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Fed Study Suggests Rates Will Stay At Record Lows Until ’12

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http://www.nytimes.com/2010/06/15/business/economy/15fed.html?ref=business

Given high unemployment and low inflation, the Federal Reserve is likely to wait until 2012 before it starts to raise interest rates, a new Fed research paper states.

The paper, released Monday by the Federal Reserve Bank of San Francisco, does not represent the official position of the central bank, whose governors have declined to specify when they might begin to raise rates. The benchmark short-term interest rate, known as the federal funds rate, has been essentially zero since December 2008, and most economists estimate that the Fed will increase it earlier than 2012.

But the paper, by Glenn D. Rudebusch, a senior vice president and associate director of research at the San Francisco Fed, is notable for its plainspoken conclusion. It could carry added significance because Janet L. Yellen, the president of the San Francisco Fed, is President Obama’s nominee to be vice chairwoman of the central bank.

“Fed staff economists rarely come so close to making specific forecasts of — or recommendations for — monetary policy, but I suspect Glenn’s views are shared by many others on the staff,” said Joseph E. Gagnon, a former Fed economist and now a senior fellow at the Peterson Institute for International Economics.

Mr. Rudebusch concluded from Fed decisions over the last two decades that there was a statistical relationship between core consumer price inflation and the gap between actual unemployment and the natural, or normal, rate of unemployment.

Given that relationship, as the recession worsened and inflation slowed in 2009, the Fed in theory should have lowered the federal funds rate by another 5 percent, Mr. Rudebusch wrote. In reality, since the Fed had already hit what it calls the “zero lower bound,” this was impossible; the central bank left its target range for the fed funds rate at zero to 0.25 percent.

“To deliver future monetary stimulus consistent with the past— and ignoring the zero lower bound — the funds rate would be negative until late 2012,” Mr. Rudebusch wrote. “In practice, this suggests little need to raise the funds rate target above its zero lower bound anytime soon.”

Mr. Rudebusch sought to address several objections, so far voiced by a minority of Fed policy makers, to keeping the federal funds rate near zero.

If the rate were raised too soon, it would be hard to reverse course, whereas if tightening is started too late, the Fed could catch up by raising rates at a rapid pace, he argued.

The Fed to keep the rate near zero to ensure the dollar carry trade?

The Fed to keep rates near zero to ensure the dollar devalues against the Renminbi?

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dont be silly...this implies that insiders know the results in advance...or even contribute to the decision..when we all know its Goldman Sachs that decides such things.

cant have a dollars worth today being worth a dollar tommorow.

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Yep and in '12 it will have to stay at record lows until at least '15.

people arent able to borrow at these low rates.

customers are what banks need.

customers are all borrowed out.

Its finished...they need to lose a few banks and debt needs to be defaulted...thats all thats going to cure this.

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people arent able to borrow at these low rates.

customers are what banks need.

customers are all borrowed out.

Its finished...they need to lose a few banks and debt needs to be defaulted...thats all thats going to cure this.

In a capitalist society they would have let the banks fail, paid out the insurance on the first £35,000 pounds of deposits..everything else would have been lost. And the bondholders would have gotten one monster haircut.

The entrenched capital would be mainly wiped out.. and the game would start going again. Asset prices would reset to a lower level that would be affordable with low levels of capital.

But the capital owning elite in society would never allow a reset of their wealth. They won't even allow an inflating away of their capital wealth. So returns on capital will go negative and it will be a grind down until it can't go on anymore.

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In a capitalist society they would have let the banks fail, paid out the insurance on the first £35,000 pounds of deposits..everything else would have been lost. And the bondholders would have gotten one monster haircut.

The entrenched capital would be mainly wiped out.. and the game would start going again. Asset prices would reset to a lower level that would be affordable with low levels of capital.

But the capital owning elite in society would never allow a reset of their wealth. They won't even allow an inflating away of their capital wealth. So returns on capital will go negative and it will be a grind down until it can't go on anymore.

except, even the top elites need customers....or copper tops as they are refered to by some.

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except, even the top elites need customers....or copper tops as they are refered to by some.

They always forget that part. Only the greatest leaders and industrialists have realized you need a vast middle class with huge buying power to buy the production of the factories.

Most only see it from their narrow perspective, not the greater societal impact. Like almost every businessman wants to hammer down the wages HE is paying.

This is why imo we need a dictator in charge who can think about the entire national interest. Not a parliament who looks after a bunch of individual special interests.

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I to reckon rates will remain low for the forseeable future.... those hoping for higher rates to drive a real housing crash I think are not going to get their wish.. this is going to the sort of bubble where the air comes out very very slowly.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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