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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.

by akomtu 5y ago

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.

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.

by 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.