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US Federal Reserve raises interest rates for first time since 2018

• nickff 5y ago
  It's worth taking a look at the effective federal funds rate over time, which clearly shows how low it's been recently: https://www.macrotrends.net/2015/fed-funds-rate-historical-chart https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
  • victorvosk 5y ago
    I am sensing a pattern here.. just can't put my finger on it...
  • whoseonthat 5y ago
    It seems interest rates lower during recessions. Right now we are already low and are raising which seems to be a different pattern. Is lowering interest rates a method to overcome a recession?
    • miketery 5y ago
      Lowering interest rate to stimulate economy, increasing interest rate to lower inflation. Problem is we've got no room left to lower and asset prices have never been higher.
    • hedora 5y ago
      Welcome to stagflation.
      • mym1990 5y ago
        We are not yet in stagflation, unless I really missed something. The economy is actually fairly strong by most indicators. The question is whether inflation can be tamed by the time we hit a recession(which we will, whether it is in 6 months, 2 years, 5 years, etc...)
        • throwaway0a5e 5y ago
          Everyone is sure acting like it'll be 6-12mo and if everyone expects a recession in 6-12mo then...
          • babypuncher 5y ago
            These 6-12 month predictions for the next recession are always real popular 6-12 months before the next major election. I recall almost identical rhetoric in H1 2018, coincidentally the last time the fed raised interest rates. Nobody has a clue when the next recession will be.
    • downrightmike 5y ago
      Yes, because it increases the money supply. We are supposed to tighten when things are good by raising rates. At this point they need to raise rates to pull money out of the system. Because with covid, not only did we cut rates, we put in a HUGE amount of money and that was really irresponsible. And now we are seeing the repercussions with inflation lowering the value of the dollar.
      • mym1990 5y ago
        I am not sure if it is really useful to evaluate what happened vs the other outcomes that we were not able to experience. We don't really even have that many precedents for the situation. It was, and still is, an extremely complex problem to address. Injecting large amounts into the system ultimately doesn't create long term wealth, but in that short term gap during the first 1 of the pandemic many people were undoubtedly pulled out of a hole.
      • InitialLastName 5y ago
        We should recall that not only did the US cut rates and spend a lot of money through the covid recession, when things were bad, it ignored that first bit of advice before Covid when things were good (it's hard to remember now how hot the economy was in 2016-2019, but it was really hot), by cutting taxes and continuing to print money and keep the rates low to cover it. As the tax cut detractors correctly predicted, those tax cuts (and the growth that didn't happen enough to cover them) reduced the US's leverage to respond when an actual crisis came up.
        • throwaway0a5e 5y ago
          I don't see how tax policy matters in this case. That money still sloshes around. The only difference is who's nominally in control of it.
          • InitialLastName 5y ago
            a) higher taxes enable the government to apply deflationary pressure on the economy (by removing currency from circulation) b) Reducing taxes without cutting spending (because it will "pay for itself in growth") leads to a larger deficit, which requires increased debt to cover, which triggers the money-printers.
    • userabchn 5y ago
      It encourages investment (over saving), so can help to boost the economy
    • nickff 5y ago
      Yes, the common theory is that lowering interest rates encourages investment and growth, at the cost of higher inflation. This increased inflation is also generally thought to depress 'real' salaries, which further increases growth. https://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp https://www.investopedia.com/ask/answers/12/inflation-intere...
    • hitpointdrew 5y ago
      The thinking is that lowering rates will increases spending (why save if you aren't getting much of return, you will find other ways to invest your money rather than have it sit in a bank account). So, if the economy seems to be in a recession central banks will often lower rates to encourage spending. But if you are already at near 0% for a record length of time, and have printed massive amounts of money, well friend we are in uncharted territory. What's better than do nothing? Doing something, we have this interstate rate lever, we can't pull it down, lets push it up!
      • alexb_ 5y ago
        It's being pushed up because we are not in a recession. We aren't even close to being in a recession. We need it to be raised in times like this so we actually have room to move it should things go south.
    • mym1990 5y ago
      Yes, lowering interest rates during tough times has the effect of making borrowing capital cheaper, thus incentivizing people to take on risk via opening a business, investing, etc... In contrast, raising interest rates is a way to fight a hot economic market. While in theory having massive growth might be ideal, it would be the equivalent of a sprinter using all of his/her energy in the first 100m while running a marathon...it needs to be a balancing act. Lowering interest rates has been one of the major tools in fighting recessions, and one of the main concerns has been that lowering interest rates isn't possible(or effective) when they are already at such a low level.
    • deleted 5y ago
      [deleted]
    • brandmeyer 5y ago
      The last couple of recessions have placed a ton of deflationary pressure on the USD, and the fed has reacted to maintain a small positive inflation by both lowering interest rates and QE. Now that inflation is rising and the economy is also at nearly full employment, its pretty straightforward for them to raise interest rates to rein in inflation.
    • adamhp 5y ago
      Lowering interest rates makes capital cheaper, which does spur investment and thus economic development, so, it can certainly have that effect given the right circumstances. But keep it too low, too long, and you see money start flying around too quickly, getting a little too loose because everyone wants to get theirs, and then they start inventing things like mortgage-backed securities and everyone starts over-leveraging, because, why not, money is cheap! Then you get 2008.
      • twh270 5y ago
        "Money is cheap" yes, also "you can buy a house if you can fog a mirror". (Buy as in acquire a piece of paper that says you'll pay $$$$ per month to whoever holds the note.)
        • adamhp 5y ago
          Yes, fortunately we've learned from that mistake and I don't think are repeating that this time around. People really are qualified to buy these days, and there just isn't enough supply of housing to go around.
      • mywittyname 5y ago
        It's important to separate out fraud from low interest rates. Low rates absolutely drive investment, and riskier investment at that. But the issue with 2008 was fraud in the lending market, not necessarily the low rates. Risky investments aren't necessarily bad investments. Low interest rates give businesses more runway to operate investments that might take a while to show returns. A million dollar loan at 10% for an investment means that it needs to return into ~$80k a month to break even. At 2%, that same investment only needs a ~$16k monthly return. That's a huge difference in runway needed to start generating cash flow.
        • diognesofsinope 5y ago
          For the record, the evidence of 'widespread' fraud is extremely weak: See Antoinette Schoar's (MIT) work: https://www.nber.org/papers/w20848 https://www.nber.org/papers/w20848 It makes for a good news story that regular Americans understand and frankly want to hear (the banks were bad). But if you really dig into the reports, e.g. Financial Crisis Inquiry Report, almost the only fraud comes from misreporting of income which is essentially consumers lying. There could be other documentation issues, but underwriting almost entirely depends on credit score + income, so they're fairly trivial.
    • BurningFrog 5y ago
      It used to be, until they reached 0%. The usual metaphor is that the interest rate is how hard you pull a rope. Pulling harder slows down the economy more. But below 0%, you're trying to push the rope. And, as any rope expert will tell, you that doesn't do anything.
      • wolpoli 5y ago
        It's important to note that the Federal reserve normally controls the overnight rate, and let the market determines the interest rate for other durations (eg. 30Y). That changed with the introduction of Quantitative Easing where it reduces the interest rate over the entire yield curve. In other words, even through the overnight rate is 0%, you could still push down the interest rate down for bonds of a longer maturity, and that'll further stimulate the economy.
    • phkahler 5y ago
      >> Is lowering interest rates a method to overcome a recession? It is claimed to be. The idea is that with lower interest rate, companies and people will be more likely to borrow money to spend and that will boost the economy. I for one do not really believe this to be true. I suspect it's the act of lowering rates that gives a temporary boost until things rebalance. In other words, economic activity has some dependence on the derivative of interest rates. This is why things were so good from 198x through 2003 or so, rates were dropping the entire time (filtered of course).
      • jjoonathan 5y ago
        > economic activity has some dependence on the derivative of interest rates If interest rates go down, it's easy to roll over old promises and make new ones besides. If interest rates go up, promises must be kept or the business will fold. At the end of every business cycle, interest rates are low and there are lots of unprofitable "zombie companies" that operate by simply rolling over their promises. In order for the economy to grow, interest rates must be hiked to do a controlled burn and remove this underbrush. Zombie companies have to actually die. This is painful at the best of times. Political will formation will be doubly hard this time around because A. there is more national debt (so we probably need to soft-default on it and inflate it down, first) and B. last time around Carter did the burn and Reagan got the growth and the credit, so the question is who wants to be Carter this time around.
        • reflexco 5y ago
          It seems that Putin is the scapegoat for inflation and will be the scapegoat for recession as well.
          • jjoonathan 5y ago
            This isn't a rate-hike recession, it's stimulus withdrawal. Rates are at 0.25%. Last time it took 20.00% to stop inflation. We haven't even started. We haven't soft-defaulted on the national debt, so we can't even think about starting. The Ukraine conflict will be dusty history by the time actual rate hikes and an actual rate hike recession come around.
    • spaetzleesser 5y ago
      "It seems interest rates lower during recessions. Right now we are already low and are raising which seems to be a different pattern. Is lowering interest rates a method to overcome a recession?" It used to be that you could lower interest rates and run up deficits during bad times with the intent of going back to normal when things are better. We now have kept low interest rates and record deficits during good times. When things blow up (as they always do after a while) there is almost nothing left that can be done to counter a recession. In the past going to war helped....
    • hammock 5y ago
      The more important causation is the raising of rates. The Fed raises rates which leads to a recession. Then they lower the rates in response.
• lapetitejort 5y ago
  If you're a dummy like me, 25 bps means 0.25%.
  • mywittyname 5y ago
    Percent-of-a-percent is how I remember it. More technically, a hundredth of a percentage point.
  • trelane 5y ago
    Technically, it does not, raising 0.25% is always in relation to the existing value of the thing, so increasing a percentage by a quarter of a percent would mean increasing it by a quarter of a percent of its existing value. On the other hand, "basis percentage points" means something absolute, not relative to the existing level. Pedant out. :)
    • trelane 5y ago
      Obligatory Jayne: "let's see... A quarter percent of nothing, carry the nothing, is.. nothing!"
    • HWR_14 5y ago
      Pedantry is useless. It's very useful to know the difference between the two. It's similar to many other things where there are two concepts that people conflate into one word and then spend a long time complaining or creating humor about confusing the results.
    • deleted 5y ago
      [deleted]
    • monktastic1 5y ago
      The claim wasn't that "raising by 25 bps" should be interpreted the same as "raising by .25%", it was: > 25 bps means 0.25%. In a sense, that is technically correct: it does refer to .25% -- not of the current value but of the 100% value.
      • 5y ago
• frockington1 5y ago
  They did the absolute minimum to appear to be able to say they are dong something. With official inflation nearing 8%, this is nowhere near enough. SO far equity markets agree this is effectively nothing
  • hgomersall 5y ago
    It's only nowhere near enough if you view the process as something other than a huge charade. Take a look at the predicted inflation to see how little the monetary policy "experts" have a clue.
  • chipgap98 5y ago
    Isn't this the first of many hikes planned for 2022?
  • standardUser 5y ago
    The Fed said to expect up to 7 increases this year.
    • czbond 5y ago
      And no one believes them. The bond market is doing the rate cuts for them.
      • boppo1 5y ago
        > The bond market is doing the rate cuts for them. Can you elaborate? I don't understand.
        • MatteoFrigo 5y ago
          I am not the person you are replying to, but perhaps the cleanest indication of what "the bond market" "thinks" is to look at the Eurodollar futures quotes at https://www.cmegroup.com/markets/interest-rates/stirs/eurodollar.quotes.html https://www.cmegroup.com/markets/interest-rates/stirs/eurodo... It is hard to define exactly what a "Eurodollar" is, but for now assume that a Eurodollar is a bank deposit in a jurisdiction not subject to the Fed's authority. ("Eurodollar" has nothing to do with Euro the currency. People are surprised that "dollars" exist outside the authority of the Fed.) A Eurodollar future is a contract to borrow a "Eurodollar" for typically 3 months some time in the future. The price of the future is quoted as (100 - interest rate). For example, the Sep 2023 contract (called GEU3) is currently priced at 97.225, meaning that people are agreeing to lend money for 3 months in Sep 2023 at a 2.775% interest rate. Now to my point: the Eurodollar futures curve is currently inverted starting in Sep 2023. For example, the price of the GEU4 future (Sep 2024) is 97.50, implying a 2.50% interest rate, or a rate cut in GP's parlance relatively to Sep 2023. Why would you pay attention to Eurodollar futures? For one thing, the notional value of all futures is about $12T. (This market used to be larger than the Treasury bond market until Congress fixed the problem.) Like all markets, it may be right or wrong, but if you strongly believe that rates will not be cut between 2023 and 2024, there is a ton of money to be made in that market. The curve started getting nervous, with small inversions of 1-4 basis points, in December 2021, and the inversion has grown larger since. The inversion peak-to-through was ~30bp yesterday and is ~40bp after the Fed's announcement today.
• pclmulqdq 5y ago
  It's worth noting that this is actually a rate target, not the rate. Previously, the rate floated between 0% and 0.25% based on a market. Now, it is going to be between 0.25% and 0.5%.
  • qwertyuiop_ 5y ago
    First I have heard of this and quite interesting to learn. Could you explain the difference ? Does this mean they are going to implement the rate increase some point in future ala target ?
    • blawson 5y ago
      Not GP, but I don't think there's an actual "rate" as such - it's the actions the Fed takes to balance prices such that it falls within their target: https://www.newyorkfed.org/markets/reference-rates/effr https://www.newyorkfed.org/markets/reference-rates/effr
    • monktastic1 5y ago
      As another reply indicated, the Fed doesn't actually set interest rates. That's a common misconception. Instead they purchase and sell treasuries to member banks, such that those banks' balance sheets change in such a way as to make money more or less expensive to trade amongst themselves, which has knock-on effects for consumers. On the other hand, since there's no longer a reserve requirement since the start of covid, the mechanism that causes banks to have to borrow from each other (to meet the nightly reserve requirement, historically) is much less clear to me. Hopefully an economist can chime in.
      • drexlspivey 5y ago
        > As another reply indicated, the Fed doesn't actually set interest rates. That's a common misconception. The FED absolutely sets the interest rates by controlling the federal reserve rate which is the interaste rate paid to banks every day for their deposits with the FED
• avrionov 5y ago
  Not only that they increased the rate, but also they'll reduce the buying of securities: "In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting." Which may have a bigger effect.
  • ayngg 5y ago
    IIRC they have already stopped purchasing them as of a week ago I think, they were supposed to announce their plans on quantitative tightening (selling the things they bought) which is what that quote is referring to.
    • nickles 5y ago
      > they have already stopped purchasing them as of a week ago To clarify, they are still purchasing securities, but at a rate that does not increase the size of their balance sheet. As debt matures, they reinvest the principle in new securities to maintain the size of the balance sheet. When the Fed discusses QT right now, they’re talking about reducing these purchases, so the net impact is a smaller balance sheet. As an aside, it’s possible to get a sense of how much the Fed intends to reduce the size of the balance sheet this year based on Powell’s comments today. He indicated the impact on financial conditions would be roughly equivalent to an extra rate hike. IIRC every $100B is estimated to shift rates by 3bps. At 25bps a hike, the balance sheet reduction would be roughly $800B.
      • ayngg 5y ago
        Ah ok, thanks for the clarification!
  • deleted 5y ago
    [deleted]
  • mtremsal 5y ago
    > Which may have a bigger effect. Could you please explain? Isn't that just a way to "enforce" the target rate in auctions to the primary market?
• arawde 5y ago
  Most surprising part of this FOMC had to be when Powell said "we would like to slow demand" during the press conference, you don't usually hear the quiet part out loud like that from this Fed chair. Also shift upwards in PCE in the SEP, plus the dots, all seems appropriately hawkish
  • civilized 5y ago
    > you don't usually hear the quiet part out loud like that from this Fed chair Is it implying / could be construed in some negative way? Like, "slow demand" means "poor people need to buy less", or something?
    • Ericson2314 5y ago
      Yes, the only way raising these rates could reduce demand is by increasing unemployment. Powell is much more honest than his predecessors in this regard. I commend him for it. The obsession with this single policy lever is bad, and I hope it changes. But there being little political will to raise rates is a good first step. Eventually we can leave them at zero, and manage the economy by other means.
      • lghh 5y ago
        > Yes, the only way raising these rates could reduce demand is by increasing unemployment. It could also reduce demand by making it more expensive to buy things. Sure, that will probably have a side-effect of increasing unemployment, but that unemployment isn't the goal. The goal is to make it cost more to do things so less people want to do them.
        • civilized 5y ago
          I wonder why we'd want to pull levers to make things cost more, when the goal is to fight inflation, the bad phenomenon in which things cost more.
          • 5y ago
• tamaharbor 5y ago
  We had soaring inflation in the early 80’s, but at that time loan interest rates and certificate of deposit rates were much higher than they are now. Does anyone know why the difference?
  • mym1990 5y ago
    Someone posted the graph earlier: https://www.macrotrends.net/2015/fed-funds-rate-historical-chart https://www.macrotrends.net/2015/fed-funds-rate-historical-c... Fed funds rate in the early 80s were at their historical peak. We are still currently at near historical lows.
    • bshep 5y ago
      How did anyone buy a house or a car with interest rates in the 20%s?
      • windpower 5y ago
        Not 100% sure about cars, but houses were cheaper. Interest rates being higher means that the monthly payment on a given mortgage amount is higher, meaning the house price that an average buyer can afford goes down. Low interest rates mean that people can afford a more expensive house, and that causes prices to go up. Anecdotally, my dad complains about paying an interest rate in the teens for the house I grew up in. My parents paid $69K ($188K in 2022 dollars) for the house, which was about a year old. Zillow estimates the same house at $457K today. Obviously not all of the price increase is due to lower interest rates, but the house _was_ much cheaper, so even with a high interest rate, the mortgage was pretty affordable.
        • ryandrake 5y ago
          Also, returns from other investments tied to interest rates were higher. I seem to recall seeing CD rates >10% in the '80s. I know I had a CD paying >6% as late as the mid '90s. This world where basic banking investments are pointless and pay ~0% is a historic anomaly.
• mactitan 5y ago
  The Fed is trapped: It can’t raise too much since trillions of debt rely on very low rates. If it doesn’t raise enough then inflation will cause a recession.
  • deleted 5y ago
    [deleted]
  • MR4D 5y ago
    It’s even worse - if the Fed actions tank the markets, then millions of retirees who have been enjoying high market values are screwed and have no other source of wealth or income. I do not envy the position the Fed is in.
    • thehappypm 5y ago
      Oh no! Boomers will lose 401(k) value! The horror!
      • kipchak 5y ago
        Unfortunately most people with 401(k)s are in SPY as the default, boomers or not
        • thehappypm 5y ago
          Time in the market > timing the market. It’ll go back up.
        • tootie 5y ago
          SPY is up >2% today. I think the market wants inflation to be tamped more than they want cheap money right now.
      • colordrops 5y ago
        Phrased less sarcastically: "Millions of retirees won't have enough money to survive until they pass away."
• mcs5280 5y ago
  The Fed has created a debt bomb.
  • bequanna 5y ago
    I agree, but I think the size of public/private debt is a guarantee that rates will stay historically low for the foreseeable future. It’s only a bomb if rates go up.
  • photochemsyn 5y ago
    Probably best to not let Wall Street gamble with boomer retirement money on when the debt bomb will blow up. Putting Glass-Steagall rules on investment vs. commercial banking back in place would probably make sense around now.
    • AnimalMuppet 5y ago
      It would have made sense to never remove them in the first place.
• atlgator 5y ago
  Recession is inevitable. If you’re only considering interest rates, you haven’t bothered to look at the Fed’s balance sheet or FOMC meeting minutes from 2020. We bailed out the world through currency swaps, corporate bonds, and MBS purchases and we’re still doing it to the tune of $120B per month.
  • dustingetz 5y ago
    can you post links? hard for learning layperson to identify the right sources
    • dustingetz 5y ago
      https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm https://www.federalreserve.gov/monetarypolicy/fomccalendars.... 2022 March 16 press release https://www.federalreserve.gov/monetarypolicy/files/monetary20220316a1.pdf https://www.federalreserve.gov/monetarypolicy/files/monetary... No minutes yet for March 16 Slide deck materials i think - https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf https://www.federalreserve.gov/monetarypolicy/files/fomcproj...
• cubano 5y ago
  Inflation is almost 100% caused by "too much money" chasing "too few goods". "Too much money" is a condition almost always caused by the creation of too much "fiat currency" (ie a currency that is backed by nothing but the good faith and credit of the issuing government) As we all should know, in the US, on 6/5/1933 FDR took the US off gold-backed currency and started the fiat currency situation we still find ourselves in. Over the past 13 years, the US M3 money supply (see https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/MABMM301USM189S ) has grown from around $7.5T to $22T. This number represents the "too much money" part of the original equation, and to be honest I'm quite surprised that price inflation isn't significantly worse then what it currently is. This is almost certainly being caused by the fact that the US dollar is the world's Reserve Currency. Looking at the graph, starting Aug 2020 the line is starting to approach vertical, so it should be completely unsurprising that price inflation is occurring. Finally, a 0.25% increase in the Federal Funds Rate is laughably small, and will do absolutely nothing to help with the price inflation the US is currently seeing.
  • tehlike 5y ago
    price inflation and asset inflation. That increased supply went to asset inflation.
  • danielmarkbruce 5y ago
    Credit spends too. US Household debt to GDP steadily went down over that period.
  • throw0101a 5y ago
    > "Too much money" is a condition almost always caused by the creation of too much "fiat currency" (ie a currency that is backed by nothing but the good faith and credit of the issuing government) Japan money supply: * https://fred.stlouisfed.org/series/MYAGM2JPM189S https://fred.stlouisfed.org/series/MYAGM2JPM189S Japan inflation: * https://fred.stlouisfed.org/series/FPCPITOTLZGJPN https://fred.stlouisfed.org/series/FPCPITOTLZGJPN Money supply ≠ inflation. > As we all should know, in the US, on 6/5/1933 FDR took the US off gold-backed currency and started the fiat currency situation we still find ourselves in. Except for the multiple decades post-WW2 with Bretton Woods. Further, being on the gold standard didn't seem to help with inflation in the US during the 1920s: * https://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/ https://www.theatlantic.com/business/archive/2012/08/why-the... * https://archive.ph/FWKcL https://archive.ph/FWKcL
• andreyk 5y ago
  An interesting aspect of this is that the endless printing of money in the last few years was a sort of stress test of modern monetary theory, which has been seeing lots of discussion in those same years. I never quite understood how this theory would work while avoiding inflation, and what's happening now seems to at least be related - https://www.nytimes.com/2022/02/06/business/economy/modern-monetary-theory-stephanie-kelton.html https://www.nytimes.com/2022/02/06/business/economy/modern-m... Conceptually the answer in the theory is to suck up the excess money with taxes, which of course is not going to fly in the US. But maybe this inflation will make that more viable in the future: "Ms. Kelton and her colleagues make clear that the pandemic relief packages did not follow one of M.M.T.’s key tenets — they did not try to account for resource constraints ahead of time. In an M.M.T. world, the Congressional Budget Office would have carefully analyzed possible inflation ahead of time, and lawmakers would have tried to offset any strain on available workers and widgets with stabilizing measures and tax increases."
  • GoodJokes 5y ago
  • simpthrown8id 5y ago
    >>Conceptually the answer in the theory is to suck up the excess money with taxes Govt spending is already 45% of GDP, so there's not much room to increase it more. As for MMT, I think what the MMT crowd doesn't realize is that there's a lot of latent inflation coming. Asset prices and CPI do not go up in tandem. First Asset prices are inflated, then later for the next decade or so, as people slowly make withdrawals from those inflated asset prices, it begins to affect the CPI. And that's where we are right now, at the beginning of the CPI impact.
    • hn_throwaway_99 5y ago
      > >>Conceptually the answer in the theory is to suck up the excess money with taxes > Govt spending is already 45% of GDP, so there's not much room to increase it more. Taxes (government income) is not all that related to government spending, as we've seen recently.
• paulpauper 5y ago
  here begins the process of the fed sllowwwwly raising rates, well behind the rate of inflation. Either buy stocks or lose $ due to inflation. NO way out
  • mtoner23 5y ago
    Or you could use your capital to invest in a business to increase the supply of goods that this excess money is chasing. That would help fight inflation.
    • AviationAtom 5y ago
      This is one of the best ideas, but it would be wise to find a business that is recession resistant.
      • kavalg 5y ago
        Any ideas what kinds of businesses these might be?
        • AviationAtom 5y ago
          I think you just have to really consider what items or services people (or businesses) might always need, or would be last for them to cut. I can't think of those immediately, but food is one example, though grocery, not fast food.
  • trgn 5y ago
    Which isn't what's happening. It's been months now that this was being floated, and the stock market has been volatile the last half year, an outright bear market in some sectors. Trillions in equity have evaporated already, and that's not even taking into account the wealth erosion of high inflation. Now's the time to be skilled, but not the time to be a rentier.
    • paulpauper 5y ago
• jonnycomputer 5y ago
  Good thing I didn't come here for informed economic commentary. Now back to the blogosphere.
  • bigcat123 5y ago
  • Aperocky 5y ago
    The only thing that everyone agreed on here is how equally uninformed they themselves are. Which is a breath of fresh air compared to certain places where everyone believes they are the best informed and most well thought out.
    • ahahahahah 5y ago
      > The only thing that everyone agreed on here is how equally uninformed they themselves are. There are a lot (if not most) of comments here where the commenter clearly doesn't hold that position.
  • stjohnswarts 5y ago
    The blogosphere economics circle jerk is about as good as HN on economics, I wouldn't cite them as reliable or dependable source of info.
  • jorblumesea 5y ago
    One of the most annoying thing about engineering (and smart people in general) is how they think because they are good in X field, that somehow translates into Y field with little training.
    • afterburner 5y ago
      They're also used to dealing with things that are entirely within their control and all variables are known. That's so far off the mark for macroeconomics it's not even funny.
    • 5y ago
• jeffalbertson 5y ago
  so many people in this thread will play the common HN intellectual and exclaim how the fed is obviously trapped, or what they did wrong to do get us here. And in a different thread will trash bitcoin only focusing on its energy consumption and not its potential sound money properties. If Bitcoin is bad, and the Fed (and every government ever) created a situation which will only lead to poverty & widening wealth gap, whats the solution?
  • sfblah 5y ago
    The solution is to set interest rates to a historically reasonable level, say 4%. Then, accept you're going to have a recession as asset values reset to reasonable levels. The reason you need a reasonable risk-free rate is, without that, almost any marginally profitable that you can finance with debt will get financed. This leads to malinvestment. You can see this all around you. Asset inflation has the insidious side-effect of damaging democracy by producing oligarchy. An alternative solution would be simply to declare a maximum net worth and set tax rates on income over, say, $1m per year to 95%.
  • boppo1 5y ago
    >whats the solution? If I misjudge a cool jump off the roof into the pool and catastrophically break both my legs, then my legs are broken.
  • alliao 5y ago
    i don't think bitcoin is the saviour it claims, especially now it's being used and swayed by all the usual suspects of the old monetary system. It's now just another bucket within sea of capital. Used to adjust and move capital around, ended up to be just another instrument....
  • cowmoo728 5y ago
    The solution to bad governance is better governance, not utopianism. Problems like this are the entire reason that democratic countries have elections and peaceful transfers of power. Does it always work? No. But looking for a technical solution (short of all powerful general AI) to a human problem will only lead to pain when the human problems start creeping back in to whatever technical solution was designed.
• 29athrowaway 5y ago
  You will own nothing and be happy.
• mikaeluman 5y ago
  This was expected since at least December. The market is pricing in 6 more rate increases throughout the year. They simply can't afford to lag behind inflation too much for too long.
  • voisin 5y ago
    Am I incorrect in thinking they also can’t afford to let rates rise too much as they can’t afford the interest payments?
    • mikaeluman 5y ago
      The FED receive interest payments. They don't make them. But yes, raising too much too fast will cause stress and defaults, and nobody wants that unless it's absolutely necessary.
      • voisin 5y ago
        Federal Reserve receives but the payments are made as a share of the government’s budget, no? So the Fed is trying to balance inflation with effectively defunding the governments non-debt servicing initiatives.
        • cheriot 5y ago
          Higher interest payments just means the Gov borrows more. I don't think the Fed is concerned about the ability to issue new debt.
        • drexlspivey 5y ago
          The coupon payments in the government’s existing debt are fixed and as such they are not effected by any changes. It will only affect newly issued debt while the debt is being rolled over which will take some time (the average maturity is around 5 years)
        • deleted 5y ago
          [deleted]
• yalogin 5y ago
  We did waste the 3 yrs before Covid hit by not increasing interest rates and not reducing Fed's money printing. I don't know if it's the fed or if the government pushing to win elections, but feels like we didn't take care of the house in good times and we have led ourselves into this cycle.
  • r00fus 5y ago
    Hmm - I wonder who appointed the current Fed chair?
    • jonathanpeterwu 5y ago
      Yeah no doubt about this. But its also important to remember we've been doing this non stop since 2008 minus a few months in 2018. So this is a multi president, both parties are involved in continuing this train.
      • spaetzleesser 5y ago
        People have been conditioned to believe it's either one or the other party's fault. And they decide whether things are going well or not so well based on whether their favorite president is in power. Nobody looks at the actual data.
    • stjohnswarts 5y ago
      The current Fed chair has basically the same idea on economics as Yellen. Likely not much would have changed if she'd stayed in office.
      • nostromo 5y ago
        True -- but note that Yellen was appointed by the same president.
        • stjohnswarts 5y ago
          Not true. Yellen was appointed by Obama, Powell was appointed by Trump.
• jcadam 5y ago
  Got my mortgage at 2.75% late last year. Woooooo.....
  • seizethecheese 5y ago
    What do you think is going to happen to your home price is interest rates go up to 5% and then people can’t afford huge mortgages anymore?
    • solveit 5y ago
      Shouldn't be too relevant if they're planning on living in the house for the next ~30 years.
      • xienze 5y ago
        Everybody “plans” on living in the same house forever. Unfortunately, life gets in the way. Job change, moving for a different school district, divorce, death, etc. Stuff happens.
    • jcadam 5y ago
      We'll see. we didn't have inflation like this during the last big downturn in 2008. I also don't think the Fed is going to be able to raise rates as high as they did back in the early 80s.
      • nostromo 5y ago
        The economy would collapse, along with the US government, at even moderately-high interest rates. The federal government is $30t in debt. Even a small rise in interest rates would quickly make the entire federal budget servicing the debt.
        • odonnellryan 5y ago
          That's not true.
• cm2187 5y ago
  When inflation is at 8%, that's like pissing on a forest fire.
  • rafale 5y ago
    That's the most optimistic number possible. For most people, I am sure the actual cost inflation is higher.
  • afterburner 5y ago
    They are saying they will raise it several more times this year. Inflation isn't the worst economic problem you can have, unemployment and deflation are. And raising interest rates risks raising unemployment, and even causing a recession if you're too aggressive. The inflation could still be a temporary effect of the COVID years, so if you overdo it, you'll risk dampening economic activity too much when it was going to go down after a year anyways.
    • cm2187 5y ago
      even if you add the subsequent increases, they add up to 1.5%. That won't do anything to an inflation of 8% raging right now.
      • afterburner 5y ago
        If the inflation falls later on, that 1.5 won't look so bad. No reason risk to crash the economy right when it's just starting to recover. Overcorrecting is bad.
        • cm2187 5y ago
          It has been high for a year already and everything points to it worsening (the 8% doesn't include Ukraine, which will push both energy and food prices up). It is because it is not temporary anymore than the Fed is forced to act now.
          • 5y ago
• lvl102 5y ago
  Higher rates won’t impact US as much as they will impact emerging economies. Those countries will face food crisis in addition to rapidly rising debt costs. Keep an eye on this because we are on cusp of civil unrests across the globe.
  • UncleOxidant 5y ago
    War in Ukraine will have a much larger effect. Something like ~25% of global wheat supply comes from Ukraine and Russia. There won't be any planting to speak of in Ukraine this spring. And Russian wheat is pretty much off the world market.
    • lvl102 5y ago
      Yes, it went from bad to insurmountable in many poor parts of the world and not enough people are talking about it if any.
    • cjbgkagh 5y ago
      I’ve heard from Russian sources (so take with grain of salt) that they’ve avoided the center of Ukraine to allow locals to plant food. So maybe some planting may take place.
    • selimthegrim 5y ago
      I am sure Dubai will trade it
    • kcb 5y ago
      > Something like ~25% of global wheat supply comes from Ukraine and Russia Global wheat exports not supply. Global wheat exports is a relatively small proportion of overall global wheat production.
• neonate 5y ago
  https://www.wsj.com/articles/fed-raises-interest-rates-for-first-time-since-2018-11647453603 https://www.wsj.com/articles/fed-raises-interest-rates-for-f... https://archive.ph/0XjAq https://archive.ph/0XjAq
• dang 5y ago
  We changed the URL from https://www.federalreserve.gov/newsevents/pressreleases/monetary20220316a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone..., which is a slightly obscure press release, to what looks like an ok third-party article. If there's a better third-party article (that isn't hard paywalled) we can change it again.
• FpUser 5y ago
  >"An interesting aspect of this is that the endless printing of money in the last few years was a sort of stress test of modern monetary theory" I think it was / is stress test of how much and for how long other countries are willing to finance the US and let it abuse status of the dollar.
• tlogan 5y ago
  We have an inflation which is about 8% while mortage rates on 30 year fixed are just 4.7% (15 year fixed are just 3.8%). So I really do not understand logic here: how can bank give me money at rate 2x times lower than inflation. Seems like free money (and it is no surprise that home prices are going thru the roof). But I’m probably naiive here and do not understand how banking works.
  • mercutio2 5y ago
    The finance industry is not predicting that inflation will continue at its current pace. That, plus the 30 year fixed interest mortgage market is not a naturally occurring market, it is heavily subsidized.
  • HeavenFox 5y ago
    Presumably inflation is not going to stay at 8% over the next 30 years. In fact the current 30-year expected inflation is only at 2.2%: https://fred.stlouisfed.org/series/EXPINF30YR https://fred.stlouisfed.org/series/EXPINF30YR
    • MisterMower 5y ago
      What was the Fed’s outlook a year ago? Was anybody predicting 8% inflation? Forgive me for my skepticism, but these guys are at best guessing. Most likely they are straight up lying.
      • gruez 5y ago
        >Their estimates are calculated with a model that uses Treasury yields, inflation data, inflation swaps, and survey-based measures of inflation expectations. So the data is partially based on market data (ie. implied inflation rate based on what the yield on TIPS is compared to treasuries). There's another data series for 10 year inflation that only uses market data and it tells a similar story: https://fred.stlouisfed.org/series/T10YIE https://fred.stlouisfed.org/series/T10YIE. Since this is all market data, made by people who have skin in the game (ie. if they get it wrong they lose money), it should be less gamed the previous metric.
• RichardHeart 5y ago
  Be nation. Mint money out of thin air. Prices go up for everything. Citizens sell stuff for other stuff. Because prices all went up, causes tax on "gains." But was no real gain. Citizen robbed twice. Once when all prices up. Once when taxed on fake gain.
• regpertom 5y ago
  Hello, I wonder, concerning unemployment stats, people are saying u-3 or u-6 etc. is there something like “full utilisation”? What would that look like? Say, assume drones/advanced future cyborgs are free and everyone works and likes it. It’s not going to be infinite growth since it would have to be locked to a pop and region. Simplify for example: it works out to be a Mac Donald’s every second street corner. How many jobs and res? I also heard of a thing called money velocity. ~how much a particular dollar moves around. I heard it’s worth considering when understanding inflation stuff. I heard it said that recent stimulus has been like adding gas to a cold system (low velocity) where last time it was a hot system. The worry is we are going to explode if the temp goes up. Have a nice day everyone.
• superos 5y ago
  Hi, let's create some unemployment. Each and every time the low paid gets in a position to demand a higer salery this happens. Amerika all over again.
• jbkiv 5y ago
  Wait, am I missing something here? The ONLY way for any government to escape their massive debt is inflation. The US is no different from other countries that used the pandemic as an excuse to prop all kind of businesses. This is no different that real estate. If you have bought property at a fixed rate, then high inflation (= higher salaries) will make your loan look smaller year after year. Of course the collateral damage is a weaker US$. But what is the alternative to the US$? Crypto? Yuan (see the recent move of the oil producing countries to accept non US $ payments). The US knows that there is NO alternative to the US $, hence their reckless borrowing strategy (= issue more Treasuries). But wait! Isn't what the HN is used to hear? "There is no alternative to the dominant position of Microsoft Explorer, Blackberry or anything else. Until THERE IS a replacement and a newcomer replaces the incumbant. I am really worried over the long term about the so-called invicible US $ as a store of value.
  • adam_arthur 5y ago
    Problem is that all central banks acted in coordination to print massively. So even if USD loses value in absolute terms, it doesn't in relative term. You're right though, modern age monetary policy has been about inflating assets and monetizing fiscal deficit spending. It's basically a big transfer of wealth from the younger generation to the older one (if you look at how lower interest rates pull forward valuations). When people talk about cheap housing or college in the 70s/80s, it was because the interest rate was over 10%. In modern society the best "mathematical" move tends to be to finance every purchase and pay them off as slowly as possible. I'd rather be debt free for peace of mind, personally, even if the math proves it to be the worse option.
• erichocean 5y ago
  MMT: Enabling financial elites to plunder the peasants at ever-increasing rates until inflation kicks in, at which point you tax whatever wealth the peasants accidentally acquired during the run up until they are, once again, poor. Rinse and repeat until the peasants have no wealth at all. We're already 60% of the way there—but those are rookie numbers! Look at certain South and Central American countries to see how far we have to go.
• cduzz 5y ago
  People look at the monetary policy side of things, but I think shortages have just as much to do with inflation. If I see there are no eggs in the grocery store, I'm happy to pay whatever they cost next time I see them. If I can only get gasoline 3 days out of the week and I need gasoline, I'll pay whatever the asking price is for that gasoline. Sure, maybe they flooded the zone with billions of dollars, but that's been going on for a long time. The difference now is that lots of stuff just isn't available.
• dlsa 5y ago
  It will be interesting to see how the dynamics change as the USD loses its grip on the crude oil trade and possibly other commodities as well. Will the US keep doing these money-printing and interest rate interventions for the next shock?
• RickJWagner 5y ago
  I think I would've felt better with a half point raise. Remember, the Fed called inflation 'transitory' for quite a while, even as others pointed out it seemed here to stay. They may not be giving it the respect it deserves. I'd be delighted to be wrong, to watch inflation fall with the smaller raise. But if it fails, I hope they move aggressively against it soon to stop it.
• known 5y ago
• fortran77 5y ago
  Low interest rates, combined with printing too much money, is simply a tax on people who save money. It punishes the most responsible Americans, at the expense of the "how much a month" crowd who like to live in perpetual debt.
• alfiedotwtf 5y ago
  "Hear that noise? Turn it off" -- Ludwig Von Mises