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Thoughts on US FED Interest Rate Change on 12/19/18


nickenumbers
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What do you all think the FED SHOULD do with Interest rates on Wednesday 12/19/18?

vs.

What do you think they WILL do on 12/19/18?

 

 

Perhaps I am being selfish, but I think they should take a break on raising interest rates, and leave them unchanged.

Markets have significant volatility, and have close to zero return for the year.

I know that the FED is monitoring inflation closely, and it seems that the pace of increase has slowed in 2018.

I believe that they are happy to have an economy continuing to grow within their limits, vs. one that starts to stall with a potential impending recession.

 

If I were them, I would wait on this month's increase, as you can always increase at the next meeting. 

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Should not raise and I don't think they will if they have any brains.

 

Housing is cooling down or a major part of the economy. Brexit is a big risk and some large countries in the EU are facing major fiscal issues. China vs U.S. trade war. U.S. dollar is already sky high. Inversion of bonds.

 

And where is the inflation really? Minimum wage of $15 in some places? That is what is so scary to Powell or that will cause runaway inflation??? Come on!

 

When I look at commodities or input they are all flat to down.

 

I had a post about this before and I think that the Fed and EU central bank have no clue about the end of QE and its impact.

 

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Generally, I'd prefer higher rates, but agree with the others that I think we're getting close to the end of what the economy can tolerate.

 

The fundamentals for higher rates are terrible - massive debt outstanding, significantly lower rates globally, and aging demographics really make it tough to raise rates.

 

We might have seen the "lows" for rates back in June 2016; however, that doesn't mean 10-year rates can go to 4-5% - just that 1.5% is probably the lower end of the range with 3.5% being near the upper-end of the range.

 

 

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I think the Fed should hike as planned and probably acknowledge increased risk for the economy next year. The stock market should not be a major concern for the Fed and its not really that bothersome if its flat yoy anyways. The housing slowdown prevents trouble down the road and is a good thing.

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Statistical ramblings:

Since 1998, if one had invested in the S&P 500 only during the 2 days preceding every FOMC announcement, ie 16 days per year, one would have captured about 85% of the index return (not accounting for dividends and transactions cost) even if the announcement was appreciated to be negative, neutral or positive afterwards. (!)

 

Just in case this has some real-life meaning, there are two possibilities:

 

-Don't fight the Fed 'cause these guys know what they're doin'.

-Consider the possibility that the correlation eventually breaks down, down the road.

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I think the Fed should hike in Dec and then reduce probability to one or two hikes next year.

 

I agree with Druckenmiller: there has to be a hurdle rate for money. If it is free it will result in lots of  mal-investment. This then creates an even bigger future issue (spike in debt, much of it used poorly).

 

Wages will be interesting to watch in 2019; they are slowly ticking up. If employment gains in the US continue at +150,000 in 2019 wages will likely continue to slowly tick up.

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