What's Your Negative Interest Rate Talk with Your Clients Look Like?

[VolAgent]

While you may say that a negative interest rate is an attack upon savers, I say it is more an attack upon bankers.

If the Fed has negative interest on the fed funds rate, it isn't really an attack upon savers, although it will effect them, but on banks that refuse to lend. It does nothing for our economy for banks to park excessive amounts of money at the Fed to earn interest with zero risk. Central banks that are doing this are trying to keep the banks from just parking money, but to lend it and get it back out into the economy.

I still remember being told by a banker who had the ear of his CEO, as long as the Fed continues to offer decent interest, he would continue to park the money there versus lending it.

It seems coming out of the Great Recession, Wall Street learned nothing, and everyone else is beyond risk adverse.

 

[scagnt83]

Negative Interest Rate Policy

To think that multi-national companies are not complaining to government officials at this very moment is to be fully naïve. I would not doubt, given where the Treasury Secretary is, if he hasn't been waylaid repeatedly about "doing something" about that "strong dollar." Unfortunately, he cannot come right out and say that corporatism despises it so the administration, like those before, would prefer it sinking like a rock. Like monetarism, the fiscal side prefers not currency stability but their own, specific brand of instability.

They talk about a "strong dollar" as something that might actually exist, but in this financially-dominated economic reality it doesn't relate. This is why it is so easy for policymakers to say that while openly courting the opposite – better for IBM, so they believe, not to have to take such negative currency "pressure." Secretary Lew might continue to talk about it in the same manner as his predecessors, but the dollar is not what it used to be and neither are the implications of its "strength."

I will take your bets. Are you also saying you think we will see negative prime rates this year?

A strong dollar helps some companies... so I doubt that everyone at Davos was asking Lew to do something about the rising dollar. But no one wants it to be too out of line either. Right now a lot of it is artificial (in a way) because the ECB is doing QEinfinity and there is no where else to go for safe money that isnt Europe dependent (like Bunds). So maybe the Fed/Treasury should actually do something if the dollar gets too high... but doesnt it just feel good to be able to say that something about our core economy is strong right now?? LOL

 

[Justin Bilyj]

No Fed rate hike until March 2016, Morgan Stanley says - MarketWatch

Looks like no rate hike this year....they couldn't possibly raise the debt, I mean rates.

 

[VolAgent]

Meanwhile....

Return of the 3% down payment - MarketWatch

I find it interesting where it mentions how few loans were originated last year and how most were a refi.

 

[Justin Bilyj]

And I will say this Tyler, I will double down my bet of a beer over the rates being hiked in 2 years. They want to hand the election to Hillary (while Jeb and the other RINO's block small government messages), there's absolutely NO WAY the FED will raise rates in 2016 during an election year. They will say they will hold off by 2017 after "hinting" at it left and right throughout 2016.

 

[jmhalvo]

And I will say this Tyler, I will double down my bet of a beer over the rates being hiked in 2 years. They want to hand the election to Hillary (while Jeb and the other RINO's block small government messages), there's absolutely NO WAY the FED will raise rates in 2016 during an in the minutes.

 

[pcbinsurance]

"And I will say this Tyler, I will double down my bet of a beer over the rates being hiked in 2 years."
*************
People said the same thing 2 years ago. Not many can predict the markets with accuracy. At some point, people will be correct as rates have to go up sometime.

 

[scagnt83]

For every expert claiming they will not raise rates I can find you one that says they will raise them. If the Fed doesnt raise rates this year as they have already stated will happen, they will loose all credibility with the street. And a lack of credibility will hurt the ability for their policies to have any effect at all.

As to the debt, there is so much money going into treasuries right now raising the prime rate would have very minimal effect on treasuries by most accounts. Treasury yields are already almost half of what most economist predicted they would be at this time. They could jump 50bps and it would just put us back to summertime rates.

 

[VolAgent]

For every expert claiming they will not raise rates I can find you one that says they will raise them. If the Fed doesnt raise rates this year as they have already stated will happen, they will loose all credibility with the street. And a lack of credibility will hurt the ability for their policies to have any effect at all.

As to the debt, there is so much money going into treasuries right now raising the prime rate would have very minimal effect on treasuries by most accounts. Treasury yields are already almost half of what most economist predicted they would be at this time. They could jump 50bps and it would just put us back to summertime rates.

The Fed isn't going to have much trouble backing out of raising rates if they so desire. All they have to do is point to the economies of Europe and China and how they are now a drag on the US economy.

Eventually rates will raise, but everyone who has been saying "This year" for the past 6 years has been wrong. If they keep saying it, eventually they will be right, the only question is how many more years until they are?

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I wouldn't hold my breath waiting for the Fed to raise rates.

Wall Street bears warn: We're on verge of crisis - Jan. 28, 2015

The article mentions the Fed wants to see wage growth at 3.5% before raising rates and currently it is at 1.7%. Assuming their experts are correct about these numbers and their importance to the Fed raising rates, I seriously doubt we'll see rates coming up this year or next.

 

[scagnt83]

If they back out in 2015 after todays statement they will lose credibility.

The Fed has stressed the unemployment rate and "overall economic growth" more than wage growth. I just dont see that as a prime indicator. Today's statement was actually pretty upbeat and bullish for the overall economy.

Fed upbeat on U.S. economy, cites strong job gains | Reuters

"The committee, in fact, was downright bullish on current economic conditions and the outlook," said Paul Edelstein, director of financial economics at IHS Global Insight.

"Economic activity has been expanding at a solid pace," the Fed said in a statement that marked an upgrade to its prior assessment of a "moderate pace" of growth. "Labor market conditions have improved further, with strong job gains and a lower unemployment rate."

"You would have thought that if you were going to really postpone (a rate hike) to 2016 there would have been some more emphasis on international events and the dollar," said John Silva, an economist at Wells Fargo in Charlotte, North Carolina.

Fed continues to signal rate hike in 2015


"The takeaway: A Fed hike is not off the table (this year)," said Russ Koesterich, chief investment strategist at BlackRock. "And the market would like to delay that a long as it can."

Then you have two huge bond market gurus predicting 2015:

El-Erian: These are 2 big market risks

The Federal Reserve is facing uncertainty between a healing U.S. economy and a weakening global economy, Allianz chief economic adviser Mohamed El-Erian told CNBC on Tuesday.

As a result, the Fed will likely start to raise initerest rates in the summer, but it will do so slowly, he predicted.

"They've got to build in some cushion. So I think they'll still go, but I think it reflects this divergence that's occurring in both economic performance and policy prospects," El-Erian said in a CNBC "Squawk Box" interview.

Why the Fed will likely raise rates in June: Bill Gross

The Federal Reserve will likely raise interest rates by 25 basis points sometime around June because it wants to send a message to the market that the real economy is important as well, bond guru Bill Gross told CNBC Wednesday.
"Even in the face of this low inflation, they recognize that zero percent interest rates or near-zero percent money market rates are distorting capitalism," Gross said in an interview with "Street Signs."

Fed seen remaining patient with rates amid global turmoil

"The Fed will follow through and normalize rates later this year...Our thinking is June. I would not debate anybody who said September," said Mark Zandi, chief economist for Moody's Analytics.

Like I said. For every article or expert claiming they will not do it in 2015, I can find one that says they will.