Everyone thinks the fed will cut interest rates. But should they?

[Fedorgasm]

I'm seeing all these articles where people are saying J-Pow will cut interest rates in September. I didn't think they were true but then in one of his speeches he said the time has come.

But historically 7ish percent isn't really a high interest rate. We just got spoiled by having 3-4% for so long.

So if he cuts the rates too much then he'll wind up in the same boat he was years ago where he didn't have any dry powder left to prevent a recession.

IMO you have to leave it high enough so that you can use future cuts to boost the economy when needed.

So maybe 1 or 2 rate cuts might be ok, just to keep inflation under control, but we should settle around 6%.

 

[boingyman]

Hold up, let me think about this for a sec.

 

[Oblivian]

I'd be shocked if we ever see 3-4% again.

 

[humperdoo]

To save the market Yes. Otherwise, investors will all be dumping their stocks.

 

[Jackonfire]

 

[SirRealKiller]

It's difficult right now to say. If you keep it high then less people borrow and you see drops in large purchases which trickles down to building materials, real-estate, and fewer new or expanded business projects. If it gets too low then you have the opposite issue. Somewhere around 6% is probably best as it seems to be the middle road right now and leaves room to cut if it's warranted.

 

[Get To Da Choppa]

I'm seeing all these articles where people are saying J-Pow will cut interest rates in September. I didn't think they were true but then in one of his speeches he said the time has come.

But historically 7ish percent isn't really a high interest rate. We just got spoiled by having 3-4% for so long.

So if he cuts the rates too much then he'll wind up in the same boat he was years ago where he didn't have any dry powder left to prevent a recession.

IMO you have to leave it high enough so that you can use future cuts to boost the economy when needed.

So maybe 1 or 2 rate cuts might be ok, just to keep inflation under control, but we should settle around 6%.

The economy is like a drug addict that's addicted to low interest rates. I don't think it's sustainable to have low interest rates that we've seen in the last decade (minus the last couple of years), as we have become a debt laden economy. But like all drug addicts, the withdrawal from the high interest rates would be rough, and that won't work politically.

Volcker had to jack up the interest rates to 20% to really curb inflation. The recession that came after it was tough but it did pave the way for true economic growth after. I fear that what the Fed is doing now is just kicking the can down the road

 

[HoiceNJuicy]

Ah, OP. I assumed your screen name was a tribute to Fedor Emelianenko.

But I misunderstood. This thread helped me understand that it's really Fed-orgasm! I hope Jerome Powell doesn't help get you there!

 

[My name is]

I have no idea

 

[chrisdiaz]

Spoken like a man that doesnt plan on buying or selling property any time soon. All those 7.5% home buyers would love for it to drop. Housing costs are much higher then when we had higher interest rates in the 90's

 

[ThaiSexPills]

The middle class won’t live or die by high interest rates. It’s way more complex than that. It’ll take some laws and unfavourable conditions for real estate investors to make housing more accessible.

 

[Misfit23]

Spoken like a man that doesnt plan on buying or selling property any time soon. All those 7.5% home buyers would love for it to drop. Housing costs are much higher then when we had higher interest rates in the 90's

I'm a home buyer and would rather they stay up. Less competition for me.

Interests rates should up though regardless. They were too low for far too long.

 

[Fedorgasm]

Spoken like a man that doesnt plan on buying or selling property any time soon. All those 7.5% home buyers would love for it to drop. Housing costs are much higher then when we had higher interest rates in the 90's

I just bought a house, and yeah the interest rate sucks for me.

But cutting rates would only make prices go even higher because most people only care about their monthly payment amount.

High interest rates should eventually cause people to stop buying houses and that's really the only way to bring prices down.

 

[Protectandserve]

I’m just glad I got locked in at 2 and a quarter years back. Not planning on moving until I retire in like 10 years .

 

[Noveltymortar]

I hope he doesn’t. These higher rates have been great for people like me with no need to borrow money and a decent amount of savings to sit and accumulate.

 

[Beechwood]

It isn't good I believe when interest rates are super low. It ends up causing inflated bubbles, which eventually pop and cause economic trouble for years.

At the current time it does seem that most feel it a positive for the fed to cut rates some, to help an economy doing poorly. Hope it works. And hope the fed doesn't take interest rates down below 1% again.

 

[Jack Reacheround]

So if he cuts the rates too much then he'll wind up in the same boat he was years ago where he didn't have any dry powder left to prevent a recession.

Macroeconomics really isn’t my thing, but if they’re lowering the interest rate, it is likely because the economy is not in equilibrium. We can kind of see this with housing prices skyrocketing, and corporations price gouging Americans, which makes up the cause of the majority of today’s inflationary prices.

But unless they intend to regulate the housing market more than they currently are doing, this will increase demand for borrowing, for instance mortgages, and likely increase the demand for homes.

But believe me, they don’t just decide to do this kind of thing without a shit load of data analysis. The economists who work on the policy are generally brilliant people. Still, what they think is the best policy has to go through political filters - politicians viewing the consequences through the lens of their political ambitions.

That said, Biden doesn’t really have political ambitions at this point. He is on his way out.

 

[NoGoodNamesLeft]

 

[TeTe]

Well at this point they may have no choice. Unemployment has steadily been rising over the past few months.. even triggering the sahm rule (if you even care about that metric). If August unemployment comes in at 4.4 or higher then it's a given.

However, the argument could be made that we should wait longer based on inflation data. The feds goal was to see sustained inflation in the 2's. We finally hit 2.9 for a month. That's hardly sustained 2 percent yet.

The Fed will have to be cautious to not have us go on an inflation seesaw like we did in the 70s so I'd be shocked if they do more than 25 bps at a time. Unless of course we have some sort of black swan event.

What @Oblivian said is probably true .. well probably never see a close to zero Fed funds rate in our lifetime again. (Again, barring a black swan).

Typically in the past, rate cuts are followed by a yield curve un-inversion and a recession shortly after. So careful what you wish for. Typically the Fed has to cut because the economy is showing weakness.

This will probably start tanking the markets sooner rather than later because Interest rate cuts weaken the dollar.

Just look at japan raising interest rates for the first time in decades because they had to. The yen was taking a beating.

 

[TeTe]

But unless they intend to regulate the housing market more than they currently are doing, this will increase demand for borrowing, for instance mortgages, and likely increase the demand for homes.

I guess the one thing that could counter the drop in interest rates is a lengthy recession. If unemployment keeps going up too high, it could cause more people to sell and increase supply.

The main issue people are wrangling with, and this stems from rates being too low before is that the Fed cut rates too much and now 70 percent of anyone that has a mortgage either bought or refinanced at 3 percent or less. No one wants to give that up for a 6 percent rate. But, like I said, a bad enough recession could cause that to change a bit.