> Pretty much everyone is saying that interest rates are going up in the US and are going to go up soon.
I wouldn't say that.
According to Bloomberg's interest rate predictor the probability of a hike before the end of the year, ie the definition of soon, is less than 50%.
Even if you go out to the end of 2017 you still only get to 67% probability of a fed hike. And 67% is a far cry from "pretty much everyone".
And even with all of that, the most predicted rate hike is a minuscule 0.25% to 0.5%.
Now, I agree that this is all up for debate and markets can definitely get this wrong, but I stand by my assertion that low rates are here to stay. I really don't think the years of 5-8% rates are coming back any time soon.
But I'm always willing to change my mind if someone can convince me, so back to you.....What makes you think that this era of low rates is going to end?
Not that people's bets mean much, but you can look at how financial markets expect rates to move using the interest rate futures market. These contracts allow you to infer what the market really expects rates to do (as people are putting their money where their mouth is - to the tune of billions of dollars rather than an off the cuff comment on a financial news show). Free data for the 30 day future contract/bet is available from Quandl - which is a great site for checking out free financial data: https://www.quandl.com/collections/futures/cme-30-day-fed-fu...
Or just look at government bonds. Investors wouldn't be investing in 10-year bonds with negative yields if they thought interest rates were going to go up significantly.
I don't work in the financial industry, but just as a bystander it seems clear to me that there are a lot of bond traders, like Bill Gross, who have strong interests in rates going up significantly. Just like small-cap, pump-and-dump scammers, they're trying to move markets with their sophist predictions.
I don't think there's much of a dispute that there'll be a regression to some mean. But judging by where people are actually putting their money, the time horizon appears to be much further away than many of the pundits would have us believe.
Interesting, I hadn't read the outcome of Wednesday's meeting. Prior to it the local Fed Chiefs were saying that they definitely expected one to two raises this year, and maybe as early as September. All rate hikes are usually minuscule, but they add up. 2 minuscule rate hikes would double the rate right now.
One reason to raise rates is that they were set as low as they were for emergency purposes. The emergency itself is over, so time to start increasing them a little.
I remember listening to an EconTalk podcast (highly recommended!) after the quantitative easing started. Very interesting.
Typically lowering interest rates pushes inflation higher. When your economy is sluggish, that's a good thing, but once it picks up steam, it can cause runaway inflation.
The challenge raised is that there is a delay in the response of the economy. Usually interest rates aren't increased dramatically until inflation is already underway. Otherwise, if you raise rates when the economy is only doing "a little" better, you risk squashing the growth.
So what happens is that inflation starts to go up and by the time the Fed has the balls to really raise rates (because it's plainly obvious the economy is doing well), it's too late and you really overshoot your inflation target which causes rates to rise dramatically.
Overall, I would agree that it seems unlikely interest rates will go up in the near future. However, that can change really quickly.
Back in 1979, the interest rate when up 400 basis points from 10% to 14% in less than a year.
I wouldn't say that.
According to Bloomberg's interest rate predictor the probability of a hike before the end of the year, ie the definition of soon, is less than 50%.
Even if you go out to the end of 2017 you still only get to 67% probability of a fed hike. And 67% is a far cry from "pretty much everyone".
And even with all of that, the most predicted rate hike is a minuscule 0.25% to 0.5%.
Now, I agree that this is all up for debate and markets can definitely get this wrong, but I stand by my assertion that low rates are here to stay. I really don't think the years of 5-8% rates are coming back any time soon.
But I'm always willing to change my mind if someone can convince me, so back to you.....What makes you think that this era of low rates is going to end?