Author Topic: Fed Funds Rate  (Read 1242 times)

Seriati

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Fed Funds Rate
« on: June 14, 2017, 04:16:28 PM »
What do you make of the Fed's trend on decisions about the Fed funds rate?

The rate was over 5% in the Bush admin, before the crisis, and dropped to effectively zero for the entire eight years of the Obama admin (one slight increase last year), and now has been increased what 3 times under Trump.  Is there a partisan motivation in the rate changes?  Or is there a lesson that can be learned by which admin's policies prompt rate changes?  Or is there something completely unrelated controlling what looks to be an incredibly politically correlated decision?

msquared

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Re: Fed Funds Rate
« Reply #1 on: June 14, 2017, 04:22:25 PM »
I think raising the rates is motivated by the economy doing ok and the Fed having no room to go down.  No one expected the rates to stay at 0 forever. I see very little political motivation behind it. The rates were lowered by people put in place by Bush.

TheDeamon

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Re: Fed Funds Rate
« Reply #2 on: June 14, 2017, 04:23:50 PM »
Or is there something completely unrelated controlling what looks to be an incredibly politically correlated decision?

On some levels, economic activity IS political activity, so it may not be that the Fed is particularly partisan in this respect, but rather that "the politics of the economy" is such that when a Republican is in office, the brakes have occasion to need to be used. (Because the people that have money are more inclined to use it to make more money when a Republican is in charge)

Or more specifically: Obama scared the pants off of many/most businessmen/women so they didn't want to make "too much money" for fear Obama would come after them. Now that he's gone, and Trump's in, they know there currently is no such a thing as "too much" where the Donald is concerned.

TheDeamon

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Re: Fed Funds Rate
« Reply #3 on: June 14, 2017, 04:28:10 PM »
I think raising the rates is motivated by the economy doing ok and the Fed having no room to go down.  No one expected the rates to stay at 0 forever. I see very little political motivation behind it. The rates were lowered by people put in place by Bush.

It also ignores rates falling under both Reagan and Bush(41), as well as variable rates during the Bill Clinton admin. Obama was the first time in a very long time(if ever) where rates lingered near 0 for any significant amount of time, so that was an abnormal situation. As such, it's agreed that rates moving up isn't particularly political.

Honestly, I think Obama and company would have been crowing about a rate hike if one happened under his Admin as "proof the economy is back on track" and further validation of his policies and practices.

Seriati

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Re: Fed Funds Rate
« Reply #4 on: June 14, 2017, 05:11:13 PM »
I'm not "ignoring" it, under Reagan the rates fell from over 15% to somewhere around 8%.  Under Bush I they went from that 8% to about 3%.  Clinton they went from 3% to 5%.  Bush 2, had them go from around 6% to 1% back up to 5% and then drop to zero as he left office.  For Obama they stayed at zero for eight years.

Back to the fifties there doesn't seem to be any point where the rate was that low, let alone where it stayed that low for any length of time.  Even in the 70's recession/depression, the rates were substantially higher.  Both recent Democrats had lower rates than the recent Republicans.  Given that lower rates are intended to spur capital activity, is this intended as a thumb on the scale to make Democratic economies look better, or a reflection that Democratic policies slow the economy more than Republicans, or is there a neutral way to interpret this.

No matter, I think an answer has to explain the complete anomaly that is the rate under Obama.

TheDrake

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Re: Fed Funds Rate
« Reply #5 on: June 14, 2017, 05:23:20 PM »
Lending, as you recall, was the crisis this time round. During the 70s the crisis was inflation, thus the heavy swing to the high side. It is generally a balancing act to ensure free cash flow. As a result of this lending rate, we lost the ability to make much money on simple savings vehicles.

Raising the fed rate is usually an encouragement to save, or an attempt to curb inflation. Or the chairperson just had a meatball sub and the indigestion made them cranky.

US inflation has had a decent tick up lately (2.5%)


TheDrake

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Re: Fed Funds Rate
« Reply #6 on: June 15, 2017, 12:10:02 PM »
In the UK....

Quote
The 5-3 vote by the Bank's policymakers was the closest for a rate rise since 2007, and comes with inflation close to a four-year high of 2.9%.

Inflation is now well above the Bank's target rate of 2%.