Sunday, December 7, 2014

Most Households Expect Interest Rates to Increase by May

Two new posts on the New York Federal Reserve's Liberty Street Economics Blog describe methods of inferring interest rate expectations from interest rate futures and forwards and from surveys conducted by the Trading Desk of the New York Fed. In a post at the Atlanta Fed's macroblog, "Does Forward Guidance Reach Main Street?," economists Mike BryanBrent Meyer, and Nicholas Parker, ask, "But what do we know about Main Street’s perspective on the fed funds rate? Do they even have an opinion on the subject?"

To broach this question, they use a special question on the Business Inflation Expectations (BIE) Survey. A panel of businesses in the Sixth District were asked to assign probabilities that the federal funds rate at the end of 2015 would fall into various ranges. The figure below compares the business survey responses to the FOMC's June projection. The similarity between businesspeoples' expectations and FOMC members' expectations for the fed funds rate is taken as an indication that forward guidance on the funds rate has reached Main Street.


What about the rest of Main Street-- the non-business-owners? We don't know too much about forward guidance and the average household. I looked at the Michigan Survey of Consumers for some indication of households' interest rate expectations. One year ago, in December 2013, 61% of respondents on the Michigan Survey said they expected interest rates to rise in the next twelve months. Only a third of consumers expected rates to stay approximately the same. According to the most recently-available edition of the survey, from May 2014, 63% of consumers expect rates to rise by May 2015.

The figure below shows the percent of consumers expecting interest rates to increase in the next twelve months in each survey since 2008. I use vertical lines to indicate several key dates. In December 2008, the federal funds rate target was reduced to 0 to 0.25%, marking the start of the zero lower bound period. Nearly half of consumers in 2009 and 2010 expected rates to rise over the next year. In August 2011, Fed officials began using calendar-based forward guidance when they announced that they would keep rates near zero until at least mid-2013. Date-based forward guidance continued until December 2012. Over this period, less than 40% of consumers expected rate increases.

In December 2012, the Fed adopted the Evans Rule, announcing that the fed funds rate would remain near zero until the unemployment rate fell to 6.5%. In December 2013, the Fed announced a modest reduction in the pace of its asset purchases, emphasizing that this "tapering" did not indicate imminent rate increases. The share of consumers expecting rate increases made a large jump from 55% in June 2013 to 68% in July 2013, and has remained in the high-50s to mid-60s since then.


But since 1978, the percent of consumers expecting an increase in interest rates has tracked reasonably closely with the realized change in the federal funds rate over the next twelve months (fed funds rate in month t+12 minus fed funds rate in month t). In the figure below, the correlation coefficient is 0.26. As a back-of-the-envelop calculation, if we regress the change in the federal funds rate in twelve months on the percent of consumers expecting a rate increase, the regression coefficients indicate that when 63% of consumers expect a rate increase, that predicts a 25 basis points rise in rates in the next year.


This survey data does not tell us for sure that forward guidance has reached Main Street. The survey does not specifically refer to the federal funds rate, just to interest rates in general. And households could simply have noticed that rates have been low for a long time and expect them to increase, even without hearing the Fed's forward guidance.  In an average month, 51% of consumers expect rates to rise over the next year, with a standard deviation of 15%. So the values we're seeing lately are about a standard deviation above the historical average, but they have been higher historically. In the third and fourth quarters of 1994, after the Fed had already begun tightening interest rates, 75-80% of consumers expected further rate increases. At the start of 1994, however, only half of consumers anticipated the rate increases that would come.

In May 2004, the FOMC noted that accommodation could “be removed at a pace that is likely to be measured.” That month, 85% of consumers (a historical maximum) correctly expected rates to increase.

26 comments:

  1. This comment has been removed by a blog administrator.

    ReplyDelete
  2. for this purpose cover letter for bank teller is
    in the federal funds rate in twelve months on the percent of consumers expecting a rate increase.

    ReplyDelete
  3. vshare
    vshare download
    vshare market
    vshare apk
    vshare helper
    vshare ios
    The survey does not specifically refer to the federal funds rate, just to interest rates in general.

    ReplyDelete
  4. Fascinating article! Much obliged to you for sharing them! I trust you will keep on having comparable presents on share with everybody! I trust many individuals will be astonished to peruse this article!

    ReplyDelete
  5. With our write my term paper online services, students are guaranteed quality services that are offered by professional writers are we are the best best custom writing service company.

    ReplyDelete

  6. framaroot
    framaroot apk
    I trust you will keep on having comparable presents on share with everybody.

    ReplyDelete
  7. Hire Best Packers And Movers Mumbai for hassle-free Household Shifting, ***Office Relocation, ###Car Transporation, Loading Unloading, packing Unpacking at affordable Price Quotation. Top Rated, Safe and Secure Service Providers who can help you with 24x7 and make sure a Untroubled Relocation Services at Cheapest/Lowest Rate @ Packers And Movers Mumbai

    ReplyDelete
  8. Packers and Movers Pune Provide High Quality ***Household Shifting, Home/Office Relocation, Insurance, Packing, Loading, ###Car Transportation Service Pune and High experiences, Top Rated, Safe and Reliable, Best and Secure Packers and Movers Pune Team List. Get ✔✔✔Affordable Rate Charts and Compare Quotation and Save Money and Time @
    Packers And Movers Pune

    ReplyDelete
  9. Essayassignmenthelp is known for handling every type college assignments for students. With an extensive experience in assignment writing, we deliver premier assignments within the given deadline. Know more about instant assignment help. No matter what assignment type you are handling, our experienced professional assignment helper can deliver the custom written assignments that exactly meet your requirements. Just contact us for all assignment help. We get inquiries from student to get help with my assignment. The PhD qualified writers will deliver the papers within the deadline with a plagiarism report of the content.

    ReplyDelete
  10. This comment has been removed by the author.

    ReplyDelete
  11. If you need assignment help, just ask us to do my essay. Very often students fail to deliver essays that keep a fair level of balance between their personal and extra-curricular achievements and their academic development. Know more about information technology assignment help. The professionals at My Assignment Help are thorough experts in their disciplines and have gone through similar academic and admission-related hurdles that the students are going through now. The professionals at My Assignment Help are thorough experts in their disciplines and have gone through similar academic and admission-related hurdles that the students are going through now. Hence, they are always in an advantageous position to understand the customized needs of each unique student. Know more about our cheap writing services.

    ReplyDelete
  12. Duplicate transactions in Quicken is one of the most common errors among the users. This error is commonly used by small and mid-sized businesses. Being a user-friendly tool with the amazing features, there can be some issues associated to Quicken transactions. If you are not able to solve Duplicate transactions in quicken, you can talk directly to our live Quicken professionals to get instant help for this issue. We work reliably as a successful third party Quicken support company, and providing live Quicken support services for online Quicken users in very nominal charges. Our live Quicken experts are also comfortably available to provide immediate solutions for any type of errors.
    quicken rental property manager
    delete quicken cloud data
    Quicken Error ol-393-a
    Quicken Print Checks
    quicken-error-code-163

    ReplyDelete
  13. We are the best, reliable and independent third party QuickBooks support company, which is offering live QuickBooks support services for our valued customers. We provide online QuickBooks solutions, if you have any errors with QuickBooks. If you are using QuickBooks payroll support services and facing some problems, our certified QuickBooks advisors are very experienced and fully knowledgeable to rectify QuickBooks payroll errors. As a top-leading and successful third party QuickBooks support company, we offer the best QuickBooks support services and specialized assistance for the frustrated customers. Our live QuickBooks support team is available 24 hour to help you for any type of accounting errors.
    quickbooks update error 15215
    quickbooks update error 15270
    QuickBooks Error 6000
    quickbooks install diagnostic tool
    QuickBooks error 12007

    ReplyDelete
  14. Use Finance assignment help to finish your finance or accounting papers without messing yourself. You will get assured solutions to your numerical questions within your defined date or time.
    Accounting assignment help
    capital budgeting assignment help

    ReplyDelete
  15. HP printers give quality printouts and long lasting service. If you come across any technical difficulty with HP printer then get Support for HP Printer from experts. Techies are live at the support desk all the time.

    ReplyDelete
  16. Packers and Movers Gurgaon Provide Reliable, Safe and Certified Service Provider list, Get Free ***Best Price Quotaition and Compare Charges. ???Hassle free Household Shifting Services, High Quality packing Material, Office Relocation, Car Transportaion, ###Local and Domestic Shifting Service @
    Packers And Movers Gurgaon

    ReplyDelete
  17. Packers and Movers Hyderabad Give Certified and Verified Service Providers, Cheap and Best ###Office Relocation Charges, ***Home Shifting, ✔✔✔Goods Insurance worth Rs. 10,000, Assurance for Local and Domestic House Shifting. Safe and Reliable Household Shifting Services in Hyderabad with Reasonable Packers and Movers Price Quotation @ Packers And Movers Hyderabad

    ReplyDelete
  18. Get Shifting/Relocation Quotation from ###Packers and Movers Delhi. Packers and Movers Delhi 100% Affordable and Reliable ***Household Shifting Services. Compare Transportation Charges and Save Time, Verified and Trusted Packers and Movers in Delhi, Cheap and Safe Local, Domestic House Shifting @ Packers And Movers Delhi
    Packers And Movers Noida

    ReplyDelete
  19. QuickBooks software ensures integrity of your data and indicates when your data can be compromised. Just like QuickBooks Error H505, which is caused when more than one computer system or a set of systems act as a server. A server is a system which hosts company files and hence only one computer is allowed to act as a server. Other systems connected with the network can not host computer files assuring data security. If you are facing this kind of problem, you need immediate technical assistance from QuickBooks experts. Reach our team of technical experts and troubleshoot this error in just a few clicks.

    ReplyDelete
  20. We are a complete and trained guide for you, if you want to install McAfee antivirus software. If you want to install McAfee antivirus using mcafee.com/activate product key, you should open it in the preferred browser. After that, you need to enter McAfee antivirus product key in the displaying box.

    ReplyDelete
  21. MkvPoker Adalah Situs Judi Poker Terbaik Dengan Taruhan Uang Asli Yang Menjaminkan Kemenangan Yang Tinggi

    Wa : +855 9637 31855

    ReplyDelete

Comments appreciated!