Tag Archives: Rate Increase

Interest Rates Part FOUR — How the FOMC Fiddles with Rates — Federal Reserve Rate Control

As we near our fantastic conclusion to our multiple part series on Interest rates (next post is the last) lets quickly review where we came from.

In our First Post here, we spoke of the basic yield curve and how it logically moves from lower left to higher right high to account for risk …. Recall if a buddy borrows $100 bucks and promises to pay it back tomorrow its a lot less risky than if he promises to pay it back next year… and you would rightly charge him more for the delayed time… The Basic Yield Curve!

In our Second Post here, we spoke of movement of the yield curve … basically a parallel shift upward in better economic times and a parallel shift lower during slower economic times – all other things being equal, which they of course never are…

In our Third Post here, we discussed the players and assets that might sit along the yield curve, attempting to make for a more REAL world example(s)

Today … Well, let’s get to it

Where the Federal Reserve (FOMC) Fiddles on the Yield Curve

For all practical purposes  the FOMC/Federal Reserve can completely control the short end of the curve as shown on our graph… Special shout out to the 13 year old tennis player working with the new Apple Pencil (neat subject for another time)- for the updated colored graphs…. yea this is our weekend workings during rain on tennis days..haha

Post GREAT Recession of 2007-2009 the FOMC not only lowered their totally controlled short end of the yield curve – but took the unusual action of using government money to purchase assets of the longer term in order to push longer term rates down as well …

Blue is the normal yield curve – Green is the greatly lowered yield curve we have of late most recently been experiencing ….. Yea the short rate was essentially at ZERO – about what all of our checking accounts have been earning until just recently

Here is the lowering of rates graph:

FOMC Lowers Rates and buys longer to lower

 

It is essential that the FOMC eventually normalize the yield curve back to the original lower left upper right as keeping it unnaturally low for too long will likely lead to an overheating of the economy, not to mention over use of risk via leverage/loans …

Here is the Raising or Normalizing Graph we are currently experiencing:

FOMC Raises Rates

Next up our conclusion, and most importantly it’s predictive behavior over the last six decades….

Have a Great “Rising Rates” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

 

Rate Increases … Not IF, but WHEN and by HOW MUCH …

It’s almost a full consensus. Rates are headed higher!

Federal Open Market Committee (FOMC) June Release

In the June 2015 FOMC statement:

6-15 Fed Participants expecting increase in 2016

Fifteen out of seventeen expect rate hikes this year…finally !

Have a great day!

John A. Kvale CFA, CFP

http://www.jkfinancialinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

JK Street Cents Logo

 

Higher Rates Soon … Told Ya

Frequently a reporter is picked to “leak” information as needed to quietly deliver information to the public. Janet Yellen and the other FOMC members have anointed Jon Hilsenrath, a reporter for the Wall Street Journal.

When Jon writes, people listen!

Hilsenrath Report Fed on Track to Raise RatesJon Hilsenrath

As mentioned here and here, we believe Yellen and crew at the FOMC want to raise rates as soon as possible. Hilsenrath, the chosen “leaked” reporter confirmed the FOMC is on track to raise rates this year most likely mid-year.

A major shock of some type could alter this. Our belief, lower rates may actually be holding the economy back through too much artificial means.

Recall our Newsletter study finding fed fund average rates of 5.1% since data recorded.  First goal, get to 1% …. then what if we only get to half of our average, or 2% … Wow! This time it’s different, maybe, but doubtful.

What if raising the short-term rates actually spurred our economy, not inhibited it?

Have a great Day!

John A. Kvale CFA, CFP

http://www.jkfinancialinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225