Greg McBride (Bankrate)

Greg McBride (Bankrate) by The Financial Exchange

00:07:52

Transcript - Not for consumer use. Robot overlords only. Will not be accurate.

The Federal Reserve. Has been picked in winners and losers for the last ten years and they're about to pick some more this afternoon we're joined by Greg McBride from Bankrate dot com. I don't gripe. DeMar Barry differently. We're glad to so. Federal Reserve begins selling off their four and a half trillion dollar portfolio. You know announce at this afternoon. Who the winners who were the losers. Well I mean if they don't get it right we're all gonna live side effects are really I mean this is uncharted territory here that vs. You know balance sheet sporting capturing dollar balance sheet has mushroomed up from something that was less than a trillion dollars about 800 billion before the financial crisis so. This is the process it's gonna take over the course of a couple of years and I got to you know the potential losers are. Higher rates for mortgages. I mean all else being equal higher rates for mortgages. You know like I do think that you know you're gonna it's gonna introduce a higher level of volatility in the stock market. You know this is this could well be the other catalyst for you know pretty the next correction we see. And from an economic standpoint if they get this wrong it could well be a catalyst for. The next recession now that's not to say that this is immediate and they're just dipping their toes in the water. But over the course the next couple of years. The cumulative foreign office really gonna grow by the end of 2019. Their paces that they will have downsized by about a trillion dollars I find it very hard to believe. I bet they're going to be able to downsize their stimulus by trillion dollars and without something going bump in the night. Why the rush it right they feel the need to do a trillion in by the end of next year mean that seems rather rapidly can do like who cares and it took a fifty years. The damage by the other 2019 so he's nineteen a little over two years and couldn't write down by about a trillion but the pace. Picks up after the first twelve months though you know that'd be great at stopping uses solid it is estimated that the there's gonna be like watching paint dry it well. Feel like watching paint dry for the first twelve months that the second twelve months of the third in the fourth. And I think. We have to worry about because that's where the cumulative amount grows I think that's where the consequences. Become more severe the recent. There's the reason they feel the need to do this and do that at the tape to doing is that. Maintaining too much of an influence in the market and holding those rates too low too long could lead to ask about. All right what they're trying to do is kind of stave that off and someone. So Greg my mom who's 78 years old does not want to invest in the stock market. She wants to buy IBM to go to the bank to buy CD this pain decent rate of return. What's the impact for savers unit in India and when will that impact start to be felt because frankly. We've had three or four fed rate hikes and sabres haven't gotten a nickel. Yeah I mean if you sit back waiting for that improvement to come and landing your lap fear that you're going to be disappointed. That the benefit for savers is going to be continue to be tied to what the best does what short term interest rates. Not a downsizing of the bond portfolio stuff but that does in fact hike rates again in December and that's worse sabres are going to be able to benefit but. Only if you're actually out there. Shopping around the improvement that we've seen. It's savings accounts and CDs has been among the banks that are already paying the most competitive returns the vast majority of banks that you noted very. They're not passing that along the sabres. What about the young guy that wants to buy a house with the impact going to be and I'm not talking about the Fed raising interest rates on talking about the Fed in this bond program. Because I would think that's gonna have a negative impact is gonna make mortgage rates higher. I it will all else being equal it will have an upward influence some mortgage rates. You know difficult to quantify how much but. I mean let's face it does not an economy that's you know should not wiped out by any means so I think you know either the increases will be fairly tempered I think for the foreseeable future. Yeah we're still gonna see mortgage rates that that have before handle even as the Fed continues. To downsize that portfolio. I think a lot of people are wondering why this could have a negative impact on the stock market into markets at 22000. S and p.'s 2500. The what why why would this policy. Negatively impact my stock powerful. Well a lot of stock valuations are based relative to if interest rates and look low interest rates. It really makes in in investments and stocks. Look better than and it also has sent investors to go into stocks and other riskier assets yup I think get a better rate of return if the Fed isn't it taking actions. That push up break. On a relative basis that they undermine the attractiveness of of the stock market particularly if we start to see more volatility. Investors get squeamish. Very good Greg McBride thank you very much for your time we appreciate. It very thank you Greg McBride Bankrate dot com. What's happening this afternoon. I think the Fed predicted isn't a game they've been telegraphing they're gonna raise rates. What an idea that I can raise rates this mean they are gonna begin tapering now bond were fall and begin begin bringing that down certainly makes when we say that we should be. More point blank B the old four and a half trillion dollars of bonds that they bought during the crisis. Now they're gonna start selling. And the thought is that it's gonna cause bond prices to go down in interest rates to go really what they're going to be doing is they're not going to be. Buying new ones with those proceeds when they come due so what the Fed's been doing over the last several years as as the first round of Q we bonds that they bought. Had been coming do yeah they be going out and using the proceeds to buy more sinister stop buying the gonna stop doing. OK they're also they're gonna start selling off a small portion of really the biggest piece all they have to do stop buying is they're gonna stop buying OK because then. Because they were buying anything maturities were rated as as I recall what seven to fifteen years they were between seven and ten years at an agent you figure that Q we started Ian 2010. Yale and Syria of the first ones for the lastly years so that have been coming do so be stopping buying some they will be selling some off as well. But the the aggregate effect is that going to be taking a big chunk of demand for treasuries. Out of the market and no one's quite sure how that works typically with supply demand if you take demand out M. It lowers prices I understand David the the the fears. EEE here these panic stricken fears tonight I question is too well they're all valid or not because. If all of a sudden the wheels came off the Fed can come back here. Can't thank. So if if the Fed wanted to yes they can but keep in mind they don't have that much ammunition right now rich or 1% while they bought for a half trillion. And what's to stop them if that we just time off does start buying again or buying back. Spending half of the money. To it to read by those bonds will eventually get to a point where there aren't any more treasuries outstanding and they keep you can't buy something that's not there and so. The other thing the after members of all you do is the federal government owns oldest treasuries at the end of the day. It it doesn't do it it's what it would if you really don't think that there's nothing there no interest being paid out on the job vanished and that wasn't the purpose of it to stabilize the market at the time when when it was in freefall. It won't it was it was a disk it treasuries. By corporate we'll know the toilet if they we can talk about it after the break. Wall Street watch is coming up what's moving the market today yes MP actually just turn positive in crude oil summit demonstrated fifty bucks ever. Financial exchange radio network. Making your Smartphone even smarter. Come on no mobile lab by surging financial exchange shelf in iTunes or those who who played stores. 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