Trump gets his grubby little hands on the Fed. Outcome?
Discussion
Hustle_ said:
Today I be overthinking an upcoming mortgage decision.
I would like to investigate one credible risk which has been little-discussed. What if the amoral and demented s
t-smear manages to install a spineless patsy at the Fed, drastically lowering US bank rates?
AIUI it shouldn't affect UK rates hugely and, assuming your mortgage is with a UK bank and in £sterling I'm not sure why you'd be affected.I would like to investigate one credible risk which has been little-discussed. What if the amoral and demented s
t-smear manages to install a spineless patsy at the Fed, drastically lowering US bank rates? Hustle_ said:
Today I be overthinking an upcoming mortgage decision.
I would like to investigate one credible risk which has been little-discussed. What if the amoral and demented st-smear manages to install a spineless patsy at the Fed, drastically lowering US bank rates?
I think Donkey Apple has posted about this and I think his conclusion was that mortgage rates would rise but don't quote me on that.I would like to investigate one credible risk which has been little-discussed. What if the amoral and demented s
t-smear manages to install a spineless patsy at the Fed, drastically lowering US bank rates? The risk would be that Trump causes US interest rates to be too low leading to a short term debt-fuelled boom and inflation. The problem is that the growth is unsustainable but the inflation is sticky. So within a few years the US has to jack up interest rates to fight inflation and this suppresses growth. By the time inflation is back under control economic output is lower than where it started.
Would the UK get caught up in this? Yes. Our economies are coupled through trade and investors' freedom to move capital between the UK and the USA. The result is that the cost of borrowing in the UK largely behaves as a difference to borrowing costs in the US rather than an independent, absolute cost purely under the Bank of England's control. This means if US rates rise, UK rates are very likely to follow.
Would the UK get caught up in this? Yes. Our economies are coupled through trade and investors' freedom to move capital between the UK and the USA. The result is that the cost of borrowing in the UK largely behaves as a difference to borrowing costs in the US rather than an independent, absolute cost purely under the Bank of England's control. This means if US rates rise, UK rates are very likely to follow.
Oh, and when Trump makes short term rates artificially low, the market will anticipate inflation and raise long term rates. It's those longer term rates that determine fixed term mortgage rates. All else equal across the life of a mortgage you'd expect fixed and floating mortgages to cost the same.
I think you need to lob your wide angle lens onto the DSLR.
One of the cornerstones of US (Dollar) dominance is an independent Fed. It is in Trump’s interests to keep it. If independence is lost and interest rates are pushed artificially lower the interest rate on government debt could become decoupled from the Fed base rate. Investors will then look more critically at the return offered by US Treasuries which will in all likelihood mean higher interest rates. The US is already weighed down with debt and would end up drowning in interest payments with the only way out being to print more Dollars. I hope you can see the spiral being created here. The Dollar would be destroyed as a store of wealth and the ripples would race around the world faster than you can refresh this page. Global economic meltdown on a scale never seen before.
So, what would happen to your mortgage interest rate? You won’t care. You’ll have much bigger things to worry about.
One of the cornerstones of US (Dollar) dominance is an independent Fed. It is in Trump’s interests to keep it. If independence is lost and interest rates are pushed artificially lower the interest rate on government debt could become decoupled from the Fed base rate. Investors will then look more critically at the return offered by US Treasuries which will in all likelihood mean higher interest rates. The US is already weighed down with debt and would end up drowning in interest payments with the only way out being to print more Dollars. I hope you can see the spiral being created here. The Dollar would be destroyed as a store of wealth and the ripples would race around the world faster than you can refresh this page. Global economic meltdown on a scale never seen before.
So, what would happen to your mortgage interest rate? You won’t care. You’ll have much bigger things to worry about.
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