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Fed announces 3 possible rate hikes for 2022
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Last: 4 yr ago by mazag08
Lol. Answer two questions for me and I'll start to believe they'll try.
How does a country that borrows money to pay debt payments increase the rates they pay for that debt?
What happens to the average Joe's biggest investments, 401ks and real estate, if they do raise the rates?
How does a country that borrows money to pay debt payments increase the rates they pay for that debt?
What happens to the average Joe's biggest investments, 401ks and real estate, if they do raise the rates?
I've been of the opinion the government debt payments will keep rates low. I'm not sure anyone in a decision making position cares how their actions impact you or me.
Haha first let me say I was about 5 lunch beers in and thought I was posting in F16 so I apologize for smartassed tone of my comments.
I agree they don't give two ****s as they rape the treasury but they do care about being re-elected which is evident in the fact that they started paying constituents and not just bailing out corporations this time. All so they can continue to enrich themselves with the Cantilon effect.
I just don't see many options for the fed, we should begin dramatically raising rates to curb inflation, but like any heroin addict, they can't stop now. Bigger and more frequent stimmy is what I see coming, which will work right up until it doesn't.
I agree they don't give two ****s as they rape the treasury but they do care about being re-elected which is evident in the fact that they started paying constituents and not just bailing out corporations this time. All so they can continue to enrich themselves with the Cantilon effect.
I just don't see many options for the fed, we should begin dramatically raising rates to curb inflation, but like any heroin addict, they can't stop now. Bigger and more frequent stimmy is what I see coming, which will work right up until it doesn't.
Was on a conference call with secondary marketing types yesterday. These are the people who price, hedge, package, sell bundles of mortgages. The consensus was people with floating rates should be locking.
Don't take that as advice. I am merely passing along what people in that function are feeling.
Don't take that as advice. I am merely passing along what people in that function are feeling.
The FED is just another arm of the government. And right now, the only way the government can service it's massive debts, AND future debts that it plans to add, is by having high inflation.
So we will continue to get lip service. We might even get a couple symbolic tiny rate hikes. But nothing is going to change long term. Just like post WW2, they are going to burden us with massive inflation to pay off their debts.
Only this time, they will likely never ween off of the stimulus and the QE. They will go right back to it once inflation has destroyed enough wealth and prosperity. Then they will tell us how much they are helping.
It's a scam. Generations of Americans let idiotic Keynesian policies destroy this country. And it's far too gone now. The only solution is a massive depression and a hard reset. And we know they won't let that happen. They will keep kicking the can until they kick it off a cliff and fall off in the process.
So we will continue to get lip service. We might even get a couple symbolic tiny rate hikes. But nothing is going to change long term. Just like post WW2, they are going to burden us with massive inflation to pay off their debts.
Only this time, they will likely never ween off of the stimulus and the QE. They will go right back to it once inflation has destroyed enough wealth and prosperity. Then they will tell us how much they are helping.
It's a scam. Generations of Americans let idiotic Keynesian policies destroy this country. And it's far too gone now. The only solution is a massive depression and a hard reset. And we know they won't let that happen. They will keep kicking the can until they kick it off a cliff and fall off in the process.
As someone looking to refi as soon as I get this years taxes complete, this is obviously a near term concern for me and I appreciate the insider knowledge.
Be sure you understand that isn't advice. Just what I heard on a call with a group of people more tuned into that part of the process than most.
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It should be clear as I find this is a very misunderstood topic the fed in no way controls mortgage interest rates. When they bump the fed fund rates that is only controlling what banks pay to borrow overnight from the fed. Mortgage rates are set by mortgage backed securities which are simply bonds that are bought and sold by the world (and the fed as well). The fed funds rate of course does effect overall interest rates including mortgage rates but not at all directly.
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Thanks for the explanation jay. It's all very confusing to someone who only started following macroeconomics in the last two years. I knew they weren't the same thing but did think mortgage rates were influenced by fed interest rates. I'll have to keep on studying.
You are absolutely right but it does trickle down to the cost of funds. Also creates some uncertainty in markets which generally isn't beneficial to borrowers. I think the first bump is probably already priced into the market but after that who knows?
Looks like they control it then, jack.Jay@AgsReward.com said:
It should be clear as I find this is a very misunderstood topic the fed in no way controls mortgage interest rates. When they bump the fed fund rates that is only controlling what banks pay to borrow overnight from the fed. Mortgage rates are set by mortgage backed securities which are simply bonds that are bought and sold by the world (and the fed as well). The fed funds rate of course does effect overall interest rates including mortgage rates but not at all directly.
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Control and effect. They mean different things, jack.
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Every time this comes up, an upstanding, highly educated, pillar of the community (also called a loan originator) will handwave the plebeians and say something just as you did. It always starts with "The fed has zero control over the mortgage rates" and always ends with "And thus the rates move when the fed rate moves." For the homebuyer across the table, the middle part doesn't mean much.Jay@AgsReward.com said:
Control and effect. They mean different things, jack.
Lets review control theory: Send, Receive, Interpret, Feedback. Or in an extremely simple control system: Cause and Effect. (not control and effect, a control system encapsulates a cause and effect).
If I have one button that I can press and something happens to a widget somewhere, I have a causal link to that widget. If I have one button that I push and nothing happens to the widget. I do not have a link. I cannot create an effect and I do not have a control system. If I have two buttons, that I can choose to press either one, and they each cause something different to happen to the widget, I now have a control system. Might not be fully controlled, but I have a control system. I can now try to use this control system to achieve a higher objective. (You're always trying to use a control system to achieve some goal right? You want the stuffed animal-better get that crane right over it.)
The fed absolutely has two buttons it can push. And it uses these buttons to achieve its goal of guiding the economy as it sees fit. It raises rates to prevent the overheating of the economy. It lowers rates to encourage economic growth. By pressing the buttons, this controls huge facets of the economy which include mortgage rates. You think if the prime rate skyrocketed from 0% to 2.00% tomorrow that mortgage rates wouldn't jump to 5-6%? Thats control. There was a cause, the cause created an effect, the system was controlled.
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Mortgage backed securities set conventional mortgage rates. period. From where I sit I know what calls I get in a the real world. When the fed moves the rates either direction the phone rings and the other end of the call says I heard mortgage rates went up or down. And of course this answer is no they did not Or, I heard they are about to raise or lower mortgage rates the day before the meeting, so I need to lock the rate. The rate hike or cut has been priced in by the market long before the actual cut/hike.
If you know the fed is going to make a move pretty sure the world wide bond market does as well. The folks reading this board are interested in how these fed movements effect if it will help them refi to a better rate or not. I was simply pointing out the undisputable fact that the fed funds overnight rate does not control mortgage rates. I assume most folks reading this are intelligent enough to understand that as rates in general rise, yes, so will mortgage rates as mortgage investors start to demand more yield driving up mortgage rates to the consumer.
https://www.thebalance.com/how-are-mortgage-rates-determined-1798392
If you know the fed is going to make a move pretty sure the world wide bond market does as well. The folks reading this board are interested in how these fed movements effect if it will help them refi to a better rate or not. I was simply pointing out the undisputable fact that the fed funds overnight rate does not control mortgage rates. I assume most folks reading this are intelligent enough to understand that as rates in general rise, yes, so will mortgage rates as mortgage investors start to demand more yield driving up mortgage rates to the consumer.
https://www.thebalance.com/how-are-mortgage-rates-determined-1798392
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Sorry Meen but Jay is mostly correct. My opinion differs very slightly than his posts but not much. The Fed does control short term rates. They influence long terms but do not control them. Period.
So here is my example. Short rates compete for the same dollar. Why would you lock into a 4% return for 10 years when you can get 5% over five years? Most wouldn't. So long term shorts can push longs up through competition over time.
But a single Fed change does not do that. In fact if inflation is a concern like now the bond market welcomes that move since inflation is a huge threat to bonds. I've seen bond price declines on Fed up moved more then increase. So day to day the rates are rarely affected by the Fed.
But as the Fed accumulates increases the competition kicks in and forces the longs to increase. Then you have to factor the economy on top of all that.
So here is my example. Short rates compete for the same dollar. Why would you lock into a 4% return for 10 years when you can get 5% over five years? Most wouldn't. So long term shorts can push longs up through competition over time.
But a single Fed change does not do that. In fact if inflation is a concern like now the bond market welcomes that move since inflation is a huge threat to bonds. I've seen bond price declines on Fed up moved more then increase. So day to day the rates are rarely affected by the Fed.
But as the Fed accumulates increases the competition kicks in and forces the longs to increase. Then you have to factor the economy on top of all that.
You can't look at finance through an engineering lens. Finance is way more dependent on sentiment and nuance than button pushing.
Sadly, I'll say I think you're right.mwp02ag said:
Lol. Answer two questions for me and I'll start to believe they'll try.
How does a country that borrows money to pay debt payments increase the rates they pay for that debt?
What happens to the average Joe's biggest investments, 401ks and real estate, if they do raise the rates?
I can see them now, 'girding up their loins like men', and grunting out three (3) quarter-point hikes, while inflation still saps accumulated bank-deposited and related wealth at a 6% clip.
Tough guys, those boys are.
Ribeye-Rare said:Sadly, I'll say I think you're right.mwp02ag said:
Lol. Answer two questions for me and I'll start to believe they'll try.
How does a country that borrows money to pay debt payments increase the rates they pay for that debt?
What happens to the average Joe's biggest investments, 401ks and real estate, if they do raise the rates?
I can see them now, 'girding up their loins like men', and grunting out three (3) quarter-point hikes, while inflation still saps accumulated bank-deposited and related wealth at a 6% clip.
Tough guys, those boys are.
Oh we will be lucky if they are even that aggressive. If any additional spending is added they won't even be able to get across those 3 hikes.
Our best bet was to ditch Covid, not spend another dollar, further loosen restrictions and taxes, let our economy recover and boom, and grow our GDP as high as humanly possible while slowly hiking rates to pay off as much as our debt as possible with manageable small amounts of inflation that we continue to couple with favorable tax breaks.
But even that was a long shot and only delaying the inevitable for another decade or two. At least this way, we go off the cliff sooner and start over sooner.
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