
Fed Ends Zero-Rate Era - lpage
http://www.bloomberg.com/news/articles/2015-12-16/fed-ends-zero-rate-era-signals-4-quarter-point-2016-increases
======
roymurdock
Fed raising interest rates 0.25% and setting a goal of "normal" 2% by 2018
means little to nothing. Market already priced the miniscule rate hike in as
the move was widely expected, and move did nothing to assure markets that the
Fed is in control, or set credible, measurable goals for future hikes.

Fed can continue to push on the supply side of money at the bank/institutional
level all it wants. We need the Federal government to stimulate aggregate
demand at the consumer level. How? Investing tax dollars in a smarter manner.
Not raising the interest paid out on short term bonds so that institutions are
incentivized to keep even more money in bonds rather than putting them to work
in the economy.

Monetary policy needs to work hand in hand w/ fiscal policy. I feel bad for
the Fed...its decisions are largely restricted and inconsequential when gov
spending is broken, yet it receives all the attention and the blame.

~~~
dsr_
If you want to stimulate aggregate demand at the consumer level, you need more
people to have good jobs, so they can make money, so they can spend money.
This would represent a reversal of the trend since 1970 towards greater income
inequality.

It is not clear to me that anyone is doing anything about that (except, of
course, in the negative sense.)

~~~
brc
Consumer demand is meaningless. Trying to push it is like trying to push a
string. Demand is an artefact of production. Unless your economy is producing,
you won't increase quality of life and wealth for all citizens. This point is
obvious, but gets completely lost in all the frenzy around 'stimulating
demand'.

To buy something, first you have to produce something worthy of exchange.
Everyone has to start from this point.

~~~
SapphireSun
Sort of.... you want more stuff if you have more money, but if you have little
money, at one point, your propensity to save increases to avoid poverty,
whereas below some point I imagine you spend everything you have (not much) as
fast as it comes in.

~~~
jacquesm
> you want more stuff if you have more money

I don't think that's a valid statement. There is only so much 'stuff' that you
can use. Beyond a certain level more money does not translate into a better
quality of life or more 'stuff' for most people, there are a few outliers but
lots of very wealthy people are actually quite modest. They're so modest you
won't read about them in the newspapers.

~~~
chc
I don't think GP is saying that the demand you add to the economy increases
linearly with income. I think the point is that it's essential to have lots of
people with a healthy amount of discretionary income, because non-
discretionary income can't really be reallocated no matter how compelling your
wares are.

~~~
SapphireSun
Yea, it's more important because there are more (or should be more in this
era) people in that range as a percentage of population than strikingly
wealthy people.

------
randomname2
Analysis from TD on how banks (Wells Fargo, US Bankcorp, JPMorgan, M&T, PNC,
Citi) rushed to hike the prime rate to 3.50%, and forgot to increase the
deposit rate:

As CNBC reported [1], "a change in the federal funds rate will have no impact
on the interest rates on existing fixed-rate mortgage and other fixed-rate
consumer loans, a Wells Fargo representative told CNBC. Existing home equity
lines of credit, credit cards and other consumer loans with variable interest
rates tied to the prime rate will be impacted if the prime rate rises, the
person said."

The good news: the rates on mortgages, auto loans or college tuition aren't
expected to jump anytime soon, according to AP, although in time those will
rise as well unless the long-end of the curve flattens even more than the 25
bps increase on the short end.

What about the other end of the question: the interest banks pay on deposits?
Well, no rush there:

"We won't automatically change deposit rates because they aren't tied directly
to the prime," a JPMorgan Chase spokesperson told CNBC. "We'll continue to
monitor the market to make sure we stay competitive."

Bottom line: for those who carry a balance on their credit cards, their
interest payment is about to increase. Meanwhile, those who have savings at US
banks, please don't hold your breath to see any increase on the meager
interest said deposits earn: after all banks are still flooded with about $2.5
trillion in excess reserves, which means that the last thing banks care about
is being competitive when attracting deposits.

[1] [http://www.cnbc.com/2015/12/16/wells-fargo-bank-announced-
we...](http://www.cnbc.com/2015/12/16/wells-fargo-bank-announced-wednesday-it-
would-increase-its-prime-rate-to-35-percent.html)

~~~
toomuchtodo
> Existing home equity lines of credit, credit cards and other consumer loans
> with variable interest rates tied to the prime rate will be impacted if the
> prime rate rises, the person said.

> "We won't automatically change deposit rates because they aren't tied
> directly to the prime," a JPMorgan Chase spokesperson told CNBC. "We'll
> continue to monitor the market to make sure we stay competitive."

Heads I win, tails you lose.

~~~
gohrt
Does it matter though? 21st Century, everyone with savings can open a Vanguard
mutual fund account with the risk/reward profile of their choosing, that's
almost as convenient wrt withdrawals.

~~~
toomuchtodo
I have yet to be convinced there's no downside to everyone piling into ETFs in
Vanguard. Also, funds are traditionally not FDIC insured as checking and
savings accounts.

Money market funds have broken the buck before. Its rare, but can happen.

~~~
nostrademons
The downside of everyone piling into index funds isn't something systemic
that'll bring down the financial system the way the real estate bubble did.
Rather, it's that the capital market as a whole becomes less efficient. All
the money parked in index funds is money whose owners did no due-diligence
about where they put it; it means that if reality changes and the value of the
underlying businesses goes up or down, the index fund will be the last to
profit from it, and we can expect price changes in the stock market to lag
fundamental changes in the businesses by a greater time period.

The effect of this is basically that returns for active smart-money investors
go up, as there's less competition amongst folks actively trying to discover
new relevant business facts. We see this already - a lot of the wealth-
creation in Silicon Valley is because folks who have an information advantage
can invest in new private businesses before the general public is willing or
able to invest in them, creating large private fortunes. But because the price
mechanism _lags_ the business reality in this case, you don't have crises
where a large number of people suddenly find out that they are poorer than
they expected, like the 2008 housing bust and 2001 dot-com crash. Rather, you
end up with chronic societal inequality where a small number of people end up
with fortunes that everyone else thinks are implausibly large.

~~~
superuser2
The problem is that Wall Street fund managers who beat the market almost never
do so consistently, i.e. there is insufficient evidence to reject the null
hypothesis "all actively managed funds have a roughly equal (low) chance of
beating the market" in favor of "this fund knows how to beat the market
consistently and will probably do so next year."

So a rational personal investor, who does not have insider information, is
best off not trying to beat the market. Even though the market as a whole may
be best off with everyone trying to beat it.

~~~
nostrademons
Yeah, I know the rationale behind why index funds exist. The majority of my
wealth is in them, after all.

The parent poster, however, is asking "What's the catch? Where's the trade-off
to investing in index funds, and what sort of new systemic risks does
widespread adoption of them bring to the financial system?" He's right to ask
that: there is _always_ a catch, because the financial system is about
distributing & incentivizing the wealth of society and doesn't directly
produce any wealth itself.

I'm saying that the catch is in diminishing returns from the index itself. A
well-subscribed index fund, by definition, will always give you the median
return of the market it tracks. I'm saying that the effect of large amounts of
capital pouring into index funds is that the mean and median returns will
diverge. Market inefficiencies become more prevalent as fewer eyes are on each
business; as a result, people who successfully exploit them become richer than
they would otherwise. Wealth becomes increasingly more concentrated in the few
people that actively invest (usually with insider information) and do so
_successfully_. Passive investors continue to make the median return, but the
median return falls further behind the mean return.

We're seeing exactly this phenomena right now. I haven't seen anyone else who
has explicitly linked it to the rise of index funds & passive investing, but I
wouldn't be surprised if it's related.

------
chollida1
Nanex, an account that follow market micro-structure, had an interesting tweet
that showed how the liquidity on 10 year Treasuries just dried up prior to the
announcement.

[https://twitter.com/nanexllc/status/677202959030083584](https://twitter.com/nanexllc/status/677202959030083584)

I'm surprised this story has gotten so many votes so fast. This rate hike was
widely predicted, as intentionally as the fed could by law so that they don't
impact the markets too much.

Alot of people think this is the first of a few small rate hikes we'll see in
the next 12 months.

IMHO, this is good news for the US economy,

\- it will help give the the fed some wiggle room/ammunition to soften the
fall when the next recession hits

\- a slowly raising rate could stimulate the economy by convincing companies
to spend now on large projects rather than wait, ditto for housing/consumers

Having said all that, keep in mind the rate hike is only 0.25% upping the
overnight rate to 0.3% so this is likely to have an almost negligible impact
on the every day consumer.

~~~
kasey_junk
Treasuries _always_ dry up in front of fed announcements. It's marked on the
calendar like job numbers and other macro items that can cause wild swings.

Its much cheaper to just not trade during those times than it is to build out
the models/risk management components for most market makers.

~~~
vinceguidry
I'm home shopping at the moment, and my mortgage broker told me that he
noticed a large hike in mortgage rates, is that due to this announcement and
that I should wait a few weeks before locking in a rate?

~~~
eli
[http://www.cnbc.com/2015/12/16/why-the-fed-move-doesnt-
matte...](http://www.cnbc.com/2015/12/16/why-the-fed-move-doesnt-matter-to-
mortgage-rates.html)

Trying to time the market is tricky business.

------
SeoxyS
This could have wide implications for the startup community. A lot of people
think that the current really high late-stage startup valuations, and the
money pouring into the seed stage is an effect of the low interest rates. With
no way to get any decent yields with these rates; it incentivizes
institutional money to chase returns in alternative investment classes.

~~~
api
Not sure how much it will impact startups with saner valuations, but yes I do
suspect we might see a unicorn apocalypse at some point in the future.

If it happens it will unroll more slowly than a public market crash since
these markets are mostly illiquid and private. What you'll see is former
unicorns raising down rounds and a general regression of other valuations in
proportion to how over-inflated they might be.

I wonder if it might even _help_ the other "99% of startups" by making their
saner valuations seem... well... sane.

Tangential but I've wanted to ask around here for a long time:

WHY would a founder seek such insane valuations? I feel like there must be
something I don't get. I understand wanting a higher valuation to raise more
money with less dilution _to a point_ , but insane valuations strike me as
very dangerous. If these valuations fall then the effect is not terribly
unlike a full ratchet and multiple liquidation preference and other founder-
hostile terms.

Right? Or am I clueless here?

~~~
stanleydrew
You are not clueless. It's just nearly impossible to draw an actionable line
in the sand where on one side your valuation is sane and on the other it
isn't.

You certainly can't do that in any kind of general sense. Every startup is by
definition unique. And there's almost always a way to justify a higher or
lower valuation for any given company.

~~~
api
Oh sure, it's a judgement call. I would say as a founder that it's best to
seek a high but not _insane_ valuation, and of course the definition thereof
depends on multiple factors: what I think a reasonable growth estimate is
(while not under the influence of drugs), what the market is currently paying
for capital (average, not outliers), etc.

If every living multicellular organism on Earth would have to create an
account on your service for it to be worth X, X is probably insane. If you
have no meaningful revenue, then in most cases a valuation more than one
standard deviation among the mean for your sector and maturity is probably
nutty.

------
noname123
Curious if anyone knows what is the average VC fund return for the time-span
of 2010-2015 for the past five years?

Suppose if Fed plan to gradually raise interest rates to 2.0% to 2016 year's
end; and with that corporate investment bonds, municipal bonds yield also
rising to match and go beyond that baseline.

Then, how attractive would VC funds be for mutual and pension funds in
relation to other investment alternatives: a) bonds, b) publicly-traded
companies following general market trends, c) REITs, d) commodities and
precious metals?

For comparison, major Internet IPO's since inception:

GRPN (-87.97%)

TWTR (-42.23%)

FB (+176.6%)

BABA (-10.02%)

ETF Tracking since ETF inception:

SOCL (ETF for Global X Social Media) (-38.8%) vs. SPY (+62.93%) vs.TLT
(+1.85%);

FDN (ETF for DJIA Internet Fund, but distorted to contain established Internet
companies; GOOG) (+267%) vs. SPY(+65.62%) vs. TLT (+44.18%)

~~~
prospero
The mode return for VC funds is, and will always be, a net loss.

------
downandout
This will have an impact on the flow of money to VC's, which will have an
impact on the flow of burnable cash to unprofitable startups. No more $1.5
million rounds for apps like Yo [1] (the investor community should be
embarrassed and horrified that this kind of thing was getting financed
anyway).

Winter is indeed coming for those that don't have a business model, and that's
a good thing.

[1] [http://www.businessinsider.com/yo-raises-15-million-
at-a-5-1...](http://www.businessinsider.com/yo-raises-15-million-
at-a-5-10-million-valuation-2014-7)

~~~
rlucas
No, the institutions who allocate money to VC typically do so as part of a
long (> 30 year) horizon plan based upon portfolio theory. There are no
institutional investors for whom a 25 bp change in a short term interest rate
will materially alter their allocation to VC (typically a tiny sub-portion of
a minor portion allocated to "private equity," the lion's share of which goes
to later-stage buyout).

Private equity and, in particular, venture capital, are part of that
allocation precisely because their outcomes are relatively uncorrelated to,
say, public stocks and bonds -- which are very correlated to interest rates.

~~~
tdaltonc
This is what I keep thinking. People are talking about an imminent winter, but
I don't see how VC money could drain out that fast.

~~~
roymurdock
Winter comes when exits dry up. After all, the exit is where the VCs make
their money. Valuations don't mean anything until a VC can get out of his
equity position and into cash or another liquid asset.

We are starting to see valuation corrections with large funds writing down
investments in startups in later rounds, and IPOs proving to be very tricky to
sell correctly to the market.

A recent example: Square IPOd at $11.20 for a market cap of $3.5b (was valued
at $5bn in 2014) and, more importantly, only floated 8% of its stock on the
IPO. This means that supply was so low that they essentially guaranteed a pop
in price as there was bound to be more demand at this lower price and for such
a limited number of shares. This is not how an aggressive, confident IPO is
structured.

So once the exit round starts to gum up, it will have a chain reaction on all
earlier rounds as people re-evaluate the likelihood and size of an exit. The
crash will be swift.

------
lpage
This was very much in line with expectations, ergo the muted reaction in the
markets. It's worth noting that the Fed used _gradual_ in lieu of _measured_
to describe the increase. Measured implies a steady series of increases
(announced every few meetings until the target rate is reached) versus a
gradual approach in which there's a long term number in mind but no strict
mandate on getting there - a dovish tone.

~~~
o_nate
Agreed. Judging from the price action in emerging market currencies, which
have been particularly sensitive to the Fed lately, it seems the statement was
interpreted as being slightly more on the dovish end of expectations.

------
myth_buster
Would this end up being the pivotal moment of this decade? There is already
speculation of recession in the 12-18 month time frame[0] and the energy
sector [1] is going downhill since April. I'm seeing some cities and suburbs
expanding unlike anything in a while but how much of that could be sustained?

To word it differently, did the Fed blink or are the underlying indicators
where they want it to be?

[0] Given the cyclic nature of recessions, we seem to have artificially
delayed it a bit.

[1] [https://www.google.com/finance?catid=us-
TRBC%3A50&ei=jLpxVtG...](https://www.google.com/finance?catid=us-
TRBC%3A50&ei=jLpxVtG1HZGx2AadjILoCQ)

~~~
asr
Not sure I understand your question. Are you saying the fed is wrong here and
raising rates into the teeth of a likely recession?

If that's your question, good luck finding someone who knows the answer, but I
will note that when the energy sector goes downhill because energy is cheap,
that helps, not hurts, a lot of the rest of the economy--energy is an input.

------
javiayala
Hi HN, can someone please explain what are the implications here for the
average-Joe?

~~~
jfoutz
The fed interest rate is the foundation for pretty much all loans, cars,
mortgages, whatever.

Low interest rates are good for borrowers. I want a car, or a house, or a
power plant, or a jet, or whatever. I want to spend some money that i don't
actually have. This changes the economy because more money is moving around.

High interest rates are good for lenders. I've got this pile of cash that
isn't doing anything. The higher the rate, the more likely i am to loan it to
someone who wants to do something with it.

The higher the rate, the more sure the borrower needs to be that they can
actually put that money to good use. Not only do i have to get you your money
back, i have to get you all the interest as well. Lower rates mean more
activity, more people borrowing and buying stuff. Higher rates slow things
down, but bring more investors out.

Say the fed rate went up 5%. Yesterday i could give you a home loan for 5%,
today i could give you a loan and make 10% instead. Since that rate is the
foundation of everything, my risk stays the same, but it's much tougher for
you, because you have to come up with a bunch more money. They made a tiny,
probably imperceptible change to you and I, unless you're actively looking to
take out a loan.

Anyway, that's the gist. Borowers need to be a tiny bit more sure they can pay
the interest.

~~~
pjungwir
Rising interest rates also mean that house prices should drop (or
deaccelerate), right? If you figure a buyer has a fixed budget, the more they
are paying in interest the less they can pay in principal. Not saying 0.25%
will have much effect, but in principle don't they have that relationship?

~~~
dragonwriter
> Rising interest rates also mean that house prices should drop (or
> deaccelerate), right?

Compared to without the policy change (not necessarily compared to _before_
the policy change, though implications of the latter type are frequently
treated as if they were of the former type) higher interest rates should mean
(with the common assumptions about the dynamics of the rest of the market)
both lower prices _and_ fewer sales (buyers can afford less, but there's no
reason for sellers to seek less, so the best any property can sell for will be
lower and there will be fewer cases where any buyer will be able to offer what
a seller would accept.)

~~~
shostack
I think the big question though is that in super hot markets like SF and the
Peninsula, will the demand actually go down enough to slow things? There's a
LOT of all cash offers still coming in from overseas. Sure they might have
less competition, but I feel like the aggregate demand is so massive and
available supply is so restricted (in large part due to Prop 13) that even
higher interest rates wouldn't put a big damper on things.

~~~
Domenic_S
> _There 's a LOT of all cash offers still coming in from overseas._

Not as many as you think. Saw this the other day:

The San Francisco and San Jose metro areas ranked ninth and sixth from the
bottom, with all-cash deals representing only 28 and 24 percent of purchases,
respectively. All-cash sales in San Francisco peaked at 36 percent in the
first quarter of 2010, Zillow said.

[http://www.sfchronicle.com/business/networth/article/All-
cas...](http://www.sfchronicle.com/business/networth/article/All-cash-home-
buyers-not-as-common-as-they-seem-6682285.php)

(I agree that the dynamic won't change much though.)

~~~
shostack
That's really interesting, thanks for sharing your source. I wonder if that
accounts for "offers" vs. "buyers." If you have the assets, you can make an
all cash offer and come across as much competitive, and then switch things out
after your offer is accepted to finance whatever percentage you want without
the seller ever knowing. That's a fairly common tactic I've heard about and
could definitely skew these numbers depending on what the data represents.

But the broader point of demand is obviously the bigger concern. What are your
thoughts on the factors that would impact that? Personally, I see a place to
live that has great weather, schools, people, food, culture, jobs, tech, and
things to do. It also has proximity to eastern countries which makes it
desirable to them. Given the finite land, building restrictions and Prop 13, I
really wonder what it would take to have a significant long term hit to
prices.

Some really interesting data here:

[http://www.paragon-
re.com/3_Recessions_2_Bubbles_and_a_Baby](http://www.paragon-
re.com/3_Recessions_2_Bubbles_and_a_Baby)

------
irln
It will also be interesting to see how much of the FED Assets [1] will need to
be sold directly or indirectly in open market action to get to their target
rate.

[1]
[http://www.federalreserve.gov/releases/h41/Current/](http://www.federalreserve.gov/releases/h41/Current/)

~~~
o_nate
In the full text of their announcement, they said they will not be selling any
for the time being. They will continue to reinvest the principal as well. They
will be using other mechanisms to achieve their target.

~~~
irln
I believe it is reverse repos [1] they are referring to.

"When the Desk conducts an overnight RRP, as in the current ON RRP exercise,
it is selling an asset held in the System Open Market Account (SOMA) with an
agreement to buy it back on the next business day. This leaves the SOMA
portfolio the same size, as securities sold temporarily under repurchase
agreements continue to be shown as assets held by the SOMA in accordance with
generally accepted accounting principles, but the transaction changes some of
the liabilities on the Federal Reserve’s balance sheet from deposits to
reverse repos while the trade is outstanding."

[1]
[https://www.newyorkfed.org/markets/rrp_faq.html](https://www.newyorkfed.org/markets/rrp_faq.html)

~~~
AngrySkillzz
They released their implementation note here [1]. The Fed completely uncapped
the ON RRP program, along with pushing IOER up to 50 basis points as expected.
Fed is sending a signal that they will use RRP to keep the FF rate near their
target by any means necessary.

[1]
[http://www.federalreserve.gov/newsevents/press/monetary/2015...](http://www.federalreserve.gov/newsevents/press/monetary/20151216a1.htm)

------
johnz133
It'll be interesting to see how this affects the lending models spawned from
low interest rates.

~~~
MarlonPro
Looks like the stock market reacts positively to the rate hike. But its effect
on the general population remains to be seen, specially in the mortgage
industry. Will more people shun buying houses? Banks are more willing to lend
money with higher interest rate.

~~~
itchyouch
I would imagine that housing will stay flat. New mortgages and new rentals
will both increase in cost as lending costs rise. IIRC, generally, a higher
interest rate environment will incentivize people to go from renting to home
ownership as rents increase due to increase lending costs & lowered/flatter
housing costs.

Each 1% hike in interest reduces the leveraged buying power of all buyers
about ~$21k per $1000 mortgage payment.

$1000 @ 4% = 209k loan (30 yr) $1000 @ 5% = 188k loan (30 yr) $1000 @ 6% =
167k loan (30 yr)

The maximum monthly payments for a mortgage are capped at 36-44% Debt-to-
Income (DTI) ratio. At the 36% DTI, a hypothetical Joe with no debt making
10k/mo, will be approved for about $2000/mo mortgage. Today's market at 4%
means Joe can get a $418k loan. By 2018, with interest rates moved up 2%, he
would only be able to get a $334k loan with that same $2k.

Banks make money on the rate arbitrage. Currently, they get money at .25% and
loan it out at around 4%. I'm guessing they will be borrowing from the fed at
2% and loaning it out for around 5.75-6% if we stick to the 2% rate by 2018.
But I think long-term mortgages are tied to treasury bonds.

If it causes enough people to affect the lending volume, the mortgage lenders
may be willing to take a small hit to their margins and try to make up for it
in volume.

I guess we will see. People generally aren't willing to sell their homes for a
loss, so I'd imagine that realestate will stay relatively flat for a little
bit.

~~~
mywittyname
Additionally, you can buy discount points to reduce the mortgage interest
rate. So it's either a reduction of $21k as you said, or $3000 more due at
closing to buy the discount.

------
huac
Markets predicting and 'pricing-in' Fed actions is _not_ evidence that this
rate hike is meaningless.

But if you want to feel pessimistic about the hike, here's the corresponding
Zerohedge 'article': [http://www.zerohedge.com/news/2015-12-16/fed-hikes-
rates-unl...](http://www.zerohedge.com/news/2015-12-16/fed-hikes-rates-
unleashing-first-tightening-cycle-over-11-years)

------
nkassis
I was thinking about this earlier and I have a question about inflation. Could
increasing the interest rate cause inflation to rise a bit in the near term?

My reasoning for this is that given that banks were borrowing at near zero,
could they have had no real reason to put all the borrowed money to work since
it wasn't costing them anything to hold it in reserve for later when the rates
did increase? Now that the rates are increasing would they not have to use the
money a bit to ensure they stay ahead of the interest rates. I was also
thinking that there is a threshold at which banks wouldn't have any more money
that is just sitting there and having to borrow at higher rates reduces their
demand for new funds from the fed thus undoing this initial effect to the
hike.

Hopefully this isn't completely naive. Please let me know if I'm
misunderstanding how the fed and banks relationship works.

------
jayess
Markets are cheering central planning and price fixing. Yay!

------
seansmccullough
Finally! In 2-3 years bonds will actually yield something.

~~~
MarlonPro
But existing bond investments will lose value because of selloffs :-(

~~~
mywittyname
Just hold them to maturity and there's no issue.

~~~
Renevith
Holding bonds to maturity vs. selling them and buying new bonds doesn't
actually change the financial result. You could equally say "just sell them
and buy new higher-yielding bonds and there's no issue," since the resulting
yield over the whole period would be equal.

Whether or not there's an issue depends whether your investment horizon
matches your bond duration, or alternatively, whether you're comfortable with
(or even aware of) the amount of rate risk you're taking compared with the
return you're getting.

------
narrator
What is this going to do to interest payments on the national debt? Will this
put a squeeze on spending? Cause tax increases? Or will it be business as
usual and the fed buy as many bonds as needed?

In the latter case, I think that will cause inflation to pick up unless we can
export it all out the trade deficit.

~~~
dragonwriter
> What is this going to do to interest payments on the national debt? Will
> this put a squeeze on spending? Cause tax increases?

Spending and taxes are driven by political decisions which can remain
extremely distant from any clear relation to the market for quite a long time,
so the effect a rate hike like this has on fiscal policy is (even after the
fact) murky at best -- even once we know future policy, there will be as many
theories as observers as to the contribution of monetary circumstances to
those policies.

------
randyrand
So this helps people with savings in certain types of investments, right?

------
daodedickinson
Need is the construction of the world order; satiety is the universal
conflagration. (Kahn translating Heraclitus) If you want to stoke consumer
demand in a country where the poor have massive televisions and cable, maybe
notch up the bullying of people wearing cheaper brands and carrying fake
designer brands and charge 30 grand for VR headsets but advertise them during
the Super Bowl? I dunno. I've never even had a real job and there aren't any
gadgets I want and I want to get more crap out of my house than I want to add.
Eliting schooling for hypothetical kids I'll probably never have is the only
big ticket purchase I can seem to summon strong desire for.

------
enahs-sf
Does this mean that buying a home in San Francisco, where 1/4 of the homes
sold are all cash, just got a little bit more difficult?

~~~
vecter
Most of those cash buyers are wealthy Chinese people living in China. I doubt
this will change that.

~~~
cpeterso
I read that more cash buyers are American retirees than wealthy people living
in China.

------
marcusgarvey
Keep an eye on emerging market bonds and high-yield bonds. The latter was
already looking a little shaky prior to today.

------
carsongross
To modify Andrew Jackson: "The Fed has raised its funds rate; now lets see
them enforce it."

------
panglott
Why can't we just have a boom?

~~~
harryh
We are having a boom. It's in East Asia and it's been going on for decades.

------
peignoir
making some reserves for the next crisis?

------
joe-mccann
Sell volatility (VIX)

~~~
theseatoms
Why?

------
chad_strategic
Unicorns can't exist in ZIRP. (Zero Interest Rate Policy)

~~~
reefoctopus
Why not?

~~~
chad_strategic
Because as soon as you can get a risk free rate of return, (savings) then why
would someone invest in a half brained start up that has a low probability of
any return, when you could get a risk free return.

The FED has reduced interest rates to drive spending in startups, lending,
housing market, and the stock market.

But don't worry, .5% is only a start, we have a ways to go before Unicorns
start to starve.

~~~
dragonwriter
> Because as soon as you can get a risk free rate of return, (savings) then
> why would someone invest in a half brained start up that has a low
> probability of any return, when you could get a risk free return.

Because startups, while they may have a low probability of return, have a high
potential upside, whereas low-risk (and essentially zero-risk, like US
government debt) investments have fairly locked-in maximums as well as
minimums.

Sure, the higher returns in low-risk investments, the better returns have to
be in high-risk investments to justify choosing the latter over the former
with the same risk sensitivity.

~~~
chad_strategic
You should look into the probability of those high returns. The media likes to
remind you of the Facebook / twitters/ google, but those are just one in
thousands.

Something like ~90% of startup fail.
[http://www.forbes.com/sites/neilpatel/2015/01/16/90-of-
start...](http://www.forbes.com/sites/neilpatel/2015/01/16/90-of-startups-
will-fail-heres-what-you-need-to-know-about-the-10/)

So you have a one in ten chance. If you pick a startup that fails, I doubt you
will be able to reclaim any of your investment. It's not like you can get
liquid, when things start to go in the wrong direction.

Pick wisely.

------
gotchange
Fed => Wall St. Bankers => Private Eguity/Venture Capital => Silicon Valley =>
Start-ups (disruption in labor market & layoffs) => leaner corporations and
more profits $$$ => Wall St. Bankers => PE/VC ad infinitum

You get the picture by now where's the Fed's loyalty lies in this reverse
Robin Hood wealth redistribution scheme. Isn't capitalism wonderful?

~~~
jstalin
Central banking is essentially a price-fixing scheme and doesn't really have
much to do with capitalism.

~~~
gotchange
With all due respect, just ask any fat cat on Wall St. about the Fed or the
role of central banks in the economy and he would assert that those
institutions are essential for the global economy to function correctly and
they are really upapologitically capitalists and they wear the label as a
badge of honor.

~~~
jstalin
They're "capitalists" as long as they have a thumb on the scale, but they're
not _really_ capitalists who would cheer a true free market in currency.

~~~
mywittyname
The USD is about as free market as a currency can be reasonably obtain. The
Fed allows the market to drive the money supply through lending. Institutional
banks can effectively create an unlimited supply of money on demand through
lending; they just ask the Fed for money and pay the discount rate.

So it's largely the market that drives short and medium term inflation through
borrowing. The Fed uses treasury bonds to balance the money supply.

It's not a perfect system, but it's the best system we know of.

~~~
gotchange
> The USD is about as free market as a currency can be reasonably obtain.

Nothing about the USD is free market.

The USD is shored up by the petro dollar standard and its status as a reserve
currency esp. in the commodities market and its supply and management is
governed by a quasi-private institution that is in bed with Wall St.

~~~
nikdaheratik
Not only did you ignore what the guy said, but you don't even seem to
understand the points you are trying to make. The reason _why_ the dollar is a
reserve currency, and why so many oil contracts are made out in USD is because
both parties have a reasonable expectation that it will retain its relative
value over a reasonable time period. This means that it is a reserve currency
because no one group can manipulate its value. If it was subject to as much
political machination as you seem to imply, then no one would want to use it.

~~~
gotchange
Apparently you ignored conveniently the petrodollar part and the Fed being non
federal or public institution and just focused on its status of reserve
currency to discredit me. Maybe you need to get acquainted more with these
points before writing your counterargument.

