So this report in the news states the Fed rate isn’t changing, but it is “you” that is changing other rates, such as mortage rates, in the economy. The article seemingly implies the Fed therefore has nothing to do with other interest rate changes.
"The federal funds rate, from which the prime rate is derived, is the target rate set by the Federal Open Market Committee. Since December 2008, the rate has been at a range of zero percent to 0.25 percent.
If the federal funds rate isn’t moving but interest rates on various products are, what’s driving rate changes? Below, Bankrate shows you what is causing rate changes in mortgages, home equity loans, auto loans, CDs and money market accounts, and credit cards."
The Federal Reserve is expected to start raising the Fed Funds Rate later this year or early next year.
This causes longer-term interest rates to rise, such as the 10 year Treasury Bond rate.
The 10 year Treasury bond rate approximately equals “Expected average Fed Funds Rate over the next 10 years.” Otherwise, traders at large banks would have an arbitrage opportunity. They could borrow at the Fed Funds Rate and buy Treasury debt. Or, they should short sell Treasury debt and lend the proceeds at the Fed Funds Rate.
Mortgage rates are based off rates like the 10 year Treasury rate.
Is the determination of the Treasury bond rate deliberated with anybody at the Federal Reserve? Who decides the Treasury bond rate? I see you stated it’s based off expectations, but who is expecting and making the call? Only the Treasury Department but it seems that some communication between the Fed. Reserve and Treasury department would be occurring even if those communications are based off the same model’s of expectations - meaning they are using the same model’s and agreeing on their potential future actions even if those agreements are probabilities since the discussion is about the future.
Treasury Bond yield rates are determined by the “free market”, but they’re indirectly set by the Federal Reserve.
Suppose that people expect the average Fed Funds Rate over the next 10 years to be 4%. Then, the 10 year Treasury Rate will be 4%. If it were different, there would be an arbitrage opportunity.
What signals is the free market looking at to determine the expectations of the Fed. Funds rate in the future? Are there different sellers of 10 year Treasury Bonds - cause I thought it was only the Treasury Department selling them? If only Treasury Department, then some kind of signal is being given to the Treasury Department and one call is made on the Bond rate. If different sellers, then that opens up ranges of interpretations by different sellers and thus different Treasury bonds of differing rates to be able to buy - but I think there is only one seller - the Treasury Department (and it is noticing signals to make that determination somewhere).
To put it another way, you brought up the expectation to raise the Fed. funds rate is at the end of the year or beginning of next year, I was thinking about that in particular. How does the market know that? It’s up to the Fed. to decide that not the market.
ok, that’s what I was thinking, but wasn’t too sure of myself on this. I’m hearing rumors that the Fed. might not raise interest rates for another two years - is that even possible in the current climate? Therefore it not even possible, then I can see there is some predictability within a decent range of time.
If the Fed doesn’t raise interest rates, there will be hyperinflation. People will borrow at the Fed Funds Rate of 0%-0.25% and buy tangible assets, causing a bubble.
When the Federal Reserve does raise interest rates, there will be another recession/depression.
The bust phase “punishes” speculators who load up on leverage and buy things. If you’re a non-insider and load up on leverage, you lose everything during the bust. For example, people who borrowed to the hilt and bought a huge house lost their savings in the recent bust. If you’re an insider, such as a housing bond speculator at Goldman Sachs, then you get bailed out by the State.
The boom phase allows insiders to profit by printing and spending new money.
The bust phase causes non-insiders to be punished for their “greedy behavior”, while insiders get a bailout.
As a non-insider, you can’t win.
The rules of the monetary system force the Federal Reserve insiders to alternately raise and lower interest rates, causing boom/bust cycles.
Business cycles are entirely created by the State. They’re a wealth confiscation tool.