Interest rate hikes are still the topic du jour of the moment. It seems like everyone has a different opinion of just how the Fed should modify rates over the next year or two. These interest rate changes could have a huge impact to your bank’s balance sheet. It’s important for your bank’s ALCO to understand what it means for your organization and to have a structured plan moving forward that can quickly respond to rate changes.
If you need help understanding how this could affect your bank, please don’t hesitate to reach out to us at (918) 791-0699 or by emailing us at firstname.lastname@example.org.
Yellen says she thinks Fed should raise interest rates “a bit more” (source)
- Former Federal Reserve Chair Janet Yellen said Tuesday that the Federal Reserve should stick to the task of raising interest rates to slow down the economy despite the market turmoil seen this month.
- Yellen said the financial conditions remain “accommodative,” despite the market correction.
- Yellen said the Fed funds rate around 3% would be neutral.
- She said she expected the economy to slow next year slightly, and remain above “trend” that would keep lowering the unemployment rate.
- “The Fed could be the possible cause of a recession if it tightens too much. This was more a concern for 2020 than 2019.”
Rising interest rates pinch US auto sales, consumer confidence (source)
- Ford Motor Company reported a 5% decline in sales for pickup trucks, while overall sales fell 3.9% to 192,616 units in October hurt by lower passenger car demand.
- Ford said that consumers are relatively confident about economic conditions, slightly less so than in September, adding that payments have crept up with rising interest rates.
- The number of responses in the index saying that it was a good time to buy a car fell 8 points from September to 59% on higher concerns about vehicle prices and interest rates.
- US car sales, which dropped 2% last year from a record high of 17.55 million in 2016, are expected to fall further in 2018. This is due to rising interest rates and the return of more late-model used cars to dealer lots.
Interest rates haunt farmers (source)
- For years, financial advisors, analysts, and economists warned farmers to prepare themselves for higher interest rates.
- Rising interest rates will likely create a profit squeeze for more farmers, unless crop and livestock prices surge higher, as higher debt payments eat into production margin.
- For young farmers, it is a much greater challenge because they are dealing with something they have never dealt with before, and they are in the state of life when debts are prone to rising the fastest.
- Interest rates have steadily increased, while at the same time, crop and livestock prices have weakened, producing lower profits and making debt payment proportionately bigger burden.
- While older generations of farmers needed to survive the high interest rates of the 1980s, and most carry the lessons of that era to draw upon, younger farmers don’t have those lessons.
- It’s been more than 10 years since interest rates seemed to threaten profitability.
- Even in the mid-2000s that threat was more than mitigated by the surge in crop and livestock prices that began in 2006.
Fed was afraid of negative interest rates: former Fed Vice Chair Fischer (source)
- A fear of negative interest rates kept the Federal Reserve from raising rates earlier than some policymakers had hoped, former Fed vice chairman Stanley Fischer said recently.
- “The possibility of having a negative interest rate frightened the heck out of everybody who had to set the interest rate.”
- The Fed started to raise rates in late 2015.
- “What really concerned people was, ‘If we raise the interest rate, will we have to reduce it, and if we have to reduce it, will it go negative?’ This led to interest rate raising aversion. So the interest rate was kept between 0 and 25 basis points for several years.”