Tags: Samuelson | Fed | rate | loan

WaPo's Samuelson: Fed Between a Rock and Hard Place When it Comes to Rates

By    |   Tuesday, 24 March 2015 08:00 AM

The Federal Reserve faces a difficult choice in determining when and by how much to raise interest rates, because it's hard to know how rate increases will play out, says Washington Post columnist Robert Samuelson.
 
"Higher short-term rates might trigger turmoil in stock and bond markets, as investors adjust to tighter credit," he writes.
 
"But it's also possible that the reaction would be muted. The Fed mainly controls short-term rates, and there is only a loose relation between these rates and rates on long-term home mortgages and bonds."
 
Many economists expect the Fed to begin increasing rates in September and to move in 25-basis point increments.
 
One complicating factor is that many dollars are borrowed overseas, Samuelson notes. In mid-2014, foreigners, excluding banks had $9 trillion in dollar loans and bonds.
 
"The danger in tightening too much or too soon is that it might drive many weak international borrowers to the wall," he explains.
 
"On the other hand, the danger of not tightening is that more dubious loans will be made — domestically and internationally — and raise the odds of a large financial crackup in the future."
 
Most economists viewed the Fed's policy statement last week as dovish. The statement said, "The [Federal Open Market] Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."
 
Meanwhile, star hedge fund manager Doug Kass, president of Seabreeze Partners Management, writes in an article for TheStreet.com that "the Fed's dovish policy will continue to disadvantage savers and allow for the continued domestic exclusive prosperity (and holds with it adverse social and economic ramifications)."
 
Low interest rates, of course, limit savers' income.
 
To be sure, some sectors of financial markets should flourish, Kass says. "Most importantly, to me, is that the outlook for closed-end municipal bond funds, my most favored asset class, get another six to 18 months of new or extended life. I am a buyer on any weakness."

Related Stories:

© 2020 Newsmax Finance. All rights reserved.


   
1Like our page
2Share
StreetTalk
The Federal Reserve faces a difficult choice in determining when and by how much to raise interest rates, because it's hard to know how rate increases will play out, says Washington Post columnist Robert Samuelson.
Samuelson, Fed, rate, loan
351
2015-00-24
Tuesday, 24 March 2015 08:00 AM
Newsmax Media, Inc.
 
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved