Tide turning for interest rates?

lvader

Glen_Clark wrote: »

...and how much longer can QE keep interest rates down?
Perhaps nobody knows, because we have never had anything like this situation before...

QE doesn't keep interest rates down, it keeps government bond yields down, they can keep inetest rates down as long as they want. They want to keep interest rates down until the economy recovers.

Thrugelmir

lvader wrote: »

QE doesn't keep interest rates down, it keeps government bond yields down, they can keep inetest rates down as long as they want. They want to keep interest rates down until the economy recovers.

The UK in the coming years has to sell billions of pounds worth of gilts to fund the budget deficit. QE cannot indefinately paper over the cracks by insulating the taxpayer from the real world. Wholesale investors will demand a suitable rate of return to buy the debt.

lvader

People have been expecting interest rates to increase for a few years now, unless something causes a game change they could stay low for a long time yet. Gilt yields might well go higher and QE may continue but that doesn't mean interest rates need to be touched.

grey_gym_sock

interest rates are only going to rise when economic activity is picking up more strongly. a stronger economy will also cause tax receipts to rise, and some kinds of public spending (e.g. benefits) to fall. so the deficit will be a lot smaller then.

lvader

lvader wrote: »

Interest rates are dependant on real economic recovery so for interest rates to normalise it means the recovery happened and therefor the switch the cyclicals is a given.

Yes I agree.

sabretoothtigger

, they can keep inetest rates down as long as they want.

I reckon thats about equal to saying we can create money whenever we need it. So long as nobody tries to cash my cheques I can do that too

interest rates are only going to rise when economic activity is picking up more strongly

Interest rates will rise when we need money and it costs more to get the attention of lenders who produce goods that we buy (borrow).
However we feel about it or our situation at that point is a minor sympathetic point?

Glen_Clark

grey_gym_sock wrote: »

"the market climbs a wall of fear."

Some say the stock market is driven by greed or fear. Greed pushes prices up, Fear pushes prices down. But in a raging bull market, with £billions of QE funny money flying round and round looking for a better home than a sub inflation rate deposit account, almost anything that draws attention to a company seems to push up its share price. I recall at the height of the dot com lunacy a trader saying 'even a profit warning seems to push up the share price these days!'

Glen_Clark

lvader wrote: »

Gilt yields might well go higher and QE may continue but that doesn't mean interest rates need to be touched.

You cannot disconnect interest rates from Gilt Yields as long as investors can buy Gilts.

Glen_Clark

grey_gym_sock wrote: »

and some kinds of public spending (e.g. benefits) to fall.

Basic benefit rates are about the lowest in Europe. The big benefit claims (which you see in the Daily Mail) are for housing benefit. They can't reduce that at the same time as pumping up housing costs with Osborne's Help to Bubble Scheme.

Freecall

Glen_Clark wrote: »

PS: A recent story in the local paper showed about 800 applicants for 3 jobs in a Costa Coffee outlet. I find that a more reliable indicator of unemployment than Government Statistics, or Daily Mail stories about welfare scroungers.

A great thread with some seriously interesting views on the state of the economy.

We need to be a bit careful with the Costa Coffee stories though. We had a similar one our way and when I was at a friend's house in Bristol a couple of weeks ago they had similar there.

I imagine that it is Costa's PR department placing stories which shows them as a desirable and popular company. Remember, from their point of view all publicity is good publicity.