Jump to content

Thumbs UP or Thumbs Down on Todays 75 Basis Point Fed Hike?


RealMarkDeneen
 Share

Recommended Posts

FWIW, a LOT of studies I’ve looked at in recent months, especially those that are stock market sentiment related, show short term volatility (weeks to 2-3 months), but typically very strong returns 6 to 12 months out. These are basically “conditional” historical statistical back tested analysis of similar market conditions that occur each day.

 

More recently there are several historical conditions producing the same dates that coincide with some not so pleasant events, like WWII, the early 70’s oil embargo, Cuban missile crisis, etc. There are just a few of these dates but the possible correlation to current events is obvious. So it’s still buyer beware for now.

 

As for the Fed rate, it's still relatively low historically, on par with the so-called “sluggish 50’s"

https://fred.stlouisfed.org/series/FEDFUNDS

 

As for me personally, I don’t like fixed income. It makes me feel financially trapped. If you have more than enough cash & fixed income assets to generate enough income to cover your desired lifestyle, I get it. That’s the safe and easy way to go.

 

I won’t have the studies on today’s data until tomorrow morning. Should be interesting to see how today’s intraday market action looks going forward based on the sentiment studies.

 

So as far as today's actual rate hike, to me it doesn't really matter either way.

  • Like 2
Link to comment
Share on other sites

I've got somethings to say on this, but I am on my cell right now... suffice to say, using historical data or studies based on historical data, especially to make a projection, is something that should be avoided.

  • Like 1
Link to comment
Share on other sites

My general feeling is that the older one gets, the more one should shift from equities to fixed income because if there's a big market correction, young people can ignore it and wait say, 5 years for recovery. Old folks may not have the luxury of five years to regain traction. Naturally, that's a generalization just meant to point out the timing problem of equity volatility.

 

I'll still do a bit of day trading and momentum trading in stocks, but I won't risk a lot on say, holding any of Cathy Woods' growth stocks. Her stuff might be even more than five years away from paydirt.

 

I'll be quite happy with another couple steep FED hikes going into 2023.

Link to comment
Share on other sites

I'm tending towards the Jeremy Siegel analysis:

Wharton professor Jeremy Siegel says Jerome Powell is making one of the biggest policy mistakes in the Fed's 110-year history, and it could lead to a major recession (msn.com)

 

Plus, rate hikes will not bring grocery prices down.  Food inflation as far as I can tell is not primarily a monetary phenomenon, but a supply chain production/untimely weather problem.  

Question:  If inflation is so bad right now, why are gold and silver prices going down?  That is not the usual response in commodity markets.

  • Like 3
Link to comment
Share on other sites

As to Powell's policy motivation: I think he is reacting to pressure from business think tanks to put an immediate end to wage gain momentum  and increasing labor power. The only group that is being harmed with higher FED rates is wage-earners. Keeping the "reserve labor army" big enough to damp labor demands is a constant in FED policy.

  • Like 2
Link to comment
Share on other sites

Regardless of the origin of our current inflation, higher interest rates will reduce the amount of money that is chasing a limited supply of goods and services . The law of supply and demand is a stubborn reality. As interest rates rise the demand for most goods will moderate and their will be a reduced   ability to charge higher prices , competitive forces will start working again. Raising rates is a tough pill to swallow and its a delicate balancing act , but necessary right now . 

Link to comment
Share on other sites

Unlike the hard sciences, economics predictions are not much more accurate than predicting long range weather. Getting any sort of consensus from "leading economists" is like herding cats. Most of the field has soiled itself with extreme political and cultural bias making pronouncements highly suspect no matter what the source.

 

I tend to think that the persistent raising and lowering of interest rates is a lot like swinging a big sword in a crowd of people - someone always gets hurt and it's hard to justify the end result. Consider that the US is suffering a decades long housing shortage and now mortgage rates just (nearly) doubled overnight.

 

For 12 years the FED has been inflating financial assets to the $12T benefit of the top quintile. Now, the deflation spiral will be put on the backs of the lowest quintile. A pretty good game of "heads we win, tales you lose." A far more equitable method of reducing inflation is raising wages, and increasing the share of the economic pie for labor. What Powell is doing is the exact opposite. He is, in essence, trying to undermine supply and demand of labor.

  • Like 1
Link to comment
Share on other sites

The federal reserve will periodically make  adjustments to monetary policy , these adjustments are based on the reading of current economic conditions , like employment rates , inflation levels , exchange rates ,etc .The idea behind these changes , which usually involve adjustments to short term interest rates (a change in money supply) , is to create an economic  accommodation effect (lower rates), or to create a economic contractionary effect( raised rate) ,  lowering this rate  is effective in stimulating a slow economy and reduce unemployment levels  , or in the case of of an economy with high inflation and a high employment rate , a contractionary effect is called for . Having said this , there is the real danger of unintended consequences, like recession , but the danger of doing  nothing , can be  much worse . Good monetary policy helps keep the economy running at a steady pace year after year , with adjustments made when needed, and hopefully made without political interference.

  • Like 1
Link to comment
Share on other sites

6 hours ago, Tom05 said:

Regardless of the origin of our current inflation, higher interest rates will reduce the amount of money that is chasing a limited supply of goods and services . The law of supply and demand is a stubborn reality. As interest rates rise the demand for most goods will moderate and their will be a reduced   ability to charge higher prices , competitive forces will start working again. Raising rates is a tough pill to swallow and its a delicate balancing act , but necessary right now . 

Do you really think grocery prices will come down as a result of monetary policy?  People will always need to eat.

  • Like 2
Link to comment
Share on other sites

On 9/24/2022 at 6:11 PM, oldtimer said:

Do you really think grocery prices will come down as a result of monetary policy?  People will always need to eat.

I agree , food prices will be affected to a lesser degree ,food is mostly a non discretionary expenditure .However food producers are not immune to the rising costs of doing business  ,just like other businesses  they see increased cost for fuel , labor ,transportation and so on and those costs are handed down to the consumer. But on the other hand the cost to remodel your Kitchen is likely to stabilize or even decline.(Discretionary spending)

Link to comment
Share on other sites

17 minutes ago, YK Thom said:

Scary times for those carrying some debt - such as myself unfortunately. Glad I locked my mortgage in for five last year.

Good for you! Unfortunately the writing was on the wall for raising interest rates and it was bound to happen to keep fiscal policy in balance. We ARE in a growing economy after the pandemic and govenment subsides to address it. Yin & Yang.

  • Like 2
Link to comment
Share on other sites

26 minutes ago, Zen Traveler said:

Good for you! Unfortunately the writing was on the wall for raising interest rates and it was bound to happen to keep fiscal policy in balance. We ARE in a growing economy after the pandemic and govenment subsides to address it. Yin & Yang.

My credit card and line of credit needs to be paid down and quickly. I'm working all the overtime I can get away with these days.

Link to comment
Share on other sites

I retired 3 years ago and left my 401k money in pretty aggressive growth and income stocks since I have no plans to withdraw it anytime soon. Needless to say, I'm getting beat up pretty bad. I'm hoping the market improves in the near future so I can transfer to bonds without losing too much money.

Link to comment
Share on other sites

1 hour ago, kevinmi said:

....I retired 3 years ago and left my 401k money in pretty aggressive growth and income stocks since I have no plans to withdraw it anytime soon. Needless to say, I'm getting beat up pretty bad. I'm hoping the market improves in the near future so I can transfer to bonds without losing too much money.

22 hours ago, RealMarkDeneen said:

Unlike the hard sciences, economics predictions are not much more accurate than predicting long range weather.

I'm hoping the market improves in the near future so I can transfer to bonds without losing too much money.

Imo, if they (suppliers, manufacturers, & retailers) can get a handle on supply chain issues and if Russia changes course in Ukraine (I really think Putin's days are numbered) the markets will raise substantially and interest rates will remain stable where they are at...That's what I see in my novice crystal ball.

22 hours ago, RealMarkDeneen said:

Consider that the US is suffering a decades long housing shortage and now mortgage rates just (nearly) doubled overnight.

Yep. There is also the situation for us in the retail market renting space as a small business. I have to renew our lease between now and 2024 and am at a loss post-pandemic expectations are... 

Link to comment
Share on other sites

The last 50 years of FED  policy have resulted in: the US's Gini Coefficient keeps rising, housing shortages are always trending worse, the economic middle class is disappearing, and aggregate debt keeps rising. Does anyone ever ask, "Are we using the right tools to manage the economy?" Even in the very best case, the FED's standard policy objective of "maintaining  2% inflation" is deadening productivity gains which run somewhat in the 2% range. This is one reason the GINI continually creeps northward, and frank poverty (not formulaic poverty) is rising.

 

Consider all the blather about "smart tools" and "smart regulation" it's a wonder we still use the equivelent of a hammer and chisel for brain surgery when it comes to economic policy. The Red Knob turns the money printer up and down, the Yellow Knob turns the Interest Rate up and down. That's it! That's what the FED Chair has to play with - two knobs to run the world's largest economy.

 

Is it any wonder that putting ten top economists in a room will yield ten different economic futures?

Well, it's not all bad. The FED has done an outstanding and commendable job for those with 12-figure accumulations.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

 Share

×
×
  • Create New...