Fed Says No Rate Hikes Until at Least Late 2014

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mur44
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Fed Says No Rate Hikes Until at Least Late 2014

Post by mur44 » Wed Jan 25, 2012 1:01 pm

What is the impact of today's Fed announcement on Short-term, Intermediate-term
and Long-term bond funds?

If I were to buy a bond fund today, which one should I buy?

Any thoughts?

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by White Coat Investor » Wed Jan 25, 2012 1:13 pm

As near as I can tell, we're punishing savers and enabling borrowers with these persistently low rates. It's becoming very hard to save enough money to care for yourself in retirement when your investments can't grow enough to do their share of the heavy lifting. With bond yields at or below inflation and cash yields underperforming inflation by over 3% future SWRs seem to be getting lower all the time. Temporary rate cuts I understand...but 6+ years of 0% short term rates? Would it really kill the economy to slowly raise rates to some reasonable amount?

Rant over.

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Jay69
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Jay69 » Wed Jan 25, 2012 1:31 pm

Not on topic but how many will start using their home as ATM?
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by CaliJim » Wed Jan 25, 2012 1:40 pm

mur44 wrote:If I were to buy a bond fund today, which one should I buy?


I would buy either:

Total Bond Market
Intermediate Treasuries
Intermediate Tax Exempt
5yr CD's
Ibonds
TIPS

depending on the AA in my IPS tells me to do and how much I have to invest.

It's hard to time the bond market.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by The Wizard » Wed Jan 25, 2012 1:48 pm

EmergDoc wrote:As near as I can tell, we're punishing savers and enabling borrowers with these persistently low rates.

Correct.
That's why I'm closing on a 3.25% variable rate HELOC on Friday.
:)
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by 555 » Wed Jan 25, 2012 2:02 pm

Jay69 wrote:Not on topic but how many will start using their home as ATM?

People who like to do that might not have a home at the moment.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Grt2bOutdoors » Wed Jan 25, 2012 2:05 pm

The FED is paying you to reduce your leverage. If you have a mortgage and excess funds, direct your excess funds to paying it down.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Grt2bOutdoors » Wed Jan 25, 2012 2:06 pm

EmergDoc wrote:As near as I can tell, we're punishing savers and enabling borrowers with these persistently low rates. It's becoming very hard to save enough money to care for yourself in retirement when your investments can't grow enough to do their share of the heavy lifting. With bond yields at or below inflation and cash yields underperforming inflation by over 3% future SWRs seem to be getting lower all the time. Temporary rate cuts I understand...but 6+ years of 0% short term rates? Would it really kill the economy to slowly raise rates to some reasonable amount?

Rant over.

Nobody knows the answer to the OPs question. It's already priced in.


Hello, Japan.

rant over.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by dumbmoney » Wed Jan 25, 2012 2:19 pm

EmergDoc wrote:As near as I can tell, we're punishing savers and enabling borrowers with these persistently low rates. It's becoming very hard to save enough money to care for yourself in retirement when your investments can't grow enough to do their share of the heavy lifting. With bond yields at or below inflation and cash yields underperforming inflation by over 3% future SWRs seem to be getting lower all the time. Temporary rate cuts I understand...but 6+ years of 0% short term rates? Would it really kill the economy to slowly raise rates to some reasonable amount?


Look at the bright side - interest payments on the national debt are reduced. Investors loss is taxpayers gain.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Kevin M » Wed Jan 25, 2012 2:24 pm

mur44 wrote:What is the impact of today's Fed announcement on Short-term, Intermediate-term
and Long-term bond funds?

If I were to buy a bond fund today, which one should I buy?

Any thoughts?

Bond ETFs are up today across the board (all types, all durations). How much of this has to do with the Fed announcement I cannot say.

I would not buy a bond fund based on the Fed announcement, and I would prefer to buy when the price is lower, not higher. I think most here would buy based on deviation from their target asset allocation.

Kevin
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Sam I Am » Wed Jan 25, 2012 2:46 pm

Message deleted.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by john94549 » Wed Jan 25, 2012 3:03 pm

Who would have thought we'd be thinking fondly of 3% CDs as "the good old days?"

Today's announcement gives a whole new meaning to "point of indifference".

Said the squire to the lord: "Sire, how would you like your negative real return today?"

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by ofcmetz » Wed Jan 25, 2012 3:20 pm

Correct me if I'm wrong, but doesn't the government only control certain short term rates. Isnt the demand for low risk assets the other part of the equation. It bogleheads would just stop buying bonds for a few days I'm sure interest rates would rise to acceptable levels. :)

As a net saver the current interest rate environment really really sucks.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by grayfox » Wed Jan 25, 2012 3:40 pm

mur44 wrote:What is the impact of today's Fed announcement on Short-term, Intermediate-term
and Long-term bond funds?

If I were to buy a bond fund today, which one should I buy?

Any thoughts?


Buy GLD ?

Was this anouncement made at 12:30 ET? Because everything seems to spike up at 12:30PM, including bond ETFS like VCIT and VCLT and TLT S&P500
Last edited by grayfox on Wed Jan 25, 2012 3:45 pm, edited 1 time in total.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Munir » Wed Jan 25, 2012 3:41 pm

mur44 wrote:What is the impact of today's Fed announcement on Short-term, Intermediate-term
and Long-term bond funds?

If I were to buy a bond fund today, which one should I buy?

Any thoughts?


From my novice perspective, I would assume that it should be safe to be in intermediate bond funds (in preference to short term) till 2014 since the scare of rising rates is delayed till then. However, I also know that markets are not necessarily logical, and I keep my ownership in both types of bond funds.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by staustin » Wed Jan 25, 2012 3:48 pm

when you have structural deficits funded by fiat currencies, combined with a central bank holding rates artifically low for an extended period (obvious financial repression) you have no choice but to think in terms of hard assets....i.e., gold or real estate. This should serve as both a store of value and generate an adequate return on your investment..

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Bongleur » Wed Jan 25, 2012 3:54 pm

Jay69 wrote:Not on topic but how many will start using their home as ATM?


First National Bank of Serta? Well, if Joey Heatherton was the teller...
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by zzcooper123 » Wed Jan 25, 2012 4:17 pm

Wowee! The rate on my HELOC won't budge for almost 3 years!
Bernanke is forcing people to push up risk

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Grasshopper » Wed Jan 25, 2012 4:27 pm

One of the TV talkingheads said the FED is making savers buy LT bonds and stocks. And commenting on a quote by Ben B. later said, that what in his option Ben said was that people are stupid to buy anything but LT bonds and stocks.

Like anyone here really cares.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Van » Wed Jan 25, 2012 4:37 pm

[quote="EmergDoc"]As near as I can tell, we're punishing savers and enabling borrowers with these persistently low rates. It's becoming very hard to save enough money to care for yourself in retirement when your investments can't grow enough to do their share of the heavy lifting. With bond yields at or below inflation and cash yields underperforming inflation by over 3% future SWRs seem to be getting lower all the time. Temporary rate cuts I understand...but 6+ years of 0% short term rates? Would it really kill the economy to slowly raise rates to some reasonable amount?

+1

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by kenyan » Wed Jan 25, 2012 4:51 pm

Ah yes. I got junk mail yesterday from ING encouraging me to open an online savings account with them to earn a fantastic return of 0.85% on my money! It provided the helpful graphic, showing that I would earn an incredible $85 over the course of a year on my $10 grand, as opposed to the paltry $40 or so in some unnamed competitor's account. (naturally, I'd have to ignore the current inflation rate which leaves me with $9700-9750 real dollars instead of $10085).

I died a little bit more.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by beardsworth » Wed Jan 25, 2012 4:58 pm

EmergDoc wrote:As near as I can tell, we're punishing savers and enabling borrowers with these persistently low rates. . . .
Amen, amen, amen. Americans are regularly chastized for not saving enough, but every time the economy cools, the official response is to cut interest rates in order to encourage . . . debt. And, of course, cash–type savings interest is fully taxable at ordinary income rates, while interest paid on debt is likely to be deductible. All of this sends a "message" which contradicts the admonition to save. . . . We have several older friends who are already in retirement, and all say "I used to think that when I got to this stage I'd be able to meet my basic expenses with just the interest." No more.

munir (responding to the OP's "what is the impact" question) wrote:From my novice perspective, I would assume that it should be safe to be in intermediate bond funds (in preference to short term) till 2014 since the scare of rising rates is delayed till then. However, I also know that markets are not necessarily logical, and I keep my ownership in both types of bond funds.
Mostly agree with you, munir--with the caveat that, to a certain extent, it's an illusion to believe that the Fed unilaterally controls all of this. The Fed may intend to keep interest rates low through 2014, but it's not difficult to imagine an interruption of oil supplies, or widespread crop failures because of hostile climate, or other events which could drive up the price of raw materials or food or transportation of finished goods from the third world, and scare the bond market into insisting on higher real interest rates, regardless of what the Fed intended or whether the Fed was "ready" to raise them on its own.

Bongleur (re: people being tempted to use home as ATM) wrote:First National Bank of Serta? Well, if Joey Heatherton was the teller. . . .
'Fraid you might be showin' your age there, Bongleur--or your interest in old shows. Joey Heatherton is 67. :shock: Hard to believe.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Clearly_Irrational » Wed Jan 25, 2012 5:05 pm

EmergDoc wrote:Temporary rate cuts I understand...but 6+ years of 0% short term rates? Would it really kill the economy to slowly raise rates to some reasonable amount?


According to Model B which seems fairly accurate an inverted yield curve tends to predict/cause recessions. So yes, if they were to raise short term interest rates more than 2% right now it would crash the economy. (raising it less than that would just slow the recovery)

Believe it or not they're fighting massive deflation in the real estate and shadow banking sectors. If it weren't for the Federal Government running a massive deficit right now we'd be in serious trouble.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by hsv_climber » Wed Jan 25, 2012 5:31 pm

Clearly_Irrational wrote:According to Model B which seems fairly accurate an inverted yield curve tends to predict/cause recessions. So yes, if they were to raise short term interest rates more than 2% right now it would crash the economy. (raising it less than that would just slow the recovery)


Why are you making a clearly_irrational assumption that long term rates won't rise with rising ST rates?

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Dale_G » Wed Jan 25, 2012 5:54 pm

Ho hum, as Willie Sutton said (paraphrasing), you go where the money is. Well, the savers have the money - and obviously the borrowers don't. 2% inflation helps to remedy the situation.

Unfortunately, the buying power of my paltry pension is only about 75% of what it was in 2001 and the buying power will likely continue to go lower. Not by accident, not an unforeseen consequence - but by policy.

During the Q&A session, Ben suggested savers would receive rates above inflation. I guess he hasn't priced any CDs, or bonds lately.

Please don't help me - and especially don't attempt to rescue me. I can't afford it.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by kenyan » Wed Jan 25, 2012 5:59 pm

Dale_G wrote:Ho hum, as Willie Sutton said (paraphrasing), you go where the money is. Well, the savers have the money - and obviously the borrowers don't. 2% inflation helps to remedy the situation.

Unfortunately, the buying power of my paltry pension is only about 75% of what it was in 2001 and the buying power will likely continue to go lower. Not by accident, not an unforeseen consequence - but by policy.

During the Q&A session, Ben suggested savers would receive rates above inflation. I guess he hasn't priced any CDs, or bonds lately.

Please don't help me - and especially don't attempt to rescue me. I can't afford it.

Dale


Unfortunately, we're currently sitting at about 3.5% if you believe either the CPI or the Billion Prices Project.

http://bpp.mit.edu/usa/

Definitely not beating that in safe instruments.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by hsv_climber » Wed Jan 25, 2012 6:10 pm

kenyan wrote:Unfortunately, we're currently sitting at about 3.5% if you believe either the CPI or the Billion Prices Project.

http://bpp.mit.edu/usa/

Definitely not beating that in safe instruments.


If you can't beat them then join them. Hurray 0% I-Bonds.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by billjohnson » Wed Jan 25, 2012 6:21 pm

mur44 wrote:What is the impact of today's Fed announcement on Short-term, Intermediate-term
and Long-term bond funds?

More financial repression... :undecided

http://www.imf.org/external/np/seminars ... f/crbs.pdf

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by riverguy » Wed Jan 25, 2012 6:38 pm

The system depends on ever expanding debt. First it was internet stocks. When that blew up, they turned to housing. When housing blew up, the govt stepped in and turned up the deficit spending. Where do we go after this?

Bernanke has already blown his wad. Rates can't go lower. He's trapped. We are Japan.

It also blows my mind that no one in Washington or the media can come to the conclusion that inflation (let alone targeting a certain inflation rate)is NOT equivalent to the Fed's mandate of stable prices. Quite the opposite actually.

Calpers earned a whopping ~1% last calendar year. Pretty damn far off of the standard ~8% most pensions use. That's a ticking time bomb waiting to go boom.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by grayfox » Wed Jan 25, 2012 6:43 pm

Here's the Press Release if anyone wants to get it straight from the source.

In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.


at least through 2014. AT LEAST!! In English language that means no possibility of going up before some time 2014. [In press conference he said at least until LATE 2014.]

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September


More buying of longer term bonds. Will 30-year Treasury bonds get to zero yield? last year Vanguard LT Treasury (VUSTX) returned 25.11% capital + 4.17$ income = 29.93% total. Maybe VUSTX will be the big winner again in 2012?

I'm not adding any more LT bonds, but I think I will not sell any more unless they go up substantially.

Here is FOMC Press Conference 1/25/12 Video
Last edited by grayfox on Wed Jan 25, 2012 7:00 pm, edited 1 time in total.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by dave66 » Wed Jan 25, 2012 6:59 pm

EmergDoc wrote:As near as I can tell, we're punishing savers and enabling borrowers with these persistently low rates. It's becoming very hard to save enough money to care for yourself in retirement when your investments can't grow enough to do their share of the heavy lifting. With bond yields at or below inflation and cash yields underperforming inflation by over 3% future SWRs seem to be getting lower all the time. Temporary rate cuts I understand...but 6+ years of 0% short term rates? Would it really kill the economy to slowly raise rates to some reasonable amount?



Because policies now days are all about short term, feeding the masses what they think they want to hear, so people get reelected, and perpetuating debt accumulation.... Whether it's going to make things worse down the road, or not. The 'big picture' seems to be non existent in the US at this point. It's all about 'today', and we'll worry about tomorrow when we get there. Which of course is how we got to where we are in the first place.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Bongleur » Wed Jan 25, 2012 7:10 pm

MarcMyWord wrote:
EmergDoc wrote:
Bongleur (re: people being tempted to use home as ATM) wrote:First National Bank of Serta? Well, if Joey Heatherton was the teller. . . .
'Fraid you might be showin' your age there, Bongleur--or your interest in old shows. Joey Heatherton is 67. :shock: Hard to believe.


Not in my prurient mind... :sharebeer
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by antiqueman » Wed Jan 25, 2012 7:23 pm

I note all the comments about how the low rates adversely affect savers and "Boglehead" type people. I note the reference to we are now Japan etc. It does appear we are going to be in a low interest rate enviroment for some time. But the question we should focus on is what do we ( population ) DO as we invest and try to better our financial condition.

Do we pay off all debt? Do we keep debt because rates are low and with some tax deductions the interest rate is actually lower.


Do we keep more than a years liquidity.


There are many other questions that could be asked ,and comments made, but in the end what should most peopole DO?

I know there is no 100% correct answer but the posters on this board probably have as good or better thoughts about this as anyone.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by nisiprius » Wed Jan 25, 2012 7:30 pm

People who just don't like bonds won't treat anything as good news.

If the news was that interest rates were likely to go up, they would say "Aha! The market value is going DOWN. I told you: bonds suck."

But since the news is that interest rates probably will not go up, the reaction is "Oho! Rates are going to stay pathetically low! I told you: bonds suck."

Ah, well. Maybe it's not such a bad idea to hold stocks and bonds both.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by madbrain » Wed Jan 25, 2012 7:32 pm

Jay69 wrote:Not on topic but how many will start using their home as ATM?


Home equity has been not been going up much lately. Many people have none left and are upside down. The home credit card is maxed out.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by madbrain » Wed Jan 25, 2012 7:40 pm

GRT2BOUTDOORS wrote:The FED is paying you to reduce your leverage. If you have a mortgage and excess funds, direct your excess funds to paying it down.


I don't know if that's really what they want. If so, I don't think it's not going to work.
Just think about it - if everyone was using every spare penny on paying down the debt all at once, instead of spending it on something discretionary, the economy would collapse.
No, the fed wants you to stop saving, and actually spend. That's good if you have income that doesn't depend on savings. Bad for everyone else.

IMO, smart people will lock long-term mortgages at low rates at the highest possible amounts (loan limits are going down, though), and invest their money somewhere else with a prospect for higher return, ie. something riskier. I am doing a refi at 4.375% fixed on an investment property, no cost. And 4.0% on my primary residence. $875k in total. I could afford to pay down half, but there is no way I would do with these rates.

If the government wants people to pay down their debt, they can start messing with things like the mortgage interest deduction. That will do it quicker. But I don't think it's what they want.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by grayfox » Wed Jan 25, 2012 8:19 pm

OK, I watched the FOMC Press Conference. Ben does a good job of explaining the thinking going on. He also addresses the issue of savers and low interest rates in the Q&A section.

I have to say that, as much as I HATE low interest rates, it appears that what the Fed is doing makes sense. As far as I can tell, everything is based on the economic numbers that they see coming in and are projecting. The numbers are not good.

What can be inferred from the policy of zero interest rates for 6 years and massive asset purchases is that the U.S. economy is a basket case. If we returned to normal interest rates, there would be deflation, unemployment rate would shoot up and we would be in a Depression.

So there it is. Zero and low interest rates until 2015 or longer. Until we get out of this hole we dug for ourselves. Maybe it will take ten years, who knows? Japans been in a hole for 20 years, right?
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by joe8d » Wed Jan 25, 2012 8:23 pm

This is terrible news for retirees. The Fed's observance of Sharia Law with regard to interest is really hurting us.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Beagler » Wed Jan 25, 2012 9:12 pm

From forum policies: http://tinyurl.com/yc6j4o5

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
US or world economic, political, tax, health care and climate policies


Unless there are Bogleheads who have the power to change the interest rate environment....
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by norookie » Wed Jan 25, 2012 9:21 pm

Beagler wrote:From forum policies: http://tinyurl.com/yc6j4o5

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
US or world economic, political, tax, health care and climate policies


Unless there are Bogleheads who have the power to change the interest rate environment....
:annoyed This seems like chat, opinions, thoughts, analysis, and observations.
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by nonnie » Wed Jan 25, 2012 9:46 pm

Thank you to Mel I-bond Lindauer and the Bogleheads who educated me about Ally 5 year CDs with only a 60 day early withdrawal penalty. I didn't do any of it nearly enough but these days one has to be grateful for the smallest favors...or interest rates :D

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by richard » Wed Jan 25, 2012 10:00 pm

EmergDoc wrote: Would it really kill the economy to slowly raise rates to some reasonable amount?

Higher rates would most likely hurt the economy, which is rather fragile

Most retirees live off social security, so are not really affected by rates.

Most retirees with portfolios have both stocks and bonds. Low rates are good for stocks

Those who are employed benefit from a stronger economy, so should want lower rates.

Higher rates would decrease the value of bonds (in the short run), which would no doubt set off a wave of protests about how the Fed is hurting savers.

How many can there be who are retired and depend primarily on a bond, rather than diversified, portfolio or social security?

EmergDoc wrote:Nobody knows the answer to the OPs question. It's already priced in.

Yep

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Clearly_Irrational
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Clearly_Irrational » Wed Jan 25, 2012 10:56 pm

hsv_climber wrote: Why are you making a clearly_irrational assumption that long term rates won't rise with rising ST rates?


A valid point. Given the current market I suspect they would go up but not fast enough unless they did some very clever things with the yield curve. The normal market is very distorted right now, however I believe most people are still more interested in return of capital than return on capital.

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Clearly_Irrational
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Clearly_Irrational » Wed Jan 25, 2012 10:58 pm

riverguy wrote:Bernanke has already blown his wad. Rates can't go lower. He's trapped. We are Japan.


We're not Japan for a variety of reasons but most especially demographics because we allow immigrants.

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Mrs.Feeley
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Mrs.Feeley » Wed Jan 25, 2012 10:59 pm

richard wrote:Most retirees live off social security, so are not really affected by rates.

Most retirees with portfolios have both stocks and bonds. Low rates are good for stocks

Those who are employed benefit from a stronger economy, so should want lower rates.

Higher rates would decrease the value of bonds (in the short run), which would no doubt set off a wave of protests about how the Fed is hurting savers.

How many can there be who are retired and depend primarily on a bond, rather than diversified, portfolio or social security?



Oh I think there are a great number of retirees in my parents' generation, Depression Babies now in their 80s and 90s, who were avid savers all their lives, but never felt comfortable investing in anything other than clearly FDIC-insured CDs with their local banks. And they certainly don't feel comfortable investing in anything different at this point in their lives. Until the last few years they were significantly reliant upon the interest from their CDs together with Social Security. Sadly they are the ones who've been hurt the hardest by the years of negligible interest rates.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by joe8d » Wed Jan 25, 2012 11:05 pm

Mrs.Feeley wrote:
richard wrote:Most retirees live off social security, so are not really affected by rates.

Most retirees with portfolios have both stocks and bonds. Low rates are good for stocks

Those who are employed benefit from a stronger economy, so should want lower rates.

Higher rates would decrease the value of bonds (in the short run), which would no doubt set off a wave of protests about how the Fed is hurting savers.

How many can there be who are retired and depend primarily on a bond, rather than diversified, portfolio or social security?



Oh I think there are a great number of retirees in my parents' generation, Depression Babies now in their 80s and 90s, who were avid savers all their lives, but never felt comfortable investing in anything other than clearly FDIC-insured CDs with their local banks. And they certainly don't feel comfortable investing in anything different at this point in their lives. Until the last few years they were significantly reliant upon the interest from their CDs together with Social Security. Sadly they are the ones who've been hurt the hardest by the years of negligible interest rates.


:thumbsup
All the Best, | Joe

grok87
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by grok87 » Wed Jan 25, 2012 11:34 pm

john94549 wrote:Who would have thought we'd be thinking fondly of 3% CDs as "the good old days?"

Today's announcement gives a whole new meaning to "point of indifference".

Said the squire to the lord: "Sire, how would you like your negative real return today?"

You don't have to accept a negative real return. I recommend a mix of Ibonds, 30 year TIPs, and 7 year PenFed CDs yielding 2.75%. See this thread for example
viewtopic.php?t=84168
cheers,
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

evofxdwg
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by evofxdwg » Wed Jan 25, 2012 11:52 pm

mur44 wrote:What is the impact of today's Fed announcement on Short-term, Intermediate-term
and Long-term bond funds?

If I were to buy a bond fund today, which one should I buy?

Any thoughts?


Impact on bond funds: Im reinvesting total bond market proceeds but since they will be smaller, i wont buy as many. Will that drive yields up? I doubt it.

Impact on me: I will work longer to accumulate more to make up for years of low bond yields, and then a temporary principal drop when/if interest rates do go up. And in retirement i will wear my pants high over my tummy and complain full time about the the government.

Recommendation: Some total bond market, some TIPS index funds, and some stock index funds. Why: because the Bogleheads here have convinced me to stay the course, keep a diversified portfolio, and ignore the noise.

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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by yakers » Thu Jan 26, 2012 12:46 am

I have seen several postings saying we are like Japan and I think there is some parellel. We certainly have had a similar real estate bust. What I wonder is 'what have we learned' from a situation like Japan? Should we be investing in non-domestic equities, bonds, deflation hedges? Shorting something? Presumably during the great plague the coffin makers made money.

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Mrs.Feeley
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Re: Fed Says No Rate Hikes Until at Least Late 2014

Post by Mrs.Feeley » Thu Jan 26, 2012 1:47 am

yakers wrote:I have seen several postings saying we are like Japan and I think there is some parellel. We certainly have had a similar real estate bust. What I wonder is 'what have we learned' from a situation like Japan? Should we be investing in non-domestic equities, bonds, deflation hedges? Shorting something? Presumably during the great plague the coffin makers made money.


Um, no. Bodies were buried in pits. After being left at the side of roads.

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