Fed ties interest rates to 6.5% unemployment

[wr]

Now pardon my ignorance, but does this not provide the business community with an incentive to keep unemployment high? So they can maintain low interest rates?
What am I missing here???

 

[stunnafasho03]

Low interest rates imo r a good thing..its keeping housing rates at an all time low and its easier for 1st time home buyers to get qualified..theres pros and cons..but more of a positive imo

 

[wr]

^But my thing is how does this not provide the business sector with an incentive to keep unemployment high so they can maintain low interest rates.

I think this is pricing people out of the market.

 

[stunnafasho03]

Yea i agree completely..theres a price to pay..for the working its a great thing..but if ur unemployed findin a job sucks

 

[crcballer55]

The purpose is to incentivise businesses to borrow money (obviously). By borrowing money, they are hoping those businesses will expand. With any expansion, you will need employees/contractors to take over the roles of the business.

If anything, the thing disincentivising businesses from hiring is the new healthcare rules. Since they kick in after 50 full time employees, if a small business is reaching that point, they will likely turn to technology or making some employees part time to keep expenses down.

By keeping interest rates this low for this long, we are creating another bubble that will pop. If a business has a loan that's only 3-4%, then they're likely to keep that around as long as possible since the money is so cheap. With leveraged debt comes increased risk and with increased risk will cause many businesses to buckle under any economic pressures that are faced.

stunnafosho03- mortgage rates aren't related to the FED rate. They are related to the 10 year bond yield which is based on supply & demand.

 

[dipsetallday05]

Are mortgage rates, business loan and line rates relate to money market and CD rates?

 

[wr]

The purpose is to incentivise businesses to borrow money (obviously). By borrowing money, they are hoping those businesses will expand. With any expansion, you will need employees/contractors to take over the roles of the business.

If anything, the thing disincentivising businesses from hiring is the new healthcare rules. Since they kick in after 50 full time employees, if a small business is reaching that point, they will likely turn to technology or making some employees part time to keep expenses down.

By keeping interest rates this low for this long, we are creating another bubble that will pop. If a business has a loan that's only 3-4%, then they're likely to keep that around as long as possible since the money is so cheap. With leveraged debt comes increased risk and with increased risk will cause many businesses to buckle under any economic pressures that are faced.

stunnafosho03- mortgage rates aren't related to the FED rate. They are related to the 10 year bond yield which is based on supply & demand.

But will these companies invest this money or keep it and claim they are seeing record breaking profits and cash reserves without any real work getting done? Much like the bailouts, public and private.

All that's going on economic wise just seems like a bunch of non sense. Who really cares what happens?

 

[crcballer55]

The purpose is to incentivise businesses to borrow money (obviously). By borrowing money, they are hoping those businesses will expand. With any expansion, you will need employees/contractors to take over the roles of the business.

If anything, the thing disincentivising businesses from hiring is the new healthcare rules. Since they kick in after 50 full time employees, if a small business is reaching that point, they will likely turn to technology or making some employees part time to keep expenses down.

By keeping interest rates this low for this long, we are creating another bubble that will pop. If a business has a loan that's only 3-4%, then they're likely to keep that around as long as possible since the money is so cheap. With leveraged debt comes increased risk and with increased risk will cause many businesses to buckle under any economic pressures that are faced.

stunnafosho03- mortgage rates aren't related to the FED rate. They are related to the 10 year bond yield which is based on supply & demand.

But will these companies invest this money or keep it and claim they are seeing record breaking profits and cash reserves without any real work getting done? Much like the bailouts, public and private.

All that's going on economic wise just seems like a bunch of non sense. Who really cares what happens?

The purpose of the FED is to stabilize the banking industry and keep unemployment low. Those are their only two mandates. The purpose of lowering the FED funds rate has typically been to minimize inflation and/or unemployment. On the contrary, when rates are raised, it's to increase inflation and unemployment. 4 years ago, they emptied their entire arsenal when rates are lowered to ~0% and since then have been using creative ways to stabilize the economy that are not within its mandate.

I've never been a big fan of the FED, and it's getting ridiculous at how much liberty they have been allowed and encouraged to take to decrease unemployment. But this will not be without long term consequences since it is ultimately hurting the poor by increasing inflation and the national debt since they are creating a market for the Treasury to sell bonds too.

 

[gold st capital]

The purpose is to incentivise businesses to borrow money (obviously). By borrowing money, they are hoping those businesses will expand. With any expansion, you will need employees/contractors to take over the roles of the business.

If anything, the thing disincentivising businesses from hiring is the new healthcare rules. Since they kick in after 50 full time employees, if a small business is reaching that point, they will likely turn to technology or making some employees part time to keep expenses down.

By keeping interest rates this low for this long, we are creating another bubble that will pop. If a business has a loan that's only 3-4%, then they're likely to keep that around as long as possible since the money is so cheap. With leveraged debt comes increased risk and with increased risk will cause many businesses to buckle under any economic pressures that are faced.

stunnafosho03- mortgage rates aren't related to the FED rate. They are related to the 10 year bond yield which is based on supply & demand.

Well said

 

[wawawowee]

This is all about feeding the banking system and municipalities with cheap money. It has little to do with general industry.

The real job engines out of contractions in this country  are large corporations ( not small businesses) and big business in America is flush with cash. Even if they weren't, a growing and stable business would not have trouble borrowing at low rates as it is. 

The real story is that there is still substantial demand destruction even after over 4 years of cheap money. They can barely print money fast enough to replace the debt that is "lost". 

We have serious structural problems in our economy and they hope that it'll work itself out over a long enough time period. 

 

[crcballer55]

This is all about feeding the banking system and municipalities with cheap money. It has little to do with general industry.

The real job engines out of contractions in this country  are large corporations ( not small businesses) and big business in America is flush with cash. Even if they weren't, a growing and stable business would not have trouble borrowing at low rates as it is. 

The real story is that there is still substantial demand destruction even after over 4 years of cheap money. They can barely print money fast enough to replace the debt that is "lost". 

We have serious structural problems in our economy and they hope that it'll work itself out over a long enough time period. 

I'll have to disagree. Small businesses with less than 300 employees are responsible for over 60% of jobs. While it is the large corporations that have the cash, it is typically small businesses that create some of the most innovative products during recessions. If you look back to the Great Depression, many of the trusted names we have now were started then because a downturn is the best time to start a solid business. There is nowhere to turn but creativity, and the struggle a business endures during that time goes to building a strong foundation to turn to when times become good again. This often means they are built on a foundation of refusing to take on debt because that means increased risk to the business.

 

[frostythepoptart]

crcballer what do you do again? I always feel liek I learn a great deal reading your posts.

So thanks.