The fed just raised interest rates by .25%

westernpromise

davomcdave wrote: »

Economic policy has been set for the benefit of the baby boomers for decades.

Yes, they really did well out of those 17% mortgage rates.

Base rates have only been over 10% in 20 of the last 300 years and all 20 were between 1970 and 1995.

Mortgage rates today are pretty close to the 300 year average. I would get used to these rates if I were you. After 8 years of low rates and with 10-year fixes still available you can lock in 3/4 of a 25 year mortgage term at this level. That looks like a structural change to me.

worldtraveller

economic wrote: »

this all points to an even higher dollars. i have said for a whislt US stocks are going to rise a lot. they have specially in pound terms. its not to late, i expect this to continue for sometime.

IMHO, most of this, in terms of a higher USD and also higher US equities have already been factored in to the E/R and stock market. I've been somewhat contrarian on this and, in the past couple of weeks, have sold up some of my US funds and bought more European, both EU & emerging Europe. My feeling is that they will do better than US equities in the short to medium term now, as I see more upside potential in the latter. I also don't believe there is much more upside now to the USD over GBP. We could maybe see USD 1.15/GBP1.00, but only fleetingly.

padington

Thrugelmir wrote: »

I've never used the word storm. Nor ever suggested when. Though I would use the word complacency. Only ever a question of when the tide will finally turn. No one foresaw the extent of Central Bank intervention required to maintain stability in the global financial markets. Or the cheap funding provided to UK institutions to provide liquidity for mortgage lending. The US hit the rocks in 2005/06. In time terms is further along the road to recovery. Of course the UK could follow the Japanese model of secular stagnation. Burdened with debt with a rapidly ageing population to support.

We have immigration, we are nothing like Japan.

padington

davomcdave wrote: »

At some point their hand will be highly likely to be forced.

The US has plenty of form when it comes to trashing other countries' currencies. As John Connally put it, "The dollar may be our currency but it's your problem".

The markets have priced in an even money chance of two further rate rises this year of 25bps each which would put the Fed Funds target rate range at 1.00-1.25%. The Fed themselves reckon there is a chance of 3 more rate rises this year.

Who is going to lend money to Britons at negative real rates when they can lend to Americans at positive or at least neutral real rates? Especially if it seems likely that the debts are going to be repaid in devalued pounds. The MPC has got some tough choices ahead of it. Ditto the ECB as it goes.

Trumps whole economic policy is based on borrowing LOADS of cheap money. Are you aware of that ?

Thrugelmir

padington wrote: »

We have immigration, we are nothing like Japan.

I do agree that the Japanese work much harder.

davomcdave

padington wrote: »

Trumps whole economic policy is based on borrowing LOADS of cheap money. Are you aware of that ?

I am well aware of that. Labour's economic policies in the 1970s were based on running a series of state owned monopolies that set prices as if they were small, privately owned firms. That didn't work out well either.

westernpromise wrote: »

Yes, they really did well out of those 17% mortgage rates.

Base rates have only been over 10% in 20 of the last 300 years and all 20 were between 1970 and 1995.

Mortgage rates today are pretty close to the 300 year average. I would get used to these rates if I were you. After 8 years of low rates and with 10-year fixes still available you can lock in 3/4 of a 25 year mortgage term at this level. That looks like a structural change to me.

For much of the 60s and 70s they had mortgage rates that were set well below market rates. Pensions policy has benefited one generation above all else as has education policy and as will health and social care policies.

My heart bleeds for people paying rates of 17% for a year or two on tiny mortgages.

What has caused this structural change do you think?

padington

In the 70's labour didn't own the worlds reserve currency. If America want to keep interst rates low, interest rates will be low.

edinburgher

davomcdave wrote: »

My heart bleeds for people paying rates of 17% for a year or two on tiny mortgages.

What has caused this structural change do you think?

Unfortunately for some, it wasn't just for a year or two (I had also believed this to be the case). I have spoken to colleagues who tried to lock in 'affordable' rates during the period and then faced five years of 15%+ :eek:

davomcdave

padington wrote: »

In the 70's labour didn't own the worlds reserve currency. If America want to keep interst rates low, interest rates will be low.

But only as long as the Fed isn't concerned about inflation.

The Fed is concerned about inflation and there's an argument being made that the Fed is behind the curve when it comes to tightening. The Fed is behind where they thought they'd be today 18 months ago.

I've long said that rates will rise faster than people expect as the alternative is that inflation is dead forever and I don't believe that for a moment.

I agree with what I think underlies your point which is that rates are set relative to the Fed as much as they are set in real local terms. What do you think that means for the Bank of England?

worldtraveller

The Federal Reserve has raised its key interest rate for the third time in six months, providing its latest vote of confidence in a slow-growing but durable economy. The Fed also announced plans to start gradually paring its bond holdings later this year, which could cause long-term rates to rise.

The increase in the Fed's short-term rate by a quarter-point to a still-low range of 1% to 1.25% could lead to higher borrowing costs for consumers and businesses and slightly better returns for savers. The Fed foresees one additional rate hike this year but gave no hint of when that might occur.

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