social Security may not be a pension plan, but many people relied on the magic of compound interest to save for retirement. Only now there is no interest to compound. It's a heckuva of a note when saving for retirement is a losing proposition.
I am just an average American retiree and I remember the advice . Save your money and retire comfortably.I am retired and thanks to a real pension life is OK. But in fact my income from actual savings is minimal. CD rates hardly keep up with inflation and saving account rates are a joke. Yes,folks who OWE money are doing well but what about folks who DID save money as advised?
1
Mr. Rattner:
As always, we should look to the source of the cry for increased interest rates. If inflation is held at bay or even dropping that certainly bebefits the majority of people, still struggling to recover from a crash caused by those asserting, falsely, otherwise.
When finance and corporate interests start demanding a plan to increase flat-lined wages, I'll start believing they have the economy's best interests at heart. Until they do, they remain the unscrupulous thieves and liars that caused us to be in our current economic dilemma. Many of these critics belong in jail. The fact that they are not has only emboldened them in their
incessant demands that the economy should serve their greedy ambitions.
As always, we should look to the source of the cry for increased interest rates. If inflation is held at bay or even dropping that certainly bebefits the majority of people, still struggling to recover from a crash caused by those asserting, falsely, otherwise.
When finance and corporate interests start demanding a plan to increase flat-lined wages, I'll start believing they have the economy's best interests at heart. Until they do, they remain the unscrupulous thieves and liars that caused us to be in our current economic dilemma. Many of these critics belong in jail. The fact that they are not has only emboldened them in their
incessant demands that the economy should serve their greedy ambitions.
This should be no brainer. The Fed's mandate is high employment and low inflation. Its mandate is NOT to advantage particular sectors of the economy or the public. Since we have low inflation already this part of the mandate is no reason to raise rates. Since there is still slack in the labor market, raising rates would only harm that part of the mandate. So don't do it.
Many of those who advocate raising rates are just caught in convoluted financial industry spin. And some of their claims are preposterous. In particular, he claim that higher rates would help retirees is crazy, Most retirees get private pension benefits from 401-=K's and these are heavily invested in stocks, that would fall if rates went up. Moreover, retirees are being penalized this year because inflation is so low that Social Security benefits aren't being increased -- a situation certain to persist if higher rates drive inflation even lower. Yes, there are trillions of dollars in idle capital in the US that would bring greater returns with higher rates, but almost all of that is owned by the 1%. And even if NONE of this was true, it would still be irrelevant to the Fed's dual mandate -- which provides no basis for raising rates.
Many of those who advocate raising rates are just caught in convoluted financial industry spin. And some of their claims are preposterous. In particular, he claim that higher rates would help retirees is crazy, Most retirees get private pension benefits from 401-=K's and these are heavily invested in stocks, that would fall if rates went up. Moreover, retirees are being penalized this year because inflation is so low that Social Security benefits aren't being increased -- a situation certain to persist if higher rates drive inflation even lower. Yes, there are trillions of dollars in idle capital in the US that would bring greater returns with higher rates, but almost all of that is owned by the 1%. And even if NONE of this was true, it would still be irrelevant to the Fed's dual mandate -- which provides no basis for raising rates.
3
Low interest rates via the Fed benefit those whose benefits are already beyond belief.
For years those without benefits beyond belief were encouraged to "put something aside each pay day for a rainy day". 3-4%, federally insured money was what passed for an IRA, etc. for many who had little. Homes were bought, educations paid for, cars, appliances were acquired and the country thrived.
Historians, economists and sociologists will point to the period from 1945 to 1980 as being the high water mark of the American middle and working classes as well as being an aberration in America's social and economic history.
Conservatives have been both squeezing the working classes economically and exploiting their fears and hopes socially while all the while giving those with benefits beyond belief carte blanche.
Enough...
For years those without benefits beyond belief were encouraged to "put something aside each pay day for a rainy day". 3-4%, federally insured money was what passed for an IRA, etc. for many who had little. Homes were bought, educations paid for, cars, appliances were acquired and the country thrived.
Historians, economists and sociologists will point to the period from 1945 to 1980 as being the high water mark of the American middle and working classes as well as being an aberration in America's social and economic history.
Conservatives have been both squeezing the working classes economically and exploiting their fears and hopes socially while all the while giving those with benefits beyond belief carte blanche.
Enough...
There isn't a pension fund in the USA that isn't hurting from interest rates far below their portfolio assumptions.
I agree with Mr. Rattner.
Increasing rates in an economy that isn't even generating the target 2% inflation established by the Fed would likely slow the economy and could potentially result in a deflationary cycle, quite the opposite effect desired
As of August corporations had, approaching, $2 trillion of unspent capital. 31% of treasurers polled said that their holdings had increased and 46% reported no change. If rates are raised, why would they spend that money?
Because the problem isn't rates, it's demand and marginally used capacity. Companies are not going to invest in increased capacity, and hire even more workers, if they have no assurance of purchases and increasing demand.
The Fed should decidedly NOT increase, not now, not in December, and likely, based on global economic performance data, not anytime in the 1st Quarter of 2016.
Maybe, since Congress isn't doing its job, and spending on an enormous program of restoring and constructing infrastructure in an environment of incredibly low rates, the Fed should go negative and charge banks to hold their reserves.
.
Increasing rates in an economy that isn't even generating the target 2% inflation established by the Fed would likely slow the economy and could potentially result in a deflationary cycle, quite the opposite effect desired
As of August corporations had, approaching, $2 trillion of unspent capital. 31% of treasurers polled said that their holdings had increased and 46% reported no change. If rates are raised, why would they spend that money?
Because the problem isn't rates, it's demand and marginally used capacity. Companies are not going to invest in increased capacity, and hire even more workers, if they have no assurance of purchases and increasing demand.
The Fed should decidedly NOT increase, not now, not in December, and likely, based on global economic performance data, not anytime in the 1st Quarter of 2016.
Maybe, since Congress isn't doing its job, and spending on an enormous program of restoring and constructing infrastructure in an environment of incredibly low rates, the Fed should go negative and charge banks to hold their reserves.
.
6
Not surprised at all that Rattner would make this plea. The moment when the Fed moves, Rattner's entire PE portfolio becomes vulnerable. Why? Because the failing businesses his company is the owner of will not be able to make loan payments when rate rationalize.
There are over $6 trillion in loans from commercial banks in the US to PE-backed companies, companies who are struggling under choking debt already. PE firms don't care, but we should. When those notes are called, thousands of US companies will fail.
...and Rattner and all of his Obama-supporting friends in Private Equity will be exposed.
There are over $6 trillion in loans from commercial banks in the US to PE-backed companies, companies who are struggling under choking debt already. PE firms don't care, but we should. When those notes are called, thousands of US companies will fail.
...and Rattner and all of his Obama-supporting friends in Private Equity will be exposed.
7
nearly a decade of free money and the FED still pursues the same plan with hopes of improvement!!!! the goal posts keep moving, don't they. first the ZIRP and QE policies were to reduce unemployment. the desired unemployment level kept moving lower. then the objective was to increase the inflationary rate which any retiree can tell you is not desirable from their perspective. now the objective seems to be to improve the world economic conditions. what is next as a rationale for prolonging a failed policy??? perhaps the economy of the universe requires support?
say it like it is. the true beneficiaries of free money are the equity and bond markets. nobody else wins.
say it like it is. the true beneficiaries of free money are the equity and bond markets. nobody else wins.
4
There is no prospect of capital gains on ZIRP bonds.
The Fed policy is not the failed policy. The failed policy belongs to the Republican Party.
It is not the fault of the Fed that the government doesn't take advantage of the low rates and engage in a massive, "go-big" infrastructure commitment in a country whose infrastructure is approaching Third World standards. It is the fault of the low-growth/no-growth austerians who populate the Republican sides of the aisles in both chambers of Congress. Canadians have finally figured this out and, in the process, thrown the austerians out in favor of just such a commitment to infrastructure upgrade.
Check your history---especially the Eisenhower years. There is no industry sector of the American economy that widens the swath of generalized prosperity like the construction industry and its food chain. Indeed, the American middle-class was born out of the construction industry boom in the post-WWII years.
The Fed has been symbolically screaming at the government that this is a good time to borrow and engage in such a commitment---the return on investment would be game-changing in this country. It is not the Fed's fault that Republicans and their brain-dead followers aren't listening.
It is not the fault of the Fed that the government doesn't take advantage of the low rates and engage in a massive, "go-big" infrastructure commitment in a country whose infrastructure is approaching Third World standards. It is the fault of the low-growth/no-growth austerians who populate the Republican sides of the aisles in both chambers of Congress. Canadians have finally figured this out and, in the process, thrown the austerians out in favor of just such a commitment to infrastructure upgrade.
Check your history---especially the Eisenhower years. There is no industry sector of the American economy that widens the swath of generalized prosperity like the construction industry and its food chain. Indeed, the American middle-class was born out of the construction industry boom in the post-WWII years.
The Fed has been symbolically screaming at the government that this is a good time to borrow and engage in such a commitment---the return on investment would be game-changing in this country. It is not the Fed's fault that Republicans and their brain-dead followers aren't listening.
6
In general the formula is that low interest rates coordinate with high unemployment and high interest rates coordinate with low unemployment.
But I see commenters suggesting that somehow raising interest rates will mean lower unemployment.
I think the right-wing media is at work trying to convince poor and middle class people that higher interest rates are in their best interests. They are not. It's similar to the tactic of convincing poor and middle class people that tax cuts for the rich are in their best interests.
But I see commenters suggesting that somehow raising interest rates will mean lower unemployment.
I think the right-wing media is at work trying to convince poor and middle class people that higher interest rates are in their best interests. They are not. It's similar to the tactic of convincing poor and middle class people that tax cuts for the rich are in their best interests.
12
"some say rates should be increased now so they can be decreased later in the event of renewed economic weakness. That’s like not eating when you’re hungry so you can eat at another time."
And it's even more like beating your head against the wall because it will feel so good when you stop.
And it's even more like beating your head against the wall because it will feel so good when you stop.
2
Always with interest, I read what Steve Rattner has to say, although out of my league with the other commentators here, and more focused on the rising cost-of-living which a patient financial adviser takes the trouble to explain.
I also payed attention to an article this September last in the Independent by another well-known economist, Hamish McRae, where he writes:
'There is one economic issue this week and one only. It is whether the Federal Reserve will increase US interest rates on Thursday. If it does, that would be the first upward move since June 2006, and a giant step along the path to normal interest rates, not just in the United States but elsewhere. It would signify the beginning of the end of ultra-cheap money'.
The entirety of the article is not included here, but it would be interesting if Steve Rattner and Hamish McRae could have a fair exchange on our latest U.S. financial outlook.
I also payed attention to an article this September last in the Independent by another well-known economist, Hamish McRae, where he writes:
'There is one economic issue this week and one only. It is whether the Federal Reserve will increase US interest rates on Thursday. If it does, that would be the first upward move since June 2006, and a giant step along the path to normal interest rates, not just in the United States but elsewhere. It would signify the beginning of the end of ultra-cheap money'.
The entirety of the article is not included here, but it would be interesting if Steve Rattner and Hamish McRae could have a fair exchange on our latest U.S. financial outlook.
YES! The Fed should leave rates right where they are until there is clear evidence that the economy is showing objective, measurable inflation.
Which it is NOT doing at this time. Nor is it projected to be doing anytime soon.
What we do need to do most decisively is to borrow money at these historic bargain rates to rebuild our shamefully crumbling infrastructure. Even those who oppose spending can understand that a technologically advanced infrastructure will be great for business. And any person in business who is successful will tell you that to earn money you must spend money. Yes--send money wisely. Yes--spend money frugally, so you get the biggest bang for your buck.
The time is now to rebuild our infrastructure so that our country can join those already competing more successfully than we in the 21st century. Naturally, that includes rebuilding our educational, job training and basic research and development infrastructures, first and foremost.
Anyone in Congress who has ever run a business, if honest, will aver that to earn money, they had to spend money.
So this is an economic call to arms! Not a call to firearms. That's a discussion for another time and space.
Which it is NOT doing at this time. Nor is it projected to be doing anytime soon.
What we do need to do most decisively is to borrow money at these historic bargain rates to rebuild our shamefully crumbling infrastructure. Even those who oppose spending can understand that a technologically advanced infrastructure will be great for business. And any person in business who is successful will tell you that to earn money you must spend money. Yes--send money wisely. Yes--spend money frugally, so you get the biggest bang for your buck.
The time is now to rebuild our infrastructure so that our country can join those already competing more successfully than we in the 21st century. Naturally, that includes rebuilding our educational, job training and basic research and development infrastructures, first and foremost.
Anyone in Congress who has ever run a business, if honest, will aver that to earn money, they had to spend money.
So this is an economic call to arms! Not a call to firearms. That's a discussion for another time and space.
13
At this time ten years ago, interest rates were such, that my money was making money, by way of CD's amd money market funds through my local S&L. Nowadays, and since the Great Recession, not even close.
It doesn't matter if one has a stock portfolio; we still need our local banks to carry interest rates, so that day-to-day monies from earned income can grow. With that in mind, it just might also help stimulate consumerism with more and more people being able to afford items they need, as well as amenities they'd like.
With interest rates at the paltry levels they've been for as long as they have, it's a travesty for
the smaller investors, and moreso for those who could never afford the luxury of a portfilio.
It doesn't matter if one has a stock portfolio; we still need our local banks to carry interest rates, so that day-to-day monies from earned income can grow. With that in mind, it just might also help stimulate consumerism with more and more people being able to afford items they need, as well as amenities they'd like.
With interest rates at the paltry levels they've been for as long as they have, it's a travesty for
the smaller investors, and moreso for those who could never afford the luxury of a portfilio.
26
I agree that inflation is not a issue at this moment but given our current unemployment levels that suggests a neutral Fed, not a super-accommodating one which is what we have now. Six years into an economic recovery short term interest rates are still zero and the fed has yet to unwind QE 1 to 3. The argument that the Fed should be late rather than early in tightening ignores how much needs to be unwound to normalize rates. Zero interest rates also continue crush returns on saving, especially for the elderly. It also directs too much money seeking returns into risky investments. Additionally it causes companies to borrow to buy back stocks instead of investing in growing their businesses. But to me what might be the biggest risk is that the economy could be send into a recession by China or some other unanticipated external event and the fed has nowhere to go being stuck in a highly accommodating stance. What will they do then, QE 4 through 8? Common sense risk assessment requires the Fed moving to a more neutral stance.
5
I am a huge advocate of the Eleventh Commandment, "If It Ain't Broke, Don't Fix it".
People can afford to buy buy homes and cars, employment is up, businesses can borrow money. Generally it's fair to say that the economy is doing well. Why mess with it?
People can afford to buy buy homes and cars, employment is up, businesses can borrow money. Generally it's fair to say that the economy is doing well. Why mess with it?
2
The size of the rate increase being debated today 0.25% is immaterial to the US economy. It will not make any economic difference weather it happens or not.
This whole discussion is similar to a person with a cold debating endlessly with her doctor if she should take 6 or 6 and a half Advils per day. In the end she will still have a cold, the cold will take its time, and the slight change in Advil dosage will make no difference.
It is amazing that the NYT run countless editorials and columns, without explaining to the readers that the magnitude of the change being contemplated is immaterial.
This whole discussion is similar to a person with a cold debating endlessly with her doctor if she should take 6 or 6 and a half Advils per day. In the end she will still have a cold, the cold will take its time, and the slight change in Advil dosage will make no difference.
It is amazing that the NYT run countless editorials and columns, without explaining to the readers that the magnitude of the change being contemplated is immaterial.
2
It is the same old story. The FED rushes in to swipe the punch bowl away before the party ever gets started. Too bad we don't have some monetary policy plans to make our economy grow, thirty five years of relying on the FED has gotten stale.
Mr. Rattner, an argument reliant on the claimed failure of an opposing one is inherently weak & unconvincing. Yours here is a textbook example.
I'm guessing you either lack the conviction you (attempt to) express or everyone's a Paul Krugman these days. Or both.
I'm guessing you either lack the conviction you (attempt to) express or everyone's a Paul Krugman these days. Or both.
Mr. Rattler and Mr. Krugman's economic fundamentals have proven highly "correct" and "accurate" over the past 7 years; a time period where proven as sound or as junk science. The opposing pseudo economic fundamentals hot aired by the University of Chicago and Republican "economic think tanks"(there's an oxymoron for us) were shown for the junk science they were including the unsound ideology their economic theories were designed to prop up.
The US economy is in bad shape and has been for the last seven years. That's what happens when you have high tax rates and out of control regulation. The new jobs Mr. Rattner brags of are mainly low paying and part time. We have a record number of workers out of the work force. Wages are stagnant. Record numbers in poverty. Record numbers receiving government handouts. The interest rates are the least of the problem with this mess. However raising rates could negatively impact the stock market and we don't want that, especially with an election coming up next year.
1
If your last sentence is sarcastic, I "like" your comment a thousand times. Otherwise you seem complicit with the FED's manipulation for ulterior agendas...and this is what so many of us greatly object to.
"To conservatives, rising asset prices signal greater chances of another meltdown, similar to what occurred in the mid-2000s. But the stock market is down 3 percent since its peak in May. And housing prices have yet to return to pre-crisis levels."
I am baffled as a liberal to consistently see how the media line is that conservatives are against QE. It is not true. How about the younger (< 45) generation with no assets being against it because houses and equities feel recklessly expensive? We DO feel inflation in housing and health costs. No one talks about that much. QE feels like a gift to the established classes and generation from our perspective which may forever leave us in the dust.
I am baffled as a liberal to consistently see how the media line is that conservatives are against QE. It is not true. How about the younger (< 45) generation with no assets being against it because houses and equities feel recklessly expensive? We DO feel inflation in housing and health costs. No one talks about that much. QE feels like a gift to the established classes and generation from our perspective which may forever leave us in the dust.
6
Mr. Rattner mentions the lack of federal spending on infrastructure. This is indeed one of the reasons that the recovery from the George W. Bush recession has been so slow. Spending on roads, bridges, electricity grid, education and research is an investment in the future. We need it badly if we are to compete with other developed and developing nations. With interest rates so low we can make these investment basically for nothing. Well paying jobs will be created. Full-time jobs, too. Wages will start to rise. Then maybe we'll see some real inflation, and the Fed can begin to hike interest rates.
16
What happened to all the "shovel ready" infrastructure jobs that were supposed to be created by the largest stimulus in history?
1
Retired people are suffering. Those who want to retire are suffering. I don't blame the Fed as much as I do those in Washington who have spent us into oblivion and created all the entitlement programs. The Fed is just trying to prop up socialism at the expense of the hard workers who are trying to pay their own way. When Washington starts facing the reality of its policy, the Fed can return its policy to normal.
4
I agree with Brian. Strange that very few have pointed out that the "Greatest Generation" has once again been asked to step up to the plate and bail out the good 'ol USA. Folks of this generation went through the Great Depression and, by and large, kept their retirements (trillions of $) in banks, living off CD interest. The Fed and Mr. Bernanke forced them to spend down their principal. Great thanks for protecting us in WWII. Bernanke's "Courage to Act" pales in comparison.
2
Mr. Rattner seems to be admitting that the 800 billion dollar stimulus (the largest in our history) did not give us the recovery promised and that the only thing propping up this weak recovery is the Fed policy of low interest rates. In fact the lion's share of the recovery has gone to the top 1% while the rest of us have lost wealth.
Time we normalize interest rates which would help our seniors and let the banks go back to making money the old fashioned way. Lending to the people.
Time we normalize interest rates which would help our seniors and let the banks go back to making money the old fashioned way. Lending to the people.
2
This article is irrational. Anyone who does their own shopping or pays their own bills knows the real rate of inflation is much higher than claimed by the Fed. And it is the Fed which stifles growth. By transferring trillions of tax dollars and lost interest on saving from the middle classes and seniors to Wall Street during the past 7 years, the self-serving Fed has suppressed spending, labor participation, and wages for all but the wealthy, while simultaneously increasing income inequality. The Fed works for the 1% and has a strong conflict of interest. The country would be much better served by representative decision-making.
14
I disagree. There a re fluctuations in the price of individual items, but in general prices on many things are very low and very stable, and have been for a long time.
You seem to be suggesting that the measures of inflation are not producing true results, or that inflationary statistics are rigged somehow to favor one group over another, but really, isn't that very unlikely? I think the reverse is true. The Fed is analyzing inflation data every which way, desperately trying to find evidence of inflation, and they are finding the opposite. It is what it is.
You seem to be suggesting that the measures of inflation are not producing true results, or that inflationary statistics are rigged somehow to favor one group over another, but really, isn't that very unlikely? I think the reverse is true. The Fed is analyzing inflation data every which way, desperately trying to find evidence of inflation, and they are finding the opposite. It is what it is.
4
RC: Please inform all of us how you calculate the real rate of inflation. Although some seniors would benefit from a rate hike, the real beneficiaries of your plan would be the banksters.
We need inflation based on wage pressure, not commodity manipulation. Until there are good jobs going unfilled, there will be no inflation. With automation and a global labor market, we will never see wage pressure inflation again.
Wages are a lagging indicator (they are in that Index) and as such are an unworthy indicator of current conditions or a leading indicator of anything.
The Federal Reserve Bank of Cleveland's Median CPI is up 2.5% in the last 12 months. This index does not suffer from the 45 year old obsession with "food and fuel" and merely focused on the dominant thrust in prices ignoring extreme price changes whatever they may be.
The Federal Reserve Bank of Cleveland's Median CPI is up 2.5% in the last 12 months. This index does not suffer from the 45 year old obsession with "food and fuel" and merely focused on the dominant thrust in prices ignoring extreme price changes whatever they may be.
In fact, wages are kept low because there is little inflation as deemed by the fed. It is a viscous cycle.
Manapp99, it's "vicious."
Unless you mean a sort of thick, sticky, syrupy cycle. Maybe that's true too.
Unless you mean a sort of thick, sticky, syrupy cycle. Maybe that's true too.
Keeping interest rates at "zero" has artificially inflated the stock market. It has also, consequently, robbed a generation of savers, taking from the middle-class and giving to Wall street. Further, those who have a 401(k) or 403(b) plan and are too close to retirement to put all (or much) of their investment into stocks have been forced to settle for low paying yields, resulting in workers staying longer on their jobs and not retiring. The job market (for good jobs) has, therefore, stagnated Oh, the Fed has done marvelous job!
10
Average Americans do not have much in the way of savings, though they do carry quite a bit of debt. Inflation--if any existed--would eat away at savings, but it would also eat away at debt. The principal beneficiaries of zero inflation/deflation are those who already have a lot of money. Their savings and investments are worth more, even if they're not actually doing anything, because the money supply is shrinking. People and businesses that owe money, meanwhile, are hurt, because their debts are increasing in real terms.
Your complaint makes no sense. If low rates are inflating the stock market, then savers should benefit by investing in equities. Once rates are raised, those savers can move money back into fixed income, if they think there's a better value play there. Meanwhile, the job market will remain stagnant until there is increased demand, and the primary tool the Fed has for goosing demand is, wait for it, low rates. The Fed, in other words, is doing the right thing.
The proper target for blame is Congress, who hold the purse strings. Mainstream economic theory and extensive experience teach that in an economy near the zero lower bound, the way to kick us out of stagnation is public spending, which is precisely the opposite of what Congress has done.
Your complaint makes no sense. If low rates are inflating the stock market, then savers should benefit by investing in equities. Once rates are raised, those savers can move money back into fixed income, if they think there's a better value play there. Meanwhile, the job market will remain stagnant until there is increased demand, and the primary tool the Fed has for goosing demand is, wait for it, low rates. The Fed, in other words, is doing the right thing.
The proper target for blame is Congress, who hold the purse strings. Mainstream economic theory and extensive experience teach that in an economy near the zero lower bound, the way to kick us out of stagnation is public spending, which is precisely the opposite of what Congress has done.
15
First you say this "Average Americans do not have much in the way of savings"
Then you say this "If low rates are inflating the stock market, then savers should benefit by investing in equities"
If average Americans have little savings and a lot of debt then how are they to invest in equities?
Then you say this "If low rates are inflating the stock market, then savers should benefit by investing in equities"
If average Americans have little savings and a lot of debt then how are they to invest in equities?
Finally, someone is mentioning the disastrous effect a 2% interest rate on 5 year CDs is having on elderly people who have to live on their interest income. We are robbing those who save to make Wall Street richer and the evil must end.
2
The Fed should make a deal with Congress - in return for a fiscal spending policy on infrastructure and things that will provide jobs, the Fed will raise rates. The current policy is no more than a subsidy to big banks at the expense of the savers. Who else is borrowing at 0%?
Has any economy ever recovered from extended zero percent interest rate policy? It seems that the longer it persists, the harder it is to get out of.
Yes. The United States' economy, twice between 1930 and 1945. One of those times was a false dawn, due to FDR's concessions to deficit hawks in 1937.
1
Steve, you are silly, in the extreme. Think about it, interest is 'rent' on money. Just as you would not expect Park Avenue landlords to have their tenants live rent free, it so goes with money. Please, come to your senses and stop writing such nonsense.
Interest is the way banks are supposed to make money and the way depositors can get a return on theirs. As it is the banks are getting free money and are doing quite well investing it. Lending to the populace is down as they don't need to and the risk is greater. The fed has made it so that banks no longer need or want to lend.
Where is the concern for the other side of the equation? What about encouraging saving & building a balance sheet rather than encouraging more debt among our citizens? Why does this decision continue to ignore basic economic/societal principles in favor of nonsense voodoo economics? In accounting 2 + 2 is always 4, but you economists think you have to add in variables, overanalyze everything to death, & then try to tell me the answer is really 5.
And so we're still discussing it. My parents generation lived with 15% mortgages & mine lived with 10%. Can we get real about today's rates already? Let's do something to finally encourage saving & building a nest egg for the future.
And so we're still discussing it. My parents generation lived with 15% mortgages & mine lived with 10%. Can we get real about today's rates already? Let's do something to finally encourage saving & building a nest egg for the future.
2
Mortgage rates peaked in 1981 around 17%. Prior to that, and after that, they were much lower. Source here: http://www.freddiemac.com/pmms/pmms30.htm
However, when mortgage rates were at 17%, inflation was at 12%-13%. Source here: http://inflationdata.com/articles/wp-content/uploads/2015/01/Misery-Inde...
In other words, back in your parents's day (which was apparently only ten years before your day, if you were in fact paying 10%, which hasn't been normal since 1990) the real rate on their mortgages ran in the 4%-5% range. The only real effect of having a high nominal interest rate was enlarging their mortgage interest deduction.
Today, the average 30-year fixed rate mortgage is about 4%. In other words, lenders are still getting more or less the same return, and borrowers are paying more or less the same price for credit, as in your parents' day. Source: https://www.google.com/search?sourceid=chrome-psyapi2&ion=1&espv...
However, when mortgage rates were at 17%, inflation was at 12%-13%. Source here: http://inflationdata.com/articles/wp-content/uploads/2015/01/Misery-Inde...
In other words, back in your parents's day (which was apparently only ten years before your day, if you were in fact paying 10%, which hasn't been normal since 1990) the real rate on their mortgages ran in the 4%-5% range. The only real effect of having a high nominal interest rate was enlarging their mortgage interest deduction.
Today, the average 30-year fixed rate mortgage is about 4%. In other words, lenders are still getting more or less the same return, and borrowers are paying more or less the same price for credit, as in your parents' day. Source: https://www.google.com/search?sourceid=chrome-psyapi2&ion=1&espv...
6
Sounds like a combo of my dad's "if it ain't broke...." and the President's "don't do stupid stuff."
I agree with Mr. Ratner. The mere fact that the Fed has held steady on interest rates for an extended period is just that... merely a fact. It is not an argument for raising rates ... even modestly ... in the absence of a compelling rationale.
I agree with Mr. Ratner. The mere fact that the Fed has held steady on interest rates for an extended period is just that... merely a fact. It is not an argument for raising rates ... even modestly ... in the absence of a compelling rationale.
11
No surprise, Wall Street feeds off zero interest rate. There is no empirical evidence to support keeping interest rate at zero.
"... The question is whether the Federal Reserve rate hike in 2015 could be another 1931 when the Federal Reserve increased interest rates and made sure that there would be a depression or it would be another 1937 (which is somehow remembered much more that the 1931 mistake). The 1937 mistake "only" halted the recovery and sent unemployment up from 14.18% in 1937 to 18.91% in 1938.
I saw presidential candidate Rick Santorum in a television interview saying that he would not reappoint Janet Yellen because he believes that the Federal Reserve has erred in "propping up" the economy which has allowed the Federal Reserve government to avoid taking the measures that would restore the economy to full employment. He indicated that balancing the budget would bring full employment and if the Federal Reserve stopped propping up the economy the Federal Government would thus be "forced" to balance the budget in order to restore economic growth. I would hope that Janet Yellen and the other members of the Federal Reserve open market committee, think long and hard and consider the thought process of those who are advocating raising rates as compared to those like Paul Krugman who are urging caution.
The best analogy that I can think of for the Federal Reserve raising rates in the middle of the "currency wars" competitive devaluation, such as what is happening now, would have been for the response of the US government's to the Pearl Harbor attac.."
http://seekingalpha.com/article/3593666
I saw presidential candidate Rick Santorum in a television interview saying that he would not reappoint Janet Yellen because he believes that the Federal Reserve has erred in "propping up" the economy which has allowed the Federal Reserve government to avoid taking the measures that would restore the economy to full employment. He indicated that balancing the budget would bring full employment and if the Federal Reserve stopped propping up the economy the Federal Government would thus be "forced" to balance the budget in order to restore economic growth. I would hope that Janet Yellen and the other members of the Federal Reserve open market committee, think long and hard and consider the thought process of those who are advocating raising rates as compared to those like Paul Krugman who are urging caution.
The best analogy that I can think of for the Federal Reserve raising rates in the middle of the "currency wars" competitive devaluation, such as what is happening now, would have been for the response of the US government's to the Pearl Harbor attac.."
http://seekingalpha.com/article/3593666
The near zero interest rates have inflated asset prices causing the rich to get richer and the poor and middle class to have a smaller share of the pie. The poorer half lost 70% of their net wealth over the last 20 years and family formation has been devastated. The Federal Open Market Committee is now in the family planning business whether they like it or not.
Agree completely that the Fed should stand pat. Since Jan 2008 inflation has been extremely low, running about 1.5% annual rate, so substantially undershooting the Fed target of 2%. There is still substantial slack in labor markets and capacity utilization, and low long rates demonstrate that savings remain well in excess of investment demand. The Fed should allow the economy to get going before it takes away the punch bowl.
It is also not clear what the Fed makes of its 2% inflation target. Is that supposed to be a ceiling, or a long term average? If the latter, it would imply that we should let inflation climb above 2% for several years to catch up with 8 years of very slow inflation.
In addition, the 2% inflation target is likely too low. As Republicans will not allow expansionary fiscal policy in recessions, the economy has to rely on the Fed to bring it back from the next recession. If we ran a higher inflation target, say 3%, then with the next recession the Fed would have more room to create negative real rates and provide monetary stimulus. With 2% targets, the ability to create negative real rates is less. Inflation averaged over 4% in the 1980's and around 3% in the 1990's, so it is hard to suggest those rates are too high to coexist with prosperity.
It is also not clear what the Fed makes of its 2% inflation target. Is that supposed to be a ceiling, or a long term average? If the latter, it would imply that we should let inflation climb above 2% for several years to catch up with 8 years of very slow inflation.
In addition, the 2% inflation target is likely too low. As Republicans will not allow expansionary fiscal policy in recessions, the economy has to rely on the Fed to bring it back from the next recession. If we ran a higher inflation target, say 3%, then with the next recession the Fed would have more room to create negative real rates and provide monetary stimulus. With 2% targets, the ability to create negative real rates is less. Inflation averaged over 4% in the 1980's and around 3% in the 1990's, so it is hard to suggest those rates are too high to coexist with prosperity.
16
A fundamental problem underlying the interest rate issue is the faulty data underlying part of the decision. Actual total inflation is much higher than the Fed's preferred measure calculates. It is currently overwhelmed by (1) the decline in fossil fuel prices and (2) as a result of decades of "refinement" through hedonic adjustments that are designed to continuously lower the standard of living (and hence government costs for social programs in particular) without raising alarms among the sheep.
1
"It’s time for the central bank to recognize the slow-growth reality, as important voices like former Treasury Secretary Lawrence H. Summers have urged."
I never thought I'd hear the words "important voices" and Larry Summers in the same sentence, but on this one I have to agree with Mr. Rattner. We are in a slow growth environment still with all economic indicators hinting at sluggishness yet. With China's recent slump, in turn causing global markets to panic, it seems premature to think that raising interest rates would help at this point in time.
I never thought I'd hear the words "important voices" and Larry Summers in the same sentence, but on this one I have to agree with Mr. Rattner. We are in a slow growth environment still with all economic indicators hinting at sluggishness yet. With China's recent slump, in turn causing global markets to panic, it seems premature to think that raising interest rates would help at this point in time.
11
As Paul Krugman points out, the dire consequences that conservative economists continue forecasting due to QE keep not happening. With very few exceptions they never admit they were wrong and instead double down.
Couple that with the Randian right wing Freedom Caucus stymieing any attempt to spend money on infrastructure or anything else for that matter and resisting any attempt to generate more revenue from any taxing on the one percent and it's a wonder the economy has made the progress it has made.
Couple that with the Randian right wing Freedom Caucus stymieing any attempt to spend money on infrastructure or anything else for that matter and resisting any attempt to generate more revenue from any taxing on the one percent and it's a wonder the economy has made the progress it has made.
47
Indeed. Reading Mr. Rattner here, for a second I thought I was reading Krugman instead of a Wall Street guy. Good for him!
3
As long as the Fed continues to loan out nearly free money to the Wall Street casino banksters, the stock market will stay strong and rich people can get even richer, as the rest of us all get poorer.
There's a reason the Fed won't raise interest rates.
There's a reason the Fed won't raise interest rates.
The economy has not made any progress. Only the 1% have made progress.
Sternlicht's "normalcy" is interesting. In the 1920 Presidential election Warren G Harding advocated a return to normalcy. He meant a return to conditions as they were before the USA entered WWI. But what could Sternlicht mean? Rates have been what they are for seven years. Would that not make them normal?
Mr. Rattner cites a variety of statistics but what he fails to do is connect those statistics to any effect a rate increase would have. First, let's discuss the amount of the rate increase at issue. It is likely to be small (i.e., 0.25) but there is no mention of that in the editorial. There is no evidence that a small increase would have any effect on behavior but would go a long way to preparing the markets for later increases and perhaps may lead to a little bump in the markets. Second, the editorial does no weighing of various factors positive and negative related to an increase. Instead, Rattner focuses on inflation, but it is not the only reason to increase rates. For example, we still have a problem with savings in this country. It is hard to get people to save when rates are so low that keeping money in banks makes almost no sense. There is also talk about another real estate bubble. Low interest rates is encouraging speculation in the real estate market and people are still buying without respect to future potential issues the most that they can afford. There may be a societal benefit to limiting such activity. While the editorial clearly advocates a position, what it doesn't do is explain why that position is the correct one. Reasonable minds can disagree but this editorial does not make a good case for either position.
8
Most people make little to no interest income. The bottom 75% of the income distribution gets less than .1% of its money from interest income. From 75-90% its less than 1.4%.
Also as the article states housing prices are still below what they were before the crisis. So there is no real estate bubble in sight.
Also as the article states housing prices are still below what they were before the crisis. So there is no real estate bubble in sight.
7
Given extremely low interest rates for the past 10 to 15 years, most folks don't realize a significant problem that has resulted from this policy: A whole new generation of young people believes that the cost of money must always be cheap! My first mortgage rate back in 1989 was 11%. Today, 5% looks excessively high for those lacking the benefit of a longer history. This will ultimately only lead to the next bubble that will ultimately make a big pop......
3
Perhaps the action of the Fed in fixing rates is holding them up rather than holding them down.
Let rates find their own level. If they rise, the increased interest costs will filter through the economy with an inflationary effect. if they fall, or go negative, that will be stimulative and we will know low rates are needed.
It is time to stop messing around with monetary policy. This has gone on too long and it has created a false world, completely obscuring the true state of the economy and the factors truly affecting it. Asset values are inflated, debt loads are too high, capital has been misallocated, there is too much of everything, it is all just a game. It isn't working. Time to have the courage to let the economy find its own level, then adjust fiscal or monetary policies as necessary.
Let rates find their own level. If they rise, the increased interest costs will filter through the economy with an inflationary effect. if they fall, or go negative, that will be stimulative and we will know low rates are needed.
It is time to stop messing around with monetary policy. This has gone on too long and it has created a false world, completely obscuring the true state of the economy and the factors truly affecting it. Asset values are inflated, debt loads are too high, capital has been misallocated, there is too much of everything, it is all just a game. It isn't working. Time to have the courage to let the economy find its own level, then adjust fiscal or monetary policies as necessary.
4
This is untrue. As I have said elsewhere 75% of the population gets less than .1% of its money from interest income. 75-90% of the income distribution get less than 1.4%. Additional interest income will not filter through society. This is false.
As for the natural interest rate. The natural interest rate right now is probably negative. Only interest rates can't really go negative so we have a problem.
As for the natural interest rate. The natural interest rate right now is probably negative. Only interest rates can't really go negative so we have a problem.
3
Interest costs will filter through society, and so will interest income, and both will have an inflationary effect.
And just how should the Fed do that? Since they are no longer engaged in QE, long-term interest rates ARE finding their own level - the Fed does not set them. And they have no choice but to set a short-term discount rate, because the banking system requires one. We could of course go back to the pre-Fed days of regular banking panics and irrational exuberance on the markets, like the South Sea Bubble. Contrary to the Austrian School, there is little evidence central banking has made things worse.
1
There is about $10 trillion sitting in deposit accounts earning nothing. An increase of 25 basis points paid on that balance is $25 billion, which would go into the hands of consumers. Such a small rise in rates should not meaningfully impact credit creation, but much of that $25 billion would be spent, providing stimulus to the economy. The Fed should hike, not to control inflation in this case, but rather to ignite it.
36
zero percent interest rate policy = zero revenue from taxing interest income
They're not spending it when it's earning next to nothing. Why would they spend if it suddenly starts earning?
2
Deposit accounts are not savings accounts. Deposit accounts are overwhelmingly used to pay current expenses and, in contrast to interest bearing savings accounts, fluctuate daily.
The distribution of savings accounts by income level indicates that the vast majority of benefits from an interest rate increase will again benefit a small group at the top of the scale. It will be paid for by the increase in the cost of living incurred by those with little or no savings.
You can imagine the joy of receiving a "25 basis points" increase on a 1000 USD account. I can't.
The distribution of savings accounts by income level indicates that the vast majority of benefits from an interest rate increase will again benefit a small group at the top of the scale. It will be paid for by the increase in the cost of living incurred by those with little or no savings.
You can imagine the joy of receiving a "25 basis points" increase on a 1000 USD account. I can't.
3