19 ms·

Federal Reserve Now Projects Rate Increases in 2023 as Economy Heals

39 points by throwkeep 5y ago

akomtu 5y ago
They don't project anything. They are telling us that the rates are going to increase in 2023. It's them who set the rates.
- mindslight 5y ago
  Traditionally whenever anyone pointed out that it was the just priest speaking and not actually the word of god(s), they were horrifically tortured to death. I guess this is progress.
- bachmeier 5y ago
  They set monetary policy based on their forecasts of the economy. In principle, they could set their monetary policy target at whatever level they choose, but in practice they're just responding to the economy, so they have a great deal of uncertainty about their own decisions.[1] [1] There's also the matter of changes in the voting members of the FOMC over time.
- AnimalMuppet 5y ago
  "Projects" because nobody knows what's going to happen between now and 2023. If things develop the way the Fed currently projects that they will, then they will raise rates in 2023.
- anm89 5y ago
  This is a very naive viewpoint IMO. The fed doesn't just pick the rates they want. The fed definitely does not "want" rate at rock bottom where they are now in a perfect world. The market dictates to the fed the range of rates which are feasible and the the fed chooses from within that range. They don't know exactly what the allowable range is and if they get it wrong the markets react strongly. And the record is very clear on this point. For example the Powell pivot when Powell told everyone that he was going to taper and the market told him that that was off the table. He quickly conceded.
  - imtringued 5y ago
    The rates depend on saving/spending preference. There is a "market rate" where the interest rate hits the equilibrium and therefore savings = investments becomes balanced again. Too far away in either direction will upset the savings = investments identity. Turkey is a good example. However, an aging population in the US is stacking the cards in favor saving preference. When rates hit 0% you basically hit the "limit". The last dollar that can be saved has been saved. From this point on more savings just dilute the pool of existing savings. You then get banks that sell AAA rated CDOs filled with subprime mortgages. It's because that's what the market wants. Old people want zero risk savings/investments and when you tell them that is impossible they will keep believing the lies instead.
    - anm89 5y ago
      The rates don't depend on a single thing. They depend on literally everything. I said the market "dictates" the rates to the fed, not that it sets them. The markets are just an information conveyance mechanism. Also again, we can very clearly empirically say that there is not a 0% floor on rates.
nikolay 5y ago
"Heals"? Can somebody tell me when economy got "sick"? Look at the indices - it's all been rosy!
Simulacra 5y ago
I thought inflation was a bad thing? From this article it seems everyone is avoiding the dangers of inflation, and instead opining that everything will just....work itself out. The Fed has become too politicized, so I'm deeply suspect. I have the impression, perhaps not entirely correct, that this is the same fed that has missed and bungled many of our recent financial crisis.
- sigstoat 5y ago
  (without expressing my own opinion on it:) most policy folks seem to want a few percent of inflation. it motivates you to spend or invest your money instead of just stuffing cash into a mattress.
  - deelowe 5y ago
    The reason why this is important is that deflation can lead to a vicious cycle that you cannot get out of so the preference is controlled inflation over time.
    - mindslight 5y ago
      Yeah a vicious cycle of human beings actually needing to work less, rather than the surplus from technological progress being chewed by up the rent treadmill and spit out into an overgrown financial sector. We certainly can't have that!
      - deelowe 5y ago
        If you actually care and aren’t here to simply be a contrarian, the term is “deflationary spiral” and it exists because interest rates cannot be held below zero indefinitely. It’s very similar in concept to why potential losses on shorting a stock are infinite.
        mindslight 5y ago
        I'm not being a contrarian - I support deflation. The supposed problem with deflation is that economic activity slows down and enough stuff won't be produced. But we're presently drowning in stuff! I agree it is a concern for a non-developed economy not meeting human needs, especially when price signals travel slowly (high system momentum). But we're in a well developed economy with a near-instantaneous global network. Witness, we've had four decades of deflation in the technology sector. Inflation advocates would tell you that everybody should have put off their technology purchases until computers stop(ped) getting better and cheaper. But yet people were buying new devices the whole time. If we're concerned with natural resource depletion and sustainability, we really need to stop pumping the gas pedal. BTW I don't see your parallel to shorting a stock. Care to explain?
WarOnPrivacy 5y ago
So we keep the lower inflation that's making housing prohibitively expensive and we'll churn up higher interest rates when folks have recovered from this years' abuse and might actually be able to buy something.
- chrisco255 5y ago
  I think it's silly for them to announce what they're going to do in 2023. There will be a new Fed chair by then. The economic situation is impossible to predict in 2 years. The inflation / employment numbers are impossible to know precisely.
  - arawde 5y ago
    They didn't announce it. The projected rate increase is the result of the dot plots, which is the assessment of both governors and regional members of the FOMC. It is not binding and it serves merely as a projection. If you watch the press conference, you can tell how annoyed Powell is at constantly having to answer questions stemming from what the dots show.
    - deleted 5y ago
      [deleted]
  - splitstud 5y ago
    Millennials were born with better timing than early genx for example. They were hardly put under the gun, and shouldn't elicit any particular amount of concern. Given their propensity for voting for the greatest threat to Middle class status (expansion of immigration both legal and illegal), I'd say they have themselves to blame for their circumstances.
    - imtringued 5y ago
      There are more important factors like the unwillingness to increase the government deficit to compensate for the increased savings preference. It's ruining the Eurozone. The US is pretty much the only country that is doing something. Unlike boomers immigrants spend money and take on new loans. Also, what are you going to do once you have hit 0 immigration? Are you going to deport people?
recursivedoubts 5y ago
Blackrock is buying homes at above market rates. If interest rates go up, home values crash. So one of three things is true: - Blackrock knows something you are not being told. - Blackrock is stupid. - Blackrock is being told to buy homes and that their losses will be covered. Whatever else I think of them, I do not think Blackrock is stupid.
- sliken 5y ago
  Blackrock is buying homes to rent, right? If 90% of home buyers can afford $x per month, sure higher interest rates mean that the $x will have to include more interest, and the home prices drop. However, that only matters if you sell a house. If you are buying houses to decrease housing supply, and increase the rental prices you shouldn't care about the interest rates.
  - recursivedoubts 5y ago
    So waiting a year and a half, buying in at a much lower price and then earning a much larger ongoing return on capital would be the smart play. You are arguing that Blackrock is stupid. Which is fine, but I don't believe that.
    - xapata 5y ago
      They're probably buying on credit, so their purchase price doesn't really change if rising interest rates are the cause of the price drop.
      - recursivedoubts 5y ago
        Only if the rise in interest rates is offset by the price drop. With interest rates so low, that's almost certainly not the case: home prices will crater. End of the day, home cost matters and blackrock isn't stupid. They are paying a 20% premium over today's insane market. Think about that. They either expect hyperinflation and/or low rates forever or they are being told to buy the homes.

39 points by throwkeep 5y ago

They don't project anything. They are telling us that the rates are going to increase in 2023. It's them who set the rates.

mindslight 5y ago
Traditionally whenever anyone pointed out that it was the just priest speaking and not actually the word of god(s), they were horrifically tortured to death. I guess this is progress.
bachmeier 5y ago
They set monetary policy based on their forecasts of the economy. In principle, they could set their monetary policy target at whatever level they choose, but in practice they're just responding to the economy, so they have a great deal of uncertainty about their own decisions.[1] [1] There's also the matter of changes in the voting members of the FOMC over time.
AnimalMuppet 5y ago
"Projects" because nobody knows what's going to happen between now and 2023. If things develop the way the Fed currently projects that they will, then they will raise rates in 2023.
anm89 5y ago
This is a very naive viewpoint IMO. The fed doesn't just pick the rates they want. The fed definitely does not "want" rate at rock bottom where they are now in a perfect world. The market dictates to the fed the range of rates which are feasible and the the fed chooses from within that range. They don't know exactly what the allowable range is and if they get it wrong the markets react strongly. And the record is very clear on this point. For example the Powell pivot when Powell told everyone that he was going to taper and the market told him that that was off the table. He quickly conceded.
- imtringued 5y ago
  The rates depend on saving/spending preference. There is a "market rate" where the interest rate hits the equilibrium and therefore savings = investments becomes balanced again. Too far away in either direction will upset the savings = investments identity. Turkey is a good example. However, an aging population in the US is stacking the cards in favor saving preference. When rates hit 0% you basically hit the "limit". The last dollar that can be saved has been saved. From this point on more savings just dilute the pool of existing savings. You then get banks that sell AAA rated CDOs filled with subprime mortgages. It's because that's what the market wants. Old people want zero risk savings/investments and when you tell them that is impossible they will keep believing the lies instead.
  - anm89 5y ago
    The rates don't depend on a single thing. They depend on literally everything. I said the market "dictates" the rates to the fed, not that it sets them. The markets are just an information conveyance mechanism. Also again, we can very clearly empirically say that there is not a 0% floor on rates.

nikolay 5y ago

"Heals"? Can somebody tell me when economy got "sick"? Look at the indices - it's all been rosy!

Simulacra 5y ago

I thought inflation was a bad thing? From this article it seems everyone is avoiding the dangers of inflation, and instead opining that everything will just....work itself out. The Fed has become too politicized, so I'm deeply suspect. I have the impression, perhaps not entirely correct, that this is the same fed that has missed and bungled many of our recent financial crisis.

sigstoat 5y ago
(without expressing my own opinion on it:) most policy folks seem to want a few percent of inflation. it motivates you to spend or invest your money instead of just stuffing cash into a mattress.
- deelowe 5y ago
  The reason why this is important is that deflation can lead to a vicious cycle that you cannot get out of so the preference is controlled inflation over time.
  - mindslight 5y ago
    Yeah a vicious cycle of human beings actually needing to work less, rather than the surplus from technological progress being chewed by up the rent treadmill and spit out into an overgrown financial sector. We certainly can't have that!
    - deelowe 5y ago
      If you actually care and aren’t here to simply be a contrarian, the term is “deflationary spiral” and it exists because interest rates cannot be held below zero indefinitely. It’s very similar in concept to why potential losses on shorting a stock are infinite.
      - mindslight 5y ago
        I'm not being a contrarian - I support deflation. The supposed problem with deflation is that economic activity slows down and enough stuff won't be produced. But we're presently drowning in stuff! I agree it is a concern for a non-developed economy not meeting human needs, especially when price signals travel slowly (high system momentum). But we're in a well developed economy with a near-instantaneous global network. Witness, we've had four decades of deflation in the technology sector. Inflation advocates would tell you that everybody should have put off their technology purchases until computers stop(ped) getting better and cheaper. But yet people were buying new devices the whole time. If we're concerned with natural resource depletion and sustainability, we really need to stop pumping the gas pedal. BTW I don't see your parallel to shorting a stock. Care to explain?

WarOnPrivacy 5y ago

So we keep the lower inflation that's making housing prohibitively expensive and we'll churn up higher interest rates when folks have recovered from this years' abuse and might actually be able to buy something.

chrisco255 5y ago
I think it's silly for them to announce what they're going to do in 2023. There will be a new Fed chair by then. The economic situation is impossible to predict in 2 years. The inflation / employment numbers are impossible to know precisely.
- arawde 5y ago
  They didn't announce it. The projected rate increase is the result of the dot plots, which is the assessment of both governors and regional members of the FOMC. It is not binding and it serves merely as a projection. If you watch the press conference, you can tell how annoyed Powell is at constantly having to answer questions stemming from what the dots show.
  - deleted 5y ago
    [deleted]
- splitstud 5y ago
  Millennials were born with better timing than early genx for example. They were hardly put under the gun, and shouldn't elicit any particular amount of concern. Given their propensity for voting for the greatest threat to Middle class status (expansion of immigration both legal and illegal), I'd say they have themselves to blame for their circumstances.
  - imtringued 5y ago
    There are more important factors like the unwillingness to increase the government deficit to compensate for the increased savings preference. It's ruining the Eurozone. The US is pretty much the only country that is doing something. Unlike boomers immigrants spend money and take on new loans. Also, what are you going to do once you have hit 0 immigration? Are you going to deport people?

recursivedoubts 5y ago

Blackrock is buying homes at above market rates. If interest rates go up, home values crash. So one of three things is true: - Blackrock knows something you are not being told. - Blackrock is stupid. - Blackrock is being told to buy homes and that their losses will be covered. Whatever else I think of them, I do not think Blackrock is stupid.

sliken 5y ago
Blackrock is buying homes to rent, right? If 90% of home buyers can afford $x per month, sure higher interest rates mean that the $x will have to include more interest, and the home prices drop. However, that only matters if you sell a house. If you are buying houses to decrease housing supply, and increase the rental prices you shouldn't care about the interest rates.
- recursivedoubts 5y ago
  So waiting a year and a half, buying in at a much lower price and then earning a much larger ongoing return on capital would be the smart play. You are arguing that Blackrock is stupid. Which is fine, but I don't believe that.
  - xapata 5y ago
    They're probably buying on credit, so their purchase price doesn't really change if rising interest rates are the cause of the price drop.
    - recursivedoubts 5y ago
      Only if the rise in interest rates is offset by the price drop. With interest rates so low, that's almost certainly not the case: home prices will crater. End of the day, home cost matters and blackrock isn't stupid. They are paying a 20% premium over today's insane market. Think about that. They either expect hyperinflation and/or low rates forever or they are being told to buy the homes.