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The US Fed didn’t raise interest rates until March, much too late to cause this number.

by kasey_junk 5y ago

recursivedoubts 5y ago
They began talking about raising rates much earlier. Markets and the economy are forward looking.
- VHRanger 5y ago
  Markets didn't react until around Feb 2022. Look at mortgage rates for instance. Or just equities indeces.
- kasey_junk 5y ago
  All of the predictions ahead of this number and the article itself were predicting this based on inventory surpluses that had been built up in the previous 2 quarters. That seems a more directly attributable cause than fears of interest rate increases. In fact, if you anticipate interest rate increases it makes more sense to bring spending forward not to delay it.
- jlmorton 5y ago
  I'm not sure what you're suggesting. What was the mechanism by which talk of higher rates reduced GDP? Consumer and business spending both increased. Personal consumption expenditures increased at 2.7%, and business investment increased at 2.1%. The big drag in the report is from inventories and trade, which are being impacted by pandemic-related supply chain issues and geopolitics.
newaccount2021 5y ago
gruez 5y ago
It was already priced in. On jan 3 the markets were predicting a 57.12% chance of interest rate increase to 25-50bp, 3.6% chance of increasing to 50-75bp. https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html https://www.cmegroup.com/trading/interest-rates/countdown-to...
- riku_iki 5y ago
  But market is not economy.
  - gruez 5y ago
    It trickles down. If the banks knew the interest rates are going to rise at the next fed meeting, they're not going to wait until the announcement to raise their rates. That means the effect of a rate increase is felt way ahead of it being announced.
    - riku_iki 5y ago
      > they're not going to wait until the announcement to raise their rates they will do what market will allow them to do. One bank can raise rates, but others won't, they will secure pre-hike loans, and win customers because of lower rates. Also, I am not sure if commenter above referred on loan rates market or maybe stock market..

The US Fed didn’t raise interest rates until March, much too late to cause this number.

recursivedoubts 5y ago

They began talking about raising rates much earlier. Markets and the economy are forward looking.

VHRanger 5y ago
Markets didn't react until around Feb 2022. Look at mortgage rates for instance. Or just equities indeces.
kasey_junk 5y ago
All of the predictions ahead of this number and the article itself were predicting this based on inventory surpluses that had been built up in the previous 2 quarters. That seems a more directly attributable cause than fears of interest rate increases. In fact, if you anticipate interest rate increases it makes more sense to bring spending forward not to delay it.
jlmorton 5y ago
I'm not sure what you're suggesting. What was the mechanism by which talk of higher rates reduced GDP? Consumer and business spending both increased. Personal consumption expenditures increased at 2.7%, and business investment increased at 2.1%. The big drag in the report is from inventories and trade, which are being impacted by pandemic-related supply chain issues and geopolitics.

newaccount2021 5y ago

gruez 5y ago

It was already priced in. On jan 3 the markets were predicting a 57.12% chance of interest rate increase to 25-50bp, 3.6% chance of increasing to 50-75bp. https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html https://www.cmegroup.com/trading/interest-rates/countdown-to...

riku_iki 5y ago
But market is not economy.
- gruez 5y ago
  It trickles down. If the banks knew the interest rates are going to rise at the next fed meeting, they're not going to wait until the announcement to raise their rates. That means the effect of a rate increase is felt way ahead of it being announced.
  - riku_iki 5y ago
    > they're not going to wait until the announcement to raise their rates they will do what market will allow them to do. One bank can raise rates, but others won't, they will secure pre-hike loans, and win customers because of lower rates. Also, I am not sure if commenter above referred on loan rates market or maybe stock market..