• About Us
  • Privacy Policy
  • Contact
Mortgage Insurance Center
  • Home
  • Mortgages
  • Health Insurance
  • Home Insurance
  • Life insuranace
  • Finance Laws
    • Banking Laws
    • Assets
    • Interest Rate
    • Loans
No Result
View All Result
  • Home
  • Mortgages
  • Health Insurance
  • Home Insurance
  • Life insuranace
  • Finance Laws
    • Banking Laws
    • Assets
    • Interest Rate
    • Loans
No Result
View All Result
Mortgage Insurance Center
No Result
View All Result
Home Interest Rate

What is the Fed going to do with interest rates?

by Matthew Upton
May 30, 2022
in Interest Rate
0
0
SHARES
2
VIEWS
Share on FacebookShare on Twitter

[ad_1]

Jeff MacLellan

Clearly, everyone knows that we are experiencing the highest level of inflation we have in a long time — 40 years, to be precise. Last year, the Fed along with the administration sold us on the fact that inflation was transitory and would abate over time. Of course, those of us buying food and gas and paying utility bills knew otherwise. In both March and April of this year, the consumer price index came in at over 8%, with certain food stuffs up double digits and gasoline prices up approximately 50%.

To put some perspective on where we are, only twice since 1940 have we experienced inflation this high and they had the same characteristics, when supply shocks hit a robust economy. The first was in the 1950s when the economy was booming and the Korean War broke out. Mobilization and gearing up for the War created supply and labor shortages similar to what the pandemic caused today. Inflation peaked at 9.6% in April of 1951 and was back down to 1% in December 1952. The Fed tightened monetary policy and was able to avoid a recession. Let’s hope that is what happens now.

The second time that was similar to the present time was 1973. The Arab oil embargo hit our economy that was dealing with rising food prices and strong demand. Inflation hit 12.3% in 1974. The Fed raised interest rates sharply and inflation dropped slowly to 5% in 1976 and then headed higher to reach an all time high of 14.6% in April of 1980. The Fed then let market rates float freely and the fed funds rate soared to an all time high in the 19-20% range. That caused a significant recession but did solve the inflation issue. Let’s hope today’s cure is the former one like during the Korean War and not like the soaring rates experienced in the 70s and 80s which resulted in a significant recession.

If you look at the Fed’s reaction to this situation, it is interesting. Last year, they basically communicated that inflation was transitory and would abate as the supply chain issues normalized. It became fairly clear to some that inflation was rearing its ugly head last summer. The monthly increase in the consumer price index was .9% last June, .9% again in October and jumped to 1.2% this past March. As previously mentioned, the annual rate jumped over 8% in March and April. The Fed finally became inflation fighters earlier this year. Why did it take them so long?

What has the Fed actually done? On March 15, the Fed finally raised the Fed Funds rate ¼%. They followed that up with a ½% increase on May 5 of this year resulting in a ¾% rise so far this year and still under 1%. Longer term rates rose fairly rapidly earlier this year and shorter term rates need to catch up. They will still be too low to affect inflation.

Another step they have announced that they will take is quantitative tightening. For years during the financial crisis of 2008-2009, the Fed bought bonds to flood the market with liquidity, and this was called quantitative easing. The Fed balance sheet is approximately $9 trillion dollars, up from $4.2 trillion in February 2020. The Fed has basically been funding the deficit associated with the pandemic. That said, beginning June 1, they are going to start letting the bond portfolio run off as bonds mature. They are not, however, going to sell bonds.

In summary, so far, the Fed has actually done very little in its efforts to combat inflation. That said, what the Fed says is powerful. They have now talked tough for several months and what has happened? The bond market has experienced one of its worst performances ever. The stock market has been flirting with bear territory. Just yesterday, the minutes from the May meeting of the Fed were released. They talked about continued ½ point increases (probably 3 by July) and they provided details for the quantitative tightening due to take place June 1. More tough talk in the spirit of forward guidance. Financial conditions have clearly tightened without the Fed doing much.

So, what has really happened? The Fed has lowered expectations for inflation and cut liquidity in the system in the form of less stock market value, which has fallen significantly. Higher inflation primarily from gas and food prices, coupled with higher mortgage rates and the stock market decline will slow the economy and may control inflation. They have talked the economy into a slowdown. This may argue that the Fed may not have to raise rates much more after July. It will be interesting to see what happens in the next few months.

Jeff MacLellan is retired from Landmark Bank. He spent 37 years in banking, and has been tracking local economic indicators since he came to Columbia in 1987.

[ad_2]

Source link

Previous Post

PM Modi promises stipend, health insurance upto Rs 5 lakh under PM CARES for children

Next Post

Valuation Of Inherent Return Vs. Fiat Return Assets – A Common Principle

Next Post
Valuation Of Inherent Return Vs. Fiat Return Assets – A Common Principle

Valuation Of Inherent Return Vs. Fiat Return Assets - A Common Principle

Popular Posts

Ajanta Pharma : Newspaper Advertisements
Life insuranace

Taiming Assurance Broker : Announcement on behalf of the major subsidiary Link-Aim Life Insurance Broker Co.,LTD. to distribute dividends.

by Matthew Upton
July 28, 2022
0

Close Provided by: TAIMING ASSURANCE BROKER CO.,LTD. SEQ_NO 4 Date of...

Read more

Taiming Assurance Broker : Announcement on behalf of the major subsidiary Link-Aim Life Insurance Broker Co.,LTD. to distribute dividends.

20% interest rate on credit cards! Here’s how to avoid paying those high rates :: WRAL.com

Sens. Murphy, Blumenthal, Colleagues Reintroduce the Behavioral Health Coverage Transparency Act – InsuranceNewsNet

$1 billion in loans still available for agricultural funding in Ohio

How Long Do Car Accidents Stay on Your Record?

Rocket Mortgage Classic Wagers: Pick To Finish Top-10

Load More

Popular Posts

Hingham DPW Workers Deserve Respect, Decent Wages and Affordable Health Insurance

Hingham DPW Workers Deserve Respect, Decent Wages and Affordable Health Insurance

by Matthew Upton
July 5, 2022
0

Propy introduces blockchain title and escrow service

Propy introduces blockchain title and escrow service

by Matthew Upton
May 26, 2022
0

Biden administration sued after fertility awareness methods cut from health coverage

by Matthew Upton
June 15, 2022
0

Ajanta Pharma : Newspaper Advertisements

Taiming Assurance Broker : Announcement on behalf of the major subsidiary Link-Aim Life Insurance Broker Co.,LTD. to distribute dividends.

July 28, 2022

20% interest rate on credit cards! Here’s how to avoid paying those high rates :: WRAL.com

July 28, 2022
Edelweiss General Insurance launches India’s first on-demand, mobile telematics-based comprehensive motor insurance – SWITCH

Sens. Murphy, Blumenthal, Colleagues Reintroduce the Behavioral Health Coverage Transparency Act – InsuranceNewsNet

July 28, 2022

Categories

  • Assets
  • Banking Laws
  • Finance Laws
  • Health Insurance
  • Home Insurance
  • Interest Rate
  • Life insuranace
  • Loans
  • Mortgages

Tags

home loans mortgage personal loan
  • Privacy Policy
  • contact us

© 2023 JNews - Premium WordPress news & magazine theme by Jegtheme.

No Result
View All Result
  • About Us
  • contact us
  • Home
  • Home 2
  • Home 3
  • Privacy Policy

© 2023 JNews - Premium WordPress news & magazine theme by Jegtheme.