U.S. Federal Reserve: Interest Rate Hike Time!

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Yup a few minutes ago, the U.S. Federal Reserve voted to raise U.S. interest rates for the first time in 9 years.

http://www.bbc.com/news/business-35117405

U.S. interest rate will now rise by 0.25%
The Federal Funds Rate will rise to between 0.25% and 0.50% (This is the interest banks are charged for moving money between each other).

U.S. Federal Reserve predicts the U.S. economy will grow by 2.4% in 2016 as the recovery strengthens.

Expect the U.S. interest rates to continue to rise as over the foreseeable future.

Do they feel it will be a good thing for the economy? I don't have the answer I am just wondering.

Yes, because too long of a period of easy money will lead to massive inflation and overheating of markets.

The rate hikes should stabilize inflation and money flows.

too little too late

expect a meltdown shortly after inauguration day 2017

by design

I caught one comment of Yellen's to the effect: "We were puzzled though about the missing signs of inflation we expected." It made me wonder if having rich people look for inflation is a bad idea. I mean, if it were someone who did their own grocery shopping, inflation would be slapping them in the face, as it does us; prices are insane and getting worse.

And next will be giving people who don't know how to do anything $15.00 an hour to flip burgers. Watch the inflation go through the roof.

Inflation is technically low and dropping due to energy prices falling quite fast to their near decade low prices.

Most of the recent inflation has been driven by energy prices.

Housing prices are not included in the inflation calculation.

You say:
"Housing prices are not included in the inflation calculation."

Of course not....corporations don't use "housing"...they have much finer ways to get tax breaks. And their self serving calculation methods don't include food either. These are not numbers the average man should concern themselves with; they're entirely designed to reflect "corporate" costs as part of their "cost of doing business."

The "actual" inflation, as measured by the average citizen in the grocery store and housing market is probably closer to 5% a year, or more.

Actually housing and energy are the only two items not counting in the inflation calculation due to the their extreme variable nature.

Also no where in the U.S. have prices rising 5%+ on yearly basis.
If anything the price of a lot of groceries, I've bought have gone down as transportation and energy costs of those products dropped significantly.
This is why the inflation rate is negative for last year and this year.

Don't know where you live but in CA the prices have been going up steadily on food for at least the 10 years since I retired, and I've been watching it closely. Certainly there will be seasonal variation, especially when food is imported from...say Mexico, but I'm 100% sure of my figures. How did you determine yours? Please post something of value to match your claims.

Everything in CA is more expensive than the rest of the country, with Alaska trailing closely behind CA in prices.
CA has more stricter regulation, higher gas prices, higher water prices, higher electric prices, higher taxes etc...
Also CA mandates a special blend of gas to be the only gas sold at CA gas stations. No other state has this regulation.

CA has been horribly out of sync with the rest of the country for a long while.

If you have pay for medication, doctors and other health products, obviously you will be paying a lot more.




Obviously this graph shows how far $100 gets you in each state as of July 1st 2015.
Though this is before gas and oil prices collapsed.

Obviously $100 goes further here in Michigan that it does in CA.
Though I didn't need the graph to tell me this.

I live on the north end of the Metro Detroit area and the cheapest gas station near me today was $1.75.
This also means the price of many goods I buy in the store have inched downward in price too, making my dollars stretch further when I grocery shop.

Also a large portion of the produce and goods available are made in Michigan and the Great Lakes Region.

Obviously Healthcare is not included, due to the constant rises in price.

No argument from me on many things in CA more expensive than elsewhere, although food pricing depends on what you buy...remember we grow more farm products than just about anywhere else, year around.

But I was waiting for examples to back your assertion of dropping food prices (instead of constantly rising prices as I contend). I imagine you may have found otherwise?

I do the grocery shopping and pay attention to prices while at my local Meijer store.
In my case most of the food I buy went down somewhat in price after being level the past 3 years.
Even many of the non food goods have declined slightly in price.

Though the medical stuff I buy at the store (not just for my self), have seen prices stay level on many of those goods for the past few years, while others have increased to some degree.

I spend ~$200 at beginning of each month on groceries (includes OTC medical stuff)
This month it was ~$210:

*~$40 of it is OTC medical stuff
*~$25 is Home cleaning stuff
*~$135 is food and ingredients

This month it has been close to $300 as of now mainly due to OTC medical stuff.

When it comes to food prices it is based on where the food is grown how much I pay.
In order of costs from lowest to highest:

Michigan/Local grown (we are one of top 10 agriculture producing states) - CHEAPEST
Regional (From the other Great Lakes states, most are in the top 10 agriculture producing states) - It can be as cheap or a slightly more expensive than Michigan/Local grown
All the other states (CA not included) - ranges in price based on items, though more expensive generally.
CALIFORNIA grown/produced agriculture - HIGHEST PRICED BY FAR!

I literally can get a the same good from another state for significantly cheaper.


Now on the international level:

Canada, Mexico, and Central America agriculture products are typically the cheapest and can rival most goods brought in from other states in PRICE.

EU and Asian agriculture products are slightly more expensive and some goods can be significantly more expensive

South American good are rare and more expensive due to a lack of Free Trade Agreements.

Others, we do get the occasional agriculture products from Oceania, Pacific, Russia etc.. Those are rare and highly expensive.

Then for some reason the California agriculture products are for some reason cost as much as the expensive foreign agriculture products and more expensive than most foreign agriculture products.


Any agriculture products that are raised, grown, farmed and/or packaged in California, costs anywhere from 2x to 5x the price as Michigan/local good.

Come here in the late fall during Apple season, the California Apples cost between 2x-3x the other apples.
Obviously the Michigan apples are the cheapest.

If I was willing to make the drive I could go to an Apple Orchard and Cider Mill and save even more money while helping out a local business (I don't like apples enough to drive 30 mins).


Why do the California grown grapes 2x the prices of the other grapes?

Why are the California oranges 2x the price of the other oranges (including those from S. Africa)?

Why are the California peaches 2x the price of Georgia peaches and other peaches?

Why are the California almonds and dates 2x the price of the middle east ones?

Why are the California olives more expensive than the Greek and Italian olives?

Why is the California 100% Olive Oil the same price as the 100% Olive Oil from Greece and Italy?
(I only buy it because it is certified by U.S. people and is American made and grown).

California is barely the biggest agriculture state and won't be for too much longer as the water regulation and shortages make it too expensive to grow (let's not forget gas and electricity prices compared to the rest of the country).


Michigan and Wisconsin combined produce more agriculture than California by a significant amount.

The most productive agriculture regions of this country are:

*Great Lakes (includes Minnesota, Illinois, and Pennsylvania)
*East Coast (includes New England states)
*South (includes Texas)
*West Coast (Includes California and consists of 6 states).
*Plains



To repeat: Prices have been stable over over 2 years in many states, especially in the Great Lakes states.
They recently have started a gradual decline in most categories as Gas has declined to $1.75 and energy prices have dropped too.

my accounts are based on my experience of grocery shopping and following prices, but you can talk to anyone else in Michigan and get a similar story on the price of good and other household goods (or most other states for that matter).


The 4 states that have seen price rise yearly over the past 15 years are:

California - this is due to highest electricity rates in U.S. that are constantly rising, most expensive water that keeps rising, high taxes, high energy costs, highest gas in the U.S., highest amount of regulation etc... This all gets passed to you the end consumer.
Alaska - though this is due to them being forced to import food by rail, ship and plane.
Hawaii - same reasons as Alaska
New York, though this is mainly impacting those who live in Metro NYC area (Which is half the state).

D.C. is also really expensive to buy good and gas, despite no sales tax. This due to all the rich and upper middle class people moving into the district driving up prices for everything.



There is a reason why California has held the title as the most expensive state for the past 30 years, beating out New York by wide margin.

FYI: NYC residents who are used to paying a pretty penny for everything think California is overly priced on everything.


Right now in Michigan we are making ourselves feel better by comparing our $1.82 state average which is trending down compared to the California state average of $2.722 (which by the way is trending up, so you should have a rise in prices next week).
http://www.michigangasprices.com/Prices_Nationally.aspx

Everyone knows how horrible expensive everything is priced in California, compared to the other 49 states.

"South American good are rare and more expensive due to a lack of Free Trade Agreements.

Others, we do get the occasional agriculture products from Oceania, Pacific, Russia etc.. Those are rare and highly expensive.

Then for some reason the California agriculture products are for some reason cost as much as the expensive foreign agriculture products and more expensive than most foreign agriculture products."

Out here the fruits or vegetables you buy can easily come from S. America...no change in the last 30+ years I've lived out here. These avocados, tomatoes, etc. generally show up on shelves when local weather in the Northern hemisphere gets colder. No slow in the flow for the last 30+ years I've been out here.

On the other hand, unless handled by a specialty grocer, "agriculture products from Oceania, Pacific, Russia etc." never show up on our shelves.

Sorry you don't find the pricing on CA agriculture attractive.

I'm not an expert on all of the American inflation indices, but I think the measure which excludes food and energy prices is the so called 'Core Inflation' index, which is not very relevant to ordinary people since they have to purchase these things.

The CPI index is also a very dubious instrument. It uses the technique of 'substitution' (Something becoming more expensive? Remove it from the index on the grounds that people aren't buying it any more) and 'hedonic adjustment' which claims that an item is getting cheaper even if its price rises, on the grounds of 'added quality'. The biggest scam in the CPI though is 'Owner's Equivalent Rent', a so-called measure of housing costs which ignores actual house prices and real rents, and provides a rental equivalent based on the rent a householder would pay to themselves to live in their own house (you work it out....): this ridiculous figure accounts for almost 30% of the CPI.

The Fed also uses something called the PCE to calculate 'inflation', but I'm not sure what that is.

I would be a bit surprised if the Fed Funds Rate gets above 1.5% before it's on its way down again.

ECB has had a NIRP policy for some time now.

"YELLEN SAYS IF OUTLOOK WORSENED FED MIGHT WEIGH NEGATIVE RATES
YELLEN SAYS NEGATIVE RATES COULD HELP ENCOURAGE BANKS TO LEND"

"A number of FED governors have reiterated the stance that rates should not go up and Bill Dudley, the most prominent one, even discussed the concept of Negative Interest Rate Policy (NIRP) with Steve Liesman.
On October 14th, John Williams, Janet Yellen's right hand at the San Francisco Fed publishes a paper advocating Negative Interest Rate Policy (NIRP). In the paper, they state that -2% is the present natural rate of interest in our stagnant economy and as result zero interest rates are far too high to be stimulative for growth."
~Seeking Alpha

Poloz in Canada says that NIRP is being considered.
http://www.cbc.ca/news/business/stephen-poloz-monetary-policy-1.3355704

The fact that Yellen did a token raise means very little in the long run. The fact that they talk about 4 raises in '16 means less than nothing if you've followed the Fed for long enough. It is pure Psych. They have to keep the market guessing, it's just part of the game.

I'm inclined to think that the majority of the large economies will embrace a NIRP as the ECB has done.