Jump to content
House Price Crash Forum
Sign in to follow this  
spoon

How Far Could Interest Rates Rise?

Recommended Posts

Amidst all the uncertainty of recent weeks one thing is clear. The Fed and MPC are extremely uncertain on the issue of the future path of interest rate policy. Currently they are struggling with the need to maintain economic growth and employment, and balancing this with their inflation fighting instincts.

Soon they will need to concede that meeting the above twin objectives is near impossible. When policy setting instruments are no longer able to achieve all economic goals, it becomes sensible to focus on that goal which is most suited to the the policy tool. The choice is clear. Interest rate policy is best suited to attacking inflation. Once the Fed has overcome the embrassment factor of having failed in it's twin objectives, we might see rates being lifted to 6.00% and beyond. Maybe even 7.00%. Why not?

The Fed is making a grave policy error in leading the market to dismiss the possibility of much higher rates. The market is making an even bigger mistake in assuming the Fed will be willing to remain behind the curve and bring a halt to the hiking cycle.

In summary, I believe we are heading for significantly higher rates than most expect currently.

Share this post


Link to post
Share on other sites

How high will IRs go? Nobody knows.

But I think the consequences of interest rates much above 5.5% would cause horrific problems for some people in this country.

Share this post


Link to post
Share on other sites
Guest

I think me2 is trying to say they won't attack inflation, so won't raise rates.

However, he is a new FED chief and a bit wet behind the ears.

Also, if you hear him speak, he sounds about 16 years old.

So, anything could happen.

Share this post


Link to post
Share on other sites

Amidst all the uncertainty of recent weeks one thing is clear. The Fed and MPC are extremely uncertain on the issue of the future path of interest rate policy. Currently they are struggling with the need to maintain economic growth and employment, and balancing this with their inflation fighting instincts.

Soon they will need to concede that meeting the above twin objectives is near impossible. When policy setting instruments are no longer able to achieve all economic goals, it becomes sensible to focus on that goal which is most suited to the the policy tool. The choice is clear. Interest rate policy is best suited to attacking inflation. Once the Fed has overcome the embrassment factor of having failed in it's twin objectives, we might see rates being lifted to 6.00% and beyond. Maybe even 7.00%. Why not?

The Fed is making a grave policy error in leading the market to dismiss the possibility of much higher rates. The market is making an even bigger mistake in assuming the Fed will be willing to remain behind the curve and bring a halt to the hiking cycle.

In summary, I believe we are heading for significantly higher rates than most expect currently.

What the FED do and what the MPC do, are not necessarily the same thing.

There is no reason for the MPC to raise IRs in the UK. £ is required to weaken, which won't happen with higher IRs.

Reducing inflation, through reducing the amount of cash in peoples pockets and creating financial pain, could just as easily be acheived by increasing taxation, which Gordon Brown will not only have to do, but will quite relish as his dream is of a socialist state controlled economy, where the state giveth and the state taketh away. Amen

You have to understand the whole economy, how its structured, what the pressure points are and its global position to appreciate what might happen to IRs here. Increasing tax would be just as deflationary as a increasing interest rates.

Without all those stealth tax rises, NI increases, then house prices would have gone even higher .... House prices are driven by the cash available in peoples pockets, right here, right now.

Share this post


Link to post
Share on other sites
Guest Bart of Darkness
The average person has just £27 a week left to live on after meeting all their bills and essential outgoings.

Share this post


Link to post
Share on other sites

What the FED do and what the MPC do, are not necessarily the same thing.

There is no reason for the MPC to raise IRs in the UK. £ is required to weaken, which won't happen with higher IRs.

Reducing inflation, through reducing the amount of cash in peoples pockets and creating financial pain, could just as easily be acheived by increasing taxation, which Gordon Brown will not only have to do, but will quite relish as his dream is of a socialist state controlled economy, where the state giveth and the state taketh away. Amen

You have to understand the whole economy, how its structured, what the pressure points are and its global position to appreciate what might happen to IRs here. Increasing tax would be just as deflationary as a increasing interest rates.

Without all those stealth tax rises, NI increases, then house prices would have gone even higher .... House prices are driven by the cash available in peoples pockets, right here, right now.

Hi,

All things are possible. One thing though, that does simplify some very complex economic issues, there are rumblings in the world economy, the stock market falls this week in the UK were a reacion to market perceptions of UK future inflation, future UK interest rate rises and pressures excerted on the UK economy by the path of the dollar and the US defecit. It really is a lot more complicated a picture than that. Just be aware that the recent past has been deceptively good in the UK at the cost of record personal debt and government and trade defecits. The wider markets this week have suggested that there are concerns out there, you have to trust that the current government and UK business can handle it and that events in places across the world, like the US, China and Japan will not adversely affect you personally. Do you? I admire your self assuredness and confidence, maybe you are correct but on the other hand, night always follow day, we have just had a continued boom with recent signs of wobbling. Neither of us has a crystal ball but the fact remains it is a far riskier decision now to take on large debt levels than it has been for a very, very, very long time.

Edited by boom_and_bust

Share this post


Link to post
Share on other sites

Amidst all the uncertainty of recent weeks one thing is clear. The Fed and MPC are extremely uncertain on the issue of the future path of interest rate policy. Currently they are struggling with the need to maintain economic growth and employment, and balancing this with their inflation fighting instincts.

Soon they will need to concede that meeting the above twin objectives is near impossible. When policy setting instruments are no longer able to achieve all economic goals, it becomes sensible to focus on that goal which is most suited to the the policy tool. The choice is clear. Interest rate policy is best suited to attacking inflation. Once the Fed has overcome the embrassment factor of having failed in it's twin objectives, we might see rates being lifted to 6.00% and beyond. Maybe even 7.00%. Why not?

ock

The Fed is making a grave policy error in leading the market to dismiss the possibility of much higher rates. The market is making an even bigger mistake in assuming the Fed will be willing to remain behind the curve and bring a halt to the hiking cycle.

In summary, I believe we are heading for significantly higher rates than most expect currently.

Spoon. I think you're right. Look what happened to stocks after the maret started to think that interest rates could go further than they are now. Is there any wonder why the FED and MPC are not coming clean?

Inflation is here with us already. Eventually the central banks will HAVE to act and that will mean real decisive action and interest rates up by several %.

Share this post


Link to post
Share on other sites

What the FED do and what the MPC do, are not necessarily the same thing.

Reducing inflation, through reducing the amount of cash in peoples pockets and creating financial pain, could just as easily be acheived by increasing taxation, which Gordon Brown will not only have to do, but will quite relish as his dream is of a socialist state controlled economy, where the state giveth and the state taketh away. Amen

You have to understand the whole economy, how its structured, what the pressure points are and its global position to appreciate what might happen to IRs here. Increasing tax would be just as deflationary as a increasing interest rates.

Wrong wrong worng. Increasing taxes does not reduce aggregate demand, it just redistributes it (largely to all those excellence cluster co-ordinators on 80k). The only way of constraining inflation is through controlling money supply.

Share this post


Link to post
Share on other sites

How Far Could Interest Rates Rise?, Does anybody know?

6.5% by end 2007

and then very painful small rises to 7.5% to 8% over following 4 years

Edited by Flat Bear

Share this post


Link to post
Share on other sites
Guest Bart of Darkness
How Far Could Interest Rates Rise?, Does anybody know?

Yes.

(Not telling you though :P )

Share this post


Link to post
Share on other sites

This is the very crux of the HPC debate.

If 4.75-5% UK base rate is sufficient to contain inflation then no HPC, further stagnation more likely.

5.25% plus then HPC is on.

The matter is that inflation is a global issue, the Bank of England has to move rates upwards with the rest of the world's central banks whether they like it or not.

Spoon, I understand you are well qualified to make a good prediction on the matter. I'm not, but my gut feeling is that you are correct.

Share this post


Link to post
Share on other sites

Without all those stealth tax rises, NI increases, then house prices would have gone even higher .... House prices are driven by the cash available in peoples pockets, right here, right now.

That's rubbish.

It is interest rates going lower and the relaxing of lending that has driven up house prices

Share this post


Link to post
Share on other sites
If 4.75-5% UK base rate is sufficient to contain inflation then no HPC, further stagnation more likely.

And if pigs could fly I'd be scraping pig poo off my car every morning.

The only thing allowing the BoE to pretend that inflation was low over the last few years were Chinese exports, and with with yuan appreciating and Chinese wages inflating, that's over. If the Chinese start exporting inflation rather than deflation, we'll be seeing rates over 10% as the BoE have to push us into recession to destroy demand for Chinese tat.

Edited by MarkG

Share this post


Link to post
Share on other sites

Heard Roger Bootle and some other economist on Radio 4's You and Yours saying not to worry about inflation.

Are these people incompetent or just paid to be optimists. The only thing they seemed to see as an inflationary pressure was the price of oil and that was just a spike.

Neither of them questioned the governement's measure of inflation and the BBC presenter didn't ask any tricky questions.

How blinkered is that?!

Share this post


Link to post
Share on other sites

That's rubbish.

It is interest rates going lower and the relaxing of lending that has driven up house prices

It seems that people don't agree with your economics sense IMupNorth.

Out of interest - are you also still bullish on HPI?

Nice jugs though.

Share this post


Link to post
Share on other sites

I think for the majority that house prices are constrained by two factors alone:

  • How much can people spend (not neccessarily afford)
  • Current sentiment

Its been well demonstrated that if you give the average UK joe public a huge loan he will take it and spend it (£1.2 trillion debt??), so if a culture of lax lending develops then house prices can potentially rise.

Current sentiment for most of the public is driven by the newspapers and their friends (who get their sentiment from the news also)... so if VI ramping is rampant then combined with the lax lending this is a recipe for HPI.

If you end the lax lending - beginning to unwind now - then no more HPI.

If the sentiment changes - and its is changing - then no more HPI.

If each of them change enough then it results in an HPC.

Simple? Too simple?

It seems a simple way to put it, but when you combine the 'must get on the ladder now' mentality (and ramping) of the last few years with the easy credit that has been available is it any wonder that HPI got out of control?

Share this post


Link to post
Share on other sites

And if pigs could fly I'd be scraping pig poo off my car every morning.

The only thing allowing the BoE to pretend that inflation was low over the last few years were Chinese exports, and with with yuan appreciating and Chinese wages inflating, that's over. If the Chinese start exporting inflation rather than deflation, we'll be seeing rates over 10% as the BoE have to push us into recession to destroy demand for Chinese tat.

Don't get carried away - China acted in 2004 to control their inflationary pressures, and they have (so far) managed to keep a lid on significant wage inflation; indeed, to the point of provoking civil unrest.

Also, the Chinese have no interest in allowing their currency to appreciate significantly. Why on earth would they want to destroy their competitive advantage? There is no real danger until they push ahead with their stated aim of moving into more value-added manufacturing.

Once again, relax :) We are not facing economic collapse. I can quite understand why some people see this site as some sort of financial doomsday cult

Edited by Europa

Share this post


Link to post
Share on other sites
Don't get carried away - China acted in 2004 to control their inflationary pressures, and they have (so far) managed to keep a lid on significant wage inflation; indeed, to the point of provoking civil unrest.

Yet a few days ago someone posted a story claiming that Chinese wages were increasing 20% a year.

Also, the Chinese have no interest in allowing their currency to appreciate significantly. Why on earth would they want to destroy their competitive advantage?

The Chinese currency _is_ appreciating. How else are they going to afford to buy commodities whose prices are exploding due to undersupply of commodity and oversupply of money?

Once again, relax smile.gif We are not facing economic collapse.

Yeah, just relax and drink the Kool-aid, dude. Inflation is 2%, always will be 2% and always has been 2%. We've always been at war with EastAsia.

Share this post


Link to post
Share on other sites

The explosion in house prices is a global phenom not unique to the UK. The two single biggest factors fuelling this are the zero interest rate policy maintained by Japan for over a decade, and secondly the amount of petrodollars sloshing around. The same factors that have led to wobbles in emerging markets recently are the precisely the same factors that will ***** the real estate bubble.

Edited by spoon

Share this post


Link to post
Share on other sites

Yet a few days ago someone posted a story claiming that Chinese wages were increasing 20% a year.

Thank you for the prompt responce.

The wages of the urban middle class might well be increasing at 20 per cent pa; those of the factory floor workers aren't (hence the civil unrest).

The Chinese currency _is_ appreciating. How else are they going to afford to buy commodities whose prices are exploding due to undersupply of commodity and oversupply of money?

China, as I'm sure you know, has resisted pressure from the US (which fears for its domestic manufacturers) to allow its currency to float at a realistic level. The increases so far have, I'm sure you'll agree, been minimal.

If it allows its currency to appreciate at this stage, it will obliterate its advantage in the world market (and reduce its need for commodities) - how do you square this particular circle?

For what its worth, I don't believe China will be content to remain the sweatshop of the world for ever; when they move into higher value production, that could be the time to worry.

Share this post


Link to post
Share on other sites

It seems that people don't agree with your economics sense IMupNorth.

Out of interest - are you also still bullish on HPI?

Nice jugs though.

The fact that those people that disagree with me have been proven to be perpetually wrong for the last 18 months, whilst I've been right, means I ain't worried about their rantings.

Bullish on HPI ? - I don't think I've ever been bullish - all I'm saying is that house prices won't crash in the forseeable future. HPI is likely to be low, just a few % a year is the most to expect, thats all I've been saying. I favour broad stagnation for the foreseeable future, unless IRs go up substantially and that is very very unlikely.

The desperados are misleading people and giving people false hope - that ain't nice, in fact its as bad as those nasty VI's misleading people.

Just be honest and be happy.

Share this post


Link to post
Share on other sites

The explosion in house prices is a global phenom not unique to the UK. The two single biggest factors fuelling this are the zero interest rate policy maintained by Japan for over a decade, and secondly the amount of petrodollars sloshing around. The same factors that have led to wobbles in emerging markets recently are the precisely the same factors that will ***** the real estate bubble.

Absolutely correct.

But the over-riding driver for inflated property prices is the hefty speculative premium which attaches to house prices because property is now seen as a win-win 'investment'. Strip out this misplaced sentiment however and there is little left to prop up these absurd prices; particularly when IRs start notching up.

Share this post


Link to post
Share on other sites

The fact that those people that disagree with me have been proven to be perpetually wrong for the last 18 months, whilst I've been right, means I ain't worried about their rantings.

Bullish on HPI ? - I don't think I've ever been bullish - all I'm saying is that house prices won't crash in the forseeable future. HPI is likely to be low, just a few % a year is the most to expect, thats all I've been saying. I favour broad stagnation for the foreseeable future, unless IRs go up substantially and that is very very unlikely.

The desperados are misleading people and giving people false hope - that ain't nice, in fact its as bad as those nasty VI's misleading people.

Just be honest and be happy.

No one is misleading anyone on here except a few bulls like you. And even if you admit that house prices are pretty much stagnant and are going to remain stagnant, renting makes much more sense than buying especially when it's cheaper and more convenient. There are many more downward risks to housing market than any hope of HPI picking up from here now. Buying overpriced houses in this climate is not a sensible thing to do. If you can wait then wait and make your money grow elsewhere. That's the most sensible thing to do and that's what I am doing atm.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 301 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.