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Interest Rates and Inflation: A Mystery

Jack Harty, with Harty Mortgage Advisors, here in the Boise area, shares more of his wit concerning the prediction of interest rates and inflation.  It's always a good, yet humorous read.  Enjoy!


Janet Yellen said at her 9-20-17 press conference that the failure of inflation, in a healthy job market, to rise to the Fed's target rate is a "mystery".  As a consequence, predicting interest rates is a mystery.  In contrast, predicting past rates is highly accurate.

Where's inflation?  Economists have been looking for it under all the usual rocks, to no avail.

Photo:  Economic researcher doing research

It seems that the early September dip in interest rates was a short term phenomenon.  

While it did not raise short-term interest rates, the Federal Reserve announced after its meeting on 9/20/17 that it was going to sell some of the bonds it acquired during its post-Crash "accommodation".  That just added momentum to the upward trend in bond yields that we've seen for the past couple of weeks.  See graph following.

10 Yr T Bond Yields - Past Six Months

We are back up to the rate level the prevailed for much of the spring and summer.  While initially saber-rattling towards North Korea caused investors to move into the safety of bonds, now even threatening to annihilate North Korea has not caused investors to seek haven in bonds.  

The Fed said they do anticipate raising rates in the future.  Current guessing is in December...but those are just guesses.  The tool show below is as reliable a predictor of interest rates as any other used by commentators.

However, some cognoscenti prefer to predict rates with the following tool:

(The fellow stroking the ball is a member of the Cognoscenti family

Employment trends have been good.  

August National Unemployment rate at 4.4% (U3 measure) is at low Pre-Crash level.  The more indicative Unemployment Rate of 8.6% per the U6 measure, is also at a Pre-Crash level.

Relevant Idaho August Unemployment rates are at historic lows:

                                            Ada County 2.3%

                                            City of Boise 2.3%

                                            Boise/Nampa MSA 2.6%

                                            State of Idaho 2.9%

National Labor Force Participation Rate is at an virtual 40 year low (see graph).  Is that affecting labor supply and pricing?

                                    Labor Force Participation Rate:  1975 - 2017

Jack Harty


121 N. 9th St. - Ste 402

Boise ID 83702

Direct:  208 514 4766

Main:   208 344 4141


Tony Drost, President, First Rate Property Management, Inc.

Tony Drost, Chairman
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Investment Real Estate and Property Rental markets in Boise and Idaho.

Tony Drost
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