The fed just raised interest rates by .25%

Thrugelmir

Masomnia wrote: »

The only reason they haven't and won't (for a few months) bump the Bank rate back up to 0.5% is that it's admitting that they got their forecasts horribly wrong.

Action now is to address the storms ahead in the future. That's why the storm doesn't materialise. Takes time for even minor adjustments to filter through.

Zxcv_Bnm

Thrugelmir wrote: »

Only impact those that have opted for a leveraged position. Though the Fed increasing rates will naturally effect wholesale money markets irrespective of any BOE action.

If they're on fixes, a rate rise won't affect mortgage holders at all. The banks' strategy of terrifying people with the prospect of rate rises has meant more people than ever borrow via products that make them indifferent to rate rises.

Since 2009 I've thought we were at the start of a big economic experiment and nobody knows the outcome. We're still there I reckon.

Thrugelmir

Zxcv_Bnm wrote: »

If they're on fixes, a rate rise won't affect mortgage holders at all.

Fixes only last so long. Nor is a rise in rates the only factor. To cause wider issues to the market. Will only take around 15% of borrowers to be under some form financial duress. Triggers need only be small.

davomcdave

michaels wrote: »

You follow the same policy as always - rates are not changed for 1 off changes in the price level either up or down (as happens with commodity price or currency changes). You only change rates if you need to take demand out of the economy because excess demand is bidding up prices across the board as evidenced by wage rises in excess of productivity.

I agree the MPC shouldn't respond to a one-off event that changes the price level up or down but there comes a point where the MPC has to defend the pound IMO.

We'll see, or not, depending on what happens.

Zxcv_Bnm

davomcdave wrote: »

I agree the MPC shouldn't respond to a one-off event that changes the price level up or down but there comes a point where the MPC has to defend the pound IMO.

When did it become part of the MPC's remit to defend the pound? It has no such remit.

The MPC's job is to keep inflation between 1% and 3%. It's succeeding.

After 1992 we had a devalued £ and low inflation. It can be done, and has been, not so long ago.

Crashy_Time

Masomnia wrote: »

The only reason they haven't and won't (for a few months) bump the Bank rate back up to 0.5% is that it's admitting that they got their forecasts horribly wrong.

They deliberately dropped it under cover of the "Brexit Recession" fears so they can start low when the US raise theirs, nothing to do with the reasons Carney stated IMO, it is all just psychological nonsense to keep people buying cars etc.

davomcdave

Zxcv_Bnm wrote: »

When did it become part of the MPC's remit to defend the pound? It has no such remit.

The MPC's job is to keep inflation between 1% and 3%. It's succeeding.

After 1992 we had a devalued £ and low inflation. It can be done, and has been, not so long ago.

The MPC has a remit, confirmed by the Government each year. As you suggest, monetary stability is a part of that but is not the whole thing:

http://www.bankofengland.co.uk/monetarypolicy/Documents/pdf/chancellorletter160316.pdf

Part of the Bank of England's job is to support the Government's economic policy and that could involve defending the Pound.

The reason inflation was low in 1992, although outside the current 'target' range, is that interest rates were at 10% in the middle of a recession. If the MPC was to raise interest rates to 10% I agree that inflation would be very likely to come under control quickly. I'm not sure it's supportive of your argument though.:D

westernpromise

davomcdave wrote: »

The reason inflation was low in 1992, although outside the current 'target' range, is that interest rates were at 10% in the middle of a recession.

No you have that backwards.

Rates went up to 15% because inflation went up to 11%. This happened in part because rates had been down as low as 7% which in turn was because the CotE was targeting the £/DMark exchange rate.

They then stayed high because we joined the ERM and thus had rates higher than inflation suggested we needed, because we were targeting the exchange rate again.

As soon as we were out of the ERM we stopped targeting the exchange rate and interest rates then fell steadily to where they needed to be. No inflation ensued.

With two recent disasters from shadowing exchange rates to look back to, why would we embark on a third?

worldtraveller

The jobs report was out today and, in February, the U.S. economy added 235,000 jobs and the unemployment rate fell to 4.7%, which is pretty much in line with what economists were looking for, but slightly higher on the jobs added.

Earnings figures in February were also positive, so it probably clears the way for the rate hike next week, unless I'm reading this very wrongly, or there is a major crisis in the next few days.

Thrugelmir

worldtraveller wrote: »

The jobs report was out today and, in February, the U.S. economy added 235,000 jobs and the unemployment rate fell to 4.7%, which is pretty much in line with what economists were looking for, but slightly higher on the jobs added.

Earnings figures in February were also positive, so it probably clears the way for the rate hike next week, unless I'm reading this very wrongly, or there is a major crisis in the next few days.

Been clearly flagged. So a rise in rates should be no surprise.

Will it ripple out further is the question.