[RoseyRed]

Originally Posted by Two Bills

I would imagine many young families, struggling their way up the ladder of life, will be more than happy to see a rate reduction.
The oldies, still fighting to be the richest people in the cemetery, not so happy.

The richest in the cemetery comment is hilarious!

[CoachKandSportsguy]

Originally Posted by retiredguy123

None of this makes sense to me. To me, debt does not create wealth, the lack of debt creates wealth. I have done very well by staying out of debt. Interest rates should be controlled by the market based on supply and demand, not by the Government.

First, the government is the opposite of a consumer or a corporation. The goal of the government is NOT to be a consumer and not to be a corporation, each to maximize after tax cash flow. That is the mistake that most people make after listening to certain viewpoints criticizing the government when compared to a consumer or a corporation.

The federal reserve only affects the interest rates to the banks, called the federal funds rate.
The treasury only affects the interest rates on the sales of treasury bills, notes and bonds. Mortgage rates, money markets, bank savings account interest rates, are all set by the private market, but the influence from the treasury and the fed is not zero. .

The bank has also a third role as the lender of last resort, to keep the banking system from imploding, and banks going under. So that requires the ability to create money to give to the banks to prevent runs and insolvency.

I would also say that the immense govt borrowing does not originate with the fed or the banks or the treasury. The source of debt is the spending by Congress for their projects. The federal government manages the infrastructure, safety and defense, the common spending of the 50 states of the republic. The government blends that role with the employer of last resort. Many of people I know who have a hard time staying employed in the private sector, have found jobs in the government/public sector. The problem with the government is that is a legal system, and it's run by lawyers. Lawyers have the same human biases, greed and power as the rest of the population, but somewhat more so as they want to look like servants, but still act as they would in the private sector. . Therefore there are more sociopaths than actual servants to the people.

So your gripe about the debt is more with congress than with the banking and treasury system. And all the election rhetoric about taxes is mostly just voting pandering than real policy. However, lawyers believe in precedence, and maintaining the status quo of the system, that's how they are trained, and work. So

good luck to us.

[RoseyRed]

Originally Posted by Caymus

Maybe a reduction in job postings has them concerned. They were too slow in raising and now may be too fast in cutting.

Remember when they kept saying that inflation was "transitory".

Seems every establishment has a sign for hiring. How would it change things if employers changed their posting to "NOT hiring" we have a full staff and stop posting signs for "hiring"? Would it draw more customers to the fully staffed establishments, knowing the service offered would not be less due to no staff? Talk about shaking things UP!

[daca55]

Lowering the rates by 1/2 point IMO was too much too fast. I was expecting a 1/4. Can’t help but think the fed has another agenda that is politically motivated. Time will tell!

[Sandy and Ed]

Originally Posted by retiredguy123

None of this makes sense to me. To me, debt does not create wealth, the lack of debt creates wealth. I have done very well by staying out of debt. Interest rates should be controlled by the market based on supply and demand, not by the Government.

Simplistic?? Yeah, maybe. But I agree. Let the system work without all these gyrations.

[retiredguy123]

Originally Posted by CoachKandSportsguy

First, the government is the opposite of a consumer or a corporation. The goal of the government is NOT to be a consumer and not to be a corporation, each to maximize after tax cash flow. That is the mistake that most people make after listening to certain viewpoints criticizing the government when compared to a consumer or a corporation.

The federal reserve only affects the interest rates to the banks, called the federal funds rate.
The treasury only affects the interest rates on the sales of treasury bills, notes and bonds. Mortgage rates, money markets, bank savings account interest rates, are all set by the private market, but the influence from the treasury and the fed is not zero. .

The bank has also a third role as the lender of last resort, to keep the banking system from imploding, and banks going under. So that requires the ability to create money to give to the banks to prevent runs and insolvency.

I would also say that the immense govt borrowing does not originate with the fed or the banks or the treasury. The source of debt is the spending by Congress for their projects. The federal government manages the infrastructure, safety and defense, the common spending of the 50 states of the republic. The government blends that role with the employer of last resort. Many of people I know who have a hard time staying employed in the private sector, have found jobs in the government/public sector. The problem with the government is that is a legal system, and it's run by lawyers. Lawyers have the same human biases, greed and power as the rest of the population, but somewhat more so as they want to look like servants, but still act as they would in the private sector. . Therefore there are more sociopaths than actual servants to the people.

So your gripe about the debt is more with congress than with the banking and treasury system. And all the election rhetoric about taxes is mostly just voting pandering than real policy. However, lawyers believe in precedence, and maintaining the status quo of the system, that's how they are trained, and work. So

good luck to us.

I don't know what you mean by the private interest rate market, but the Fed seems to have a huge effect on the interest rate for money market accounts, bank CDs, and private bonds. When I retired, I was making substantial interest on my money market account until the Fed started reducing interest rates. Then the interest rate went almost zero.

[MX rider]

Originally Posted by RoseyRed

The richest in the cemetery comment is hilarious!

Lmao!!

[spinner1001]

Originally Posted by retiredguy123

Can anyone provide a logical reason why the Fed reduced interest rates by 0.5 percent? I watched several financial TV shows and got nothing but a bunch of gobbledygook.

@retiredguy123, what you asked for —

Logical reason:

As an institution, the Fed’s fundamental goals are ‘moving the economy toward maximum employment and stable prices’.[1] These are long-term goals, not goals for the next five minutes.

Maximum employment — Lower interest rates lower borrowing costs for businesses, encouraging them to invest in growth (expansion, capital assets), and hire more people.

Stable prices — Lower interest rates lead to lower expected inflation, other things equal (see Fisher’s interest rate theory [2]). Geico cave man says: ‘high inflation bad, low inflation good’. Higher inflation leads to unstable prices and lower inflation leads to more stable prices.


This is what you asked for @retiredguy123. But this ‘logical reason’ business you express in multiple posts doesn’t make sense to ask unless you want philosophy. I assume you don’t. Logic is philosophy (lots of philosophers around) and math (not many mathy folks around). But economics isn’t about logic. It’s about empirical evidence, analysis, and policy making. You want empirical evidence, not logical reasoning, right? I suggest in the future you ask for ‘sound reason’ instead of ‘logical reason’. Sound reasonable?

The logical reason you hear ‘gobbledygook’ on TV about the Fed’s policy decision is that is what TV does — sell advertising from more viewers who want entertaining. TV talking heads are often entertainers creating lots of noise, having a low signal-to-noise ratio. @retiredguy123, if you actually want to learn more you this, subscribe to The Economist and read it. You won’t learn much about it from TV channels and social media.

[1] The Fed Explained - Monetary Policy

[2] Fisher equation - Wikipedia

[waterflower]

The fed is on its way out. The market has to "crash" for the sleepy eye, than the finacial reset will occur. There will be several cuts coming. We are watching the debit economy (that has no value) find its beginning 0. Fiat currencies always return to its true intrinsic value. 0 zip nada. The printing machine ran out of ink. No more Wooodrow Wilson economics. Look at 2017 .50 bases point reduction. This time we have a new system in place. Gold backed currencies and other natural recources. No more OPEC style of (gun in your face) $$ oil trading. Research the BRICS nations and the international economy they are building.

[FredMitchell]

Maybe try a primary source instead of secondary (news media).

[Jazzman]

Originally Posted by Boomer

Inflation peaked at 9.1% in mid-2022 as we were making our way out of Covid.

NOW inflation is at 2.5%.


The Fed does not operate in a vacuum. There are 19 people on the committee and 12 of them get to vote. 11 of the 12 voted for the half point cut. The other one wanted a quarter point cut. But all agreed the time has come to cut and cut again.

The economy is not a horror like some are being led to believe. We are in recovery. Be glad.

This So Sad, Too Bad routine I have seen from those who have been rooting for a recession makes no sense to me. I must assume they have been dysinformed.

I accept the fact that my money market is going to take a hit, but I don't think we will have to return to nothing. I think this rate cut is going to drive the economy in an even more positive direction -- so I can give up something to get something. I hope to see 5% mortgages so the housing market can normalize and first time buyers can have a chance and corporate landlords won't have really cheap money to use to hog all the starter homes and gouge renters. That would be good for the economy on so many levels. Interest rates have been obscenely low for a lot of this century. Maybe, just maybe, we are on our way to normal.

Boomer

The economy is better? Well when you pick and choose specific data points you can make data look whatever way you wish. Here are three data points that you missed: Credit card debt is at an all time high. The highest it’s been since the data started to be recorded. Auto loan defaults are at a record high. And the personal savings rate is at 2.9% whereas for quite a number of years the average has hovered around 8%. And one more comment. Powell stated that the unemployment numbers are affected by the number of immigrants available in the workforce. Okay so he’s talking about those who are here without a work visa, student visa or green card, or social security card, like those living for example in hotels in NYC. Historically unemployment was measured using data from states as to those who are unemployed and collecting benefits, those who are no longer eligible to collect but remain unemployed, large layoffs in specific quarters of the year and employer open positions not being filled. So pick a data point you like. “In God we trust, everyone else, bring data”.

[SHIBUMI]

The unemployment rate is a farce...........2% of this rate are people who dont want to work........so unemployment is low

The inflation rate is a similar farce as the metrics dont make sense

That being said, the economists on this board can be tasked with explaining how the current inflation metrics work so we can agree or disagree

The fed simply controls the ability to go into more debt, at 3% debt is wonderful, at 7% people stop spending and prices go down.......pretty simple stuff...........the fed is the knight on the white horse that counter acts peoples stupidity.........people are obviously getting less stupid so rates can come down, BUT, stupid is as stupid does, so that could change......as it always has, they are protecting us from ourselves...........

Originally Posted by spinner1001

@retiredguy123, what you asked for —

Logical reason:

As an institution, the Fed’s fundamental goals are ‘moving the economy toward maximum employment and stable prices’.[1] These are long-term goals, not goals for the next five minutes.

Maximum employment — Lower interest rates lower borrowing costs for businesses, encouraging them to invest in growth (expansion, capital assets), and hire more people.

Stable prices — Lower interest rates lead to lower expected inflation, other things equal (see Fisher’s interest rate theory [2]). Geico cave man says: ‘high inflation bad, low inflation good’. Higher inflation leads to unstable prices and lower inflation leads to more stable prices.


This is what you asked for @retiredguy123. But this ‘logical reason’ business you express in multiple posts doesn’t make sense to ask unless you want philosophy. I assume you don’t. Logic is philosophy (lots of philosophers around) and math (not many mathy folks around). But economics isn’t about logic. It’s about empirical evidence, analysis, and policy making. You want empirical evidence, not logical reasoning, right? I suggest in the future you ask for ‘sound reason’ instead of ‘logical reason’. Sound reasonable?

The logical reason you hear ‘gobbledygook’ on TV about the Fed’s policy decision is that is what TV does — sell advertising from more viewers who want entertaining. TV talking heads are often entertainers creating lots of noise, having a low signal-to-noise ratio. @retiredguy123, if you actually want to learn more you this, subscribe to The Economist and read it. You won’t learn much about it from TV channels and social media.

[1] The Fed Explained - Monetary Policy

[2] Fisher equation - Wikipedia

[dewilson58]

Originally Posted by Stu from NYC

Afraid of a recession starting now

Bingo

[CybrSage]

One point to think bout is that too low of an unemployment rate is also bad. A 3 - 5% unemployment is what is sought.

[CoachKandSportsguy]

Originally Posted by retiredguy123

I don't know what you mean by the private interest rate market, but the Fed seems to have a huge effect on the interest rate for money market accounts, bank CDs, and private bonds. When I retired, I was making substantial interest on my money market account until the Fed started reducing interest rates. Then the interest rate went almost zero.

your account of what happened, fact check: TRUE

in the interest rate bond world:
public debt = also called govt debt, are treasuries, govt agencies, municipal bonds
private debt = public and private company debt, private equity, financial institutional funds

In the equity world:
public companies = public ownership with investable with tradable stock
private companies = non publicly investable with no trade le stock
read up on the NFL opening the ownership to PE firms.
NFL is currently a private company, owned by the team owners.
Some of the owners have sold

but the money market account is not run by the fed, but is run by a private, non govt entity.
the money market invests in short term debt, mostly treasuries, but there are other short term debt instruments which yielded more return, which other similar short term funds can invest in.

The reason why bank run savings accounts get only a small amount of interest, again, privately owned short term account, is due to the limitations of its range of instruments in which the fund can invest for its advertised return and liquidity. savings accounts can absolutely get a higher interest rate if the bank wants to attract the money, as the spread is very wide.

instead of money market account, the better choices with high liquidity and competitive interest rates are Bond ETFS

BIL invests in treasury bills and its current dividend rate is approximately equal to the 3-6 month treasury bill interest rate. Liquidity is a bit less, meaning you can't get your money until the next day if you sell, versus a current day money market fund, which has to hold a portion of the total assets in cash for redemptions, which reduces the net interest earned to you. BIL is currently giving about 5% annualized in distributions.

in addition, BIL distributions are considered dividends and are taxes at different rates than true interest rate accounts. win/win

there are also similar ETFs with corporate short term debt, rated AAA, and you get higher still distribution rates. .

It pays to look around for yield in addition to bank accounts. One can also set up automated transfers of cash received from investments to checking account, which gets you just about the same effect as a money money account


I just took about 100K of cash in my dad's estate and invested in
50% BIL @5% short term treasuries
40% MBB @ 4%+ govt agency debt
10% PFF @ 7% preferred stocks with dividends

estimated total annual distribution rate is 4.9%, plus capital gains with the effect of lower interest rates when they occur in that market. not worth spending time in money market accounts,