
Fed Leaves Interest Rates Unchanged - nthitz
http://www.nytimes.com/2015/09/18/business/economy/fed-leaves-interest-rates-unchanged.html
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carsongross
Probably their last chance before the next crisis. It was already almost
guaranteed, but we will probably see negative interest rates in the U.S.
within a year.

The beatings will continue until morale improves.

[https://pbs.twimg.com/media/CPH_BT3UYAQxP25.png](https://pbs.twimg.com/media/CPH_BT3UYAQxP25.png)

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Nicholas_C
What evidence/knowledge/premonitions are you basing this claim on?

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fweespeech
I'm assuming just the general business cycle which averages a recession every
6 years or so. Plus negative interest rates being the only tool available to
the Fed during a new recession.

[http://www.investopedia.com/terms/b/businesscycle.asp](http://www.investopedia.com/terms/b/businesscycle.asp)

~~~
dragonwriter
> I'm assuming just the general business cycle which averages a recession
> every 6 years or so.

That may be an average, but its hardly _consistent_.

The period (peak to peak) between recessions for the last 10 cycles has been:

81 months 128 months 100 months 18 months 74 months 47 months 116 months 32
months 49 months 56 months

> Plus negative interest rates being the only tool available to the Fed during
> a new recession.

OTOH, arguably, the reason that the Feds been forced to be so extreme with
monetary policy that that might be the case is that the government has pretty
much neglected fiscal policy responses. Which is, generally, not a positive
thing, but it does mean that, as exhausted as the monetary policy options
might be, the fiscal policy arsenal is well-stocked and untouched.

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sandworm101
I wish the fed allowed me to borrow at their rates. In fact, if I had access
to such rates I could turn that money around and could loan it back to the fed
for a substantial profit. I wonder if anyone else has though of that?

~~~
nerfhammer
the discount window lending rate is pegged to be 50 basis points above the
federal funds rate, so, yes, they thought of that.

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x5n1
Hell you could pay off everyone's credit card debt and charge them maybe 5%.
You would be a multi-billionaire over night.

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nerfhammer
That's called refinancing and it is already a thing that exists

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x5n1
Yes I know it exists, I am talking about me personally having the ability to
borrow billions of dollars for next to nothing. Credit cards are a sort of tax
on people. The rates are excessively high for money that costs next to
nothing. And they charge both the lender and the merchant. They are like a 5%
tax paid to private banking interests on most people's income.

~~~
nerfhammer
You still have to manage default risk. You seem like you're almost assuming
that none or at least less than 5% will default on you if you refinance them.
This is why loans aren't just slightly above the discount window.

Moreover, discount window loans _are not unsecured_ \- the bank must put up
collateral for them, isn't automatic, limitless or guaranteed, terms are very
short, and in practice only ever used in times of crisis.

Besides that most people could probably get a refinancing loan from a normal
bank for 5% or less already.

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x5n1
> manage default risk

That's the justification for interest in the first place 20-30% covers risk to
absurdity.

~~~
lucozade
> 20-30% covers risk to absurdity

No, it pretty much covers uncollateralised default risk and pre-payment risk.

If it were otherwise, for example, if were a cartel keeping the prices up
artificially, then you would expect the same thing from the collateralised
market, no? YMMV but my credit card rate is ~25% and my house secured rate is
~3%. The only difference is the house; lender and borrower are the same.

The other argument against undercutting the market and making billions is a
variant of the Fermi paradox: why isn't everyone doing it? Maybe not you or me
but an institution that can borrow a lot at bugger all, or is cash rich, would
hoover up. Or at least drive the rate down substantially.

If there were only one or 2 players then, fine, you could have a big
illiquidity premium but there aren't. There are loads of players. In the UK,
cash rich companies like the supermarket chains have got involved and have had
some impact but it's small, primarily squeezing operational costs and profit
margin. But the cards are still running at rates substantially over base.

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beatpanda
That's good for most HN readers, as the tech industry depends entirely on low
interest rates to make insane amounts of capital available to unprofitable
businesses. If you're enjoying your inflated salary, thank Janet Yellen.

~~~
allsystemsgo
Uh, I wouldn't say salaries are inflated right now at all. As the other
commenter said, doctors and lawyers still grossly outpace software engineers.
For whatever reason, I've noticed engineer pay plateaus around 120-150K, which
is odd to me. If you have a lead engineer who's building the product that is
bringing in millions of dollars of revenue and funding, you should pay them
accordingly.

Also even if you were right, it's not just the tech industry that relies on
low rates. Anyone who needs capital, which is everyone, relies on low interest
rates.

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Nicholas_C
>If you have a lead engineer who's building the product that is bringing in
millions of dollars of revenue and funding, you should pay them accordingly.

How much money someone "brings in" is not the sole determinant of how much
money they make.

And do you believe that engineers should be making the same as doctors?

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JoeAltmaier
In fact its rarely correlated. Good Engineers are woefully underpaid most of
the time.

Case: a support Engineer of my acquaintance worked to retain $24M worth of at-
risk customer contracts last year. He got a better job offer, and when he told
his employer he was leaving they said "Tell us what it would take to keep you"

He replied "$3M paid over a two year contract"

They said "No, really, what would it take?"

That's how badly Engineers get treated. Given a proven track record, they
still couldn't imagine paying him what he was worth. They'd rather lose the
next customer.

~~~
Nicholas_C
That's great work and I would love to be able to say I helped my company save
$24M, but I'm willing to bet he isn't the only engineer in the world capable
of doing that. It really wouldn't make sense to pay him $3M based on his past
work when it's possible to hire another engineer and pay him $150k, assuming
they can do the same job.

~~~
acchow
Agreed. People don't seem to understand how a labor market works.

~~~
JoeAltmaier
Yet, sales people get commissions. Executives get bonuses when the quarter is
good. But Engineers, who actually do the f'ing work, get paid. I understand
completely how the labor market works.

~~~
Nicholas_C
>Yet, sales people get commissions.

And they usually have lower salaries because of this. Many "eat what they
kill" and if they don't sell they don't make money.

> Executives get bonuses when the quarter is good

Everyone in the company I work for gets bonuses commensurate with how well the
company does, even the engineers.

You just listed a very, very small part of every company. Other than sales
people and high level execs, no one else has their compensation tied by a
significant extent to their productivity. The rest, the accountants, financial
analysts, business analysts, strategy analysts, marketers, billing analysts,
researchers, designers, managers, etc. all are in the same boats as the
engineers.

>But Engineers, who actually do the f'ing work

Construction workers actually "do the f'ing work" as well and they aren't
compensated extremely well because although it is a very hard job there are
many people who can do the job. There are also many competent engineers who
can probably do your job as well, lowering your salary. I work in finance, and
there are even more people who can do my job well than there are engineers who
can do your job well, thus I am not paid like an engineer. This is how the
labor market works.

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rocketcity
There was an interesting article on here yesterday talking about what an
experiment this has been. It will be quite interesting to see what will unfold
in the markets once the fed builds up the nerve to finally bump up interest
rates.

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jkyle
Let me save up to buy a house first.

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kqr2
It seems like the market has become addicted to low interest rates. Every time
there is a hint that interest rates will go up, the market goes down, and then
the federal reserve gets spooked and doesn't go through with the hike.

At one time, it was the Federal Reserve's job:

    
    
      "to take away the punch bowl just as the party gets going"
    

[https://en.wikipedia.org/wiki/William_McChesney_Martin](https://en.wikipedia.org/wiki/William_McChesney_Martin)

~~~
cft
I presume the rationale to increase the rates is that during the next crash
there will be something to lower. What will they do if the market crashes and
the rate is still 0?

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forgetsusername
> _What will they do if the market crashes and the rate is still 0_

Go negative.

The idea that they should raise rates to slow the economy so that they can
turn around and lower them to stimulate it defies reason.

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FatalErrorr
[https://www.youtube.com/watch?v=Ytx1P7P4XXk](https://www.youtube.com/watch?v=Ytx1P7P4XXk)

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irln
It's really remarkable (in a good or bad way depending upon your perspective)
that 12 people hold the fate of the world financial market in their decisions.

~~~
Nicholas_C
I've heard it said that the Federal Reserve Chair is the second most powerful
person in the world after the US President.

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6stringmerc
The President of the US may have bigger weapons, but I'm of the opinion the
tools used by the Federal Reserve may be more dangerous by scope of impact...

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zerstroyer
Well maybe it's time for them to acknowledge that money as form of credit
should have an interest rate which is variable.

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forgetsusername
Unemployment is looking okay, but inflation is non-existent and Industrial
Utilization is still below "normal". Why should rates be raised?

For some reason people want a rate hike for the sake of a hike. I'm glad the
Fed is being cautious.

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onion2k
People are concerned that very low interest rates for the long term will lead
to an asset bubble[1]. It's a reasonable concern; it's happened in the past eg
the 1980s Japanese real estate bubble[2].

[1]
[https://en.m.wikipedia.org/wiki/Economic_bubble#Identifying_...](https://en.m.wikipedia.org/wiki/Economic_bubble#Identifying_asset_bubbles)

[2]
[https://en.m.wikipedia.org/wiki/Japanese_asset_price_bubble](https://en.m.wikipedia.org/wiki/Japanese_asset_price_bubble)

~~~
forgetsusername
> _" People are concerned that very low interest rates for the long term will
> lead to an asset bubble[1]_

If people foresee the bubble, why do they participate in it? Why aren't the on
the "short" side?

I get bubble mechanics. What I don't agree with are forecasts like, "What
about asset bubbles?" Well, what about the income gap from years of sub-
optimal growth happening _right now_? Why does an asset bubble (which have
occurred throughout history, regardless of rates) trump that scenario?

The idea of damaging growth now to forestall a _possible_ asset bubble in the
future is not a good tradeoff.

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Rmilb
>If people foresee the bubble, why do they participate in it? Why aren't the
on the "short" side?

From John Maynard Keynes himself, "The market can stay irrational longer than
you can stay solvent.”

