Given the declining trend of inflation, will FED freeze the interest rates ?

EarnOnVictor

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Quote from: EarnOnVictor on February 05, 2023, 12:21:57 PM

FED was actually aggressive last year in hiking the Fed Funds Rate, which was in line with the plan for the 2022 fiscal year in the face of inflation. It's however too early to judge a halt now as what you called a decrease in inflation is not actually a decrease judging by where it started in recent years, it's just a break, and the inflation could strike again unannounced any moment. FOMC needs to study the situation carefully and give it time before making decisions this year.

Nonetheless, the plan for this year is last dated till February, and I guess the plan will be revisited monthly rather than the situation of last year that was previously known. The interest rate was last increased on Wednesday from 4.50% to 4.75% despite some months of decrease in inflation as seen by the above graph.

More studies are still needed, and who knows if the January inflation report would be so surprising?

Credits: BBC & Forexfactory

I've considered myself a prophet in the financial market these days because almost all that I predicted comes to be exactly as I did. And this is a reminder of the surprising inflation as I indicated in an old reply above for the month of January. It doesn't agree with the OP with the "declining trend of inflation" portrayed by it as I had the view that inflation just corrected, but it's still plaguing. The January US inflation report proves that to be correct as seen below, and inflation might have started scoring again, and this can't be good for Bitcoin if last year's correlation is eventually followed.

Hence, the need for FED and FOMC to be extremely careful and the reason for Federal Funds Rate increase last month.

Hydrogen

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Its possible interest rates must make an effort to match annual inflation rates, for loan market viability to be maintained.

With record statistics for home loan default and car loan repossession looming on the horizon. I think banks and loan agencies already have a vested interest in maintaining interest rates as low as possible. There are also government incentive programs to make home and car loans more viable and feasible to low income earners which help with this.

Disposable income diminishing on growing cost of necessities, coupled with rising average credit card debt. Have to result in weakening loan markets which are not so easy to prop up.

While the fed might freeze interest rates, if they freeze them below a level where loan markets are feasible, there could be problems.

ilovealtcoins

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As far as I know, they do not keep interest rates unchanged, they will continue to increase but will slow down, and when interest rates can reach 5%, they will consider stopping raising rates. Inflation fell, but there is no guarantee it will not rise again because looking at the war between Russia and Ukraine could escalate at any time. If the war is more intense, it will most likely cause a serious crisis again. The Fed is in no rush to lower interest rates for a reason.

Don Pedro Dinero

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I think so, and that is what the market understood after the last Fed meeting. It has long been thought that with the inflation rate declining and rates having a negative effect on the economy, the FED will have to moderate or reverse its policy at some point in 2023 and that possibility seems increasingly clear.

I don't think there will be a sharp downturn, however. It will probably go up a little more and then stop rising at future meetings or make timid quarter-point cuts depending on the economic situation.

philipma1957

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Quote from: Sayeds56 on February 05, 2023, 11:28:53 PM

Quote from: philipma1957 on February 05, 2023, 08:32:04 PM

Quote from: Sayeds56 on February 05, 2023, 11:20:17 AM

It is a good question.

But the answer is no.

I posted about the hidden agenda of why high rates are an absolute necessity.

USA has the largest amount of prepaid long term insurance contracts in the entire world.

These companies make their profits via the bond markets.

They invest in us federal bonds and they need high rates to survive.

Check genworth
check John Hancock.

Thanks for your in-depth explanation of different scenarios and their potential impact on interest rates in the USA.
It is worth noting that Insurance companies in the USA make their profit by investing in Bond markets which is generally considered secure investment. I think they will also have opportunity to generate profits by investing in stock market, in case it starts performing as a result of lower interest rates.

they have a ton of restrictions about buying stocks.

there are 14 major companies covering long term care. about 3 trillion which has grown to 3.5 trillion due to the high rates given last year.

Sayeds56

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Quote from: philipma1957 on February 05, 2023, 08:32:04 PM

It is a good question.

But the answer is no.

Thanks for your in-depth explanation of different scenarios and their potential impact on interest rates in the USA.
It is worth noting that Insurance companies in the USA make their profit by investing in Bond markets which is generally considered a secure investment. I think they will also have opportunity to generate profits by investing in stock market, in case it starts performing as a result of lower interest rates.

philipma1957

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Quote from: Sayeds56 on February 05, 2023, 11:20:17 AM

Although it is hard to predict anything about the monetary policy with certainty, but given the current declining trend of inflation, there is a possibility that FED may choose to freeze interest rates at current level. This could have very positive impact on all financial markets including Bitcoin & other crypto currencies, as it may increase investment inflows and contribute to over economic growth.

https://www.weforum.org/agenda/2023/01/fed-cut-rates-in-2023-financial-outlook/

It is a good question.

But the answer is no.

I posted about the hidden agenda of why high rates are an absolute necessity.

USA has the largest amount of prepaid long term insurance contracts in the entire world.

These companies make their profits via the bond markets.

They invest in us federal bonds and they need high rates to survive.

Check genworth
check John Hancock.

In December 2021 when rates were a record low they were rated 50% shot of going bankrupt.

In December 2022 when interest rates went up they were rated 35% shot of going bankrupt.

they and the 12 other main long term care insurance companies added more than 500 billion to their assest

portfolios.

I figure they need high rates to go up a bit more and stay up for about 18 more months.

My guess is +25 points in march 23 and +25 points in may 1. then a freeze in june. 14.

late july one more bump of 25.

all of the above is factored with continuous war in ukraine 🇺🇦 vs russia 🇷🇺.

If putin dies along with 2 or 3 russian generals. with russia quitting retreating and paying reparations, then all inflation ends and rates get cut.

if russia wins war and proceeds to slaughter ukrainians things will get worse and rates will go over 7%

Hispo

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Even though the inflation in the United States has been going slower, it is not over yet.
If I had to bet on it, I would say the FED will likely continue to increase the interest rates but at a lower pace.

By the way, there is still a problem which has not been solved with the debt ceiling and the speculation on it could agitate the markets as we get closer to the end line.

jackg

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I think the FED will likely go silent if they were planning to freeze interest rates. Starting a spending spree after only just getting control of inflation would make it spiral again (its tentative in some cases as to whether inflation goes up further still too).

Perhaps multiple consecutive votes from central banks not to raise interest rates is the most positive thing we can expect short term (and then just see from there as to what happens next). Most silence/lack of attention will probably mean markets go back to making stable/rallying gains by the end of this year or the start of the next.

EarnOnVictor

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FED was actually aggressive last year in hiking the Fed Funds Rate, which was in line with the plan for the 2022 fiscal year in the face of inflation. It's however too early to judge a halt now as what you called a decrease in inflation is not actually a decrease judging by where it started in recent years, it's just a break, and the inflation could strike again unannounced any moment. FOMC needs to study the situation carefully and give it time before making decisions this year.

Nonetheless, the plan for this year is last dated till February, and I guess the plan will be revisited monthly rather than the situation of last year that was previously known. The interest rate was last increased on Wednesday from 4.50% to 4.75% despite some months of decrease in inflation as seen by the above graph.

More studies are still needed, and who knows if the January inflation report would be so surprising?

Credits: BBC & Forexfactory

Sayeds56

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Although it is hard to predict anything about the monetary policy with certainty, but given the current declining trend of inflation, there is a possibility that FED may choose to freeze interest rates at current level. This could have very positive impact on all financial markets including Bitcoin & other crypto currencies, as it may increase investment inflows and contribute to overall economic growth.

https://www.weforum.org/agenda/2023/01/fed-cut-rates-in-2023-financial-outlook/

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