Ninjastic
PostEdited versionsQuotes to this post
Next scheduled rescrape ... never
Version 1
Last scraped
Scraped on 21/04/2025, 18:25:33 UTC
Quote from: takuma sato on April 19, 2025, 02:27:06 PM
The ECB lowered their rates by 25bps yesterday and they are now nearing 2%, so this means that savings are barely paying anything above inflation, if we assume the inflation levels to be real, which are around 2%. This that you are losing money by keeping your capital on money market funds at this point, which incentivizes risk off assets, since investors may be forced to take on such risk if they want to make any money.

Meanwhile the FED continues to have rates above inflation, so anyone with a couple million can just chill on money market funds, deposits and so on, and get an income with no risk taking. This does not incentivize people to invest and does not incentivize people to get a mortgage to buy a house since rates are expected to fall, they just don't for now.

So why is the ECB lowering rates before the FED? It used to be that the FED lead and the rest of the world pretty much followed on it. Now the FED is lagging. Is it because they are scared of a second wave of inflation? Why else wouldn't they lower rates at this point? Assuming the economy is doing well, it wouldn't be a panic cut, it would just be lowering rates because the inflation goal is being achieved, but they aren't in a hurry yet. So what does this signal? It signals that the economy is doing good and lowering rates isn't needed? That's how I read it.

All of these central banks are working on their own timelines and the economy of each country/countries is very different, you shouldn't expect them to be moving identically in tandem. Both of them are slowly ratcheting down interest rates, but really it's a good thing to keep them high - we went through a long period of record low rates which was an anomaly on the scale of history, it is more normal to have them 3%+ and it actually discourages reckless borrowing. The insane moves and erratic behavior of the US president makes it almost impossible to predict what will happen next, which makes the job of a central banker trying to decide where the interest rate should be infinitely more difficult. It's not a race like you seem to think it should be.
Original archived Re: Why is the ECB lowering rates but the FED isn't?
Scraped on 21/04/2025, 18:20:24 UTC
Quote from: takuma sato on April 19, 2025, 02:27:06 PM
The ECB lowered their rates by 25bps yesterday and they are now nearing 2%, so this means that savings are barely paying anything above inflation, if we assume the inflation levels to be real, which are around 2%. This that you are losing money by keeping your capital on money market funds at this point, which incentivizes risk off assets, since investors may be forced to take on such risk if they want to make any money.

Meanwhile the FED continues to have rates above inflation, so anyone with a couple million can just chill on money market funds, deposits and so on, and get an income with no risk taking. This does not incentivize people to invest and does not incentivize people to get a mortgage to buy a house since rates are expected to fall, they just don't for now.

So why is the ECB lowering rates before the FED? It used to be that the FED lead and the rest of the world pretty much followed on it. Now the FED is lagging. Is it because they are scared of a second wave of inflation? Why else wouldn't they lower rates at this point? Assuming the economy is doing well, it wouldn't be a panic cut, it would just be lowering rates because the inflation goal is being achieved, but they aren't in a hurry yet. So what does this signal? It signals that the economy is doing good and lowering rates isn't needed? That's how I read it.

All of these central banks are working on their own timelines and the economy of each country/countries is very different, you shouldn't expect them to be moving identically in tandem. Both of them are slowly ratcheting down interest rates, but really it's a good thing to keep them high - we went through a long period of record low rates which was an anomaly on the scale of history, it is more normal to have them 3%+ and it actually discourages reckless borrowing. The insane moves and erratic behavior of the US president makes it almost impossible to predict what will happen next, which makes the job of a central banker trying to decide where the interest rate should be infinitely more difficult.