Can 1/4% hurt?
Posted on 18. Feb, 2010 by scott in economic daydreaming
Today the FED announced that starting tomorrow the so-called ‘discount’ rate will be raised, effective tomorrow, from .5% to .75%. In and of itself that doesn’t seem like much–still well below the historically low 1% benchmark that reflects extreme monetary policy (quantitative easing for the ‘pure in hear).
Yet, in reality this increase is far more.
Announced subtly by the FED’s email process (think press release)–no luncheon, no White House prepping, no hint of a change in the more formal policy of pumping the economy at the expense of restraint of the debt variety–no accompanying fanfare in other words. Shoulda, woulda, coulda.
In reality the decision is a shot across the bow of the perpetual optimists who have been pushing a bull-market in stocks since last March.
For the first time since, oh gosh it seems like forever . . . though only about two years, a distinct change in policy is on the horizon. The rays are there already now and the full blown light can’t be far away.
Don’t take this FED action as a simple adjustment. Reversal is more like it. If the economy continues to grow at a rate anywhere close to that of last quarter’s 5.7% (and while we will know that in early April–the FED knows it now) then more rates increases are coming.
They will be fast and furious too. Have to be to give China and others who hold U.S. debt any reason to keep on buying. So, I wasn’t surprised when in between other stories today I noticed that China had actually been net sellers of Treasury Notes in the last few months. Ouch!
This is just a heads-up right now. Time to consolidate profits, trim a little fat, start thinking about what higher rates might mean. To you, me and about half of the rest of the world.
At least my savings account might earn more than .04% from now on. Heck we’d have been better off to stuff our mattresses with the paper the FED has been printing!
The Sun is Gonna Shine Tomorrow (humm along as you sing that line).
thanks to flickr’s cosmic kitty for the photo
Honors and Recognitions
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