SlideShare a Scribd company logo
Fed Ushers in a New Era of Uncertainty on Rates
Investors are weighing when Federal Reserve will start raising
interest
rates, but where they end up in long run also is a crucial
question
By Jon Hilsenrath
Updated March 1, 2015 8:17 p.m. ET , WSJ
It’s clear Fed officials think they’ll be raising short-term
interest rates later this year. Of
greater significance – and getting far less attention – is how
high rates will go.
Investors these days are obsessing over when the Federal
Reserve will start raising short-term interest
rates. Drawing less scrutiny is where rates will end up in the
long run and how they’ll get there. But it’s
time to start paying attention.
Fed officials have made clear they expect to begin raising short-
term interest rates from near-zero this
year, though not before midyear. After that, there is great
uncertainty at the central bank and in the
markets about the future path of interest rates.
The long-run outlook for rates has consequences for everyone.
For households, it will determine
payments on mortgages and car loans; for businesses, on
corporate bonds; and for the government, on
the $13 trillion in debt held by the public. A disconnect between
the Fed and the market over the long-run
rate outlook also could be a source of market turbulence in the
months ahead.
Central-bank policy makers on average see rates going nearly
twice as high as futures markets indicate
in coming years, for a variety of reasons.
If the Fed is wrong, it might make a mistake on interest rates
that jars the economy. If the market is
wrong, it might be setting itself up for a tumble if rates go
higher than expected.
The Fed’s latest forecasts show that nine of 17 policy makers
see the central bank’s benchmark interest
rate—the federal funds rate—at 1.13% or higher by year-end.
The median estimates—meaning half are
above and half below—reach 2.5% for the end of 2016 and
3.63% for the end of 2017. On the other
hand, in fed funds futures markets, where traders buy and sell
contracts based on expected rates, the
expected fed funds rate is 0.50% on average in December 2015,
1.35% in December 2016 and 1.84% in
December 2017.
One reason for the disparity: Futures prices reflect investors’
calculations that there is some probability
rates will return to near-zero after a few increases and stay
there.
This happened in Sweden after its central bank raised rates in
2010 and in Japan after 2006. In both
cases, the central banks had to reverse course and cut rates after
economic shocks and deflation
pressures crippled their economies.
A survey by the New York Fed of Wall Street bond dealers in
January showed they attached a 20%
probability to U.S. short-term rates returning to zero within two
years after liftoff.
A return to zero isn’t the Fed’s expected outcome, so it doesn’t
show up in its rate forecasts.
Fed Ushers in a New Era of Uncertainty on Rates
Investors are weighing when Federal Reserve will start raising
interest
rates, but where they end up in long run also is a crucial
question
By Jon Hilsenrath
Updated March 1, 2015 8:17 p.m. ET , WSJ
Investors might have other doubts about the Fed—that it won’t
reach its 2% inflation target and will thus
be forced to keep rates low, or that it won’t have the will to
carry through on the rate increases it has
telegraphed.
The longer-run rate outlook was the center of discussion Friday
at a monetary-policy conference
sponsored by the University of Chicago Booth School of
Business. Fed Vice Chairman Stanley Fischer
said there that market expectations might move—perhaps
abruptly—closer to the Fed’s when the central
bank starts lifting rates. A first increase “will add to the
credibility of what we’re saying,” he said in a not-
so-subtle warning to investors who doubt the Fed’s plans.
In theory, there is a long-run equilibrium interest rate where the
Fed is headed which, as with Goldilocks
and her fabled porridge, would leave the economy neither too
hot nor too cold. That is, this rate is not so
low that it causes inflation to surge but not so high that it holds
back growth.
Federal Reserve Vice Chairman Stanley Fischer, shown in
October, on Friday said
market expectations might move—perhaps abruptly—closer to
the Fed’s when the central
bank starts lifting rates. PHOTO: ASSOCIATED PRESS
It is also the rate that balances investment and saving. In a
period when businesses are reluctant to
invest, or when savers are piling money away, the rate is likely
to be low.
Fed Ushers in a New Era of Uncertainty on Rates
Investors are weighing when Federal Reserve will start raising
interest
rates, but where they end up in long run also is a crucial
question
By Jon Hilsenrath
Updated March 1, 2015 8:17 p.m. ET , WSJ
Economists have been puzzling over this rate, also called the
natural rate, for more than a century. “The
natural rate is not fixed or unalterable,” Swedish economist
Knut Wicksell posited in a famous 1898 book
on interest. The problem, he noted, was that it depended on “a
thousand and one things which determine
the current economic position of a community; and with them it
constantly fluctuates.”
Fed officials estimate this long-run rate is now around 3.75%,
which amounts to 2 percentage points as
compensation for inflation and a 1.75-percentage-point real
return on investment. Their forecasts suggest
they effectively see themselves getting close to this equilibrium
rate by the end of 2017.
Lawrence Summers , Harvard University economics professor,
has posited that the equilibrium rate is
lower now than in the past because the economy is growing so
slowly and real returns have fallen. Fed
officials have nudged their estimate down from 4.25% in 2012.
Many investors have doubts about the Fed’s forecasts.
Meanwhile, many economists and Fed officials
don’t see eye to eye with Mr. Summers on his theory that a new
era of “secular stagnation” in the
economy has substantially lowered the equilibrium interest rate.
“We are skeptical of the secular stagnation view,” concluded a
paper presented at the Booth conference.
Like many Fed officials, the authors— James Hamilton of the
University of California, San Diego; Ethan
Harris of Bank of America ; Jan Hatzius of Goldman Sachs and
Kenneth West of the University of
Wisconsin—concluded the economy has been held back by
temporary headwinds and not a permanent
reduction in its potential growth rate.
Given all the uncertainties about growth and inflation, Fed
officials will have to feel around for the right
long-run interest rate like a person in the dark.
“I don’t think that is a question we can answer right now,” Mr.
Fischer said of the long-run rate.
The uncertainty means an important change in central-bank
tactics is coming. For a decade now, Fed
officials have used various ways to give investors “forward
guidance” about where interest rates are
going.
In their latest guidance, Fed officials said they would be
“patient” before starting to raise rates, meaning
no rate increase is likely at their next two policy meetings. They
are now moving away from this guidance.
It appears investors are going to find themselves doing a lot of
guesswork about the path of rates after
they start rising this year, along with the Fed itself.

More Related Content

Similar to Fed Ushers in a New Era of Uncertainty on Rates Investors ar.docx

Market Perspectives - June 2019
Market Perspectives - June 2019Market Perspectives - June 2019
Market Perspectives - June 2019
Mark Biegel
 
Market Perspective - September 2018
Market Perspective - September 2018Market Perspective - September 2018
Market Perspective - September 2018
Mark Biegel
 
WTWealth_7-2015V2 (1)
WTWealth_7-2015V2 (1)WTWealth_7-2015V2 (1)
WTWealth_7-2015V2 (1)John Heilner
 
Investment Insights for December, 2017
Investment Insights for December, 2017Investment Insights for December, 2017
Investment Insights for December, 2017
Cornerstone Wealth Management MWP
 
Putnam Fixed Income Outlook Q1 2013
Putnam Fixed Income Outlook Q1 2013Putnam Fixed Income Outlook Q1 2013
Putnam Fixed Income Outlook Q1 2013
Putnam Investments
 
Monetary Policy and its Impact on Financial Assets
Monetary Policy and its Impact on Financial AssetsMonetary Policy and its Impact on Financial Assets
Monetary Policy and its Impact on Financial Assets
Kostas Iordanidis
 
The Fed Perturbs The Market
The Fed Perturbs The MarketThe Fed Perturbs The Market
The Fed Perturbs The Market
Dana Calcagno Wilkins
 
RSM_The_Real_Economy_Global_ENG_UK.PDF
RSM_The_Real_Economy_Global_ENG_UK.PDFRSM_The_Real_Economy_Global_ENG_UK.PDF
RSM_The_Real_Economy_Global_ENG_UK.PDFDavid Carlisle
 
Large scale asset purchases (QE) - intent & after effects!!
Large scale asset purchases (QE) - intent & after effects!!Large scale asset purchases (QE) - intent & after effects!!
Large scale asset purchases (QE) - intent & after effects!!
radhikaburman
 
4Q2014-In-a-Bond-Bind
4Q2014-In-a-Bond-Bind4Q2014-In-a-Bond-Bind
4Q2014-In-a-Bond-BindRon New
 
The Fed Under Attack
The Fed Under Attack The Fed Under Attack
The Fed Under Attack
Jeff Green
 
The Fed's Asset Purchases
The Fed's Asset PurchasesThe Fed's Asset Purchases
The Fed's Asset Purchases
Jeff Green
 
Pictet Asset Management Perspectives
Pictet Asset Management PerspectivesPictet Asset Management Perspectives
Pictet Asset Management PerspectivesForward Management
 
Putnam Perspectives: Capital Markets Outlook Q3 2014
Putnam Perspectives: Capital Markets Outlook Q3 2014Putnam Perspectives: Capital Markets Outlook Q3 2014
Putnam Perspectives: Capital Markets Outlook Q3 2014
Putnam Investments
 
Jan 2017 Newsletter
Jan 2017 NewsletterJan 2017 Newsletter
Jan 2017 NewsletterLou LoFranco
 
Market Perspectives - December 2016
Market Perspectives - December 2016Market Perspectives - December 2016
Market Perspectives - December 2016
Mark Biegel
 
US Fed rate hike in September 2015: Who will be the top 4 winners and losers?
US Fed rate hike in September 2015: Who will be the top 4 winners and losers?US Fed rate hike in September 2015: Who will be the top 4 winners and losers?
US Fed rate hike in September 2015: Who will be the top 4 winners and losers?
Aranca
 
Central Vision
Central VisionCentral Vision
Central Vision
David Apted
 
2017 12-18 bijg
2017 12-18 bijg2017 12-18 bijg
2017 12-18 bijg
Mats Larsson
 
FI Insights V17I1 Print Version
FI Insights V17I1 Print VersionFI Insights V17I1 Print Version
FI Insights V17I1 Print VersionDean Miller
 

Similar to Fed Ushers in a New Era of Uncertainty on Rates Investors ar.docx (20)

Market Perspectives - June 2019
Market Perspectives - June 2019Market Perspectives - June 2019
Market Perspectives - June 2019
 
Market Perspective - September 2018
Market Perspective - September 2018Market Perspective - September 2018
Market Perspective - September 2018
 
WTWealth_7-2015V2 (1)
WTWealth_7-2015V2 (1)WTWealth_7-2015V2 (1)
WTWealth_7-2015V2 (1)
 
Investment Insights for December, 2017
Investment Insights for December, 2017Investment Insights for December, 2017
Investment Insights for December, 2017
 
Putnam Fixed Income Outlook Q1 2013
Putnam Fixed Income Outlook Q1 2013Putnam Fixed Income Outlook Q1 2013
Putnam Fixed Income Outlook Q1 2013
 
Monetary Policy and its Impact on Financial Assets
Monetary Policy and its Impact on Financial AssetsMonetary Policy and its Impact on Financial Assets
Monetary Policy and its Impact on Financial Assets
 
The Fed Perturbs The Market
The Fed Perturbs The MarketThe Fed Perturbs The Market
The Fed Perturbs The Market
 
RSM_The_Real_Economy_Global_ENG_UK.PDF
RSM_The_Real_Economy_Global_ENG_UK.PDFRSM_The_Real_Economy_Global_ENG_UK.PDF
RSM_The_Real_Economy_Global_ENG_UK.PDF
 
Large scale asset purchases (QE) - intent & after effects!!
Large scale asset purchases (QE) - intent & after effects!!Large scale asset purchases (QE) - intent & after effects!!
Large scale asset purchases (QE) - intent & after effects!!
 
4Q2014-In-a-Bond-Bind
4Q2014-In-a-Bond-Bind4Q2014-In-a-Bond-Bind
4Q2014-In-a-Bond-Bind
 
The Fed Under Attack
The Fed Under Attack The Fed Under Attack
The Fed Under Attack
 
The Fed's Asset Purchases
The Fed's Asset PurchasesThe Fed's Asset Purchases
The Fed's Asset Purchases
 
Pictet Asset Management Perspectives
Pictet Asset Management PerspectivesPictet Asset Management Perspectives
Pictet Asset Management Perspectives
 
Putnam Perspectives: Capital Markets Outlook Q3 2014
Putnam Perspectives: Capital Markets Outlook Q3 2014Putnam Perspectives: Capital Markets Outlook Q3 2014
Putnam Perspectives: Capital Markets Outlook Q3 2014
 
Jan 2017 Newsletter
Jan 2017 NewsletterJan 2017 Newsletter
Jan 2017 Newsletter
 
Market Perspectives - December 2016
Market Perspectives - December 2016Market Perspectives - December 2016
Market Perspectives - December 2016
 
US Fed rate hike in September 2015: Who will be the top 4 winners and losers?
US Fed rate hike in September 2015: Who will be the top 4 winners and losers?US Fed rate hike in September 2015: Who will be the top 4 winners and losers?
US Fed rate hike in September 2015: Who will be the top 4 winners and losers?
 
Central Vision
Central VisionCentral Vision
Central Vision
 
2017 12-18 bijg
2017 12-18 bijg2017 12-18 bijg
2017 12-18 bijg
 
FI Insights V17I1 Print Version
FI Insights V17I1 Print VersionFI Insights V17I1 Print Version
FI Insights V17I1 Print Version
 

More from mydrynan

CSIA 413 Cybersecurity Policy, Plans, and Programs.docx
CSIA 413 Cybersecurity Policy, Plans, and Programs.docxCSIA 413 Cybersecurity Policy, Plans, and Programs.docx
CSIA 413 Cybersecurity Policy, Plans, and Programs.docx
mydrynan
 
CSIS 100CSIS 100 - Discussion Board Topic #1One of the object.docx
CSIS 100CSIS 100 - Discussion Board Topic #1One of the object.docxCSIS 100CSIS 100 - Discussion Board Topic #1One of the object.docx
CSIS 100CSIS 100 - Discussion Board Topic #1One of the object.docx
mydrynan
 
CSI Paper Grading Rubric- (worth a possible 100 points) .docx
CSI Paper Grading Rubric- (worth a possible 100 points)   .docxCSI Paper Grading Rubric- (worth a possible 100 points)   .docx
CSI Paper Grading Rubric- (worth a possible 100 points) .docx
mydrynan
 
CSIA 413 Cybersecurity Policy, Plans, and ProgramsProject #4 IT .docx
CSIA 413 Cybersecurity Policy, Plans, and ProgramsProject #4 IT .docxCSIA 413 Cybersecurity Policy, Plans, and ProgramsProject #4 IT .docx
CSIA 413 Cybersecurity Policy, Plans, and ProgramsProject #4 IT .docx
mydrynan
 
CSI 170 Week 3 AssingmentAssignment 1 Cyber Computer CrimeAss.docx
CSI 170 Week 3 AssingmentAssignment 1 Cyber Computer CrimeAss.docxCSI 170 Week 3 AssingmentAssignment 1 Cyber Computer CrimeAss.docx
CSI 170 Week 3 AssingmentAssignment 1 Cyber Computer CrimeAss.docx
mydrynan
 
CSE422 Section 002 – Computer Networking Fall 2018 Ho.docx
CSE422 Section 002 – Computer Networking Fall 2018  Ho.docxCSE422 Section 002 – Computer Networking Fall 2018  Ho.docx
CSE422 Section 002 – Computer Networking Fall 2018 Ho.docx
mydrynan
 
CSCI  132  Practical  Unix  and  Programming   .docx
CSCI  132  Practical  Unix  and  Programming   .docxCSCI  132  Practical  Unix  and  Programming   .docx
CSCI  132  Practical  Unix  and  Programming   .docx
mydrynan
 
CSCI 714 Software Project Planning and EstimationLec.docx
CSCI 714 Software Project Planning and EstimationLec.docxCSCI 714 Software Project Planning and EstimationLec.docx
CSCI 714 Software Project Planning and EstimationLec.docx
mydrynan
 
CSCI 561Research Paper Topic Proposal and Outline Instructions.docx
CSCI 561Research Paper Topic Proposal and Outline Instructions.docxCSCI 561Research Paper Topic Proposal and Outline Instructions.docx
CSCI 561Research Paper Topic Proposal and Outline Instructions.docx
mydrynan
 
CSCI 561 DB Standardized Rubric50 PointsCriteriaLevels of .docx
CSCI 561 DB Standardized Rubric50 PointsCriteriaLevels of .docxCSCI 561 DB Standardized Rubric50 PointsCriteriaLevels of .docx
CSCI 561 DB Standardized Rubric50 PointsCriteriaLevels of .docx
mydrynan
 
CryptographyLesson 10© Copyright 2012-2013 (ISC)², Inc. Al.docx
CryptographyLesson 10© Copyright 2012-2013 (ISC)², Inc. Al.docxCryptographyLesson 10© Copyright 2012-2013 (ISC)², Inc. Al.docx
CryptographyLesson 10© Copyright 2012-2013 (ISC)², Inc. Al.docx
mydrynan
 
CSCI 352 - Digital Forensics Assignment #1 Spring 2020 .docx
CSCI 352 - Digital Forensics Assignment #1 Spring 2020 .docxCSCI 352 - Digital Forensics Assignment #1 Spring 2020 .docx
CSCI 352 - Digital Forensics Assignment #1 Spring 2020 .docx
mydrynan
 
CSCE 1040 Homework 2 For this assignment we are going to .docx
CSCE 1040 Homework 2  For this assignment we are going to .docxCSCE 1040 Homework 2  For this assignment we are going to .docx
CSCE 1040 Homework 2 For this assignment we are going to .docx
mydrynan
 
CSCE509–Spring2019Assignment3updated01May19DU.docx
CSCE509–Spring2019Assignment3updated01May19DU.docxCSCE509–Spring2019Assignment3updated01May19DU.docx
CSCE509–Spring2019Assignment3updated01May19DU.docx
mydrynan
 
CSCI 2033 Elementary Computational Linear Algebra(Spring 20.docx
CSCI 2033 Elementary Computational Linear Algebra(Spring 20.docxCSCI 2033 Elementary Computational Linear Algebra(Spring 20.docx
CSCI 2033 Elementary Computational Linear Algebra(Spring 20.docx
mydrynan
 
CSCE 3110 Data Structures & Algorithms Summer 2019 1 of .docx
CSCE 3110 Data Structures & Algorithms Summer 2019   1 of .docxCSCE 3110 Data Structures & Algorithms Summer 2019   1 of .docx
CSCE 3110 Data Structures & Algorithms Summer 2019 1 of .docx
mydrynan
 
CSCI 340 Final Group ProjectNatalie Warden, Arturo Gonzalez, R.docx
CSCI 340 Final Group ProjectNatalie Warden, Arturo Gonzalez, R.docxCSCI 340 Final Group ProjectNatalie Warden, Arturo Gonzalez, R.docx
CSCI 340 Final Group ProjectNatalie Warden, Arturo Gonzalez, R.docx
mydrynan
 
CSC-321 Final Writing Assignment In this assignment, you .docx
CSC-321 Final Writing Assignment  In this assignment, you .docxCSC-321 Final Writing Assignment  In this assignment, you .docx
CSC-321 Final Writing Assignment In this assignment, you .docx
mydrynan
 
Cryptography is the application of algorithms to ensure the confiden.docx
Cryptography is the application of algorithms to ensure the confiden.docxCryptography is the application of algorithms to ensure the confiden.docx
Cryptography is the application of algorithms to ensure the confiden.docx
mydrynan
 
CSc3320 Assignment 6 Due on 24th April, 2013 Socket programming .docx
CSc3320 Assignment 6 Due on 24th April, 2013 Socket programming .docxCSc3320 Assignment 6 Due on 24th April, 2013 Socket programming .docx
CSc3320 Assignment 6 Due on 24th April, 2013 Socket programming .docx
mydrynan
 

More from mydrynan (20)

CSIA 413 Cybersecurity Policy, Plans, and Programs.docx
CSIA 413 Cybersecurity Policy, Plans, and Programs.docxCSIA 413 Cybersecurity Policy, Plans, and Programs.docx
CSIA 413 Cybersecurity Policy, Plans, and Programs.docx
 
CSIS 100CSIS 100 - Discussion Board Topic #1One of the object.docx
CSIS 100CSIS 100 - Discussion Board Topic #1One of the object.docxCSIS 100CSIS 100 - Discussion Board Topic #1One of the object.docx
CSIS 100CSIS 100 - Discussion Board Topic #1One of the object.docx
 
CSI Paper Grading Rubric- (worth a possible 100 points) .docx
CSI Paper Grading Rubric- (worth a possible 100 points)   .docxCSI Paper Grading Rubric- (worth a possible 100 points)   .docx
CSI Paper Grading Rubric- (worth a possible 100 points) .docx
 
CSIA 413 Cybersecurity Policy, Plans, and ProgramsProject #4 IT .docx
CSIA 413 Cybersecurity Policy, Plans, and ProgramsProject #4 IT .docxCSIA 413 Cybersecurity Policy, Plans, and ProgramsProject #4 IT .docx
CSIA 413 Cybersecurity Policy, Plans, and ProgramsProject #4 IT .docx
 
CSI 170 Week 3 AssingmentAssignment 1 Cyber Computer CrimeAss.docx
CSI 170 Week 3 AssingmentAssignment 1 Cyber Computer CrimeAss.docxCSI 170 Week 3 AssingmentAssignment 1 Cyber Computer CrimeAss.docx
CSI 170 Week 3 AssingmentAssignment 1 Cyber Computer CrimeAss.docx
 
CSE422 Section 002 – Computer Networking Fall 2018 Ho.docx
CSE422 Section 002 – Computer Networking Fall 2018  Ho.docxCSE422 Section 002 – Computer Networking Fall 2018  Ho.docx
CSE422 Section 002 – Computer Networking Fall 2018 Ho.docx
 
CSCI  132  Practical  Unix  and  Programming   .docx
CSCI  132  Practical  Unix  and  Programming   .docxCSCI  132  Practical  Unix  and  Programming   .docx
CSCI  132  Practical  Unix  and  Programming   .docx
 
CSCI 714 Software Project Planning and EstimationLec.docx
CSCI 714 Software Project Planning and EstimationLec.docxCSCI 714 Software Project Planning and EstimationLec.docx
CSCI 714 Software Project Planning and EstimationLec.docx
 
CSCI 561Research Paper Topic Proposal and Outline Instructions.docx
CSCI 561Research Paper Topic Proposal and Outline Instructions.docxCSCI 561Research Paper Topic Proposal and Outline Instructions.docx
CSCI 561Research Paper Topic Proposal and Outline Instructions.docx
 
CSCI 561 DB Standardized Rubric50 PointsCriteriaLevels of .docx
CSCI 561 DB Standardized Rubric50 PointsCriteriaLevels of .docxCSCI 561 DB Standardized Rubric50 PointsCriteriaLevels of .docx
CSCI 561 DB Standardized Rubric50 PointsCriteriaLevels of .docx
 
CryptographyLesson 10© Copyright 2012-2013 (ISC)², Inc. Al.docx
CryptographyLesson 10© Copyright 2012-2013 (ISC)², Inc. Al.docxCryptographyLesson 10© Copyright 2012-2013 (ISC)², Inc. Al.docx
CryptographyLesson 10© Copyright 2012-2013 (ISC)², Inc. Al.docx
 
CSCI 352 - Digital Forensics Assignment #1 Spring 2020 .docx
CSCI 352 - Digital Forensics Assignment #1 Spring 2020 .docxCSCI 352 - Digital Forensics Assignment #1 Spring 2020 .docx
CSCI 352 - Digital Forensics Assignment #1 Spring 2020 .docx
 
CSCE 1040 Homework 2 For this assignment we are going to .docx
CSCE 1040 Homework 2  For this assignment we are going to .docxCSCE 1040 Homework 2  For this assignment we are going to .docx
CSCE 1040 Homework 2 For this assignment we are going to .docx
 
CSCE509–Spring2019Assignment3updated01May19DU.docx
CSCE509–Spring2019Assignment3updated01May19DU.docxCSCE509–Spring2019Assignment3updated01May19DU.docx
CSCE509–Spring2019Assignment3updated01May19DU.docx
 
CSCI 2033 Elementary Computational Linear Algebra(Spring 20.docx
CSCI 2033 Elementary Computational Linear Algebra(Spring 20.docxCSCI 2033 Elementary Computational Linear Algebra(Spring 20.docx
CSCI 2033 Elementary Computational Linear Algebra(Spring 20.docx
 
CSCE 3110 Data Structures & Algorithms Summer 2019 1 of .docx
CSCE 3110 Data Structures & Algorithms Summer 2019   1 of .docxCSCE 3110 Data Structures & Algorithms Summer 2019   1 of .docx
CSCE 3110 Data Structures & Algorithms Summer 2019 1 of .docx
 
CSCI 340 Final Group ProjectNatalie Warden, Arturo Gonzalez, R.docx
CSCI 340 Final Group ProjectNatalie Warden, Arturo Gonzalez, R.docxCSCI 340 Final Group ProjectNatalie Warden, Arturo Gonzalez, R.docx
CSCI 340 Final Group ProjectNatalie Warden, Arturo Gonzalez, R.docx
 
CSC-321 Final Writing Assignment In this assignment, you .docx
CSC-321 Final Writing Assignment  In this assignment, you .docxCSC-321 Final Writing Assignment  In this assignment, you .docx
CSC-321 Final Writing Assignment In this assignment, you .docx
 
Cryptography is the application of algorithms to ensure the confiden.docx
Cryptography is the application of algorithms to ensure the confiden.docxCryptography is the application of algorithms to ensure the confiden.docx
Cryptography is the application of algorithms to ensure the confiden.docx
 
CSc3320 Assignment 6 Due on 24th April, 2013 Socket programming .docx
CSc3320 Assignment 6 Due on 24th April, 2013 Socket programming .docxCSc3320 Assignment 6 Due on 24th April, 2013 Socket programming .docx
CSc3320 Assignment 6 Due on 24th April, 2013 Socket programming .docx
 

Recently uploaded

BÀI TẬP BỔ TRỢ TIẾNG ANH GLOBAL SUCCESS LỚP 3 - CẢ NĂM (CÓ FILE NGHE VÀ ĐÁP Á...
BÀI TẬP BỔ TRỢ TIẾNG ANH GLOBAL SUCCESS LỚP 3 - CẢ NĂM (CÓ FILE NGHE VÀ ĐÁP Á...BÀI TẬP BỔ TRỢ TIẾNG ANH GLOBAL SUCCESS LỚP 3 - CẢ NĂM (CÓ FILE NGHE VÀ ĐÁP Á...
BÀI TẬP BỔ TRỢ TIẾNG ANH GLOBAL SUCCESS LỚP 3 - CẢ NĂM (CÓ FILE NGHE VÀ ĐÁP Á...
Nguyen Thanh Tu Collection
 
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...
Levi Shapiro
 
Synthetic Fiber Construction in lab .pptx
Synthetic Fiber Construction in lab .pptxSynthetic Fiber Construction in lab .pptx
Synthetic Fiber Construction in lab .pptx
Pavel ( NSTU)
 
Polish students' mobility in the Czech Republic
Polish students' mobility in the Czech RepublicPolish students' mobility in the Czech Republic
Polish students' mobility in the Czech Republic
Anna Sz.
 
1.4 modern child centered education - mahatma gandhi-2.pptx
1.4 modern child centered education - mahatma gandhi-2.pptx1.4 modern child centered education - mahatma gandhi-2.pptx
1.4 modern child centered education - mahatma gandhi-2.pptx
JosvitaDsouza2
 
Guidance_and_Counselling.pdf B.Ed. 4th Semester
Guidance_and_Counselling.pdf B.Ed. 4th SemesterGuidance_and_Counselling.pdf B.Ed. 4th Semester
Guidance_and_Counselling.pdf B.Ed. 4th Semester
Atul Kumar Singh
 
Francesca Gottschalk - How can education support child empowerment.pptx
Francesca Gottschalk - How can education support child empowerment.pptxFrancesca Gottschalk - How can education support child empowerment.pptx
Francesca Gottschalk - How can education support child empowerment.pptx
EduSkills OECD
 
Introduction to AI for Nonprofits with Tapp Network
Introduction to AI for Nonprofits with Tapp NetworkIntroduction to AI for Nonprofits with Tapp Network
Introduction to AI for Nonprofits with Tapp Network
TechSoup
 
Model Attribute Check Company Auto Property
Model Attribute  Check Company Auto PropertyModel Attribute  Check Company Auto Property
Model Attribute Check Company Auto Property
Celine George
 
Language Across the Curriculm LAC B.Ed.
Language Across the  Curriculm LAC B.Ed.Language Across the  Curriculm LAC B.Ed.
Language Across the Curriculm LAC B.Ed.
Atul Kumar Singh
 
Overview on Edible Vaccine: Pros & Cons with Mechanism
Overview on Edible Vaccine: Pros & Cons with MechanismOverview on Edible Vaccine: Pros & Cons with Mechanism
Overview on Edible Vaccine: Pros & Cons with Mechanism
DeeptiGupta154
 
Thesis Statement for students diagnonsed withADHD.ppt
Thesis Statement for students diagnonsed withADHD.pptThesis Statement for students diagnonsed withADHD.ppt
Thesis Statement for students diagnonsed withADHD.ppt
EverAndrsGuerraGuerr
 
The Roman Empire A Historical Colossus.pdf
The Roman Empire A Historical Colossus.pdfThe Roman Empire A Historical Colossus.pdf
The Roman Empire A Historical Colossus.pdf
kaushalkr1407
 
Unit 8 - Information and Communication Technology (Paper I).pdf
Unit 8 - Information and Communication Technology (Paper I).pdfUnit 8 - Information and Communication Technology (Paper I).pdf
Unit 8 - Information and Communication Technology (Paper I).pdf
Thiyagu K
 
Instructions for Submissions thorugh G- Classroom.pptx
Instructions for Submissions thorugh G- Classroom.pptxInstructions for Submissions thorugh G- Classroom.pptx
Instructions for Submissions thorugh G- Classroom.pptx
Jheel Barad
 
Sha'Carri Richardson Presentation 202345
Sha'Carri Richardson Presentation 202345Sha'Carri Richardson Presentation 202345
Sha'Carri Richardson Presentation 202345
beazzy04
 
Embracing GenAI - A Strategic Imperative
Embracing GenAI - A Strategic ImperativeEmbracing GenAI - A Strategic Imperative
Embracing GenAI - A Strategic Imperative
Peter Windle
 
How to Make a Field invisible in Odoo 17
How to Make a Field invisible in Odoo 17How to Make a Field invisible in Odoo 17
How to Make a Field invisible in Odoo 17
Celine George
 
How libraries can support authors with open access requirements for UKRI fund...
How libraries can support authors with open access requirements for UKRI fund...How libraries can support authors with open access requirements for UKRI fund...
How libraries can support authors with open access requirements for UKRI fund...
Jisc
 
Operation Blue Star - Saka Neela Tara
Operation Blue Star   -  Saka Neela TaraOperation Blue Star   -  Saka Neela Tara
Operation Blue Star - Saka Neela Tara
Balvir Singh
 

Recently uploaded (20)

BÀI TẬP BỔ TRỢ TIẾNG ANH GLOBAL SUCCESS LỚP 3 - CẢ NĂM (CÓ FILE NGHE VÀ ĐÁP Á...
BÀI TẬP BỔ TRỢ TIẾNG ANH GLOBAL SUCCESS LỚP 3 - CẢ NĂM (CÓ FILE NGHE VÀ ĐÁP Á...BÀI TẬP BỔ TRỢ TIẾNG ANH GLOBAL SUCCESS LỚP 3 - CẢ NĂM (CÓ FILE NGHE VÀ ĐÁP Á...
BÀI TẬP BỔ TRỢ TIẾNG ANH GLOBAL SUCCESS LỚP 3 - CẢ NĂM (CÓ FILE NGHE VÀ ĐÁP Á...
 
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...
 
Synthetic Fiber Construction in lab .pptx
Synthetic Fiber Construction in lab .pptxSynthetic Fiber Construction in lab .pptx
Synthetic Fiber Construction in lab .pptx
 
Polish students' mobility in the Czech Republic
Polish students' mobility in the Czech RepublicPolish students' mobility in the Czech Republic
Polish students' mobility in the Czech Republic
 
1.4 modern child centered education - mahatma gandhi-2.pptx
1.4 modern child centered education - mahatma gandhi-2.pptx1.4 modern child centered education - mahatma gandhi-2.pptx
1.4 modern child centered education - mahatma gandhi-2.pptx
 
Guidance_and_Counselling.pdf B.Ed. 4th Semester
Guidance_and_Counselling.pdf B.Ed. 4th SemesterGuidance_and_Counselling.pdf B.Ed. 4th Semester
Guidance_and_Counselling.pdf B.Ed. 4th Semester
 
Francesca Gottschalk - How can education support child empowerment.pptx
Francesca Gottschalk - How can education support child empowerment.pptxFrancesca Gottschalk - How can education support child empowerment.pptx
Francesca Gottschalk - How can education support child empowerment.pptx
 
Introduction to AI for Nonprofits with Tapp Network
Introduction to AI for Nonprofits with Tapp NetworkIntroduction to AI for Nonprofits with Tapp Network
Introduction to AI for Nonprofits with Tapp Network
 
Model Attribute Check Company Auto Property
Model Attribute  Check Company Auto PropertyModel Attribute  Check Company Auto Property
Model Attribute Check Company Auto Property
 
Language Across the Curriculm LAC B.Ed.
Language Across the  Curriculm LAC B.Ed.Language Across the  Curriculm LAC B.Ed.
Language Across the Curriculm LAC B.Ed.
 
Overview on Edible Vaccine: Pros & Cons with Mechanism
Overview on Edible Vaccine: Pros & Cons with MechanismOverview on Edible Vaccine: Pros & Cons with Mechanism
Overview on Edible Vaccine: Pros & Cons with Mechanism
 
Thesis Statement for students diagnonsed withADHD.ppt
Thesis Statement for students diagnonsed withADHD.pptThesis Statement for students diagnonsed withADHD.ppt
Thesis Statement for students diagnonsed withADHD.ppt
 
The Roman Empire A Historical Colossus.pdf
The Roman Empire A Historical Colossus.pdfThe Roman Empire A Historical Colossus.pdf
The Roman Empire A Historical Colossus.pdf
 
Unit 8 - Information and Communication Technology (Paper I).pdf
Unit 8 - Information and Communication Technology (Paper I).pdfUnit 8 - Information and Communication Technology (Paper I).pdf
Unit 8 - Information and Communication Technology (Paper I).pdf
 
Instructions for Submissions thorugh G- Classroom.pptx
Instructions for Submissions thorugh G- Classroom.pptxInstructions for Submissions thorugh G- Classroom.pptx
Instructions for Submissions thorugh G- Classroom.pptx
 
Sha'Carri Richardson Presentation 202345
Sha'Carri Richardson Presentation 202345Sha'Carri Richardson Presentation 202345
Sha'Carri Richardson Presentation 202345
 
Embracing GenAI - A Strategic Imperative
Embracing GenAI - A Strategic ImperativeEmbracing GenAI - A Strategic Imperative
Embracing GenAI - A Strategic Imperative
 
How to Make a Field invisible in Odoo 17
How to Make a Field invisible in Odoo 17How to Make a Field invisible in Odoo 17
How to Make a Field invisible in Odoo 17
 
How libraries can support authors with open access requirements for UKRI fund...
How libraries can support authors with open access requirements for UKRI fund...How libraries can support authors with open access requirements for UKRI fund...
How libraries can support authors with open access requirements for UKRI fund...
 
Operation Blue Star - Saka Neela Tara
Operation Blue Star   -  Saka Neela TaraOperation Blue Star   -  Saka Neela Tara
Operation Blue Star - Saka Neela Tara
 

Fed Ushers in a New Era of Uncertainty on Rates Investors ar.docx

  • 1. Fed Ushers in a New Era of Uncertainty on Rates Investors are weighing when Federal Reserve will start raising interest rates, but where they end up in long run also is a crucial question By Jon Hilsenrath Updated March 1, 2015 8:17 p.m. ET , WSJ It’s clear Fed officials think they’ll be raising short-term interest rates later this year. Of greater significance – and getting far less attention – is how high rates will go. Investors these days are obsessing over when the Federal Reserve will start raising short-term interest rates. Drawing less scrutiny is where rates will end up in the long run and how they’ll get there. But it’s time to start paying attention. Fed officials have made clear they expect to begin raising short- term interest rates from near-zero this year, though not before midyear. After that, there is great uncertainty at the central bank and in the markets about the future path of interest rates. The long-run outlook for rates has consequences for everyone. For households, it will determine payments on mortgages and car loans; for businesses, on
  • 2. corporate bonds; and for the government, on the $13 trillion in debt held by the public. A disconnect between the Fed and the market over the long-run rate outlook also could be a source of market turbulence in the months ahead. Central-bank policy makers on average see rates going nearly twice as high as futures markets indicate in coming years, for a variety of reasons. If the Fed is wrong, it might make a mistake on interest rates that jars the economy. If the market is wrong, it might be setting itself up for a tumble if rates go higher than expected. The Fed’s latest forecasts show that nine of 17 policy makers see the central bank’s benchmark interest rate—the federal funds rate—at 1.13% or higher by year-end. The median estimates—meaning half are above and half below—reach 2.5% for the end of 2016 and 3.63% for the end of 2017. On the other hand, in fed funds futures markets, where traders buy and sell contracts based on expected rates, the expected fed funds rate is 0.50% on average in December 2015, 1.35% in December 2016 and 1.84% in December 2017. One reason for the disparity: Futures prices reflect investors’ calculations that there is some probability rates will return to near-zero after a few increases and stay there. This happened in Sweden after its central bank raised rates in 2010 and in Japan after 2006. In both cases, the central banks had to reverse course and cut rates after economic shocks and deflation
  • 3. pressures crippled their economies. A survey by the New York Fed of Wall Street bond dealers in January showed they attached a 20% probability to U.S. short-term rates returning to zero within two years after liftoff. A return to zero isn’t the Fed’s expected outcome, so it doesn’t show up in its rate forecasts. Fed Ushers in a New Era of Uncertainty on Rates Investors are weighing when Federal Reserve will start raising interest rates, but where they end up in long run also is a crucial question By Jon Hilsenrath Updated March 1, 2015 8:17 p.m. ET , WSJ Investors might have other doubts about the Fed—that it won’t reach its 2% inflation target and will thus be forced to keep rates low, or that it won’t have the will to carry through on the rate increases it has telegraphed. The longer-run rate outlook was the center of discussion Friday at a monetary-policy conference sponsored by the University of Chicago Booth School of Business. Fed Vice Chairman Stanley Fischer said there that market expectations might move—perhaps abruptly—closer to the Fed’s when the central
  • 4. bank starts lifting rates. A first increase “will add to the credibility of what we’re saying,” he said in a not- so-subtle warning to investors who doubt the Fed’s plans. In theory, there is a long-run equilibrium interest rate where the Fed is headed which, as with Goldilocks and her fabled porridge, would leave the economy neither too hot nor too cold. That is, this rate is not so low that it causes inflation to surge but not so high that it holds back growth. Federal Reserve Vice Chairman Stanley Fischer, shown in October, on Friday said market expectations might move—perhaps abruptly—closer to the Fed’s when the central bank starts lifting rates. PHOTO: ASSOCIATED PRESS It is also the rate that balances investment and saving. In a period when businesses are reluctant to invest, or when savers are piling money away, the rate is likely to be low. Fed Ushers in a New Era of Uncertainty on Rates Investors are weighing when Federal Reserve will start raising interest rates, but where they end up in long run also is a crucial question By Jon Hilsenrath Updated March 1, 2015 8:17 p.m. ET , WSJ
  • 5. Economists have been puzzling over this rate, also called the natural rate, for more than a century. “The natural rate is not fixed or unalterable,” Swedish economist Knut Wicksell posited in a famous 1898 book on interest. The problem, he noted, was that it depended on “a thousand and one things which determine the current economic position of a community; and with them it constantly fluctuates.” Fed officials estimate this long-run rate is now around 3.75%, which amounts to 2 percentage points as compensation for inflation and a 1.75-percentage-point real return on investment. Their forecasts suggest they effectively see themselves getting close to this equilibrium rate by the end of 2017. Lawrence Summers , Harvard University economics professor, has posited that the equilibrium rate is lower now than in the past because the economy is growing so slowly and real returns have fallen. Fed officials have nudged their estimate down from 4.25% in 2012. Many investors have doubts about the Fed’s forecasts. Meanwhile, many economists and Fed officials don’t see eye to eye with Mr. Summers on his theory that a new era of “secular stagnation” in the economy has substantially lowered the equilibrium interest rate. “We are skeptical of the secular stagnation view,” concluded a paper presented at the Booth conference. Like many Fed officials, the authors— James Hamilton of the University of California, San Diego; Ethan Harris of Bank of America ; Jan Hatzius of Goldman Sachs and Kenneth West of the University of
  • 6. Wisconsin—concluded the economy has been held back by temporary headwinds and not a permanent reduction in its potential growth rate. Given all the uncertainties about growth and inflation, Fed officials will have to feel around for the right long-run interest rate like a person in the dark. “I don’t think that is a question we can answer right now,” Mr. Fischer said of the long-run rate. The uncertainty means an important change in central-bank tactics is coming. For a decade now, Fed officials have used various ways to give investors “forward guidance” about where interest rates are going. In their latest guidance, Fed officials said they would be “patient” before starting to raise rates, meaning no rate increase is likely at their next two policy meetings. They are now moving away from this guidance. It appears investors are going to find themselves doing a lot of guesswork about the path of rates after they start rising this year, along with the Fed itself.