Feds promise to not raise interest rates until 2022 and emergency fund...

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cone774413
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Feds promise to not raise interest rates until 2022 and emergency fund...

Post by cone774413 »

I'm still trying to understand bonds and I fear this question will likely display my ignorance but oh well, we're all trying to learn...

My understanding is one of the major risks of bonds is the potential for interest rates increase. If the fed has promised note to raise interest rates for at least 2 years would it be OK to put your 'short term' fund (those not needed for 1-3 years e.g. house downpayment) in bonds especially since HYSA and CD are yielding so low?
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whodidntante
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Re: Feds promise to not raise interest rates until 2022 and emergency fund...

Post by whodidntante »

I would say a loss of purchasing power is likely if you adjust for inflation and taxes. I wouldn't call a likely loss of purchasing power a safe investment. So it's really about picking the risk you want to take.
retired@50
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Re: Feds promise to not raise interest rates until 2022 and emergency fund...

Post by retired@50 »

cone774413 wrote: Fri Jun 26, 2020 8:14 am If the fed has promised note to raise interest rates for at least 2 years would it be OK to put your 'short term' fund (those not needed for 1-3 years e.g. house downpayment) in bonds especially since HYSA and CD are yielding so low?
I'm guessing this promise isn't worth much more than a pinky swear between two teenage girls.

Regards,
This is one person's opinion. Nothing more.
7eight9
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Re: Feds promise to not raise interest rates until 2022 and emergency fund...

Post by 7eight9 »

Depending on how sure you are that you won't need the funds you might want to consider a Multi-year Guaranteed Annuity (MYGA).

Some examples --- https://www.immediateannuities.com/defe ... gJaNPD_BwE
I guess it all could be much worse. | They could be warming up my hearse.
02nz
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Re: Feds promise to not raise interest rates until 2022 and emergency fund...

Post by 02nz »

retired@50 wrote: Fri Jun 26, 2020 8:44 am
cone774413 wrote: Fri Jun 26, 2020 8:14 am If the fed has promised note to raise interest rates for at least 2 years would it be OK to put your 'short term' fund (those not needed for 1-3 years e.g. house downpayment) in bonds especially since HYSA and CD are yielding so low?
I'm guessing this promise isn't worth much more than a pinky swear between two teenage girls.

Regards,
Well, it probably didn't make any such promise. I don't see a source saying the Fed "promised" to not raise interest rates until 2022. OP, if you have a source, please cite. AFAIK the Fed makes no commitments like that. They give certain projections - we see interest rates at a certain level for the next X months. That's not close to a "promise."
Chicken Little
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Re: Feds promise to not raise interest rates until 2022 and emergency fund...

Post by Chicken Little »

cone774413 wrote: Fri Jun 26, 2020 8:14 amfed has promised note to raise interest rates for at least 2 years
Also doubt that.

If what you meant was that, to the best of their ability, they don’t “plan” to raise rates, that is very different.

If unruly inflation shows up (the likelihood of that is a different discussion), then the fed has to raise rates, correct?

When you look at it that way, you see that the Fed has their toolkit and the market has it’s toolkit.

Inflation is in the market’s toolkit.
Last edited by Chicken Little on Fri Jun 26, 2020 9:02 am, edited 1 time in total.
Gufomel
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Re: Feds promise to not raise interest rates until 2022 and emergency fund...

Post by Gufomel »

The validity of the Fed’s “promise” aside, my understanding is that doesn’t tell us much (if anything) about where rates will go from here in the bond market. Bond rates could rise based on future expectations long before any announcement from the fed. The bond market isn’t directly tied to the fed rate (my understanding).

In addition to the above, what do you mean by “bonds”? If you’re referring to treasuries, those are yielding lower than most HYSA and bank CDs. If you’re referring to corporate bonds (or the total bond market fund which holds corporates), then you’re taking on credit risk in which case yields could rise (prices fall) regardless of what happens with the fed rate.
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