What effects take place with higher Fed rates?

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thethinker
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What effects take place with higher Fed rates?

Post by thethinker » Tue Dec 15, 2015 7:05 am

There are talks about the fed increasing interest rates. Whatever information is out there (about the truth or not to this story) is likely already built into the markets. I'm
Not asking this as a timing question but as an educational one. If the fed does raise rate, what would an economics text book say could happen to the bond market (or equities)? And maybe as a joint question, what may the text say already did happen in anticipation of this news? These questions are semi redundant so answer whichever you'd like. Thank you

CampyHot
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Re: What effects take place with higher Fed rates?

Post by CampyHot » Tue Dec 15, 2015 8:00 am

With increase fed rates the banks will increase the rates and finally the people's pockets are burdened..

Call_Me_Op
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Re: What effects take place with higher Fed rates?

Post by Call_Me_Op » Tue Dec 15, 2015 8:11 am

As the fed raises rates, the rates you will receive on cash equivalents and short-term bonds should increase. The stock market tends to suffer in the short-term but theoretically it is good for the stock market longer term.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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tyler_cracker
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Re: What effects take place with higher Fed rates?

Post by tyler_cracker » Tue Dec 15, 2015 1:56 pm

i am not an economist but i have observed that a rise in interest rates correlates with a rise in posts about interest rates.

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dm200
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Re: What effects take place with higher Fed rates?

Post by dm200 » Tue Dec 15, 2015 2:01 pm

In my opinion, we only KNOW the following:
1. TV, radio, news media do (and will) say a LOT about Fed rate increases - filling the time and space with a LOT, muco or most of which is mere speculation
2. A possible or likely Fed rate increase has been factored into the market already
3. Most short term rates will increase as the Fed raises rates

jpelder
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Re: What effects take place with higher Fed rates?

Post by jpelder » Tue Dec 15, 2015 2:05 pm

tyler_cracker wrote:i am not an economist but i have observed that a rise in interest rates correlates with a rise in posts about interest rates.


But correlation doesn't make causation!

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Maybe increased Bogleheads posts about interest rates cause increased interest rates.

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tyler_cracker
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Re: What effects take place with higher Fed rates?

Post by tyler_cracker » Tue Dec 15, 2015 2:07 pm

jpelder wrote:But correlation doesn't make causation!


ah, i see that you are not an economist either ;)

jpelder
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Re: What effects take place with higher Fed rates?

Post by jpelder » Tue Dec 15, 2015 2:32 pm

tyler_cracker wrote:
jpelder wrote:But correlation doesn't make causation!


ah, i see that you are not an economist either ;)


Nope, just a scientist and statistics nerd trying to spread the light

Johno
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Re: What effects take place with higher Fed rates?

Post by Johno » Tue Dec 15, 2015 3:06 pm

thethinker wrote:If the fed does raise rate, what would an economics text book say could happen to the bond market (or equities)? And maybe as a joint question, what may the text say already did happen in anticipation of this news?

Besides the fact that ~zero maturity interest rates will rise (that's what the Fed is controlling, or largely controlling such rates in general by controlling the Fed Funds rate) there is no economic theoretical answer to whether any other effect is already baked into prices or not. In this particular case the increase itself is so fully expected that it seems safe to say the 25bp hike itself will have virtually no effect, a non increase would have a big effect. And that should actually be visible in the lack of a big market reaction to a 25bp hike in the instant when the rate move is known but the Fed's statement has not been read. Once the statement is read though, markets could react strongly to the contents, or not, depending on the perceived implication for further rate hikes in the near future, Fed's view of the economy and market, etc. The press conference could produce further moves. The Fed's statements are the variable in this case; the market thinks it knows the rate move already.

ND Fan 1
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Re: What effects take place with higher Fed rates?

Post by ND Fan 1 » Tue Dec 15, 2015 3:16 pm

Sorry for the dumb questions:

Does this mean CD and savings accounts will raise? I'm thinking of moving to an online bank for some savings and CDs. Don't want to get locked in if those rates may go up

Will interest rate on mortgages go up? Just curious, I bought a house about six months ago and feel pretty good about my 3.25% rate, wondering if that could be good timing.

BRiley4
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Re: What effects take place with higher Fed rates?

Post by BRiley4 » Tue Dec 15, 2015 4:45 pm

tyler_cracker wrote:i am not an economist but i have observed that a rise in interest rates correlates with a rise in posts about interest rates.


Hahaha. Very well said! A 0.5% increase has been discussed forever and I do think the speculation has already been baked into the market for some time now.

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dm200
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Re: What effects take place with higher Fed rates?

Post by dm200 » Tue Dec 15, 2015 5:16 pm

ND Fan 1 wrote:Sorry for the dumb questions:
Does this mean CD and savings accounts will raise? I'm thinking of moving to an online bank for some savings and CDs. Don't want to get locked in if those rates may go up
Will interest rate on mortgages go up? Just curious, I bought a house about six months ago and feel pretty good about my 3.25% rate, wondering if that could be good timing.


Yes - it is very likely that short term savings rates will increase. It is not clear, though, exactly when it will happen. If you wait, you could be worse off - even with higher rates later because you did not buy now. In my opinion, for many folks a "ladder" of CDs where some mature every 3-6 months is a way of hedging your bets no matter if/when or how much rates do or do not increase.

When short term rates increase, it is commonly expected that there will be a ripple effect as consumers will be able to get higher rates and will begin to move funds. The movement of such funds (or the anticipation of it) will lead banks and credit unions to increase rates to retain deposits.

Affect on mortgage rates unknown - although many expect an increase.

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patrick013
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Re: What effects take place with higher Fed rates?

Post by patrick013 » Tue Dec 15, 2015 5:42 pm

The information isn't perfect yet. In other words what will
other rate adjustments be, if any ? Still guessing about
those.
age in bonds, buy-and-hold, 10 year business cycle

OutInThirteen
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Re: What effects take place with higher Fed rates?

Post by OutInThirteen » Tue Dec 15, 2015 11:10 pm

When Treasury yields go up in response (soon afterwards?), the Federal Thrift Savings Plan G Fund interest rate will go up, but the price will not go down - that's the so-called "free lunch". Now also on the menu for non-Federal employees, via the myRA, with an account limit of $15,000.

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