After a prolonged 7 years of extremely accommodating, near-zero interest rates in the United States, the Federal Reserve has today tightened interest rates to between 0.25 and 0.5 per cent.
Today’s historic move is the first increase in almost a decade, and came as no surprise to anyone with the Fed noting, “The economic recovery has clearly come a long way.”
The Fed policy statement indicated further increases will be “gradual”. Markets are expecting four rate rises next year, the first in March and subsequent rises each quarter. Looking further, economists expect the federal funds rate to be 2.25 per cent at the end of 2017, suggesting a further four rate rises in 2017.
Nice but how did we miss this?
http://www.theage.com.au/business/the-economy/myefo-budget-update-treasury-calls-it–housing-boom-over-20151215-glo334.html
There are only two things you can do with money: Invest it or circulate it. It seems the government has realised you need to balance that out otherwise either overemphasised will bring the economy down.
I’m guessing what with Treasury saying it is over and Glenn Stevens welcoming the news: http://www.smh.com.au/business/the-economy/rba-governor-glenn-stevens-welcomes-slowing-property-market-20151215-glof5n.html
the numbnuts have realised they need to circulate money as our economy is going down the gurgler. Interesting to see if the government won’t pander to Real Estate moguls so much in the future.
The con is in. It all about having no choice as the Fed had to be seen to do something to prove their policies were a success. An increase of .25% is of no consequence as they know normalising interest rates is out of the question and would crash world markets. This allows the 1% to continue filling their pockets to the detriment of savers and pensioners.
When The Fed realises that low interest rates actually cause deflation it will be too late and no amount of money printing will save the US dollar. Meanwhile world central banks are buying and hoarding Gold in preparation for the inevitable. Just like a magic trick where one hand distracts you, while the other takes your wallet.
Interest rates should be 50%! That’s right, 50%. People should save money, and then buy a house with those savings. This will be much fairer, and property prices will be reasonable for everyone. We should not allow people who want to contribute nothing to society to get rich by buying and selling property, thereby making it harder for everyone else.
@3 right wing
What you say is correct, except for one massive flaw. We operate in a fiat, fractional reserve currency system. The only way the elite maintain control is by releasing fresh currency, causing inflation in assets and making your possessions and labour worth less tomorrow than it is today.
It’s why in every country around the world that operates fiat currency, the long term central bank interest rate trends towards zero, or even inverts.
It’s done on purpose, they ram as much debt down our throats as we can take while maintaining control of the currency. The trouble is, it’s now such a large debt load that changing the interest rate is like shaking the tail of a dog. Nothing much is really happening…… Until, it barks/bites.
I can’t believe they think they can raise the FED rate four times next year, I just don’t believe the world can take it.
What this means for Australia, is far from certain, but it’s not good. With private debt waaaay above GDP, RMBS ~ GDP, and over 60% of house hold wealth tied to one of the biggest property bubbles in history the future has a hard landing at some stage.
Add in the fact our banks borrowed heavily from USA FED, which would be in USA dollars…… The rush of funds back to the USA as rates rise, the collapse of our ‘commodity’ based dollar, it’s easy to see, regardless of what the RBA say, our local banks have funding issues that are about to become household knowledge.
Of course the commentators will say that our saving rate is historically high…. Of course it is. You’ve got the baby boomers looking to retire, and they can’t. It’s proven that a couple needs over $1.7Million in a term deposit to have the same amount of cash weekly as a couple on the full pension.
Low interest rates don’t work. Study Japan for 5 minutes. It’s over 25 years and they are no where near recovered.
I don’t expect GFC 2.0 unleash in the next few months, but it’s certainly getting closer.
I expect at the first glimpse of an economic shudder that PM Turnbull will call an election. As the ‘self made millionaire’ he’s the ‘best’ to lead the economy (if you buy that)…. and then the bail outs will be green lighted between 2017-2020.
That’ll mark 15 years after the first cracks appeared in the USA housing market, it’s an absolute miracle that Howard, Rudd, Gillard, Rudd, Abbott and Turnbull have been able to keep it afloat. (Of course, don’t give them too much credit, as the beast got so big it became self fulfilling)
So, as asked in “The creature from Jeckyll Island”, it’s all one big coincidence (that the rich get richer and 95% get poorer out of every disaster/shock/change) or it’s all a co-ordinated plan.
Only the ignorant could ever truly believe it’s a co-incidence.
The Fed rate tightening and our banks over reliance on overseas wholesale funding is not the only headwind facing them next year.
We also have Basel 4 and their plans to “aggressively ramp up the risk weightings for home loans to investors who are “materially dependent on cash flows generated by the property””
Basel 4 plan to free up capital for regional banks
The risk ratings on specuinvestor loans is expected to surge based on the loans LVR:
LVR under 60% – Risk Weighting 70%
LVR between 60 and 80% – Risk Weighting 90%
LVR exceeding 80% – Risk Weighting 120%!!
I believe Australian banks have a high portion of specuinvestor loans, so their capital requirements could surge. The banks will have to pass this on to the specuinvestor.
The debt issued in USD today has never been larger or more speculative than any other time in history. I want them to raise rates 1% so that we can finally prove that their solutions were a failure and have the crash necessary to restart the financial system and have a real recovery. Scorched earth allows new seedlings to grow.
https://www.qut.edu.au/science-engineering/about/news/news?news-id=85924
That was March.
It looks like a lot of investors and developers are about to get burnt.
David @ 7
My eldest is in Brisbane and he says the true vacancy rate is at least 3 times the acknowledged official rate.
This does not include the over 5000 new units coming on line at the moment.
And still they are looking to build more.
Inner city apartments have their own cycles and they are a lot more volatile than houses . You’re wasting your time using them as a any sort of indicator of the residential market.
Merry Xmas to everyone, and may house prices crash in the New Year.
The US Fed is just a private monopoly of international banks that only support what is best for the banks and not the people. Interesting article below on who they are and the harm they do.
http://www.globalresearch.ca/who-owns-the-federal-reserve-bank-and-why-is-it-shrouded-in-myths-and-mysteries/5496873?print=1
paul says “Scorched earth allows new seedlings to grow.” hummm – only if there’s rain, paul.
Alcatrax, true that apartments do not reflect the greater residential market, but 10000 empty units means there will be a lot of hurt and companies/contractors/investors going under. Negative gearing will only cover so much of a loss.
That will flow onto the residential scene via forced sales and bankruptcies. It will also effect houses under construction because a lot of building groups have fingers in many pies.