Interest Rates and the 'Neutral Rate'

[ATCclears]

Amid the debate over whether and when the Federal Reserve cuts interest rates, another important argument is unfolding: where do rates settle in the long run?

At issue is the neutral rate of interest: the rate that keeps the demand and supply of savings in equilibrium, leading to stable economic growth and inflation.

For the last 40 years, and especially following the 2008 financial crisis, economists and Fed policymakers steadily revised down their estimates of neutral. This view became embedded in bond yields, mortgage rates, equity prices and countless other assets.

But now, some see reasons for neutral rising, with the potential to change a wide range of asset prices.

The neutral rate, sometimes called "r*" or "r-star," can't be directly observed, only inferred. Five years ago, after the Fed raised its benchmark federal-funds rate rate to 2.4%, officials saw signs of feeble growth and inflation and began lowering rates—implying neutral must have been around that level, or lower.

https://www.wsj.com/economy/central-banking/why-high-interest-rates-could-be-here-for-the-long-run-c6670448?st=ciyqvzuvf8tolls&reflink=desktopwebshare_permalink

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[Stomper]

It's all a delusional lie, "put it all on red or black", the market has an "unearthly life of its own", it's all a slow inexorable pathway to slavery, and it's all just dust in the wind.


Get out of debt as much and as fast as you can because the hammer WILL fall. Don't be under it when it does.

 

[Provincial]

To make any pertinent analysis, one must know the real rate of inflation. Inflation eats away at returns from investment , and subsidizes borrowers which pay back the principal at ever-decreasing real cost, since there is almost no financial instrument (including taxes) that factors inflation into payments.

For a long time, the Federal Reserve has considered inflation rates of up to 3% as being desirable, and negative inflation rates as being unacceptable.

 

[NeoBlackdog]

"one must know the real rate of inflation"
Aye, there's the rub.

 

[Alexx1401]

It's all a delusional lie, "put it all on red or black", the market has an "unearthly life of its own", it's all a slow inexorable pathway to slavery, and it's all just dust in the wind.


Get out of debt as much and as fast as you can because the hammer WILL fall. Don't be under it when it does.

I'm "old now". So I often think of a line from some movie from long ago. Can't remember anything about the movie other than some guy saying to another "you do know that if I die heavily in debt I win?"
Seem to be a LOT of people betting on their own death to come first

 

[arakboss]

Lowering your expenses to live as cheaply as possible, will help you get by easier in just about any economic scenario. The homeless have this figured out already.

You can save lots of money but if inflation continues to gobble it up, it won't do you much good. If you lose employment and or income you will be glad to have very low expenses.

 

[Hawaiian]

I don't know where they get their inflation rate calculation rate from. SS paid a 3.2 cola for 2024 based on their reported inflation rate.
Housing, utilities, groceries, medical care, auto and homeowners insurance all went up much more that 3.2%.

 

[Stomper]

I'm "old now". So I often think of a line from some movie from long ago. Can't remember anything about the movie other than some guy saying to another "you do know that if I die heavily in debt I win?"
Seem to be a LOT of people betting on their own death to come first

Yeah, but they fail to consider what happens to them afterwards….

Lowering your expenses to live as cheaply as possible, will help you get by easier in just about any economic scenario. The homeless have this figured out already.

You can save lots of money but if inflation continues to gobble it up, it won't do you much good. If you lose employment and or income you will be glad to have very low expenses.

Yeah, well the "homeless" will be WAY further up sheite-creek when the bleeding heart enablers that are currently given them what little crumbs sustain them are no longer there…. they'll make for great sandbags.

 

[NeoBlackdog]

Yeah, but they fail to consider what happens to them afterwards….



Yeah, well the "homeless" will be WAY further up sheite-creek when the bleeding heart enablers that are currently given them what little crumbs sustain them are no longer there…. they'll make for great sandbags.

Stack 'em like cordwood...

 

[arakboss]

Yeah, but they fail to consider what happens to them afterwards….



Yeah, well the "homeless" will be WAY further up sheite-creek when the bleeding heart enablers that are currently given them what little crumbs sustain them are no longer there…. they'll make for great sandbags.

They will probably steal what few crumbs they need.

 

[Jay Walk]

We have entered into runaway inflation, no chance rates are getting lowered.
To do so would be complete insanity.
Soon it could be Insanity to not lower them though.

By then, neither option will work.

 

[NeoBlackdog]

They will probably steal what few crumbs they need.

If/when we get to that point thievery will have become a very dangerous profession indeed.

 

[arakboss]

If/when we get to that point thievery will have become a very dangerous profession indeed.

Why isn't it very dangerous now?

 

[arakboss]

Did crime increase during the Great Depression?

At first you may think that the tough times of the Great Depression would cause people to turn to crime, however, that wasn't necessarily the case. Although there aren't a lot of crime statistics from the era, most historians agree that crime rates did not increase during the Great Depression. Some suggest that crime even went down. This may have been because so many people were hard up, they were less likely to steal from each other.


Source.

Great Depression: Crime and Criminals for Kids

Kids learn about crime during the Great Depression including famous criminals, crime in the movies, impact of prohibition, organized crime, crowd violence, and facts. Educational article for students, schools, and teachers.

www.ducksters.com

 

[NeoBlackdog]

Why isn't it very dangerous now?

Because there is still a semblance of law and order.

 

[Mono1]

Rule # 1: Nobody can predict the Future.

Rule # 2: Diversification is your Security.

Rule # 3: Redundancy is your Protection.

That's all you need to know.


Rule # 1 Elaboration: In the early 1970's Arthur Burns was confident that inflation could be contained with the then-current levels of interest rates. He was wrong. Inflation soared in the late 1970's and he was replaced with Paul Volcker who had to inflict the deepest recession since the Great Depression during the 1980's in order to stop it. In 1995, Alan Greenspan believed the Stock Market far too high and was due for a crash, calling it "Irrational Exuberance". The market went on to triple for the next five years with the advent of the Internet, Email and other technological wonders. More recently, five years ago Jerome Powell considered the rate of Inflation temporarily high calling it "Transitory" because it exceeded his 2 percent target forecast. It has only continued to get worse.

Rule # 2 Elaboration: The simplest way of describing Diversification is the old adage "Don't Keep All Your Eggs in One Basket". That means don't invest your money entirely in one thing. Any professional Portfolio Manager will tell you the reason their portfolio consists of holdings in 50 or 80 different stocks instead of having all of it in NVDA, is because of Diversification. Refer back to RULE # 1. But Diversification means more than that. It means being diversified amongst Asset Classes. In other words, sometimes Stocks do well, sometimes Bonds do well. Sometimes Real Estate does well. Sometimes Gold does well. Sometimes BitCoin does well. Have a bit of everything, but do not Concentrate in any one thing. Diversification is the reason smart farmers plant more than one crop. Again, refer to RULE # 1. I had a neighbor whose retirement savings back in 2007 was all invested with MF Global. It all went POOF because he didn't break it up 4 different ways. Concentration is your Enemy. Diversification is your friend.

Rule # 3 Elaboration: Similarly to Diversification, Redundancy provides Security and Protection. Redundancy simply means having backup systems. Backup systems for everything. A means for generating your own power for when the grid fails. Long-Storage food ( @The Heretic has tested many that are good long past stated shelf life ). Having a means to transact when conventional means fail. Currency for when the ATM's don't work. Multiple credit cards for when one gets hacked. Multiple Email addresses. I am sure the IT - Savvy guys here like my friend @Flopsweat can suggest many more than I. But Redundancy; having backups for your backups. And Yes, this relates to firearms and ammo as well .

 

[Flopsweat]

...
I am sure the IT - Savvy guys here like my friend @Flopsweat can suggest many more than I. But Redundancy; having backups for your backups. And Yes, this relates to firearms and ammo as well .

Have a non-electronic backup for everything vital that you do online - phone numbers, email addresses, addresses, bank accounts, and important dates, locations and directions. Have a paper map. Get a HAM license and a cheap VHF/UHV radio and make sure your friends do too. Store it in a foil pouch with the battery disconnected. If HAM is too much work, get a GMRS radio. There is no test for a GMRS radio, and there is an emergency channel. I've forgotten a bunch here. Basically just prepare for the internet to be down for an extended period of time. It's not much of a stretch anymore.

 

[Alexx1401]

Yeah, but they fail to consider what happens to them afterwards….



Yeah, well the "homeless" will be WAY further up sheite-creek when the bleeding heart enablers that are currently given them what little crumbs sustain them are no longer there…. they'll make for great sandbags.

A LOT of people who grew up with everything handed to them never stop to even consider the consequences of their actions. Sadly so many parents make life so damn easy on the kids that when they finally have to fend for themselves they make one stupid screw up after another since they never learned any self control.

 

[Stomper]

They will probably steal what few crumbs they need.

They can't steal if their head has been turned into a Picasso painting against a wall.

 

[Stomper]

Did crime increase during the Great Depression?

At first you may think that the tough times of the Great Depression would cause people to turn to crime, however, that wasn't necessarily the case. Although there aren't a lot of crime statistics from the era, most historians agree that crime rates did not increase during the Great Depression. Some suggest that crime even went down. This may have been because so many people were hard up, they were less likely to steal from each other.


Source.

Great Depression: Crime and Criminals for Kids

Kids learn about crime during the Great Depression including famous criminals, crime in the movies, impact of prohibition, organized crime, crowd violence, and facts. Educational article for students, schools, and teachers.

www.ducksters.com

What the eggheads fail to acknowledge is back then they still had capitol punishment, obesity wasn't an epidemic, and the people weren't mentally conditioned to "entitlement" like they are now….