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Started By
Message
Oct 29th Fed Statement
Posted on 10/30/14 at 10:20 am
Posted on 10/30/14 at 10:20 am
LINK
QE is officially over.
I'm guessing on interest rate increase in the next 12 to 18 months.
QE is officially over.
quote:
Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month.
I'm guessing on interest rate increase in the next 12 to 18 months.
quote:
The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated.
2
Posted on 10/30/14 at 10:25 am to LSU0358
Does this mean mortgage rates will start slowly moving upward? I have a house being built but I cannot lock in until January 
Posted on 10/30/14 at 10:46 am to TigerTatorTots
In short yes, but nothing is moving fast so I wouldn't worry.
Posted on 10/30/14 at 10:53 am to eng08
As long as I can lock in 4.25% or under, I won't be too mad. When we signed the purchase agreement in September, that is around where the rate was then.
Posted on 10/30/14 at 4:24 pm to LSU0358
quote:
I'm guessing on interest rate increase in the next 12 to 18 months.
Still looking like the June/July FOMC meeting, Yellen one time indirectly clarified the "considerable time" clause to mean somewhere in the range of 6-10 months which lands us right around those summer meetings.
Interestingly enough the markets seem to be pricing in later, around October. It was about 60-70% priced in for the first hike in June before the recent correction, then Eurodollar and OIS curves indicated a December hike following the risk sell-off and corresponding Fed member speeches acknowledging the sell-off. Now it seems to have settled half-way between.
I still think a July hike is the most probable, and if we keep getting economic data as strong as we have then June looks even more likely.
Posted on 10/30/14 at 6:40 pm to TigerTatorTots
I am building now too, won't be ready to lock in until late January either. Better not go up on me!
Posted on 10/31/14 at 12:29 am to BennyAndTheInkJets
Would velocity give us any indication of increasing inflation / rate hikes? I don't understand how inflation can increase if velocity is still so low.
To attempt an answer, my understanding is that velocity is a ratio of GDP to money supply. With the $5.6+ trillion of QE supply since 2008, it's easy to see why velocity is currently so low. To paraphrase Sen. Dirkson, a trillion here and a trillion there, pretty soon we're talking about real money.
So now that QE has tapered off and ended, there are two questions -
How is the boosted supply absorbed into the system without causing inflation? and
Once velocity turns upward, what will this tell us about the when and how much of inflation?
To attempt an answer, my understanding is that velocity is a ratio of GDP to money supply. With the $5.6+ trillion of QE supply since 2008, it's easy to see why velocity is currently so low. To paraphrase Sen. Dirkson, a trillion here and a trillion there, pretty soon we're talking about real money.
So now that QE has tapered off and ended, there are two questions -
How is the boosted supply absorbed into the system without causing inflation? and
Once velocity turns upward, what will this tell us about the when and how much of inflation?
This post was edited on 10/31/14 at 2:43 am
Posted on 10/31/14 at 2:39 am to Coeur du Tigre
quote:
Would velocity give us any indication of increasing inflation / rate hikes? I don't understand how inflation can increase if velocity is still so low.
Not a good indicator because of the reserves.
Better indicator might be watching wage increases and the labor market.
Posted on 10/31/14 at 2:50 am to Blakely Bimbo
Thanks BB. I know I'm guilty of choosing one data point and trying to use that as an indicator of future inflation, however I also think this is not our father's economy anymore.
Posted on 10/31/14 at 6:28 am to Coeur du Tigre
^
I agree. One would have thought the BOJ's action would have acted to set up a floor on certain commodities.
I agree. One would have thought the BOJ's action would have acted to set up a floor on certain commodities.
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