Are rising benchmark interest rates in the United States having any impact on mortgage or saving interest rates?

The Federal Reserve increased the target for the bank’s benchmark rate by 0.25% (to a range of 2% to 2.25%) last week, the eighth rate rise since 2015. Are rising interest rates really having any impact on mortgage or saving rates?

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U.S. Inflation at 2.9% is the highest since February 2012 and has outstripped wage growth for the first time since October 2012

U.S. Consumer Inflation at 2.9% is the highest since February 2012. And it isn’t just energy prices causing inflation to soar. Core inflation (which is Consumer inflation excluding volatile energy and food prices) at 2.4% has risen at the fastest pace in a decade. Here is a chart for CPI inflation growth,

US CPI August 2018
Source: Source: U.S. Bureau of Labor Statistics

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Contrary to popular belief – foreigners are not buying the bulk of United States federal government debt

The United States government is likely to run a record fiscal deficit this year due to lower tax receipts. And given deficits since 2001, Federal debt is soaring (chart below). In the immediate aftermath of the last recession, the Federal Reserve was a major buyer of U.S. Treasury bonds.

US total federal debt until July 2018
Source: U.S. Department of the Treasury – Fiscal Service

Since 2014 though, the Fed isn’t really a buyer of Treasury bonds. The question is who is buying federal government debt?

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Here’s how much the balance sheets of the Bank of Japan, the Swiss National Bank, the Federal Reserve and the European Central Bank have grown this century

Central Banks have grown their balance sheets significantly in the past 20 years and almost exponentially since the 2008 financial crisis. Here’s how much the balance sheets of the Bank of Japan, the Swiss National Bank, the Federal Reserve and the European Central Bank have grown in the 21st century,

Bank of Japan

Total assets: 540.8036 trillion Yen (JPY) = 4.93 trillion US Dollars (USD)
As of date: May 1, 2018
Asset size as percentage of GDP: 101% of GDP

Interesting information: The Bank of Japan has a target to buy 6 trillion Yen ($54 billion) worth of exchange traded funds a year. It now holds almost 82% of all ETFs in Japan and is indirectly the largest shareholder in many large Japanese companies, almost about half of listed companies in Japan.

Source: Bank of Japan

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The U.S. and mainland Europe have moved in different directions over the past year on interest rates, equity returns, bond yields and government borrowing

Interest Rates

What a difference a year makes. The Federal Reserve has hiked interest rates thrice (in December, March and June) with a target rate range of 1.75% to 2% now. The Eurozone meanwhile maintains its zero-interest rate policy.

Continue reading “The U.S. and mainland Europe have moved in different directions over the past year on interest rates, equity returns, bond yields and government borrowing”

Here is how much total assets or balance sheets of Central Banks have grown in the 21st century

Central Banks have grown their balance sheet in the past 20 years and almost exponentially since the 2008 financial crisis

Bank of Japan

Total assets: 540.8036 trillion Yen (JPY) = 4.93 trillion US Dollars (USD)
As of date: May 1, 2018
Asset size as percentage of GDP: 101% of GDP

Source: Bank of Japan

Continue reading “Here is how much total assets or balance sheets of Central Banks have grown in the 21st century”

The curious case of low U.S. money velocity

From the Federal Reserve’s definition of Money Velocity and Money Supply,

Money Velocity

The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy. Continue reading “The curious case of low U.S. money velocity”

Can the US government really cope with rising bond yields?

The US government has around $20.5 trillion in debt and pays around $558 billion in interest payments a year (an effective interest rate of 2.72%).

Bond yields have been rising recently in the US on the back of a strong economy. The 10-year bond yield topped 3% (up 0.66% over the past year) recently, the highest since January 2014. The 2-year bond yield topped 2.5% (up a massive 1.18% over the past year), the highest since July 2008 (Read more here). Continue reading “Can the US government really cope with rising bond yields?”