Fed Raises Rates To 5%

[Guest wrongmove]

Fed raises rates to 5 percent

WASHINGTON (Reuters) - The Federal Reserve raised interest rates on Wednesday to the highest level in five years.

Meeting for only the second time under Chairman Ben Bernanke, the central bank's policy-setting Federal Open Market Committee raised the overnight federal funds rate by a quarter-percentage point to 5 percent.

The latest Fed salvo against inflation took the benchmark lending rate to its highest level since April 2001, just after the U.S. economy slipped into recession.

[Panda]

http://news.bbc.co.uk/1/hi/business/4759707.stm

Yep its up up and away, nothing more than we expexted.

[Guest wrongmove]

Agreed, it was very predictable. I think it starts to get interesting from here.

[Mr Joe]

Gordens a55 will be twitching like a rabbits nose LOL.

Mr Joe.

[BillyShears]

As predicted in this forum not too long ago.

http://www.housepricecrash.co.uk/forum/ind...showtopic=29644

Billy Shears

[Shamus]

http://news.bbc.co.uk/1/hi/business/4759707.stm

Yep its up up and away, nothing more than we expexted.

Just look at that graph now. How high will it climb?

[Guest wrongmove]

As predicted in this forum not too long ago.

http://www.housepricecrash.co.uk/forum/ind...showtopic=29644

Billy Shears

It was never really in doubt. Betfair were offering odds of 1/100 on a 25bp rise. That's what you call an odds on favourite !!

[theChuz]

Just look at that graph now. How high will it climb?

I dont know why but that actually makes me , its pretty

[cupidstunt]

Just look at that graph now. How high will it climb?

Hmmm woder what would happen to Houseprices if our rates went up by 4% in 18 months?

[Peach]

Hmmm woder what would happen to Houseprices if our rates went up by 4% in 18 months?

House prices would fall, but repayments would remain the same - due to the extra burden of interest?

[George]

wonders about all those brits with fly-to-lets in places like florida.

[BillyShears]

House prices would fall, but repayments would remain the same - due to the extra burden of interest?

Only if you assume that affordability is the only factor affecting house prices. This is clearly not the case as the recent boom shows.

Billy Shears

[Realistbear]

http://news.bbc.co.uk/1/hi/business/4759707.stm

But analysts remain unsure about the future direction of rates despite Mr Bernanke recently saying there could be a pause in the current cycle of rises.

But he said later that markets had taken too rosy a view of his comments

.

[New Darker Law]

House prices would fall, but repayments would remain the same - due to the extra burden of interest?

They only asked about house prices not what would happen to repayments.

Those with big cash piles don't need to worry about repayments.

NDL

[Realistbear]

http://news.ft.com/cms/s/bf333230-e007-11d...20abe49a01.html

Dollar rallies on Fed’s hawkish tone

By Steve Johnson

Published: May 10 2006 10:48 | Last updated: May 10 2006 19:47

The beleaguered US dollar recovered from its session lows on Wednesday after the Federal Open Market Committee raised rates to 5 per cent and issued a broadly unchanged monetary policy statement.

Many in the market had been betting that the Federal Reserve would pause after yesterday’s rise, the 16th straight increase.

However the FOMC repeated its mantra that “some further policy firming may yet be needed”, although it emphasised that this would be data-dependent.

The dollar may be rallying against some currencies but the pound is soaring after Gordon's European accolades and the continuing confidence in the Miracle Economy of HPI and unlimited MEW.

The one major currency the dollar failed to fall against was sterling, which fell to $1.8616. The pound was undermined by the release of a Bank of England inflation report broadly adjudged to be dovish.

http://today.reuters.com/business/newsArti...NOMY-FED-DC.XML

Fed raises rates and says may hike again

Wed May 10, 2006 2:27 PM ET

WASHINGTON (Reuters) - The Federal Reserve lifted U.S. interest rates for a 16th straight time on Wednesday, and said it may need to raise rates more to keep inflation risks down in its nearly two-year-old credit-tightening campaign.

As widely expected, the central bank's policy-setting Federal Open Market Committee voted unanimously to raise the benchmark federal funds rate target a quarter-percentage point to 5 percent, its highest level since April 2001.

The FOMC --

meeting for only the second time under new Fed Chairman Ben Bernanke said in a post-meeting statement that further policy firming may be needed

.

Looks like no pause--up up and away. .50% differential with BoE now and US GDP twice UK which leaves the pound overvalued.

Edited May 10, 2006 by Realistbear

[Guest Riser]

Typical BBC spin

US rates raised to five-year peak

"US rates raised to five-year peak"

Forex - Dollar tumbles to new lows after FOMC decision - UPDATE 7

NEW YORK (AFX) - The dollar tumbled to a fresh one-year low against the euro

and eight-month low against the yen, after the Federal Reserve delivered on a

widely expected interest-rate increase, but the accompanying statement failed to

change the bearish sentiment towards the dollar in the market.

The Federal Reserve raised interest rates by a quarter percentage point to

5%. After an unprecedented 16 straight rate hikes, the Fed's statement left the

market in the dark about whether it would raise rates again. The dollar

initially pared losses after the Fed move, before slipping back to fresh new

lows against major rivals.

"The committee judges that some further policy firming may yet be needed to

address inflation risks but emphasizes that the extent and timing of any such

firming will depend importantly on the evolution of the economic outlook as

implied by incoming information," the statement said. ....................

[LBoots]

You still don't get it do you RB?

When you go round printing as much money as you like, then sooner or later, the rest of the world are gonna punish you like a rabid bitch...

Since your famous US$ is my 'safe haven' remark, Cable has gained over 13 cents, now why d'you think that is?

America's GDP is mostly made up of deficit spending these days btw...

Furthermore, it doesn't help to have the Iranians run rings round you either, and to show up your foreign policy for what it really is, that of a thiefdom.

Mark my words, the collapse of the US$ is imminent and only an idiot would hold greenbacks now.

Why on earth would anyone want to buy Cable at these levels Totally overvalued & it's only a matter of time before it is 'found out'.

[Duplex]

Its almost painful to watch the Fed try and maintain confidence in the dollar, while the debt addled American economy staggers towards the precipice. My bet is stagflation followed by massive unemployment and a deflationary recession similar to the Japanese experience.

[Realistbear]

The debt level in the UK is very similar to the US. 1.2 Trillion POUNDS in the UK and 11 trillion $ in the US. Adjusted for population size and there is not a lot in it.

The US are producing. GDP more than twice the UK. Job gains in the US compared with job losses in Gordon's Miracle Economy.

What I am reading is that the US are lowering the dollar to make exports competitive and cheap tat from China more expensive. They are revaluing the Chinese currency for them.

The US economy is more resilient than the UK which will have to devalue the pound at some point if it continues to soar--especially since the value has been on the back of HPI and MEW. North Sea Oil is no longer what it was and we are now a net importer.

The EU is not in great shape either with oil rising and Germany in virtual stagnation with its endemic employment problems. Italy--ferget aboud it. FRance--not much to warrant a high EU there. Ireland--the only healthy economy and they have HPI to rival Hong KOng durng a property boom.

I just cannot see the pound as the most valuable currency in the world right now--up against all currencies including even the EU. Gordon must be saying: look into the yes, look into the eyes, employment is high, there is no inflation, we don't have a deficit and there is no debt problem.

Something is amiss somewhere.

What the currency traders say about the pound today:

British Pound – Mixed signals from the Bank of England has given the British pound little direction. The sterling rallied against the US dollar but sold off against the Euro. As expected, the BoE did notch higher their inflation forecasts, expecting inflation to remain above 2 percent throughout the next two years. However, they also reduced their growth forecasts for 2007 and 2008. Although the two changes are somewhat conflicting, the Bank of England does believes that the slowdown in growth will be “not much.” The higher inflation pressures already has the market talking about expectations for interest rate hikes over the next year.

According to the futures markets, a rate hike could come as early as August with one more down the road.

A reinitiating of their tightening cycle should shift the dynamic between the pound and other currencies, especially if economic data continues to improve. The UK trade deficit came in better than expected for the month of March as it narrowed from -GBP 7.04 billion to –GBP 5.45 billion.

http://www.dailyfx.com/story/dailyfx_repor...keyword=article

If two more rate hikes this year push house prices over the edge followed by a severe recession we might see some reality return to CABLE. The US market is crashing in certain areas but overall HPI has not been anywhere as serious as ours.

[devils advocate]

http://news.bbc.co.uk/1/hi/business/4759707.stm

Yep its up up and away, nothing more than we expexted.

"A picture paints a thousand words" - I do like the graph.

[MarkG]

Totally overvalued & it's only a matter of time before it is 'found out'.

After the oil runs out Sterling won't be worth using as toilet paper, but I'm not sure it's hugely overvalued right now. The dollar is sinking, Sterling isn't rising much against any other currency.

Of course if the BoE continue to hold rates all year, it'll be another story... I don't think they can, but I may well be wrong.

[Realistbear]

"A picture paints a thousand words" - I do like the graph.

The graph in the inverse should reflect UK house prices over a similar time period. The downslope to the Nationwide HPI mountain.

With CABLE overvalued by at least 20% the bubble is stretched even more.

[Guest wrongmove]

The debt level in the UK is very similar to the US. 1.2 Trillion POUNDS in the UK and 11 trillion $ in the US. Adjusted for population size and there is not a lot in it.

This is true, but only if the dollar stays weak, relative to the pound. If it strengthened, then the US looks worse.

The US are producing. GDP more than twice the UK. Job gains in the US compared with job losses in Gordon's Miracle Economy.

US GDP (2005) $13,153B, UK GDP(2005) $2,397B (source: http://www.econstats.com/weo/index_glweo.htm)

If this is adjusted for population, US = $44k, UK = $40k. How is this twice as much ?

What I am reading is that the US are lowering the dollar to make exports competitive and cheap tat from China more expensive. They are revaluing the Chinese currency for them.

The Chinese currency is still pegged to the dollar ! Devaluing the dollar does not affect the exchange rate.

The US economy is more resilient than the UK which will have to devalue the pound at some point if it continues to soar--especially since the value has been on the back of HPI and MEW. North Sea Oil is no longer what it was and we are now a net importer.

The EU is not in great shape either with oil rising and Germany in virtual stagnation with its endemic employment problems. Italy--ferget aboud it. FRance--not much to warrant a high EU there. Ireland--the only healthy economy and they have HPI to rival Hong KOng durng a property boom.

The US is also net importer of oil. Germany is the world's biggest exporter.

You spin me right round baby, right round like a record baby.....

[JBFTB]

A question immediately springs to my mind.

How far above our own interest rates does this have to go before we raise ours?

Or, I guess what I really want to know is, in the past have we always responded to this kind of thing by raising our own rates, and if so how much pressure is generally required to force our hand?

[FTBagain]

The Chinese currency is still pegged to the dollar ! Devaluing the dollar does not affect the exchange rate.

The US is also net importer of oil. Germany is the world's biggest exporter.

Actually the yuan is pegged to a 'basket of currancies', so if the dollar values relative to the basket, then it will devalue against the yuan. It is just that the relationship is not a simple one.

The point made is that the US may well be attempting to devalue the greenback against the yuan, but there are dangers, like importing inflation, driving the dollar price of oil up, etc...