Rory Robertson
Rory Robertson
economy happened mention past rates seven
I think the back-up in rates should rate a mention -- it's the most significant thing that's happened to the economy in the past seven weeks.
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The markets are coming to understand that policymakers will be inclined to keep rates very low for an extended period -- the FOMC (Fed rate-setting committee) can still only dream that the economy will be strong enough in 2002 to justify a rate hike.
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It leaves open the door for the Reserve Bank to raise official interest rates sooner rather than later.
backed bargain consumers drop economy equity helped homes interest lower meant mortgage rates taking tap wealth
The thing that helped the economy so much was a drop in interest rates, which meant lower mortgage rates, which meant consumers have been able to tap the wealth in their homes by refinancing and taking equity out of their homes. With rates having backed up so sharply, refinancing is not such a bargain any more.
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There's a perception that the economy is actually doing quite well, in particular the labor market. It's a fairly straightforward assumption the Fed would want to hike rates in March and perhaps in May. You might see bond yields go higher.
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The Fed ultimately will be forced to cut rates further because we have had this ongoing issue of sub-par growth, disappointment on the jobs front and core inflation edging lower. People are talking about a terrific snap-back in the economy after the war, but I'm skeptical we're likely to see it.
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The sharp rise in mortgage rates that is now under way threatens to limit the refinancing boom, limiting the cash that will be dropped into U.S. consumers' hands during the critical holiday-shopping season.
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The lesson from Australia is, as long as interest rates stay relatively low, the market will cool, not crash.
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I think it's going to be 50 basis points because the Fed is worried about the economy, and I think the accompanying statement will reflect that.
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Rising oil prices are quite unhelpful, and falling prices are quite helpful in terms of giving stimulus to the economy. Lower prices feed through pretty well to everyone immediately.
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If we hadn't had a recession a year ago, and we were watching the fall in employment, a stalling manufacturing sector, falling bond yields and falling stock prices, many people would think we were entering a recession. There's an assumption that the recovery will continue and get stronger next year, when in fact it's possible the economy's tipping over again.
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The longer the Fed drags this out without cutting rates, the more they're admitting they don't have much firepower at all. They're sitting on their hands, hoping for the best.
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At this stage, the worst-case scenario for the US economy post-Katrina simply is not playing out.
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After a long period of inactivity, the tide looks to be turning on the local interest-rate front.