When and by how much will interest rates rise?


When and by how much will interest rates rise?





In recent years I have tried to avoid making any sort of outright financial predictions. Thus the best direction I can provide is to have you refer to FED chair Janet Yellin's comments which indicate that US interest rates won't 'officially' be increased until sometime in 2015.
However, on the flip side, lately the US dollar has significantly strengthened against the Euro, Yen and most other currencies ... a result at least partially due to the FED's tapering to zero of additional asset purchases last October. Pundits point out that this is 'bad news' for nominally American corporations whose profits depend on export sales, and whose foreign sales revenues now reconvert into far fewer US dollars. As such, the FED will probably be reluctant to raise US interest rates under those conditions, because the result would probably be an even stronger US dollar thus even larger problems for these nominally American corporations.
Also, at the 'main street' level, official interest rates on FED funds, US gov't bonds etc. aren't the only factor affecting interest rates paid by banks, interest rates charged for 'subprime' loans and credit cards, etc. These are arguably still driven by 'market' forces. Along these lines, a couple of major US banks have recently announced that they will charge new fees on large corporate accounts ... which amounts to de-facto 'negative' interest rates.
The pundits also point out that, given the poor economic conditions which now clearly exist in China, Japan and much of the EU, worldwide investor money is now leaving those countries and flowing to the USA as a 'safe haven'. This 'capital inflow' has the arguable effect of driving down US interest rate pressures ... because those incoming foreign owned US dollars reduce the need for US financial institutions to borrow US dollars from the US gov't ( via FED funds or gov't bonds ).
Last edited by Melonie; 12-10-2014 at 04:54 AM.


Thanks so much Melonie!





I've been waiting for a 'mainstream' financial institution to release it's 'take' on recent Fed comments re future interest rates. First Trust just released the following ... from
(snip)Unlike most meetings, today’s actions by the Federal Reserve were chock full of implications for the future course of monetary policy. At long last, the Fed finally removed the language in its statement that short-term interest rates will remain at essentially zero for a “considerable time” and replaced it with language that the Fed will be “patient” before starting to increase rates. Several months ago, Fed Chair Janet Yellen let it slip that she thinks a “considerable time” means about six months. As a result, we are increasingly confident in our forecast that the first rate hike will come by June 2015, six months from now.(snip)
(snip)When the Fed starts raising rates it is unlikely to raise rates at every meeting, as was done in the past two prolonged rate hike cycles under Alan Greenspan in the late 1990s and Ben Bernanke in the middle of the prior decade. Yellen cautioned against this view at the press conference following the meeting. In addition, the “dot matrix” showing where policymakers think interest rates will go over the next few years suggests the Fed will, for the first year of rate hikes, alternate between raising short-term rates at one meeting and then pausing at the next, making for one rate hike of 25 basis points per quarter through mid-2016.
The “median” dot may suggest a slightly faster pace of rate hikes, but we’re guessing that, as the leader of the Fed, Yellen will ultimately get her way and she is probably on the dovish side of the dot matrix. With the highest dot being the most hawkish, Yellen is probably around dot number 12, give or take, and that dot shows three rate hikes in 2015 and six in 2016.(snip)
(snip)The bottom line is that while the Fed is still behind the curve, it’s at least finally pointed in the right direction, and, barring some major shift in its outlook for the economy, the clock is ticking on rate hikes. Nominal GDP – real GDP growth plus inflation – is up 4.0% in the past year and up at a 3.9% annual rate in the past two years. A federal funds target rate of nearly zero is too low given this growth. It’s also too low given well-tailored policy tools like the Taylor Rule.
In the meantime, hyperinflation is not in the cards; the Fed will keep paying banks enough to keep the money multiplier depressed. But, given loose policy, we expect gradually faster growth in nominal GDP for the next couple of years. In turn, the bull market in equities will continue and the bond market is due for a fall.(snip)
For perspective, I probably need to point out that lots of pundits question the accuracy of the ~4% GDP growth figures being bandied about by the Fed. Those pundits point out that the recent 'strengthening' of the US dollar exchange rate / purchasing power, combined with growing economic difficulties in certain parts of the world, may serve to hamper America's 'real world' economic growth. Were this to be the actual case, then Fed rate hikes could probably not be attempted as soon, or as rapidly, as First Trust predicts.
Obviously, if the First Trust prediction turns out to be true, the Fed will make 2.25% worth of cumulative increases to the present 0.25% fed funds rate over the course of the next couple of years. This in turn will probably result in interest rates paid on savings accounts, CD's, etc. increasing by ~2%, and probably result in interest rates charged on 'prime' credit cards, auto loans, mortgages etc. increasing by ~2.5%, over present interest rate levels.
Last edited by Melonie; 12-18-2014 at 02:42 PM.





Well I was watching the morning news and they said rates dropped to 3.8% on a 30 year loan. Because of falling gas prices and less people buying. so I don't think they'll go up much in the next few years but that's just my opinion...





^^^ that's arguably happened for the same reason as recent US dollar 'strengthening' and US stock market spikes... i.e. mounting financial problems in other parts of the world incentivizing foreign investors to 'park' their investment money in US bonds, US banks, and US stocks as a 'safe haven' measure. However, in the way of a cautionary word, the present situation is definitely NOT normal ... and is arguably subject to a quick reversal upon the next big piece of 'bad news'.

The short answer is that nobody knows when interest rates will rise or how fast. One year ago, the "smart money" was predicting a rise in interest rates throughout 2014 and recommended against holding long-term US Treasury bonds only to get burned when interest rates did not rise and long-term US Treasury bonds turned out to be one of this year's big winners. Former Pimco bond king, Bill Gross, is a prime example of somebody who thought he could time the bond market only to eventually lose his job. This is why one should generally allocate a portion (the size depends upon your risk appetite and personal investor profile) of their investments to short-term and long-term US Treasury bonds.





In the interest of full disclosure / perspective, I would point out that this is a 'standard' investment recommendation given out by professional investment advisors catering to relatively low total dollar 'retail' investors. It is part of a 'buy and hold' plus 'diversification' strategy. Professional investment advisors catering to high net worth investors, in contrast, point out that ... in steady or rising interest rate environments ( like the present ) ... US treasury bonds provide anemic return interest rates plus an elevated risk of loss of principle value ... well, for those who are booking their gains or losses in US dollars versus Euros or Russian Rubles or Saudi Rials anyhow.This is why one should generally allocate a portion (the size depends upon your risk appetite and personal investor profile) of their investments to short-term and long-term US Treasury bonds.
In fact, it is the latter point which helps explain why the Fed will be hard pressed to quickly increase interest rates. Over the course of the past couple of months, for example, a European investor who moved their money out of Eurozone or Chinese or other 'emerging market' investments, and parked their money in US T bonds, experienced about a 4-5% gain ... almost entirely based on Euro versus US dollar exchange rate arbitrage between the time the T bonds were purchased with Euros and today's market price reconverted to Euros. US investors did not experience a similar gain. Obviously, this exchange rate arbitrage based 'enticement' also evaporates as soon as exchange rates stabilize, and foreign investors will start dumping their US T bond ( and other US dollar denominated investments ) if / when the US dollar exchange rate weakens versus their 'home' currency.
Arguably, the Fed increasing US interest rates would further 'strengthen' the US dollar unless major foreign country economies are doing as well as the US economy. This would attract even more foreign investor money to US stocks and bonds, but also make it much more difficult for nominally US companies to sell their products to foreign customers at a profit ( i.e. sales priced in Euros or Chinese Yuan having to be booked in reconverted US dollars ).
Welcome to the global economy !
Last edited by Melonie; 12-20-2014 at 07:19 AM.




Put your savings into gold and they will hold their value. That will increase your savings faster than interest on dollar deposits. The value of currency decreases with inflation, the value of gold stays the same.


^perhaps you are right in the long term Hopper ^ but gold does fluctuate and decrease.
http://www.thisismoney.co.uk/money/i...all-1-000.html





Melonie knows a lot about gold.





Again in the interest of full disclosure / perspective, I would point out that ... for most of history ... there was some sort of official linkage between gold and the 'values' of various currencies. However, there have also been periods ( like the last 50 years or so ) where such official linkages have been broken, such that the 'values' of various currencies are allowed to float based on market forces i.e. supply and demand for that currency. The direction of that float in 'value' of a given currency versus gold can be upward or downward. Thus, over the past year, gold versus the 'value' of the US dollar has been quite stable. However, gold versus the 'value' of the Euro, the Russian Ruble etc. has floated quite a bit ... in favor of those who put their Euros or Russian Rubles into gold last year before their 'home' currencies lost 'value' !!!
Again, welcome to the global economy ... where every major currency is now 'fiat' i.e. floating in 'value'. However, this situation leads to the question of what can now be used to actually measure 'value'. Most Americans have historically viewed the US dollar as being suitable for this purpose ... but for the past 50 years or so the 'value' of the US dollar has floated a lot ( mostly in a downward direction ). Europeans, Asians etc. ... whose currencies have historically experienced massive changes in 'value' ... tend to recognize that the 'value' of currencies is volatile. So one alternative measure of 'value' is the price of gold.
However, it should also be mentioned that today's price of gold ( versus any currency ) is now affected not only by actual supply
and demand for physical gold, but also by supply and demand for 'paper' gold i.e. futures contracts, exchange traded gold fund shares, leased gold, etc. Thus, from a pure price standpoint, the price of gold is now arguably just as susceptible to 'manipulation' as the price of stock shares which are also subject to options / futures contracts, 'borrowed' shares, etc. This implies that there isn't ANY single 'yardstick' which can truly be used as an objective measure of 'value' today !!!
Personally speaking, I happen to own both physical gold, as well as shares in companies that mine gold. I do not own any shares in gold ETF's. My personal view on physical gold ownership is that, unlike any currency, stock, bond or other 'paper' investment vehicles, physical gold is the only one which does NOT depend on a government, company, or other 'counter-party', to keep promises for it to have / hold future 'value'.
Last edited by Melonie; 12-20-2014 at 06:09 PM.


Melonie I LOVE reading your posts!




In the case of savings, it's the long term trend which matters. Of course the price fluctuates, but on average it increases more than it decreases.
Value and price are not the same things. The value of the item is based (in a free market) ultimately on supply and demand, i.e. the item's intrinsic worth to individuals. In a regulated economy, that value is distorted by government intervention, along with the whole economy. The price of the item is the measure of it's value in units of currency. The price depends on both the value of the item and the value of the currency. The price of an item is the number of units of currency (e.g. dollars) which somebody will/must exchange for it.
Since today's currencies are not linked to material commodities, they have no value other than that which the government decrees that they have, through regulatory meddling with the currency and banking. Hence, the value of a currency bears no natural relation to the value of gold or any other material item; although the value of other items can still me measured in terms of the value of currency - whatever that is decreed to be at the time of measuring.
The price of gold generally increases because of the decrease in the value of the dollar, due to currency inflation, which is caused by government meddling with the currency. The value of gold doesn't increase. The value of gold generally remains steady.
The value of gold can be artificially manipulated too, by government regulation of gold, as with government regulation of anything. However, unlike "floating" currency (i.e. paper and ink or figures typed into a computer), it still has intrinsic value as a material asset, independent of it's price in government funny-money. Paper and ink is intrinsically good for only one thing.
If currency is artificially inflated, via central banking, the long term effect is to devalue currency. If not over a period of one year, certainly over a period of five or ten. Gold, however, has intrinsic value.
As you say, the value of the currency is based on nothing but fiat, i.e., what the government decrees it to be worth, via regulatory meddling with the currency.Again, welcome to the global economy ... where every major currency is now 'fiat' i.e. floating in 'value'. However, this situation leads to the question of what can now be used to actually measure 'value'. Most Americans have historically viewed the US dollar as being suitable for this purpose ... but for the past 50 years or so the 'value' of the US dollar has floated a lot ( mostly in a downward direction ). Europeans, Asians etc. ... whose currencies have experienced massive changes in 'value' ... tend to recognize that the 'value' of currencies is volatile. So one alternative measure of 'value' is the price of gold.
I don't see why this is "manipulation". It seems like normal business and investment, as with any other commodity (except to the extent that the government lends a hand), which naturally does affect the market value of the commodity in question.However, it should also be mentioned that today's price of gold ( versus any currency ) is now affected not only by actual supply
and demand for physical gold, but also by supply and demand for 'paper' gold i.e. futures contracts, exchange traded gold fund shares, leased gold, etc. Thus, from a pure price standpoint, the price of gold is now arguably just as susceptible to 'manipulation' as the price of stock shares which are also subject to options / futures contracts, 'borrowed' shares, etc.
That's the premise I was going on.Personally speaking, I happen to own both physical gold, as well as shares in companies that mine gold. I do not own any shares in gold ETF's. My personal view on physical gold ownership is that, unlike any currency, stock, bond or other 'paper', gold is the only one which does NOT depend on a government, company, or other 'counter-party', to keep promises for it to have / hold future 'value'.







For camgirls (we are on Stripperweb after all) who are not in debt, and making more than their day to day living costs rather than invest in gold I think it's better to take advantage of be paid in multiple currencies and take advantage of exchange rate fluctuations than invest straight into gold.
For example: I made over 12% more from a check that was in USD just by waiting a 3 months to cash it. While the return on waiting for more favourable exchange rates will not always be that great it is going to be more than interest. And more than steady long term investments like gold.
This is something that is to the advantage of camgirls, as you can find sites that pay in usd, gbp and euro. And most cam or clip sites will let you choose when to be paid/ a threshold or be paid by check (so you can choose best day to deposit).
As most sites seem to be US based though, exchange rate fluctuations are more easily taken advantage of by non US based girls (like me :-))




Slashing it all the way down to it's 2010 price. Nothing to panic about and obviously a short-term effect. It quadrupled in the ten years prior to that and rose by a factor of 100 in the 50 years before that.
http://goldprice.org/
http://goldsilverworlds.com/20-key-g...rts-till-2012/
Currency speculation. You can buy software which does it all for you, at a cost of about $10 000.
I don't think it's as easy as you make out. When your USD check went up in value, the currency you cashed it with may have simultaneously gone down, so some of your gain in trading them is illusory. While you are waiting for that currency to rise in value, the other currencies you will buy with it will also be going down in value.
Add to that, all currencies are inflating, since every economically advanced country in the world and some who aren't practice central banking. Therefore the value of all currencies, though they fluctuate in value relative to one another, are on the way down. Hence the purchasing power of all currencies will decrease probably as fast or faster than you can increase the amount of money you are making through speculation. Gold keeps it's value and therefore protects your savings from this trend.
If you had bought gold in 2000 you would have quintupled your savings by mid 2011 and with a lot less work. Your dollars, Euros, Rubles, Yen whatever went down by the same factor in that same period of time.





Lacking any objective 'yardstick', it's equally accurate to claim that the US dollar has increased in 'value' over the past few years, while the Japanese Yen has decreased in 'value', and the Swiss Franc has remained relatively stable - as compared to gold. Or stated differently, taking a US centric viewpoint 'distorts' the global economic view by whatever amount the US dollar is floating versus other major world currencies. Same holds true when attempting to use any other currency as a 'yardstick' to measure true 'value'.No it doesn't. Gold has lost 1/3 of it's value in less than three years
This is yet another aspect of today's 'fiat' currencies not having any objective 'yardstick' to measure past, present, or future 'value' ... or, as more accurately termed by some economists, 'purchasing power'. Indeed, as pointed out above, while it has recently been possible for camgirl to achieve a ~10% exchange rate gain in terms of 'home' currency Euros versus US dollars earned via webcam host sales, at the same time the Euro denominated price levels of common worldwide items may have increased by ~10%. Thus the long term end result is really no different in terms of overall 'purchasing power' ... with the exception that her home country tax agency will attempt to collect additional tax money from her increased 'paper' earnings. However, in the short term, if one can cash in on a favorable exchange rate move before 'home' currency price levels have a chance to 'adjust', that's a clear winner.When your USD check went up in value, the currency you cashed it with may have simultaneously gone down, so some of your gain in trading them is illusory. While you are waiting for that currency to rise in value, the other currencies you will buy with it will also be going down in value.
Again in the interest of full disclosure / perspective, this hasn't always been the case in the past, and may not always be the case in the future. There are indeed a few talking heads who now claim that the US economy is experiencing a tiny amount of 'deflation' ... where the 'purchasing power' of the US dollar is actually rising. Certainly, lots of dancers and camgirls would point out that US customers now expect more 'bang' for the same 'buck'. However, it's generally accepted economic theory that 'deflation' must be avoided at all costs ... because 'deflation' imposes a requirement that loans be repaid with future paper money of equal or greater 'value' than the original paper money already borrowed and spent ... for both individuals and for governments.Add to that, all currencies are inflating, since every economically advanced country in the world and some who aren't practice central banking. Therefore the value of all currencies, though they fluctuate in value relative to one another, are on the way down. Hence the purchasing power of all currencies will decrease
Trying to circle back to the original point / question, changes in interest rates are now arguably just a global economy mechanism to encourage or discourage 'foreign' investors to park their money in a particular currency. Paying higher interest rates obviously attracts more 'foreign' money ... which increases 'demand' for that currency ... which increases it's exchange rate / 'value' / 'purchasing power' relative to other countries' currencies and relative to global commodities.
Right now the USA arguably has a 'strong' currency despite very low interest rates for a number of atypical reasons. The first is that many Americans are now 'cut off' from additional borrowing and spending ability ... and have actually been paying down pre-existing debts ( which effectively takes US dollars out of circulation, thus decreasing the 'supply' of US dollars ). The second is that, in global terms, the USA trade deficit versus other countries is declining ( due to a host of reasons from increased domestic oil and gas production, to the stronger dollar making German cars / Korean appliances 'cheaper' in US dollar terms - meaning fewer US dollars finding their way overseas, resulting in an increased foreign demand for US dollars ). And a third is the volatility / loss risk of investments in BRIC / 'emerging market' countries, with worldwide investors needing someplace 'safe' to park the money they are cashing out from these volatile / risky 'markets' ( i.e. the perceived 'safety' of US dollars increasing demand for US dollars without an accompanying interest rate incentive ).
Thus the point can be argued that the probability of the US Fed enacting higher interest rates is tied to those same factors. Will US consumers be able to increase their borrowing and/or spending any time soon ? Will the USA produce less oil and gas, while at the same time maintaining / increasing oil and gas consumption, thus needing to increase oil and gas imports from foreign countries ? Will the economic 'risk factors' in BRIC / 'emerging market' countries calm down to the point where worldwide investors will pull their money out of the USA to reinvest in those higher earnings potential BRIC / 'emerging market' countries with confidence ?
My linked author First Trust sees interest rates beginning to rise in mid 2015. However, Saxo Bank's analyst sees things from a different perspective ... but leading to the same probable conclusion regarding future US interest rate increases being enacted if 'firm' signs of increased US economic activity become undeniable.
(snip)If our assessment is correct, the U.S. economy is currently in a sweet spot (just enough growth and lack of inflationary pressures) and if its housing market continues to appreciate, it will unleash tremendous pent-up demand. After all, American households have deleveraged for several years and by doing so, they have postponed the purchase of big ticket items. However, it appears as though they are now beginning to open up their wallets again and this shift in sentiment is benefiting the cyclical industries. For instance, it was recently reported that America’s auto sales have now jumped to levels not seen since 2003! In addition to buying new vehicles, Americans are refurbishing their homes, upgrading their properties, travelling more and spending more money on discretionary items.(snip)
Personally speaking, I don't know if I 'buy' either analysis !!!
Last edited by Melonie; 12-21-2014 at 07:15 AM.


I understand what your saying, but in real life my rent, power, food will not increase so quickly in 3 months. And 3 months is the longest Iv waited. It's a short term strategy.
Yes lately my home currency has changed more than usual, so the benefit of my waiting game wouldn't always be so much. But I do think people receiving foreign checks should atleast check whether the exchange rate is high or low for the past month or even week before depositing as an easy way to buy more stuff/pay more bills. It's pretty easy to check the history on XE and know whether a current rate is unusually high or low.
Waiting to cash foreign $$ checks is a fun little hobby for me. I wish I had 10k to buy speculation software and the smarts to use it. But until Iv made my millions I'll just stick to watching the rates on XE.







Overall, the dollar hasn't increased in value in terms of purchasing power. The average price of goods and services has been increasing at a rate of 1 - 2 percent a year. If someone bought gold when it was $1,800 an ounce and sold it today at $1,200, they wouldn't be able to buy as much with $1,200 today as they could with $1,800 three years ago. The price of gasoline has fallen significantly, but the price of most other goods and services hasn't. If you're living or traveling in a country where their currency has gone down against the dollar, then you could buy more today than you could before, but this doesn't do anything for all of the Americans living in the United States.










not wanting to get totally sidetracked into gold, but while technically true in terms of non-inflation adjusted dollars, the gold price in 1980 ... like the 18.5% US interest rates of 1980 or the Middle East situation of 1980 ... was extremely atypical. See . Gold is obviously the 'last bastion' of safety for investors, thus it's price can be bid up ( or manipulated ) to unrealistic levels in times of 'crisis'. However, such price spikes are short-lived, and 'smart' investors use such price spikes as selling opportunities.
Looking at gold's recent relationship to the 'purchasing power' of the US dollar ...
However, I'll be the first to point out that the US dollar has gained 'purchasing power' over the last year or so ... and as such this may not be the best time to buy gold.
While a gold standard is probably not advisable there are many benefits to a link between the dollar and gold.
With a gold standard , currency is redeemable in gold i.e. you are able to take your paper money and trade it for gold at a set rate. O.K. who sets the rate ? The Fed ? the Treasury ? As gold goes up or down , so does the value of the currency. Plus the government has to have enough gold on reserve to redeem a substantial portion of its currency. How much ? 10 % 20 ? 50 ? 100 ? Do you want the government to have to buy and hold enough gold to back every dollar issued ? Every dollar in M1 ? M2 ? M3 ?
On the other hand, a link between gold and the dollar is MUCH more practical, avoids a lot of problems and has many benefits. Not to go too far into the weeds but essentially the price of gold acts both as a check on how much money can be printed and provides a benchmark of value for the dollar. With other currencies linked to the dollar and commodities priced in dollars ( like oil ) you also get more stability.
The problem now is that oil prices are falling and inflation is relatively small and stable so its harder to make the case for such a link. Despite the long term benefits . Because the only certainties in economics are change, unpredictability and uncertainty.





I'm going to have to respectfully disagree with you on this. Linking the dollar to the price of gold would greatly limit the Fed's ability to fight economic downturns.
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