tag:blogger.com,1999:blog-30643134.post3650145871407190091..comments2023-12-26T01:10:26.319-05:00Comments on Accrued Interest: Market bounces after BernankeAccrued Interesthttp://www.blogger.com/profile/05096191765979971184noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-30643134.post-62699769215568932712007-02-16T11:09:00.000-05:002007-02-16T11:09:00.000-05:00I think the 2-3 year direction of rates depends on...I think the 2-3 year direction of rates depends on forces outside the U.S. Namely, liquidity flowing from Asia. Eventually, we'll reach a more normal equilibrium, which will likely result in higher rates. How long that takes is difficult to see. Always in motion the future is.<BR/><BR/>But to answer your question more directly, my best guess is that the Fed holds rates steady for a while. I think the housing market weakness will take 3-4 years to work out. The Fed will be careful during that period. That isn't to say that they wouldn't hike if they needed to, but that they are going to be extra cautious.<BR/><BR/>As far as long-term view vs. short-term view, that sounds like a good post idea on a slow holiday Friday.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-70167974575352683132007-02-16T10:34:00.000-05:002007-02-16T10:34:00.000-05:00Tom G. said:"It looks like the Fed decided to hike...Tom G. said:<BR/><BR/>"It looks like the Fed decided to hike slowly but make clear this was going to be a protracted tightening cycle. This allowed the market to slowly adjust to rates."<BR/><BR/>Tom, you're on record that you think the Fed lowers rates twice in mid to late '07. But given what you said above, are you thinking that the forthcoming '07 rate cuts are just a brief reprieve from ultimately higher rates in the years to come ?<BR/><BR/>How far out are you looking when you make such statements ? And how do your longer term views (1-2 years out) effect your short term trading ?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-24622938276871943962007-02-15T07:31:00.000-05:002007-02-15T07:31:00.000-05:00Rajesh:My Taylor Rule calculation shows 5.25% as t...Rajesh:<BR/><BR/>My Taylor Rule calculation shows 5.25% as the right number for Fed Funds, so I really don't think the Fed is ignoring inflation. On the other hand, in the past they may have intentionally overshot in order to add credibility, knowing they could just cut once or twice soon thereafter. This time they may have stopped short of that.<BR/><BR/>Besides, if the asset bubble is indicative of too much liquidity, then that is the Fed's problem.<BR/><BR/>Vivek:<BR/><BR/>I remember reading the same thing about leaning against a bubble. Some argue that central banks help create bubbles by creating too much liquidity. Dallas Fed Prez Fisher all but admitted that the Fed created the housing bubble recently. But what to do after the bubble is created? I looks like the Fed decided to hike slowly but make clear this was going to be a protracted tightening cycle. This allowed the market to slowly adjust to rates. So far its working pretty well.<BR/><BR/>Leonardo:<BR/><BR/>Can't agree with you on money supply. The Fed started paying less attention to M2, M3 and the like way back in the mid 80's. I think the general consensus is that the money supply is THE most important thing for the Fed to focus on, but that measuring the effective money supply is extremely difficult.<BR/><BR/>Todd:<BR/><BR/>I have the feeling that Bush is leaving more than problem for other administrations to face. I keep hearing about something going on in Iraq?Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-66456993413737880082007-02-15T05:56:00.000-05:002007-02-15T05:56:00.000-05:00Leonardo said:"Consequently, the eventual correcti...Leonardo said:<BR/><BR/>"Consequently, the eventual correction (and not necessarily stock crashes and eco recessions) is further being postponed down the line."<BR/><BR/><BR/>Yeah, Bush is passing it along for Obama to handle. Wonderful ...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-79121846961721940022007-02-15T04:28:00.000-05:002007-02-15T04:28:00.000-05:00Rajesh,Whilst I agree with you entirely, it now do...Rajesh,<BR/><BR/>Whilst I agree with you entirely, it now does become a problem if the consumption is fueld entirely by equity withdrawal and private households' security rests entirely on the precarity of their over-extended debt.<BR/>It therefore goes to follow that rates should have risen to curb the already increasing money supply. But given that the current Chairman considers money supply indicators close to worthless...<BR/><BR/>The ulimate problem is that no Fed Chairman likes to raise rates in fear of being labelled a 'party pooper'. As was the case with Volcker in the '80s until history and hindsight removes the cloack of short term thinking that is now so entrenched in modern society.<BR/>Consequently, the eventual correction (and not necessarily stock crashes and eco recessions) is further being postponed down the line.1leonehttps://www.blogger.com/profile/18391465532808325574noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-53500491013061849292007-02-14T22:37:00.000-05:002007-02-14T22:37:00.000-05:00I think the argument for the above can be that you...I think the argument for the above can be that you cannot know whether a bubble exists ex ante but it is quite clear ex post as it comes crashing to the ground, so you disregard the bubble until it pops and then mop it up.<BR/><BR/>I forget what Fed governor pointed to a study that showed that "leaning against a bubble"--that is raising rates in the face of a bubble may actually exacerbate the subsequent crash.<BR/><BR/>That being said, I know almost nothing of the issue, so I am commenting on someone else's rationale--not my own.Vivek Vishhttps://www.blogger.com/profile/13124484091954414724noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-55492267950558330402007-02-14T20:45:00.000-05:002007-02-14T20:45:00.000-05:00Asset prices inflation is not consumer price infla...Asset prices inflation is not consumer price inflation. Weakness in home prices should not be an excuse for the Federal Reserve to ignore inflationary pressures.<BR/><BR/>The same people who argued that the Federal Reserve should not address the increase home prices by raising interest rates because house prices don't affect consumer inflation are now arguing that the Fed is safe in cutting interest rates because house prices are falling.Advant Guardhttps://www.blogger.com/profile/13724697741711826082noreply@blogger.com