Interest rates

Good/bad news: rising interest rates

By Morf Morford

Tacoma Daily Index

With every economic change, some prosper and others suffer.

When interest rates go up (or down), there are many predictable impacts (and about as many unpredictable impacts).

There are winners and losers.

For those of us with investment or retirement accounts, an increase in interest rates means our portfolios are worth more.

Low or stagnant rates mean that our investment accounts are also immobile. Individual savings accounts, for example, yield next to nothing.

Low rates, on the other hand, are ideal for those who are buying or taking out loans – on a car or a house, for example.

In the end, are we paying or receiving the impact of rising interest rates?

High or low, interest rates affect almost all of us.

And like any other underlying dynamic in our economy, we can get used to it.

We can adapt to it if we know what to expect.

And, at least in a sense, we know what to expect.

Prices go up.

Global interest rates, like gas prices, cross borders, although most countries do their best to control their own interest rates.

Market forces tend to prevail over national preferences.

FOMC

Here in the United States, the Federal Open Market Committee (FOMC) is made up of twelve members – the seven members of the Federal Reserve Board of Governors; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.

Rotating seats are filled by the following four banking groups, one bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis and Dallas; and Minneapolis, Kansas City and San Francisco.

The FOMC holds eight regularly scheduled meetings each year.

At these meetings, the Committee reviews economic and financial conditions, determines the appropriate monetary policy stance and assesses risks to its long-term objectives of price stability and sustainable economic growth.

Stability and durability are the moving targets of this chimerical quest.

The FOMC is seeing its rates raised to around 2% this year. This implies a rate hike of 25 points in each of the remaining six meetings in 2022 and possibly even higher rates in the future.

The FOMC analyzes and makes projections on the approaching economy.

The projections made in March and June are for the current year, for the next two years and for the longer term.

The projections made in September and December are for the current year, for the following three years and for the longer term.

Longer-term projections are the rates of GDP growth, inflation, and unemployment to which a policymaker expects the economy to converge over time—perhaps five or six years from now—in l absence of new shocks and surprises and within the framework of an appropriate monetary policy.

In short, the FOMC looks back, looks forward, and makes its best guesses on where the economy is headed – with an eye on where it (or us) would like it to go.

If you want to know more about the FOMC, look here: https://www.federalreserve.gov/monetarypolicy/fomc.htm.

And if you want to consult the primary sources and make your own projections on the economy ahead, take a look here: https://www.federalreserve.gov/econres/economic-research-data.htm.

More than an hour on this page should earn you a Boy Scout Medal of Honor in Economic Nerdness.