what are your thoughts on the next aussie interest rate move?
also, what about yellan and the next us move, when and how much vetrade?
cheers.
Well beefarmer I’m the wrong person to ask about interest rates because people who try to guess their moves, or worse still gamble on them, are kidding themselves. You only have to see how varied the predictions of the supposed leading economists are (even in the short term) to know that they all just guess most of the time and there is no set formula to follow. The ones that guess correctly get bragging rights – but only until they get it wrong the next time.
Given that moves over the past couple of years have been both infrequent and in small increments I can’t see any reason on the horizon that would see us deviate from that pattern. My personal guess is that circumstances which would see Aussie rates fall from where they are now are unlikely and any moves up will be both gradual and in small increments. Wouldn’t surprise me if there are no changes at all over the next 6 months or more. But IRs are way down on my list of priorities.
As far as the US is concerned you have to realise that Janet Yellen is essentially an economics academic who was made Chair of the Fed Reserve by Obama at the start of 2014 because she could be relied on to follow the Democrats’ agenda. IR’s were just one part of that.
To explain, it’s not widely known that QE (Quantitative Easing – i.e. printing money) in the US has been used by Obama and the Democrats to change the financial landscape in ways previously never contemplated. Even though QE has been reigned in somewhat now the changes that resulted since the start of the GFC certainly have not. Although QE more than doubled the amount of money but it wasn’t put into circulation, where it would have caused inflation. The agenda started under Ben Bernanke wasn’t to make money; it was to gain control.
When the GFC hit a big chunk of the money printed went to the top 4 banks over there. The banks then lent out a lot of that chunk to prop up the stock market. In return for the money the US Government acquired shares in those banks via the Fed Reserve. Now that the banks are back to profitability they have indicated they wanted to buy back the shares the Government owned but the Fed Reserve said “Not at any price”.
So the Fed Reserve today is a major shareholder (a top 20 shareholder in all 4 major banks) and dictator of policy on all the bank boards – and it wants to continue that influence i.e. it now controls the banking industry in the US. Yes, WOW! (The Fed Reserve is a private organisation, not a govt. organisation – the US govt. is a minority shareholder in the FR).
So now you have a sizeable degree of state ownership of public companies which is the opposite of what capitalism is about. In other words the mandate of the US Govt. has been used to print money and buy shares giving it around 20% ownership of the banks. Which means it’s no longer a free market. Of course the Fed Reserve should have already sold the shares and used the proceeds for infrastructure / health care etc. but it won’t because the lefties like the control they have. So the Yanks have got a degree of socialism by stealth.
So what does all this have to do with interest rates in the US? Well, as a liberal, Yellen is happy to do what the Democrats expect of her so there’s negligible chance she would do anything which could upset the stock market and work against the Democrats’ chances of re-election. At the least that means no changes before the November elections and if Hillary wins the policy is unlikely to change. She has also repeatedly reminded the market that the Fed's job is to suppress unemployment and inflation so you can bet any medium term changes to IRs are likely to be small and drawn out; not unlike what’s likely with our own. Of course it should go without saying that there’s only one way for US IRs from here, barring something unexpected, and that’s up.