As anticipated. Given the distribution of the tax cuts this 25 bips increase has probably eliminated the benefit for 85% of people and another 50 will eliminate it altogether other than for the top 2%.
3
This is 10 years overdue. Exceptionally low interest rates and easy money policies by the Fed will come home to roost, and when they do it will be very painful.
When that happens we might want to tar & feather Ben Bernanke. Greenspan is no longer responsible for what I consider the worst monetary experiment ever.
1
@martini4444 Los Angeles
On the other hand largely as a consequence of the actions of the Bernanke Fed we have had 9 years of uninterrupted growth and are in the 91st month of continuous job creation.
2
In 1969 I entered college, in 1973 I graduated. my tuition bill had almost doubled in the four years, Lets hope they don't engineer the stagflation of the 1970's as well. Part of the boom of the 60's was the naturatio of Baby Boomers, we do not have a huge cohort entering the market as we did and the 1960's and Trump is scaring immigrants away. Given the problems with health care I doubt baby boomer health care need will offer much growth opportunities in the 2020's.
2
No. I suspect we're in for a heap of trouble.
"Best economy since the 1960s."
Possibly the least credible thing I've ever read in the New York Times. Wake up. The actual prospects for most working people are and have been garbage since the 2008 crash. People who could actually afford to save money have had the incentive to do so completely wiped out for a full decade of their lives - and we're supposed to celebrate that the Fed might go up to 1.75%?
The Student Debt Crisis alone makes the headline a stunning display of journalistic dishonesty.
5
"The best economy since the 1960s." That is until Viet Nam war-driven deficits and inflation killed it.
8
Because a disproportionate amount of wealth growth is at the top, it appears that the rich get the income that is used to determine inflation, but the poor only get the inflationary costs, while the middle class get targeted with higher interest payments. What a rigged system.
8
To the majority of Americans an increase in interest rates is not a fiscal strategy but an increase in living costs.
The increases by the Fed will quickly work through to home loans, to consumer loans , credit cards , student loans and eat up any benefits of the meager and temporary tax decreases. Not to mention ever increasing health care costs
This will dampen consumer demand the true driver of economic growth and slowly but surely the recession will loom This situation will be exacerbated by a continuing decline of the retail sector, a drop in commercial real estate particularly as costs rise due to increase of steel, aluminum and other raw materials.
Interest rate sensitive sectors , automotive( already stagnant) , residential will also suffer.
It may not happen by November 2018, for sure it will happen by 2020
The ability of a Democratic President to reignite the economy will be hamstrung by a overwhelming deficit and a crumbling infrastructure.
Hopefully the Democrats can come up with an economic plan soon to anticipate this disaster and retake Congress this November
11
Repeal the Bush and Trump tax giveaways and we may have the money. As long as we elect the GOP who believe taxing income is much better than taxing wealth we are going to suffer economic downturns which oddly help accumulate wealth at the top. Since Reagan 's trickle down economic lie, wealth in America has been trickling up. Every tax break since has only accelerated the process.
Tax wealth not income.
4
Tax wealth and you disincentive entrepreneurs and wage workers to invest. Do that, and then see what it does to the economy and essential government services.
1
The increases so far have been minuscule (because global banks and global corporations want it that way for obvious reasons).
Indeed, in recent years the Fed Bank often says they "might increase" to the press in a press release and then do not raise at all. This article is mostly fluff. A more interesting article would ask what motivates the Fed Bank to make press releases and then repeatedly step back from them. I suspect that is a active ploy the Fed Bank is making -- but who knows.
2
I'm worried about this. I should be glad that the interest rates are going up because it means improvement in the economy. But something doesn't seem right about it. Perhaps it's that there are not enough good jobs out there for people who want to work. Or maybe it's the fact that so many Americans depend upon credit for their lifestyles and are one or two paychecks away from going broke if they lose their jobs. I think it's also the tariffs Trump's using as an economic tool of war.
I hope I'm wrong.
7
These interest rate increases come on the heels of the first rise in real wages in many years despite a low inflation rate. Continued rate increases, as expected, will ultimately choke off any prospect of substantial wage increases for ordinary Americans, thus perpetuating the nation's economic inequality. Why would the Fed do this? Because it is an inherently undemocratic institution purposefully divorced from the political process and composed almost exclusively of bankers and those supporting banking interests who fear even mild inflation that diminishes the purchasing power of their wealth. Expect American economic inequality to grow without changes in the Fed's structure providing political accountability.
9
Or because the Fed knows that interest rates have been held low because of the economic aftershocks of the Bush Recession and that the time to stop propping up the banks and the economy is now, when the e onomatopoeia is strong.
1
Inflation is inherently undemocratic.
Agree with you. But our respective points are not mutually exclusive. Now that the banks have been propped up, it is time to cut off real wage increases to limit even mild inflation and protect corporate profits.
Why are so many of the comments here so negative? Sounds like awfully good news to me. There are plenty of things around that are cause for just complaint, but a strong economy is not one of them.
9
The Fed said it would raise its benchmark interest rate to a range of 1.5 percent to 1.75 percent, marking the sixth time since the financial crisis that it has raised rates."
Let me know when we get back to the 6% I was getting in 2007. or better still the %13 I was getting in 1980 or so. Even in 1993-4 I was getting 7% or more.
But of course, 2008 wiped me out so 1.75% of ZERO is still ZERO
8
Many, including some Federal Reserve officials have expressed bewilderment as to why labor force participation has not recovered as it had in prior recessions. I would suggest that for some the answers can be found in the spam folder of their email accounts.
The spam folder in my email account contains numerous emails from attorneys promising that they can get me disability payments. If the labor force participation rate, especially for prime working-age males ages 25-54, had followed its typical cyclical pattern, the unemployment rate would now be well above 5.0%. The headline U-3 unemployment only counts those actively seeking work as in the labor force and unemployed.
As was pointed out in "Disability's Disabling Impact On The Labor Market" https://seekingalpha.com/article/3342635 historically labor force participation has behaved cyclically in the midst of a slightly declining trend. Dubious and fraudulent disability claims have vastly increased the number of those collecting disability with commensurate decreases in labor force participation and the unemployment rate. A segment on CBS "60 Minutes" quoted employees of the Social Security Administration and administrative law judges who asserted that lawyers are recruiting millions of people to make fraudulent disability claims. One such judge said "if the American public knew what was going on in our system half would be outraged and the other half would apply for benefits.".."
https://seekingalpha.com/article/4157748
6
Maybe it's because companies have forgotten how to interview and hire people. Take a look at how jobs are being described in the want ads online. Companies want everything but don't want to pay anything. They're listing jobs requiring a few years experience as entry level. If unemployment is as low as is claimed we should be seeing more hiring of workers older than 54 and we're not. Corporations are continuing to outsource, using temps/contractors in order to avoid the responsibility of hiring an employee, and they are actively discriminating against older people.
Plenty of job applications online ask illegal questions. Year of high school graduation. Year graduated from college. Or they state that they want younger people with only 2-3 years experience for the job. No matter how you answer the questions on an application there's a way to find out your age by checking online. If you claim to be handicapped most companies won't even look at you.
Speaking for myself I'm tired of the game we have to play to get a job. Unfortunately it's the only game in town. But I wish companies would stop whining about a lack of applicants. It's a lie. They just don't want to hire the right people because they don't know who the right person is.
9
That 60 Minutes segment was from 2013, a period where diability claims had peaked. During that period however, while the number of awards had nudged up, overwhelmingly, the claims were rejected. It was the alarming number of lawer (many fraudulent) induced claims that garnered attention. Since 2013, the number of claims and awards has been generally decreasing almost approaching 1996 levels.
https://www.ssa.gov/oact/STATS/dibGraphs.html
That said, when I personally went to the local SS office to apply for my "earned" retirement benefits (age 62 and employed since I was 14) several years ago, in that crowded office, there were only two of us "grey hairs" actually applying for retirement benefits. Those that were seeking other types of beneits "looked", to me at least, for a number of unfortunate reasons, as though they were unemployable.
Perhaps some shady lawers tainted the process and, perhaps, a few slip through that should be working however, I think we should be asking ourselves why, in our society, are there so many qualified for the disability benefits in the first place.
A closer look at our health (particularly drug and mental health) programs, our criminal justice system, and our rehab and outreach programs might be time and effort better spent rather than pouring over an investment website that marginalizes the problem as a finger pointing, cost-benefit analysis.
1
Sorry, I can spell "lawyer" and "benefits". It's late, I guess. Ha.
As I sit here doing my taxes (not on a 3x5 card as promised...) I realize its time to fund my IRA again, to get the tax write off. I wonder if the Credit Union has raised the savings rate yet?
Jeez... do I thank the Dumpster Fire in Chief for the rate increase? Yuck!
Your credit union or banks probably still continues to pay you 0.01-0.02%. However, if you have $2500, you can put your money in money market funds at companies like Fidelity or Vanguard. Those accounts were paying 1.0-1.25% before today’s rate increase, and they will follow it up over the next 30-60 days. It would take you a few extra days to get 6our money if you need it, but for most that is workable. Think about it.
1) The DOL's jobs report for the month of Feb., 2018, in its employer survey, showed 313,000 jobs created, in addition to Jan.'s net new jobs created of 239,000. The household survey of this same DOL release showed 785,000 new jobs created in Feb., in addition to 409,000 jobs created in Jan. With such large increases at probably very near full-employment rate of 4.1%, it is unsurprising that the Fed raised the federal funds rate today. Labor shortages and bottlenecks for workers can quickly drive inflation upwards, to the detriment of the overall economy.
2) Also, many firms have been buying back their own shares during this era of exceptionally cheap interest rates. Such buybacks reduce the number of shares outstanding and drive EPS and stock prices higher. But, with rising interest rates, these buyback ploys will become more costly and increase default risk. The linkage between debt as a source of funds and the cost of shareholders' equity as a source of funds are very intricately interlinked, and mutually dependent.
3) Also, the very active M&A market, including many private equity funds full participation in this market via the LBO market, has complemented the buyback market to significantly raise and maintain stock prices. Perhaps like the derivatives market, with these newer dependencies between debt and equity prices, the Fed's marginal interest rate moves may be magnified by this confluence of these capital market events.
[W 3/21 4:07p Greenville NC]
1
Bond market optimists pointed to the possibility that a continuation of the rebound in the labor force could alleviate fears of an inflationary labor shortage. As to why this rebound in the labor force was finally occurring, I suggest disability claim numbers may have played an important role.
There is an argument that can be made that the changes made to the disability program have started to reduce the number of people applying for disability benefits. In 2015, it became apparent that by 2016, the disability trust fund would be depleted and unable to pay full benefits. The only way to avoid benefit cuts was to transfer $150 billion from the Social Security trust fund to bail out the disability trust fund.
Many fiscal conservatives objected to the kick-the-can down the road fix for the disability trust fund. Thus, in order to include the disability trust fund bailout in the Bipartisan Budget Act of 2015, those advocating the bailout had to accept some reforms to the disability program. Some of the reforms will not fully kick in until as late as 2022. However, some became effective one year after the bill was enacted. The bill became law on November 2, 2015. Most attention at that time was focused on the increase in the spending caps for FY 2016 and 2017 by rolling back the sequester of discretionary spending for those years. The disability trust fund bailout and reforms to the disability program received very little attention. .."
https://seekingalpha.com/article/4157748
2
Mr Brofman may be correct.
But the Fed's move yesterday may have more portent than the conventional wisdom acknowledges. Debt has been very cheap versus equity prices for years.
1) Thus, for years,
[(Marginal Utility (MU) of Debt Financing)/(Cost of Debt Financing) > (MU of Equity Financing)/Cost of Equity Financing)]. Thus, with such past low interest rates, and the innate sources of collateral the large S&P 500 companies have, they have probably relied on cheap debt to an extraordinary degree. Also, many of these firms have relied on cheap debt for M&A activity along with private equity firms that have used this cheap debt to finance huge LBOs; which with M&A activity in general and share buybacks have concentrated wealth in fewer shareholders.
2) With this concentration of wealth in these larger firms and their shareholders, more monopsonistic labor purchases can now be made. As the cost of debt rises, a new equilibrium will be achieved with owners' equity becoming relatively cheaper.
3) Thus, a focus on capital markets, instead of labor markets may yield a more pertinent perspective to examine yesterday's move by the Fed.
4) With the new emphasis on deregulating capital markets after years of relying on these cheap sources of debt to increase debt/equity ratios, or leverage, for many of these large firms, perhaps its more appropriate to increase monitoring of these firms given their greater financial risks due to these debt increases.
Th 3/22 9:30a Greenville NC
It is difficult for me to understand how the Fed concluded that the 2028 inflation rate come in at a benign 2%. In addition to the increase in interest rate, we have essentially full employment, tightening housing, trade protections on both finished goods and raw materials, withdrawal from trade agreements, lowering costs related to regulation, a historic budget deficit, and a focus on infrastructure spending (which competes with commercial construction). What could possibly prevent a 3.5% inflation rate this year?
3
If we were really at full employment wages would be rising. The reality is there is still tons of slack in the labor market both from people that have given up finding work or are working part time for economic reasons and because there are tons of easily and cheaply automate-able jobs like cashiers.
11
I think you may be confusing economic growth rate with the inflation rate.
Trump's lack of coherent policies and leadership leaves much in doubt to those who control the economy. That makes those financial leaders hesitant to invest in the future. Thus, the economic growth falters and, with it, inflation.
5
Half the things we use everyday and need to live are not included in the core inflation rate. They are determined to be too volatile to be accurate. Sorry with the exception of gas how many expenses actually go down over the years. I suspect the real inflation rate is 1/4% higher than claimed. Over 30 years that makes a big big difference. I seriously doubt the average SS check has the same buying power it had in 1988.
The Fed does not raise rates out of confidence but out of fear of inflation should they let the economy expand too fast. This means goodbye to the 3 - 5% economic growth that was supposed to pay for the giant tax cuts. As the economy slows, credit will become more expensive as the Federal Government has to borrow more and more to pay for the tax cuts. In the end the economy will recede and we will be back in the days of stagflation and 20% credit rates until someone who know what he/she is doing is elected.
28
M. you basically are parroting what most professional media economists are saying over and over in the press. Some of that is true, but "stagflation" is not inevitable.
“The best approach is to deal directly with the people who are affected rather than falling back on tariffs.”
but
Obama: "You go into these small towns in Pennsylvania and, like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing's replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not.
And it's not surprising then they get bitter, they cling to guns or religion or antipathy toward people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations."
If I could convert an unemployed steel worker or coal miner into a high-tech programmer, everyone would be employed and well paid. I do not know how, but Trump is lying when he says he will fix the problem. The GOPers have exported whole factories in the 1980s and are trying to lie about that.
52
These small interest rate increases are a cause for celebration if they eventually bring America back to a vaunted time when saving was celebrated, working families and retirees could get a reasonable return on their savings, and borrowing was something that people did only if they really had to. The U.S.’s declining savings culture has coincided with policy shifts that rely on low interest rates and government debt subsidies to foster economic growth. America needs to make credit a bit more expensive in its debt-laden economy. And monetary policy needs to focus more on system stability and less on increasing inflation. Amen to the Fed.
32
Expect to see increased interest rates on loans and credit card debt. Don't expect to see much of an increase in interest on savings rates. It's a one-sided increase with consumers taking the hit on both ends.
32
"These small interest rate increases are a cause for celebration if they eventually bring America back to a vaunted time when saving was celebrated"
Sadly -- I dont think your hope is warranted. The increases are minor and for show.
1
America needs to pay a living wage. Period.
2
Can't wait until Daycare Donnie attacks Jerome Powell for raising interest rates on him.
....or maybe he'll just let him slide because he's a white male.... and not an icky female appointed by our very fine first black President.
51
A prudential path ,slippery enough,as by the E.C.B. .
1
...I meant to write the Fed has raised rates once every third meeting since late 2015...mea culpa.
1
Isn't the concept of raising the rates to decrease the demand for cheap money? Anyone with a previous loan and a floating interest rate who is not planning on borrowing any additional money is now be made to give easy profits to the bankers. The bankers had already figured in the profits from their past loans at the lower rates. Essentially these rate increases raise are penalties on prudent people.
8
"Essentially these rate increases raise are penalties on prudent people."- comment by Tony
No, you have it backwards. The rate increases have a negative effect on debtors, not "prudent" people.
6
They aren't there to help you. You should have locked in the rate that was prudent for your plans. The Fed mandate is stable prices with low unemployment.
7
Ordinary people continue to struggle without jobs, without money for education, and without reasonably priced healthcare. But it's good to know the Fed thinks the economy is "back on track." I will tell that to the creditors when I ask for a reduction in interest rates on the amounts owed.
50
With unemployment below what is considered sustainable long-term, it is simply not true that "ordinary people continue to struggle without jobs". However, it is certainly true that large numbers of ordinary people are making a lot less money out of those jobs than they should, given current economic growth. It's also certainly true that people struggle, relative to other developed countries, to obtain education and healthcare, not to mention retirement funding. That is a matter of wealth distribution, not wealth generation. Right now, you need to ask the GOP about this. The 2018 tax "reform", a giant transfer of future wealth from ordinary people to the already-wealthy passed on an almost party-line vote. In the House, 227 Republicans voted yes and 13 voted no. No Democrats voted yes, although 2 did not vote.
Speaker Ryan afterwards announced that future deficits would require further cuts in pensions, medical insurance, and other "entitlements" for ordinary people. Ask the GOP now, but remember to vote in November!
25
One can hope people get it and aren't satisfied with a few extra bucks in their paychecks. The massive wealth transfer (AKA tax reform) was a GOP two-fer. First, the raid on the public treasury for their pals. Second, the stage is set for cuts to Social Security, Medicare, Medicaid when the the Congress cries "we're broke!"
6
Best economy since the 60s, that is a laugh. Here is the chart for labor statistics: https://data.bls.gov/timeseries/LNS11300000
This rate hasn't changed much in the past 5 years (at roughly 63% currently).
Further, as noted, the wages that are being paid out, are barely enough to keep up with other economic metrics like asset price inflation, and artificial scarcity in housing. Less money for the bottom 80%, more going to basic needs like housing.
The case for stubborn DISinflation:
1) Besides labor, capital is NOT in short supply. Almost all industries have the capacity they need for current and even future demand, should it grow. Investment needs in facilities are minimal.
2) Even if we manage to avoid a trade dust-up with China, their economy is slowing down and it seems to this observer that the leadership there doesn't want to go back to the old chestnut of ramping up investment and credit expansion. If that's true, commodity prices will slacken globally.
3) The recent giant corporate tax cut may end up pushing goods prices down. We've never witnessed a 14 percentage point cut in the nominal corporate rate before. Some companies may choose to cut product prices as a way of competing for market share.
5
That is the hope.
But many companies have decided that customer satisfaction is old fashioned.
@Rita
I suppose you are referring to point 3. I don't believe price competition has gone away regardless what companies think about customer satisfaction.
Trump promised his tax cuts would drive our GDP growth much higher than what the Fed is projecting. So, oh wait a second, that means either the Fed is wrong in their forecast or ... nah. He couldn't be that wrong, could he?!
Oh and that fancy tax cut plan? That should have been saved for a rainy day when GDP growth slows down. The economy is doing fine currently. We didn't need it but Trump's wealthy friends certainly are very appreciative. And not a single American citizen will make out better under the unnecessary tax plan than Trump.
64
It should be kept in mind that the Fed typically tightens at the rate of 1/4 point at each of its eight annual meetings. This was the pattern in the mid to late 1990s then again from 2004 to 2007. This 1/4 point rate hike is only the sixth since the Fed began to raise rates 27 months ago, or one 1/4 point rise per six meetings, far, far less than in the past 30 years or so. But at least savers are beginning to see a bit of a break as 2-year CDs now earn up to 2.6%. Then again, keep your eye on the 2-year treasury bill vis-a-vis the 10 year treasury bond. The 2-year, at 2.34% is at its highest level in close to 10 years and is gradually gaining ground on the 10-year which is at 2.92%. This pattern has signaled an economic slowdown in the past, say over a 60 year period. Just remember it was the immortal Larry Kudlow who so sagely opined 10 years ago that the economy would not enter a recession. Guess where he will sitting in the near future?
21
All of the hand-wringing regarding the flattening of the yield curve is premature, because as soon the Fed puts its foot on the brake of the tightening cycle, the yield curve will cease to flatten. In fact, it could be that if the Fed does continue to tighten, it would likely be doing so on the expectation of future economic growth, which, if true, should help inflation expectations rise and contribute to at least maintaining the current slope of the yield curve, or even help it steepen.
At this point, we likely have some time before we need to worry about a pending recession. In fact, use the Fed's recent rate hikes as an indication that it believes the economy will continue to improve. As long as the yield curve doesn't invert, we should be OK.
1