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BUSINESS: Federal Reserve Hikes Interest Rates...Again

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posted on Sep, 20 2005 @ 02:49 PM
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The Federal Reserve Board today hiked the federal funds rate by a 1/4 point to 3.75%, the 11th time in a row they raised short term rates in 15 months. Although the move wasn't unexpected, some analysts were hoping the Fed would pause to see what effect the aftermath of Hurricane Katrina would have on the U.S. economy.
 



www.foxnews.com
WASHINGTON — The Federal Reserve on Tuesday raised its interest rate target for the 11th straight time and signaled that more rate hikes were likely even as the country recovers from the devastating effects of Hurricane Katrina.

The federal funds rate, the Fed's primary monetary policy tool, now stands at a four-year high of 3.75 percent after a series of increases that began 15 months ago.

Some economists had believed that Katrina, the country's costliest natural disaster, might prompt the Fed to pause temporarily in its campaign to drive interest rates higher to keep inflation in check. But Federal Reserve Chairman Alan Greenspan and his colleagues said that Karina's impact on the overall economy was likely to be temporary.


Please visit the link provided for the complete story.


I think Alan Greenspan has lost his mind...it's crazy to raise interest rates again in the face of Hurricane Katrina, a looming Rita and skyrocketing energy prices. He's going to go overboard again and push the U.S. economy into recession.

[edit on 9/20/2005 by djohnsto77]




posted on Sep, 20 2005 @ 02:58 PM
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I dont get it, before 9-11 the FED kept on cutting back interests rates because the economy was is so called 'trouble' then, even though most would say our economy was just fine. Now there are obvious stresses on the economy, i.e. gas prices doubling since then, and they are raising interest rates. I am no economist but this just doesn't make any sense.



posted on Sep, 20 2005 @ 02:59 PM
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I think that inflation risk is a bigger concern at this point. I do agree with you that energy is and will rear its ugly head, but, people will adapt to the changing realities and a sort of ompensation will occur.

Raising the rates will have a few other benifts other than better CD rates. There has been this huge swell of interest only home loans. People are buying into homes that they cannot otherwise affort. If real estate takes a fall, and it will eventually, these people may owe more on thier mortgages than the home is worth and that will be a huge crisis. In the short term it may make peopel rethink buying the overpriced McMansion and rather a home more witin thier means.



posted on Sep, 20 2005 @ 04:22 PM
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Well as a student studing business, i can add my 2 cents on this..

Consumer confidence is pretty low in the states now, i believe its your lowests within 10 years. Also economic growth has dropped to 3% now in the states,plus oil prices too... so im not really suprised that interest rates raised.

as for a recession, too early to say. You may experience a recession in the retail section, just as UK has after the London bombings, but its not going to cause a recession across the whole of your economy(yet).

All i can say to the guys who run your economy is not to jump and make dangerous decisions that can extremely effect the economy.



posted on Sep, 20 2005 @ 04:28 PM
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Jrod, not sure what your point is regarding 9-11. That wasn't any breaking point on the rate - the Fed was, as you say, decreasing the rate prior to 9-11, and then continued to do so afterwards - one might well consider that they really accelerated the decreases after 9-11, with three 0.5% decreases in a row. Yes, there were a string of these earlier in 2001, but most pundants felt that the decreases were nearing an end until that unexpected event.


IMO, all the decreases starting in 2001 were a desperate attemt by the Fed to halt or reverse the post-bubble stock market slide. All they accomplished was to create a real estate bubble which will be ever more so devestating than the stock market bubble ever could have been.

We are now at an all-time low in personal savings rate. People do not look to their bank accounts as a buffer for the future. Instead, they assume they will be able to tap the "equity" in their homes. What happens when that equity goes negative?

It takes character to admit you were wrong and take steps to reverse your bad decisions. While Greenspan and the Fed haven't exactly taken responsibility for the mess we are in, at least they have taken steps to undo it.

Unfortunately, it is going to be a bitter pill for many ordinary people to have to swallow. Our government will say 'we never told you to throw all your money into real property." And, you know what? They didn't. They just made it so tempting that few have not done so.

You know a financial bubble has reached it's peak when "everyone" is invested. Another telling aspect is "panic buying". I do think the panic buying is over on this one. It is now just a matter of time. Housing prices don't turn like the stock market - it is like turning an aircraft carrier.

(My favorite stock market bubble anctedote - walking down a row of cubicles at work - not a financial institution, broker, etc. but an engineering firm employing programmers and electrical engineers - and seeing EVERY computer screen in EVERY cubicle displaying stock market quotes. This just so happened to be THE DAY that the market peaked.)

I hope we at least manage to avoid massive bank failures. The continued reduction of spreads between short-term and long-term rates have really been frustrating the Fed, as risk premium has all but disappeared. There is way too much willingness to take on increased risk for virtually no reward. You will see the rate stabalize or again reverse only when the spread and risk premium are rising.

To have continued to lower rates, or leave them where they were, would have been pure folly, allowing the real estate market to go hyperbolic. (In some parts of the country, of course, it did.) Crashes from hyperbolic markets tend to be quite ugly. I think it best to avoid that at all cost.

[edit on 20-9-2005 by Bay_Watcher]



posted on Sep, 20 2005 @ 04:42 PM
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You have voted Bay_Watcher for the Way Above Top Secret award. You have two more votes this month.



To have continued to lower rates, or leave them where they were, would have been pure folly, allowing the real estate market to go hyperbolic. (In some parts of the country, of course, it did.) Crashes from hyperbolic markets tend to be quite ugly. I think it best to avoid that at all cost.


well, im worried about your rising house prices because, at the moment, its the only thing boosting consumer spending. If consumer spending stops, then that is very bad news for an economy and it can cause potential chaos.

Some will probably say that we are watching a decline of a super power



posted on Sep, 20 2005 @ 04:47 PM
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I think the Fed was right to raise interest rates from their historic lows, but I think they're going to far. Right now the yield curve is becoming close to going inverted (long term rates less than short term rates), so that's not going to do anything to the housing market. Increasing oil prices are a result from increased worldwide demand, not from an overheated domestic economy.



posted on Sep, 20 2005 @ 05:00 PM
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He,he, some people can not stop making money just because is hurricane season right?

Who said that somebody is watching for us poor Americans living from one paycheck to another.


After all the big guys don't even vacation in the southern coast of the US only hard working americans do that, they go to Europe to the "French Riviera"



posted on Sep, 20 2005 @ 05:51 PM
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Originally posted by marg6043
He,he, some people can not stop making money just because is hurricane season right?

Who said that somebody is watching for us poor Americans living from one paycheck to another.


After all the big guys don't even vacation in the southern coast of the US only hard working americans do that, they go to Europe to the "French Riviera"




Hey, marg...this helps you. This means if you are living right and saving right, you are going to get more of a return. That's the whole point of hiking the rate, to move people to save more and spend less...hence ward off inflation.



posted on Sep, 20 2005 @ 06:02 PM
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I will tell you the truth, I have been doing that with two kids in college and been out of work for two years.

Is not extra expending in my home since Bush made it to office.


Things are not as fluent as they were when Clinton was president and I didn't even voted for him.

And the crazy thing is that my husband makes a heck of more money now, Living right and spending right was a lot of more easier to do before.


[edit on 20-9-2005 by marg6043]



posted on Sep, 20 2005 @ 06:09 PM
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Hello all,

When interest rates are increased that also means more return on CD's and other bank deposits.

That is good news. Who wants to pay 8% on a home mortgage and only get 3% on your bank accounts.

Good for Greenspan.


[edit on 20-9-2005 by beforebc]




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