Author Topic: POLL: Fed and interest rates  (Read 12077 times)

shalab

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Re: POLL: Fed and interest rates
« Reply #10 on: December 30, 2018, 08:02:31 PM »
Ray Dalio on the fed rate hikes

https://www.cnbc.com/2018/11/15/billionaire-ray-dalio-fed-raised-rates-to-a-point-where-theyre-hurting-asset-prices.html

    Hedge fund billionaire Ray Dalio argues the Fed has raised rates to a point where they’re hurting asset prices.
    The central bank needs to start looking at monetary policy’s impact on asset prices before economic conditions, Dalio says.
    Dalio also laughs off the notion that the Fed needs to raise rates so it would have room to make cuts if the economy were to take a major downturn.

John - you are right that all else being equal, it is good for the fed to have the tools at their disposal.

However, it is not clear to me that they understand the economic machine and the interaction between various components.

A fed chief once said Ray Dalio had better statistics than the federal reserve, so I will be watching Ray Dalio closely.

Europe looks like it will have a secular decline for a long period of time - here is a projection of Germany's population in 2050.

https://www.pop.org/germany-to-shrink-by-10-million-people-by-2050/


Well, the poll does not tie well with the activity level in the Druckenmiller and Trump were right topic, right? [ : - ) ]

Getting back to "normal" interest territory in the US is not a bad thing at all. Yes, it creates volatility etc. [- perhaps even some pain some places -] in some markets right now, but then you avoid a multiplier effect on the pain now instead of it gets worse at a later point in time. [I think Viking has mentioned that earlier somewhere.]

It also - gradually - brings back the interest tool in the toolbox of the FED.


Gregmal

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Re: POLL: Fed and interest rates
« Reply #11 on: December 30, 2018, 08:39:36 PM »
https://www.cnbc.com/2018/12/28/el-erian-hold-the-fed-accountable-for-its-messaging-not-rate-hike.html

This sums it up. I don't disagree with the hike, but the communication sucks and is tone deaf. Which IMO is Powell's way of trying to play politics and stick it to Trump....Which is more or less a "way to go asshole, stick it to Trump at the expense of the rest of the country"...
« Last Edit: December 30, 2018, 08:41:37 PM by Gregmal »

John Hjorth

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Re: POLL: Fed and interest rates
« Reply #12 on: December 31, 2018, 12:51:46 AM »
Ray Dalio on the fed rate hikes

https://www.cnbc.com/2018/11/15/billionaire-ray-dalio-fed-raised-rates-to-a-point-where-theyre-hurting-asset-prices.html

    Hedge fund billionaire Ray Dalio argues the Fed has raised rates to a point where they’re hurting asset prices.
    The central bank needs to start looking at monetary policy’s impact on asset prices before economic conditions, Dalio says.
    Dalio also laughs off the notion that the Fed needs to raise rates so it would have room to make cuts if the economy were to take a major downturn. ...

shalab,

I actually had to read the quotation of Mr. Dalio three times and think a bit about it before posting this. Taking it verbatim [the second line], it could be understood as Mr. Dalio just wants the FED to divert from its mandate. [And I don't think that it should be understood that way, actually, but that was how I read it while reading it the first time.] After reading it the third time, I think it means, that asset prices effects from FED rate decisions are a logical and natural part of considering the total effects on the economy via the feedback loops to the real economy from the financial markets, and thus such effects should be taken into consideration under the FED's interest rate decisions. [And that is actually also what I get from reading Cardboard's last post in this topic.]

The reason for this is there exist feedback loops from asset prices to the activity level in the real economy [i.e.: think real estate].

If this is what Mr. Dalio meant, then I think every CoBF member agree on that.

With regard to Mr. Dalio's last sentence: I think that should be read exactly the same way as what I have phrased above about the first two lines. It is a fact [at least to me], that it must  easier for the FED to be downward flexible with interest rates, if you already are in an interest rate territory, where being downward flexible with interest rates don't bring in a territory, where interest rates doesn't bring you in a territory, where the FED start screwing up healthy incentives & things by creating a negative price on money. So, in short: Yes, it's "just" a side effect, but to me certainly not a laughable one.

- - - o 0 o - - -

Edit: And after reading it the fourth time, I just think : "Yes, naturally, Mr. Dalio is just yet another money manager with his personal incentives."
« Last Edit: December 31, 2018, 12:54:50 AM by John Hjorth »
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John Hjorth

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Re: POLL: Fed and interest rates
« Reply #13 on: December 31, 2018, 02:29:26 AM »
https://www.cnbc.com/2018/12/28/el-erian-hold-the-fed-accountable-for-its-messaging-not-rate-hike.html

This sums it up. I don't disagree with the hike, but the communication sucks and is tone deaf. Which IMO is Powell's way of trying to play politics and stick it to Trump....Which is more or less a "way to go asshole, stick it to Trump at the expense of the rest of the country"...

Greg,

Personally, I think : "Is Mr. Powell really that bad at communication?" [But that's naturally just me. ...]

To me, in short, being FED chairman is a Uriah post. [Please don't take that too seriously about who screws who! [ : - ) ]]

Also, CNBC - Federal Reserve [June 13th 2018] : Fed’s Powell says he will begin news conferences following each meeting starting in January.
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shalab

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Re: POLL: Fed and interest rates
« Reply #14 on: December 31, 2018, 09:49:57 AM »
John, appreciate your thoughts

Dalio could be wrong overall - but Dalio is right about asset price weakness.

Asset prices have contracted in the last quarter - in all major metros from LA, DC, Boston, Chicago and Seattle. As we know, the stock prices have also dropped.

https://www.redfin.com/blog/data-center

Overall, the projection for next year is for tepid rise of about 3%. One can compare against the asset prices in Canada as an example:

https://www.livingin-canada.com/house-prices-canada.html

Regarding rate hikes next year:

https://www.cnbc.com/video/2018/12/31/we-are-at-neutral-rate-fed-shouldnt-go-higher-strategist.html

Economy activity contracts in December:

https://www.bloomberg.com/news/articles/2018-12-31/humming-u-s-factories-end-2018-on-a-sour-note-amid-trade-war?srnd=premium

Ray Dalio on the fed rate hikes

https://www.cnbc.com/2018/11/15/billionaire-ray-dalio-fed-raised-rates-to-a-point-where-theyre-hurting-asset-prices.html

    Hedge fund billionaire Ray Dalio argues the Fed has raised rates to a point where they’re hurting asset prices.
    The central bank needs to start looking at monetary policy’s impact on asset prices before economic conditions, Dalio says.
    Dalio also laughs off the notion that the Fed needs to raise rates so it would have room to make cuts if the economy were to take a major downturn. ...

shalab,

I actually had to read the quotation of Mr. Dalio three times and think a bit about it before posting this. Taking it verbatim [the second line], it could be understood as Mr. Dalio just wants the FED to divert from its mandate. [And I don't think that it should be understood that way, actually, but that was how I read it while reading it the first time.] After reading it the third time, I think it means, that asset prices effects from FED rate decisions are a logical and natural part of considering the total effects on the economy via the feedback loops to the real economy from the financial markets, and thus such effects should be taken into consideration under the FED's interest rate decisions. [And that is actually also what I get from reading Cardboard's last post in this topic.]

The reason for this is there exist feedback loops from asset prices to the activity level in the real economy [i.e.: think real estate].

If this is what Mr. Dalio meant, then I think every CoBF member agree on that.

With regard to Mr. Dalio's last sentence: I think that should be read exactly the same way as what I have phrased above about the first two lines. It is a fact [at least to me], that it must  easier for the FED to be downward flexible with interest rates, if you already are in an interest rate territory, where being downward flexible with interest rates don't bring in a territory, where interest rates doesn't bring you in a territory, where the FED start screwing up healthy incentives & things by creating a negative price on money. So, in short: Yes, it's "just" a side effect, but to me certainly not a laughable one.

- - - o 0 o - - -

Edit: And after reading it the fourth time, I just think : "Yes, naturally, Mr. Dalio is just yet another money manager with his personal incentives."
« Last Edit: December 31, 2018, 10:10:29 AM by shalab »

Spekulatius

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Re: POLL: Fed and interest rates
« Reply #15 on: December 31, 2018, 01:14:49 PM »
The Redfin chart shows some seasonal cyclicity for real estate prices, but no proof of a downturn yet. It is normal for RE to rise in early in the year and and recede a bit in fall. It‘s clear that RE has slowed, but I don’t think this is visible from the charts yet. Besides that, the Fed supposedly doesn’t care about asset prices, also I think it should at least to take into account housing prices, because they translate into cost of living for the majority of people ( 2/3 of the people in the US own rather than rent). The only central bank that actively looks at RE prices (to my knowledge)  is the central bank of Hongkong, probably, because RE is such an important part of their economy.
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rkbabang

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Re: POLL: Fed and interest rates
« Reply #16 on: December 31, 2018, 08:59:41 PM »
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.

It's outside the feds circle of competence too. Interests rates, the time value of money, are a market phenomenon. You might as well have a government board set the daily price of Avocados.

LC

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Re: POLL: Fed and interest rates
« Reply #17 on: December 31, 2018, 10:03:54 PM »
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.

It's outside the feds circle of competence too. Interests rates, the time value of money, are a market phenomenon. You might as well have a government board set the daily price of Avocados.

Can I ask your opinion on the Fed slashing interest rates in the 2009-2013 period. This was most certainly not a market phenomenon, as credit was drying up. The Fed's action essentially re-started the US economy and prevented a depression. Beautiful deleveraging and all that. Do you think they were wrong, or lucky, or something else?
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maybe4less

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Re: POLL: Fed and interest rates
« Reply #18 on: January 01, 2019, 12:33:51 PM »
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.

It's outside the feds circle of competence too. Interests rates, the time value of money, are a market phenomenon. You might as well have a government board set the daily price of Avocados.

Can I ask your opinion on the Fed slashing interest rates in the 2009-2013 period. This was most certainly not a market phenomenon, as credit was drying up. The Fed's action essentially re-started the US economy and prevented a depression. Beautiful deleveraging and all that. Do you think they were wrong, or lucky, or something else?

It was a market phenomenon. The demand for risk-free assets soared, pushing down interest rates. The Fed was following/supporting that.

rkbabang

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Re: POLL: Fed and interest rates
« Reply #19 on: January 02, 2019, 06:56:59 AM »
How about not having an opinion because fed policy is outside my circle of competence? I'd guess it's outside of the circle of many others here, including some of those with the strongest opinions.

It's outside the feds circle of competence too. Interests rates, the time value of money, are a market phenomenon. You might as well have a government board set the daily price of Avocados.

Can I ask your opinion on the Fed slashing interest rates in the 2009-2013 period. This was most certainly not a market phenomenon, as credit was drying up. The Fed's action essentially re-started the US economy and prevented a depression. Beautiful deleveraging and all that. Do you think they were wrong, or lucky, or something else?

Nothing the fed does is a market phenomenon.  It is government setting rates. No different from the USSR setting prices in their economy either by their own opinions or sometimes by looking at ads in London Newspapers. If the rate is set by the fed then it isn't being set by the market. If the price of Avocados was set by a government board and you asked me "What do you think about the Federal Avocado Board reducing prices in 2009-2013?  Did they do the right thing?"   My answer would be the same.  I don't know. The market should be setting the rate not some board of bureaucrats/experts.