Posted on Dec 15, 2015
Sgt Kelli Mays
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The Federal reserve is expected to raise interest rates at least 1/4 % tomorrow. With all of the indicators down and predictions of being in a recession for the next three years, why in the world is the Federal Chairman Janet Yellen going to raise the rates tomorrow...and it's predicated by next year at this time......according to Yellen that rates will be about 1.5% higher than what they are today....She predicts rates will be raised a little every 12 weeks.

I think Yellen has been talking about raising the rates since the day she took office last year that she has to keep true to her word, plus rates have been artificially low for so long, she probably feels this will be her only chance to hike the rates cause once the recession starts, she won't be able to do it.

Do you think the FEDS should raise the rates tomorrow?
Edited >1 y ago
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Responses: 7
LTC Stephen F.
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Sgt Kelli Mays since it has some time since I was familiar with the Federal Banking System I decided ti dig a little into the what, how and why specific rates might be raised. I found a Washington Post article from yesterday which seemed reasonable so I quoting it in part.
"Raising rates, however, is only the first step in getting the economy -- and Fed policy -- back to normal. The process will likely take several years, and there is heated debate over whether the pre-recession standards for a strong economy and appropriate monetary policy are even achievable.
After deciding to increase rates, the first challenge facing the Fed is exactly how to do it. Historically, the central bank has set a target for the federal funds rate -- the amount that banks charge to lend to each other overnight -- and bought and sold Treasury bonds on the open market to hit that goal.
But that method will prove too unwieldy now that the Fed has amassed a balance sheet of more than $4 trillion. Instead, the central bank hopes to manage the fed funds rate by changing two other rates: the interest it pays to banks for reserves held at the Fed and the amount it pays other financial institutions, such as money market funds, for short-term trades known as reverse repurchase agreements. The former is expected to act as a ceiling on the fed funds rate; the latter a floor.
The mechanics are complex, highly technical -- and untested on a broad scale. Still, the Fed has been conducting smaller trials for the past two years and is confident the experiment will work."

https://www.washingtonpost.com/news/wonk/wp/2015/12/14/the-federal-reserve-will-likely-raise-interest-rates-this-week-this-is-what-happens-next/
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Sgt Kelli Mays
Sgt Kelli Mays
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Yep...and being in this business for nearly 22 years...I've been on it's roller coaster....one of the reasons Real Estate sales went up after 2009 is because the drop in the rates....but you never hear the whole picture/analogy from the News/Media....with a possible recession coming up, raising the rates at this time could prove to be discerning.
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SSG Audwin Scott
SSG Audwin Scott
>1 y
Sgt Kelli Mays - that's just it, remember when the house boom was going on back in 04-05 when banks were giving everyone houses knowing damn well they couldn't afford them! It's the same thing, the rise and fall of interest determines the economy market. So I don't find it surprising in order for them to help bail themselves out the now low interest rates must rise again.
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CAPT Kevin B.
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I like LTC Stephen F. response about some "corrective" mechanics. Better yet, your question should be "How can the FED react to a recession when their interest rate is zero?" I expect the FED is positioning towards what scenarios can likely play out over the next few years.
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LTC Kevin B.
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Edited >1 y ago
The Fed Res wanted to raise the rates long ago, but they've waited until the economy has clearly shown that it is strong enough to withstand raising the rate. It apparently now is, so they're looking to start raising the rates. I don't know where you're getting the "recession for the next 3 years" prediction, but you can always find economists predicting recessions (and a 3-year recession would be almost unprecedented). We've had sustained growth for over 6.5 years now (since June of 2009), so the clock is ticking on an eventual recession. The economy moves in cycles, and no politician or Fed Reserve chair can prevent one forever. However, it certainly gives plenty of opportunities for politicians to throw out empty rhetoric that they can prevent them.
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2LT Section Chief
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I agree with this sentiment. And to add to it, the Fed essentially has to raise rates at this point. Typically equity markets view a rate hike as making money too expensive or more expensive to borrow. However, our current equity market has already proven robust and fairly valued, and most analysts agree that to continue with zero rates would indicate a weak economy in which lower borrowing rates are required. This is not the case. Our economy has recovered, albeit at a slow pace, and is now ready to thrive with slightly higher rates.
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