21 ms·

Federal Reserve raises rates by 0.75%

342 points by no_wizard 4y ago

baggy_trough 4y ago
A day late and a dollar short...
tootie 4y ago
Stocks rallying a bit. I expect we'll see dead cat bouncing at least until we get the next CPI numbers.
- mirntyfirty 4y ago
  It seems as though the dip buying will continue but perhaps the fed wants a smoother road back to reality.
  - paulpauper 4y ago
    will continue? it's been strait down all year i would like to see it recover
    - bamboozled 4y ago
      I wouldn’t think this will happen until inflation chills out and the interest rates stop rising ? Just a guess though
    - mirntyfirty 4y ago
      Overall it’s gone down but seems as though a lot of the big drops are followed by smaller surges of buying.
      - tootie 4y ago
        Yeah, that's what they call the "Dead Cat Bounce" that I referred to. https://en.wikipedia.org/wiki/Dead_cat_bounce https://en.wikipedia.org/wiki/Dead_cat_bounce
- kgwgk 4y ago
  The strong rally after the last meeting didn't even last one day...
- whimsicalism 4y ago
  Stocks rallying is just an indication that the Fed under-raised compared to market expectations.
  - afterburner 4y ago
    No, today it's probably an indication to traders that the Fed is taking inflation seriously, since all the risky stocks are sensitive to inflation. A lower raise may have cause a further sell off. Traders' minds can be tricky. They're also reading the news!
  - tootie 4y ago
    Nah. This is always what happens. It's the inverse the old saw "buy on rumor sell on news".
    - whimsicalism 4y ago
      You must be a billionaire then.
nostromo 4y ago
It seems the Fed is stuck in a state of overreaction. First they overshoot on money printing, then they disregard early signs of inflation, and now they're in a panic in the opposite direction. Seeing the news this week that Bernanke said that the Fed should be able to pull off a soft-landing now in 2022 gave me an uncomfortable déjà vu -- he said the same in 2006 and 2007, right before he raised rates enough to kick off a global financial crisis.
- NDizzle 4y ago
  Textbook weak leadership.
- rich_sasha 4y ago
  In fairness, inflation seems largely driven by energy prices, which in turn are driven by the Russian invasion of Ukraine. Not the top event I'd imagine a bank predicting well.
  - khuey 4y ago
    Central banks can't produce more crude oil or refine more gasoline by manipulating rates. The only thing they can do here with that switch is tank the broader economy to destroy energy demand.
  - fibers 4y ago
    no one here buys the 'putin price hike' excuse
    - rolobio 4y ago
      I was blown away when the president claimed he "has never seen anything like Putin’s tax on both food and gas". When did Putin get the ability to raise taxes in the US??
      - voidfunc 4y ago
        Bidens desperate to reframe the narrative that Dems fucked the economy before the midterms. I dont think this is going to work tho. Voters dont have enough understanding to see the cascade failures that have gotten us here over the last several years.
morninglight 4y ago
> Seniors, should reap the benefits of higher bank savings rates after years of piddling returns. Not to any significant degree. Bank rates won't come close to offsetting the effect of inflation. The big winner will be the IRS, as intended. .
- djbusby 4y ago
  How does IRS win here?
  - cjbgkagh 4y ago
    I assume capital gains on the increase in nominal value. The government gets a cut of that. Kinda acts like a wealth tax.
  - Mountain_Skies 4y ago
    Unless the tax brackets are adjusted, inflation with rising wages means more people in higher tax brackets. If corporate earnings go up, there's more for the IRS too though that might be wiped out by the lessening value of each dollar.
    - whimsicalism 4y ago
      Unless the tax brackets which are adjusted for inflation every year continue to be adjusted as usual*
    - lpasselin 4y ago
      Are you saying the IRS does not adjust tax brackets to follow inflation properly?
    - xxpor 4y ago
      The brackets are indexed to C-CPI as of 2018
    - JumpCrisscross 4y ago
      > unless the tax brackets are adjusted Most IRS brackets and thresholds are tax adjusted [1][2]. Tax brackets certainly are, as is the personal standard deduction. [1] https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022 https://www.irs.gov/newsroom/irs-provides-tax-inflation-adju... [2] https://thehill.com/policy/finance/580961-irs-announces-inflation-adjustments-for-standard-deduction-tax-brackets/ https://thehill.com/policy/finance/580961-irs-announces-infl...
mark_l_watson 4y ago
You can argue either side to this, and make a good case. My personal preference is to trigger a recession and reduce inflation. The easy cop-out solution is to say a "big f*ck off" to pensioners, lower middle class, and poor people and let inflation soar, but I believe that long term this would be more destructive to the general economy. Better take the long term view here and not kick the can down the street.
- JumpCrisscross 4y ago
  > personal preference is to trigger a recession and reduce inflation These aren't binary outcomes. Tight money does nothing to ease supply-side bottlenecks. It does little to target demand displaced by rising energy prices. If those are the principal drivers of inflation, tightening could depress non-energy demand in a way that causes a recession without alleviating inflation. Stagflation. (To be clear, we're not at tight money yet.)
  - deleted 4y ago
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  - Retric 4y ago
    It keeps supply side bottlenecks from being inflated with cheap money.
    - deleted 4y ago
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    - ketzo 4y ago
      People aren’t buying gas or groceries with “cheap money.” Housing, business debt — sure. But there’s a long, convoluted path from cheap debt to inflation of consumer goods.
      - Retric 4y ago
        The thought process goes: Consumer goods like TV dinners are still based on things further up the supply chain like fertilizer. Normally you get inflation when there is a shortage of say crude oil, but when everything is running into random shortages companies get defensive and start trying to stockpile supplies. Hypothetical example: If Dell wants another 2 weeks of GPU’s on hand from Random Supplier X, and Random Supplier X wants 2 weeks of chips for their GPU’s on hand from Nvidia, and Nvidia wants 2 weeks of refined silicon on hand from supplier Y, who wants to source 2 weeks of raw materials early that’s 2 + 2 + 2 + 2 = 8 weeks worth of demand of sand from some mine somewhere out of thin air. Which then dramatically bumps prices for sand and that trickles back down the supply chain. However, higher interest rates should moderate how much each company in that chain stockpiles, which reduces the demand for sand even if the same number of computers are shipped either way.
dnadler 4y ago
Something I haven’t seen discussed much is the impact of inflation on the existing federal debt. This is actually a positive for taxpayers as the federal debt will become cheaper. Obviously we’re still spending a ton and are issuing debt at higher rates now, so it’s not some kind of magic cure or anything.
- maerF0x0 4y ago
  Sort of. But the government also has a deficit. Which means it's exchanging low % notes for high % notes.
  - QuarterReptile 4y ago
    Nitpick: Bonds coming to term means it's exchanging low% for high %. Deficit means that the problem accelerates even faster than that, because the total value of bonds continues to increase.
- countvonbalzac 4y ago
  I read something like this actually isn't the panacea it seems like in the long term because inflation reduces real growth long term, or something like that.
  - smileysteve 4y ago
    That's an odd conclusion; yes real growth is impacted by inflation, but inflation is a reason to seek growth rather than rent.
- readams 4y ago
  Most of the debt is shorter term and must be continually rolled over. So when first moving from low expectations of inflation to high expectations, there is a temporary one-time gain, but after that the government will need to pay higher interest. And of course when the expectations return to normal there is a period when the government must pay higher than needed rates.
bobobob420 4y ago
One day if things turn out well we will see Jerome Powell in jail
saos 4y ago
Curious to see what BoE will do
paulpauper 4y ago
The fed is aggressively raising rates as the economy goes into recession. The last time something similar to this happened was in 1980. A very bad unusual situation, but on the other hand, the worst may be over. I think Google, Microsoft, Facebook, Amazon, and other large cap tech stocks are good buys at these levels and are more immune to macro factors (compared to other sectors ) and can hedge inflation by raising prices.
- blip54321 4y ago
  I have mixed feelings on tech stocks. I feel like the general competence has gone down, and that makes them vulnerable. Google is a shitshow right now. I don't think they can do B2B. Chrome Extensions. GSuite Free. Google Workspace App security audits. I can list of dozens of other disruptions like that. No one trusts them. At the same time, cost structure is astronomical; employee count has grown exponentially, to match revenues, with little to show for it. Amazon is a cesspool of knock-offs, scams, and rip-offs. Facebook's reputation is in the toilet right now and internal incentives are completely misaligned. Microsoft is, oddly enough, doing the best of the bunch. They recovered from their evil hay day in the nineties, their incompetent '00s, and seem to be doing okay. I think the move to degooglify will spiral. I think an Aliexpress might take down Amazon within the next decade or two. And Facebook might be Myspaced.
  - bpicolo 4y ago
    If amazon’s main issue is the scams and knockoffs, how is aliexpress the cure?
    - dontblink 4y ago
      It equalizes them. And products on AliExpress are cheaper. But that, of course, depends on the US relationship with China which doesn't seem to be getting friendlier.
    - blip54321 4y ago
      I can buy stuff much cheaper on Aliexpress. My experience there is no worse than 2022 Amazon, except for lower prices and slower shipping. Amazon, even as late as 2019, seemed ahead of Aliexpress on service and quality. Something happened with COVID which seems to have permanently broken Amazon. I understand a blip, but after 2 years, Amazon hasn't recovered. My basic problem is that if I order medicines, I want to know they're not placebo pills. If I order vanilla extract, I want to make sure it's not produced in a chemical factory with random toxins. If I buy something brand-name, I want to make sure it has that level of quality. If I buy an SD card, I want to know it's not a defective product from a manufacturing run with a forged Sandisk label. I can't do that on Amazon anymore. That leaves fast shipping as the prime selling point, but Amazon seems to miss delivery deadlines a lot since COVID, not to mention broad ranges of products which don't do fast shipping. Fast shipping I can count on is worth a lot. Fast shipping most of the time has negative value. Most of the time I care about fast shipping, it's because I have some deadline.
anm89 4y ago
The Fed clearly doesn't understand how to MMT properly. What J Powell was supposed to do her was to raise the income tax rate.
- AnimalMuppet 4y ago
  1. You're assuming that MMT is the right answer, which is far from a foregone conclusion. 2. You're assuming that Powell agrees that MMT is the right answer, which is definitely false. 3. You seem to have the idea that Powell has some control over the income tax rate, which is totally false.
  - anm89 4y ago
    It's sarcasm.
    - AnimalMuppet 4y ago
      Ah, I see. I missed that...
      - anm89 4y ago
        :) ha you are one of the few accounts on here who's usually roughly aligned with me on these types of things
bobobob420 4y ago
SnowHill9902 4y ago
The raise is 75 bps not 0.75%.
- matdehaast 4y ago
  Isn't that the same thing?
  - scrlk 4y ago
    Using percentages rather than basis points can be ambiguous. E.g. "1% increase from a 1% rate". Does this mean 1.01% (relative increase) or 2% (absolute increase)?
    - matdehaast 4y ago
      Fair enough, I've never heard rate increases discussed in relative terms. The context matters in the case.
  - Vecr 4y ago
    75 BPS is 0.75% of the total or "100%", not of the current value. BPS makes it more clear that the increase each time is linear, so another 75 BPS will be the same absolute percentage as this 75 BPS.
- drewbailey 4y ago
  75 basis points == 0.75%
  - prepend 4y ago
    True
- deleted 4y ago
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- deleted 4y ago
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- 4y ago
apienx 4y ago
This is a typical overcorrection (the Fed is run by humans after all). US debt is over $23x10^12, so such rates are unsustainable even in the short term (12-24 months). Algorithmic Monetary Policy > Dictated Monetary Policy(TM) IMHO.
- drexlspivey 4y ago
  This does not affect existing debt in any way only newly issued debt.
  - mullingitover 4y ago
    That existing debt gets rolled over, and as it does it rolls into the higher rates.
- npc12345 4y ago
- afterburner 4y ago
  Given that a recession hasn't happened (yet?) and inflation is still high and not trending down (yet?), I wouldn't say it's an over-correction (yet?)
- UncleMeat 4y ago
  Why should I believe that algorithms written by some random software engineers will be better stewards? "Algorithmic Monetary Policy" includes things like premining and exponential decay of rewards and causes huge community rifts over things as simple as block size.
- adammarples 4y ago
  Algorithmic monetary policy, based on the Taylor rule, would have been many percentage points higher for many months already, this correction is too late.
  - moneywoes 4y ago
hnthrowaway0315 4y ago
The thought that we are going to turn the table and make the slate clean finally is very troubling to me. I mean 1) this is a non-insignificant possibility right now, and 2) just reached mid-age, the worst time to get hit by a depression.
- DangitBobby 4y ago
  I thought the worst time to get hit by a depression was right before you enter the job market for the first time and/or as you attempt to buy your first house. I guess every stage of life has unique challenges that come along with a depression.
  - hnthrowaway0315 4y ago
    At least one does not need to support a family at that time and has ample time to find a job. But if the whole industry starts to dump people and you are in 40s, good luck... Actually, I graduated right after the 08/09 crash and had to go into graduate study shortly. After graduation as a Ms.c it still took me a few years to get an IT job (master has nothing to do with IT). But if I'm fired right now, I really have no confidence that I can easily grab an equivalent job. Part of the reason is that during these years I had to hop a few jobs to reach something I really want to do, so my experience in the field is very little (<= 2 years).
wolframhempel 4y ago
The really worrying thing to me is our inability to accept that we (as in humankind) are rather rubbish at running complex systems. A good analogy is to think of the economy as a still lake. If you throw a rock into it, you know that it will create concentric circles of waves. You throw a second rock and you know that its waves will interfere with the first. But now the waves create oscillating patterns and now they hit the irregular shore and pretty much immediately you have the usual chaotic pattern of waves all over the lake. It's the same deal with the economy. We can predict the first order, maybe the second order consequences of our actions. But again and again we're faced with a highly dynamic system with an almost infinite set of variables and we seem continuously surprised when things get out of hand. To me, a federal reserve system that insures banks from bank runs makes sense. This sort of FED that we have now that tries to control the overall economy is - to me - at least as hopeless as centralized 5-year plans under communism.
- afterburner 4y ago
  > This sort of FED that we have now that tries to control the overall economy is - to me - at least as hopeless as centralized 5-year plans under communism. This is a CRAZY comparison. The Fed is barely doing anything, basically trying to keep things stable using two simple tools, and is doing so iteratively and carefully. It is the literal opposite of a Soviet communist 5 year plan that details everything to the n-th degree and damn the consequences.
  - wolframhempel 4y ago
    > The Fed is barely doing anything, That is really not correct. The Fed has engaged in four phases of Quantitative Easing (https://en.wikipedia.org/wiki/Quantitative_easing#United_States https://en.wikipedia.org/wiki/Quantitative_easing#United_Sta...) since 2008 alone, with the last one in Mid-Summer 2020. This one resulted in an additional two billion of asset purchases with Money that didn't exist before, meaning that in 2020/2021 the Fed's money generation accounts for a total of 10% of US GDP. Having this much more money in a system with stable or declining supply (especially in conjunction to the Covid Relief Packages under Trump and Biden) is to me quite likely to have created the very problem the Fed is now trying to solve.
whatevenisthat 4y ago
beezle 4y ago
Ridiculous that the Fed doesn't just raise 200bp and be done. They could have done this six months ago (call it 250bp then) if they truly believe that the level of interest rates will have a material effect on the inflation rate. The piece meal, drip drip increases just raises uncertainty for consumers and businesses while ensuring they are "behind the curve"
- afterburner 4y ago
  The piecemeal approach ensures they avoid massive shocks and over-correction. The cure should not be worse than the disease.
  - misiti3780 4y ago
    that happened.
    - afterburner 4y ago
      It could have been worse, that's the point. It is also unknown exactly how much of a total raise is needed, hence the iterative approach to ensure no over-correction. The world economy has many moving parts, you can't panic when trying to manipulate it.
      - syspec 4y ago
        It /could/ have been better.
      - beezle 4y ago
        The dot plot indicates they want the funds rate around 3.75% by end of 2023 and over 3% by start of 2023. There is absolutely no reason to do 75 today, 75 next month and 50s the rest of the 2022. That pattern is actually more shocking than just a one and done hike. An analogy would be a bad tasting medicine - I don't know anyone who prefers sipping to just down the hatch. There is also nothing to say they can't lower the funds rate should conditions warrant, as unlikely as that may be. Perhaps a reminder to those who are younger - the past 10 years have been an aberration and not the norm when it comes to interest rates. The US and world economies have had long periods of growth with 10 year rates of 6% or higher. The current moves are as much about current inflation as they are cover for a Fed that has been looking for a way to end the mistake of ZIRP without actually saying it was a bad idea.
kerblang 4y ago
Dang. Well if it's enough to pop the various housing/cryptocurrency/startup bubbles, good. They were already pretty squishy but only for a threat that had to be carried out. It can always be walked back, and probably will be in year...
smartmic 4y ago
I know this may sound petty and the wording is regularly found even in the best editorial offices, but the engineer in me resists every time: the correct wording should be "by 0.75%-points" instead of "by 0.75%". Am I the only one who is bothered by this?
- malfist 4y ago
  Yes. Everyone else can use context.
  - isitmadeofglass 4y ago
    Just because you can use context doesn’t less annoying.
- adammarples 4y ago
  No, it should either be 0.75% or 75 basis points
  - deleted 4y ago
    [deleted]
  - randomdata 4y ago
    You are half right. Per the article body, contradicting the headline, the rates increased by 0.75pp, which is equivalent to 75bp. The previous rates ranged from 0.75% to 1% making the 0.75pp hike a 75-100% increase, not the 0.75% increase you and the incorrect headline claim.
    - adammarples 4y ago
      Nobody ever talks about rate increases in terms of their ratio to the previous rate (ie. talking about a 75-100% rate increase), this would be insanely confusing and irrelevant. To avoid confusion, people always discuss the absolute additive change in the base rate itself. ie., 75bp or 0.75%, which are equivalent.
tiffanyh 4y ago
Stagflation? Do we have a good sense if this will stifle inflation because from all accounts I've seen, it appears we're in the worse possible situation of stagflation (recession + inflation).
resters 4y ago
Interest rates are not the only government mechanism that can be used to control interest rates. Stimulus can be done in a way that is highly targeted. When it is not, it has the same effect as rates being too low and can lead to things like overemployment and inflation. Politically, there has been significant demand for overemployment, that is, unemployment levels that are lower than they should be, or, put another way, an economy where labor is too scarce. Anyone who has tried to hire tech talent domestically in recent years has faced significant scarcity and can attest to the quality tradeoffs that must often be made such as hiring someone with insufficient experience and hoping it works out, or needing to invest more heavily in training and mentorship than seems reasonable. In growth areas like tech, this is normal and is the result of growth itself, but recently the US economy has seen this kind of thing in many different kinds of jobs, even retail and food service jobs. It's not uncommon to find a packed restaurant being handled by one or two waitstaff, leading to slower turnaround and overall reduced capacity of the restaurant and less money being made overall. This is blamed on the pandemic and all kinds of other causes, but the root cause is the infliction of intentional labor shortages on the economy for political reasons. Similarly, the COVID stimulus in the previous administration was given out with minimal vetting and significant misallocation (payments to businesses that didn't need it), and there has been no retrospective accountability for any of it. It boils down to something that was supposed to be a targeted stimulus (to prevent firms from going out of business or laying off workers) became an untargeted one and spoils were given to firms that misrepresented need and used the money for things other than staying solvent or keeping payroll going. So of course we are seeing the consequences of this now in the form of both inflation and economic stagnation. This is not the fault of one political party. Neither has any restraint when it comes to wanting broad stimulus and artificially low unemployment numbers, and there is a lot of finger pointing about the extremely predictable inflation that is occurring. Raising rates penalizes all the firms that did not seek stimulus inappropriately, as well as the ones who sought it because they needed it. Chances are rates will go up at least another 1.5 or 2 percent in the next year. This is unfortunate, and the economic correction resulting from it will be significant and will last for many years longer than the brief period of artificial joy we got over the past few years.
susanasj 4y ago
remarkable how many people in this thread are assuming the bottom of the income distribution is hurt the most by inflation. Think about who has debt (mortgage, student, medical expenses, car payments) and who that debt is owed to (banks, corporations) and what happens to that debt in real dollars when inflation is happening. The debt becomes less meaningful. Wages rise (they have in fact been rising), and the payments are less of a burden, while the people that are owed money get less value from the payments.
- qgin 4y ago
  You're very right, but I think the trick is that prices rise faster than wages, if they ever fully catch up. That lag between price and wage increase is a super immediate problem for anyone going paycheck-to-paycheck.
  - susanasj 4y ago
    yes definitely agree.
  - deleted 4y ago
    [deleted]
- laputan_machine 4y ago
  Inflation affects the poor more than the wealthy. Food, energy, shelter all become less attainable for the poor. They will always be attainable for the rich. In absolute terms the rich will "lose" more money, or not gain as much, but this isn't the concern. The concern is the inevitable increase of absolute poverty that will happen, and that is because the poor will be worse affected. Rich people aren't going to struggle to pay their gas bill, or struggle to buy food.
  - TimTheTinker 4y ago
    Any change at all from the ideal will disproportionately negatively affect the poor, marginalized, disadvantaged, etc. This is true in any sphere of life, not just economics. That's why "love your neighbor as yourself" is indispensable. No policy or variable tweaking can take the place of simply caring for others.
acd 4y ago
Prediction higher interest rates will reverse the following trends: * Private car leases at near zero interest rate will stop. At one point it was sometime cheaper to lease than to buy a car for cash * Housing bubble. Near zero central bank/bank interest rates has inflated a housing bubble. Higher interest rates will decrease housing prices since fewer buyers will be able to afford higher interest mortages. * Tech bubble. Cheap interest has also funded some startups with non viable long term business ideas * Electric scooter rental companies. There will be fewer electric scooters since the interest rate to lease them will be higher. Electric scooter rental companies will afford fewer scooters. * Less investment companies buying up farmland. It will be more expensive to finance these deals * High leverage tech stocks over schiller p/e 15 rate will deflate. * There was no exponential startups growing forever. There was however debt growing an exponential rate. The world is still linear. Linear power production. * Graphic cards for gaming will be more available for gamers again. Reason crypto currency mining will decrease deflate by higher interest rate not flowing as much into crypto. * Tech bubble less tech startups will effect cloud vendor footprint. Fewer tech startups less need to rent cloud services.
- scoofy 4y ago
  I generally agree with all of this, though, i think two of the points may see counter-intuitive outcomes: >* Housing bubble. Near zero central bank/bank interest rates has inflated a housing bubble. Higher interest rates will decrease housing prices since fewer buyers will be able to afford higher interest mortages. Ehh... we should expect this, but supply may meet demand, instead of the other way around. We could see an unprecedented ramp down in the already unprecedentedly low inventory. >* Less investment companies buying up farmland. It will be more expensive to finance these deals I would be skeptical of this. There will be fewer financed deals, but there are likely firms out there betting on these rate hikes failing, which still make farmland a safe bet against inflation.
  - jgust 4y ago
    > Ehh... we should expect this, but supply may meet demand, instead of the other way around. We could see an unprecedented ramp down in the already unprecedentedly low inventory. This seems likely. As a hypothetical homeowner, I would have very little incentive to sell my house for less than I paid for it AND take the hit borrowing more expensive money unless there exists some external factor for me to move.
eftychis 4y ago
Savings are low. We have supply issues -- just not enough stuff, including food, even if you had all the money in the world. It is a joke now that people complained about babyfood and government said it will give money; only to get a reply of: no there just isn't any baby food delivered. Increasing rates will likely have the opposite result. The goal of the Fed is to break the backs of people with low means. I am not sure why I should applaud that instead of the government doing its job and taking steps and establish agreements to stabilize supply of oil and food. Generally establish "world peace for trade" again. P.S. Yes I know there is a war out there but right now U.S. oil companies are simply not improving supply to even pre pandemic levels. P.S.2 We opened the economy too early, and by we I mean the government. You need to have the resources to run the economy. We did not.
- datadata 4y ago
  What's worse is that some of the inflation becomes masked because of shortages. So in a simple picture if the government gives money out to buy baby food, but there is no baby food, the price people are willing to pay for baby food would go up since they have money, but not recorded as inflation since they are not making purchases.
- erichocean 4y ago
  > right now U.S. oil companies are simply not improving supply to even pre pandemic levels Supply will continue to decrease in the US, both for raw inputs and refined outputs. It has nothing to do with the pandemic or the war in Ukraine and everything to do with the world moving off of fossil fuels, making any kind of long-term investment foolish. We will continue to exploit our existing infrastructure and…that's it. The main reason things are going offline earlier than expected is because of supply change issues related to parts (i.e. if things can't be repaired, they go offline earlier than scheduled).
  - eftychis 4y ago
    Thank you for the additive comment. We lack serious infrastructure investment in a lot of the developed nations. For some reason we feel that one can just stop infrastructure investment and risk no instability and loss of growth in the long term.
jmyeet 4y ago
The returns that capital demands (and the government obliges to) are ultimately unsustainable. That's the core problem here. Rising wages? There has been no meaningful real increase in wages in 40 years despite a massive increase in productivity. Profits keep going up and up. The expectations for profits keep going up. The problem here is that the people who make companies possible don't get to share in the proceeds of what they contribute to. Rising wages and lower profits would actually represent in workers actually getting an actual real increase in wages and getting a greater share in the fruits of their labor. But no, that's unacceptable. We have to raise prices to maintain the profits and effectively erode those wage increases. The real failure here is the government. Take rising energy prices. The government could take action to hasten development of existing leases and/or restrict the export of refined petroleum products. Oil hasn't gotten more expensive to produce. Oil and gas companies are simply raking in massive profits. What we actually need is a system like Norway where we don't simply give away natural resources like this for private investors to profit off. At least in Norway, the government is making a ton of revenue from the increased prices, which it can direct back to people who need it. Housing? Shelter is or should be a human right. What we're allowing to happen here through investors buying up housing stock (and jacking up the prices), second homes, AirBnB and so on has reached the point of being a human rights violation IMHO. Also those skyrocketing rents do even more to erode the income of particularly lower income people to keep them living paycheck to paycheck. This is modern serfdom in action. The government acts at the behest of the capital-owning class regardless of party and part of that is having a compliant labor pool. This is turning into the West's version of Pakistan's brick kilns. After going into massive debt for college, having to pay a huge amount for your car, gas and rent and so on, you're absolutely showing up to work. That's the point. A budget shortfall is built into your existence.
- tonguez 4y ago
- TheBlight 4y ago
  >What we're allowing to happen here through investors buying up housing stock (and jacking up the prices), second homes, AirBnB and so on has reached the point of being a human rights violation IMHO. There are plenty of affordable places to live. People just don't want to move there. Buying a house in a hip U.S. city/suburb isn't a human right.
gw67 4y ago
Why the market went up after the FED raised interest rate? Shouldn’t raising rates bad for stocks?
- eftychis 4y ago
  Funds pulled to see what would happen, now reallocated back. Is when everyone is screaming something bad is going to happen, something happens and people realize it was OK they can go back into the room.
- 30944836 4y ago
  The interest rate was hike was baked into the price already. Now there's a re-shuffle where people with higher risk tolerances start buying up stocks that are on sale.
Barrera 4y ago
> The Fed’s hike Wednesday and its new projections are expected to ripple through the economy, sharply pushing up rates for credit cards, home equity lines of credit and mortgages, among other loans. Fixed, 30-year mortgages already have climbed to 5.23% from 3.22% early this year on the expectation of significant Fed moves. The notion that the Federal Reserve has this kind of influence over longer rates may not be correct. Have a look at the 10-year rate over many decades (click on "Max" for full range): https://fred.stlouisfed.org/series/DGS10 https://fred.stlouisfed.org/series/DGS10 Is this the curve you'd expect if the Fed really controlled rates that far out? I'm not so sure. Seems like factors well beyond the Fed's control are running the show, demographics and deindustrialization being the most likely contenders. That blip out of trend near the end is where we are today. When any chart exits a channel that long-running, it's time to pay attention and consider that the old models are broken. Those rates might be rising for reasons that have nothing to do with the whatever the FOMC thinks it wants.
JaggerFoo 4y ago
When is this information first release? I was watching the Fed Reserve Youtube feed and expected the announcement there, but my phone streamed a Yahoo Finance feed discussing the announced 0.75% rate hike.
everdrive 4y ago
At what point does my savings account at my bank make money?
- bullen 4y ago
  In Sweden we got 0.75% since a week back on the closest thing to a state bank (SBAB) since the Riksgalden was closed a few years back.
- rybosworld 4y ago
  That could take a long time. Banks are only going to raise the rates when they want/need more deposits. Right now the excess reserves are near all time highs. So banks already have more liquidity than they know what to do with.
  - skrbjc 4y ago
    And with rising interest rates, more and more will be priced out of the housing market, meaning lending will fall, which is one of the biggest reasons banks need cash in the first place.
- thfuran 4y ago
  As soon as you use it to buy I bonds.
lend000 4y ago
Predictably, the Fed's quantitative easing combined with stimulus created inflation. You can make a decent argument that the initial policy was the right thing to do. I mean, if you're going to force people not to work because of a pandemic, you have to give them some money. Whether there was (or is ever) a need to prop up the stock market as well is less obvious. But where they VERY clearly f'ed up is labeling the inflation as "transitory" and allowing the market to keep running up ridiculous returns (which were detached from underlying value) and now having to clamp down much harder to get a hold on inflation, which will cause significant structural unemployment as those companies that were running red hot and expanding until a few months ago have to do a bunch of layoffs.
- dragonwriter 4y ago
  > Predictably, the Fed's quantitative easing combined with stimulus created inflation. Combined with the removal of the conditions to which the stimulus and easing were responding, largely, the effects of both voluntary and mandatory behavior changes associated with the pandemic. (That's also why this didn't happen with last fiscal/monetary stimulus, because the underlying conditions didn't snap back as fast, allowing stimulus to unwind without overshooting.)
- coryfklein 4y ago
  A much greater proportion of this inflation is due to supply side shocks, and very little (if any at all) has to do with QE. COVID simultaneously destroyed supply chains while shifting consumer from spending on services to spending on goods which, by the laws of supply and demand, meant prices for goods went up: inflation. Energy and locomotion are core aspects of the US economy that factor into just about everything including – you guessed it – the price of goods! And just as the impacts of the pandemic were easing in the US, one of the world's largest oil producers started a war and then was subject to sanctions and embargos by the US and Europe. And so, surprise, the price at the pump has skyrocketed! Again, no connection to QE. The stimulus, on the other hand, I would agree with you; those checks increased the purchasing power of individuals right as supply chain issues cut the supply of goods. I imagine the alternative world where the stimulus hadn't happened might have been more structurally worse, albeit with lower inflation.
a_ba 4y ago
Actually, the raise is 0.75%p (percentage points). Not 0,75% as the headline states
dcchambers 4y ago
The housing bubble really interests me because conditions are so different than 2007/8/9. Common sense says that prices should be falling with interest rates going up, but... - Supply is still insanely low and demand is high. Americans want to own single family homes, end of story. - New home prices are at an all time high because the cost of materials and labor is so high. That, and people just don't want to build small/reasonable new homes any more. Everything needs to be 3000+ sqft and have luxury appliances and finishes. - So many people are locked into a 30 or 15 year fixed-rate mortgage with only 2.5%-3.5% interest. Even if you didn't move/buy a home in the last two years, virtually every homeowner I know refinanced their mortgage to these historically low rates. Even if they could sell their house and make a nice profit, who is going to want to do that when they're then staring down the prospect of a 7%+ interest rate on their next mortgage? This also keeps supply down and, thus, prices up.
- bombcar 4y ago
  This is the graph to watch: https://fred.stlouisfed.org/series/ACTLISCOUUS https://fred.stlouisfed.org/series/ACTLISCOUUS but it's delayed by months.
coryfklein 4y ago
If you've come here for informed commentary on economics, so far it seems the comments section is about par for the course by internet standards. If you're looking for informed professional analysis, I highly recommend the Inside Economics podcast by Moody's Analytics[0]. They post at least once per week and they often discuss recession odds, they break down the causes of inflation, and regularly host industry experts. (One of my favorites was an episode featuring an economist that works for a US car manufacturer and the insight they could give into the economics of new vs used cars and how auto makers are having to adapt to new economics of vehicles.) [0] https://about.moodys.io/podcast-series/moodys-talks-inside-economics https://about.moodys.io/podcast-series/moodys-talks-inside-e...
- sghiassy 4y ago
  Thanks for the link
- ericns 4y ago
  Hmmm, Moody's where do I remember that name from? Oh ya here it is - https://www.theguardian.com/business/2017/jan/14/moodys-864m-penalty-for-ratings-in-run-up-to-2008-financial-crisis https://www.theguardian.com/business/2017/jan/14/moodys-864m... Economics is the lies told by some middle class assholes with a degree and/or credential that get paid just enough by upper class assholes to trick low class rubes.
  - millimeterman 4y ago
    > Economics is the lies told by some middle class assholes with a degree and/or credential that get paid just enough by upper class assholes to trick low class rubes. Why does nonsense like this get parroted so much? Economics is as much a science as any other social science. Which is to say that it's certainly imperfect and is subject to social problems surrounding science (e.g. the replication crisis), but it's still very much a science. Obviously it's an evolving field with many areas of disagreement among experts, but what science isn't? Plenty of economic principles/models have strong predictive power and broad consensus from economists. As for your (apparent) critique, economics currently isn't very good at long-term (especially macroeconomic) forecasting. But then science isn't great at predicting weather or earthquakes long term, yet we don't dismiss those fields as lies propagated by the elite. This isn't a defense of Moody's or anything - they may well have ignored the risks of mortgage-backed securities for financial gain, and I can't speak to the accuracy of their podcast. But your argument seems no different than claims that because pharmaceutical companies have lied and caused harm in the name of profits, the entire field of medicine is nothing but lies and propaganda and we should throw it out and switch to curing cancer with juice cleanses.
coryfklein 4y ago
The Fed has been placed in a tough position here. A huge portion of the inflation from this year comes from temporary supply-side shocks, and the federal funds rate is quite a blunt instrument to counter such a complex dynamic. Were it not for the pandemic and Russia's war with Ukraine, this would probably be a non-news 0.25% rate hike. But now the Fed has to thread the needle and find that "soft landing", something that they don't have a great track record of doing. But they'd rather trigger a recession then deal with the greater issues that come with persistent 8% inflation, so they have to bite the bullet. Of course equity markets are all down significantly ("the stock market") but equity prices are actually a quite poor indicator of recession. The ol' saying "the stock market predicted 9 of the last 5 recessions" is very true. But in addition to the aforementioned supply side shocks, the economy is indeed running quite hot. We're nearly at full employment, open job listings are at record highs. Although real wage growth is still stagnant, nominal wage growth – particularly for the lowest paid workers – is growing; something it has historically been loathe to do. An otherwise robust economy could deal with a few issues like this, but throw in the shocks to the economy and, indeed, the Fed has to step in with a moderating influence.
credit_guy 4y ago
> The returns that capital demands What does that mean? Are you "demanding" any returns from your investments? How? Who exactly is "demanding" returns on capital? And who are they demanding it from?
RickJWagner 4y ago

342 points by no_wizard 4y ago

baggy_trough 4y ago

A day late and a dollar short...

tootie 4y ago

Stocks rallying a bit. I expect we'll see dead cat bouncing at least until we get the next CPI numbers.

mirntyfirty 4y ago
It seems as though the dip buying will continue but perhaps the fed wants a smoother road back to reality.
- paulpauper 4y ago
  will continue? it's been strait down all year i would like to see it recover
  - bamboozled 4y ago
    I wouldn’t think this will happen until inflation chills out and the interest rates stop rising ? Just a guess though
  - mirntyfirty 4y ago
    Overall it’s gone down but seems as though a lot of the big drops are followed by smaller surges of buying.
    - tootie 4y ago
      Yeah, that's what they call the "Dead Cat Bounce" that I referred to. https://en.wikipedia.org/wiki/Dead_cat_bounce https://en.wikipedia.org/wiki/Dead_cat_bounce
kgwgk 4y ago
The strong rally after the last meeting didn't even last one day...
whimsicalism 4y ago
Stocks rallying is just an indication that the Fed under-raised compared to market expectations.
- afterburner 4y ago
  No, today it's probably an indication to traders that the Fed is taking inflation seriously, since all the risky stocks are sensitive to inflation. A lower raise may have cause a further sell off. Traders' minds can be tricky. They're also reading the news!
- tootie 4y ago
  Nah. This is always what happens. It's the inverse the old saw "buy on rumor sell on news".
  - whimsicalism 4y ago
    You must be a billionaire then.

nostromo 4y ago

It seems the Fed is stuck in a state of overreaction. First they overshoot on money printing, then they disregard early signs of inflation, and now they're in a panic in the opposite direction. Seeing the news this week that Bernanke said that the Fed should be able to pull off a soft-landing now in 2022 gave me an uncomfortable déjà vu -- he said the same in 2006 and 2007, right before he raised rates enough to kick off a global financial crisis.

NDizzle 4y ago
Textbook weak leadership.
rich_sasha 4y ago
In fairness, inflation seems largely driven by energy prices, which in turn are driven by the Russian invasion of Ukraine. Not the top event I'd imagine a bank predicting well.
- khuey 4y ago
  Central banks can't produce more crude oil or refine more gasoline by manipulating rates. The only thing they can do here with that switch is tank the broader economy to destroy energy demand.
- fibers 4y ago
  no one here buys the 'putin price hike' excuse
  - rolobio 4y ago
    I was blown away when the president claimed he "has never seen anything like Putin’s tax on both food and gas". When did Putin get the ability to raise taxes in the US??
    - voidfunc 4y ago
      Bidens desperate to reframe the narrative that Dems fucked the economy before the midterms. I dont think this is going to work tho. Voters dont have enough understanding to see the cascade failures that have gotten us here over the last several years.

morninglight 4y ago

> Seniors, should reap the benefits of higher bank savings rates after years of piddling returns. Not to any significant degree. Bank rates won't come close to offsetting the effect of inflation. The big winner will be the IRS, as intended. .

djbusby 4y ago
How does IRS win here?
- cjbgkagh 4y ago
  I assume capital gains on the increase in nominal value. The government gets a cut of that. Kinda acts like a wealth tax.
- Mountain_Skies 4y ago
  Unless the tax brackets are adjusted, inflation with rising wages means more people in higher tax brackets. If corporate earnings go up, there's more for the IRS too though that might be wiped out by the lessening value of each dollar.
  - whimsicalism 4y ago
    Unless the tax brackets which are adjusted for inflation every year continue to be adjusted as usual*
  - lpasselin 4y ago
    Are you saying the IRS does not adjust tax brackets to follow inflation properly?
  - xxpor 4y ago
    The brackets are indexed to C-CPI as of 2018
  - JumpCrisscross 4y ago
    > unless the tax brackets are adjusted Most IRS brackets and thresholds are tax adjusted [1][2]. Tax brackets certainly are, as is the personal standard deduction. [1] https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022 https://www.irs.gov/newsroom/irs-provides-tax-inflation-adju... [2] https://thehill.com/policy/finance/580961-irs-announces-inflation-adjustments-for-standard-deduction-tax-brackets/ https://thehill.com/policy/finance/580961-irs-announces-infl...

mark_l_watson 4y ago

You can argue either side to this, and make a good case. My personal preference is to trigger a recession and reduce inflation. The easy cop-out solution is to say a "big f*ck off" to pensioners, lower middle class, and poor people and let inflation soar, but I believe that long term this would be more destructive to the general economy. Better take the long term view here and not kick the can down the street.

JumpCrisscross 4y ago
> personal preference is to trigger a recession and reduce inflation These aren't binary outcomes. Tight money does nothing to ease supply-side bottlenecks. It does little to target demand displaced by rising energy prices. If those are the principal drivers of inflation, tightening could depress non-energy demand in a way that causes a recession without alleviating inflation. Stagflation. (To be clear, we're not at tight money yet.)
- deleted 4y ago
  [deleted]
- Retric 4y ago
  It keeps supply side bottlenecks from being inflated with cheap money.
  - deleted 4y ago
    [deleted]
  - ketzo 4y ago
    People aren’t buying gas or groceries with “cheap money.” Housing, business debt — sure. But there’s a long, convoluted path from cheap debt to inflation of consumer goods.
    - Retric 4y ago
      The thought process goes: Consumer goods like TV dinners are still based on things further up the supply chain like fertilizer. Normally you get inflation when there is a shortage of say crude oil, but when everything is running into random shortages companies get defensive and start trying to stockpile supplies. Hypothetical example: If Dell wants another 2 weeks of GPU’s on hand from Random Supplier X, and Random Supplier X wants 2 weeks of chips for their GPU’s on hand from Nvidia, and Nvidia wants 2 weeks of refined silicon on hand from supplier Y, who wants to source 2 weeks of raw materials early that’s 2 + 2 + 2 + 2 = 8 weeks worth of demand of sand from some mine somewhere out of thin air. Which then dramatically bumps prices for sand and that trickles back down the supply chain. However, higher interest rates should moderate how much each company in that chain stockpiles, which reduces the demand for sand even if the same number of computers are shipped either way.

dnadler 4y ago

Something I haven’t seen discussed much is the impact of inflation on the existing federal debt. This is actually a positive for taxpayers as the federal debt will become cheaper. Obviously we’re still spending a ton and are issuing debt at higher rates now, so it’s not some kind of magic cure or anything.

maerF0x0 4y ago
Sort of. But the government also has a deficit. Which means it's exchanging low % notes for high % notes.
- QuarterReptile 4y ago
  Nitpick: Bonds coming to term means it's exchanging low% for high %. Deficit means that the problem accelerates even faster than that, because the total value of bonds continues to increase.
countvonbalzac 4y ago
I read something like this actually isn't the panacea it seems like in the long term because inflation reduces real growth long term, or something like that.
- smileysteve 4y ago
  That's an odd conclusion; yes real growth is impacted by inflation, but inflation is a reason to seek growth rather than rent.
readams 4y ago
Most of the debt is shorter term and must be continually rolled over. So when first moving from low expectations of inflation to high expectations, there is a temporary one-time gain, but after that the government will need to pay higher interest. And of course when the expectations return to normal there is a period when the government must pay higher than needed rates.

bobobob420 4y ago

One day if things turn out well we will see Jerome Powell in jail

saos 4y ago

Curious to see what BoE will do

paulpauper 4y ago

The fed is aggressively raising rates as the economy goes into recession. The last time something similar to this happened was in 1980. A very bad unusual situation, but on the other hand, the worst may be over. I think Google, Microsoft, Facebook, Amazon, and other large cap tech stocks are good buys at these levels and are more immune to macro factors (compared to other sectors ) and can hedge inflation by raising prices.

blip54321 4y ago
I have mixed feelings on tech stocks. I feel like the general competence has gone down, and that makes them vulnerable. Google is a shitshow right now. I don't think they can do B2B. Chrome Extensions. GSuite Free. Google Workspace App security audits. I can list of dozens of other disruptions like that. No one trusts them. At the same time, cost structure is astronomical; employee count has grown exponentially, to match revenues, with little to show for it. Amazon is a cesspool of knock-offs, scams, and rip-offs. Facebook's reputation is in the toilet right now and internal incentives are completely misaligned. Microsoft is, oddly enough, doing the best of the bunch. They recovered from their evil hay day in the nineties, their incompetent '00s, and seem to be doing okay. I think the move to degooglify will spiral. I think an Aliexpress might take down Amazon within the next decade or two. And Facebook might be Myspaced.
- bpicolo 4y ago
  If amazon’s main issue is the scams and knockoffs, how is aliexpress the cure?
  - dontblink 4y ago
    It equalizes them. And products on AliExpress are cheaper. But that, of course, depends on the US relationship with China which doesn't seem to be getting friendlier.
  - blip54321 4y ago
    I can buy stuff much cheaper on Aliexpress. My experience there is no worse than 2022 Amazon, except for lower prices and slower shipping. Amazon, even as late as 2019, seemed ahead of Aliexpress on service and quality. Something happened with COVID which seems to have permanently broken Amazon. I understand a blip, but after 2 years, Amazon hasn't recovered. My basic problem is that if I order medicines, I want to know they're not placebo pills. If I order vanilla extract, I want to make sure it's not produced in a chemical factory with random toxins. If I buy something brand-name, I want to make sure it has that level of quality. If I buy an SD card, I want to know it's not a defective product from a manufacturing run with a forged Sandisk label. I can't do that on Amazon anymore. That leaves fast shipping as the prime selling point, but Amazon seems to miss delivery deadlines a lot since COVID, not to mention broad ranges of products which don't do fast shipping. Fast shipping I can count on is worth a lot. Fast shipping most of the time has negative value. Most of the time I care about fast shipping, it's because I have some deadline.

anm89 4y ago

The Fed clearly doesn't understand how to MMT properly. What J Powell was supposed to do her was to raise the income tax rate.

AnimalMuppet 4y ago
1. You're assuming that MMT is the right answer, which is far from a foregone conclusion. 2. You're assuming that Powell agrees that MMT is the right answer, which is definitely false. 3. You seem to have the idea that Powell has some control over the income tax rate, which is totally false.
- anm89 4y ago
  It's sarcasm.
  - AnimalMuppet 4y ago
    Ah, I see. I missed that...
    - anm89 4y ago
      :) ha you are one of the few accounts on here who's usually roughly aligned with me on these types of things

bobobob420 4y ago

SnowHill9902 4y ago

The raise is 75 bps not 0.75%.

matdehaast 4y ago
Isn't that the same thing?
- scrlk 4y ago
  Using percentages rather than basis points can be ambiguous. E.g. "1% increase from a 1% rate". Does this mean 1.01% (relative increase) or 2% (absolute increase)?
  - matdehaast 4y ago
    Fair enough, I've never heard rate increases discussed in relative terms. The context matters in the case.
- Vecr 4y ago
  75 BPS is 0.75% of the total or "100%", not of the current value. BPS makes it more clear that the increase each time is linear, so another 75 BPS will be the same absolute percentage as this 75 BPS.
drewbailey 4y ago
75 basis points == 0.75%
- prepend 4y ago
  True
deleted 4y ago
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apienx 4y ago

This is a typical overcorrection (the Fed is run by humans after all). US debt is over $23x10^12, so such rates are unsustainable even in the short term (12-24 months). Algorithmic Monetary Policy > Dictated Monetary Policy(TM) IMHO.

drexlspivey 4y ago
This does not affect existing debt in any way only newly issued debt.
- mullingitover 4y ago
  That existing debt gets rolled over, and as it does it rolls into the higher rates.
npc12345 4y ago
afterburner 4y ago
Given that a recession hasn't happened (yet?) and inflation is still high and not trending down (yet?), I wouldn't say it's an over-correction (yet?)
UncleMeat 4y ago
Why should I believe that algorithms written by some random software engineers will be better stewards? "Algorithmic Monetary Policy" includes things like premining and exponential decay of rewards and causes huge community rifts over things as simple as block size.
adammarples 4y ago
Algorithmic monetary policy, based on the Taylor rule, would have been many percentage points higher for many months already, this correction is too late.
- moneywoes 4y ago

hnthrowaway0315 4y ago

The thought that we are going to turn the table and make the slate clean finally is very troubling to me. I mean 1) this is a non-insignificant possibility right now, and 2) just reached mid-age, the worst time to get hit by a depression.

DangitBobby 4y ago
I thought the worst time to get hit by a depression was right before you enter the job market for the first time and/or as you attempt to buy your first house. I guess every stage of life has unique challenges that come along with a depression.
- hnthrowaway0315 4y ago
  At least one does not need to support a family at that time and has ample time to find a job. But if the whole industry starts to dump people and you are in 40s, good luck... Actually, I graduated right after the 08/09 crash and had to go into graduate study shortly. After graduation as a Ms.c it still took me a few years to get an IT job (master has nothing to do with IT). But if I'm fired right now, I really have no confidence that I can easily grab an equivalent job. Part of the reason is that during these years I had to hop a few jobs to reach something I really want to do, so my experience in the field is very little (<= 2 years).

wolframhempel 4y ago

The really worrying thing to me is our inability to accept that we (as in humankind) are rather rubbish at running complex systems. A good analogy is to think of the economy as a still lake. If you throw a rock into it, you know that it will create concentric circles of waves. You throw a second rock and you know that its waves will interfere with the first. But now the waves create oscillating patterns and now they hit the irregular shore and pretty much immediately you have the usual chaotic pattern of waves all over the lake. It's the same deal with the economy. We can predict the first order, maybe the second order consequences of our actions. But again and again we're faced with a highly dynamic system with an almost infinite set of variables and we seem continuously surprised when things get out of hand. To me, a federal reserve system that insures banks from bank runs makes sense. This sort of FED that we have now that tries to control the overall economy is - to me - at least as hopeless as centralized 5-year plans under communism.

afterburner 4y ago
> This sort of FED that we have now that tries to control the overall economy is - to me - at least as hopeless as centralized 5-year plans under communism. This is a CRAZY comparison. The Fed is barely doing anything, basically trying to keep things stable using two simple tools, and is doing so iteratively and carefully. It is the literal opposite of a Soviet communist 5 year plan that details everything to the n-th degree and damn the consequences.
- wolframhempel 4y ago
  > The Fed is barely doing anything, That is really not correct. The Fed has engaged in four phases of Quantitative Easing (https://en.wikipedia.org/wiki/Quantitative_easing#United_States https://en.wikipedia.org/wiki/Quantitative_easing#United_Sta...) since 2008 alone, with the last one in Mid-Summer 2020. This one resulted in an additional two billion of asset purchases with Money that didn't exist before, meaning that in 2020/2021 the Fed's money generation accounts for a total of 10% of US GDP. Having this much more money in a system with stable or declining supply (especially in conjunction to the Covid Relief Packages under Trump and Biden) is to me quite likely to have created the very problem the Fed is now trying to solve.

whatevenisthat 4y ago

beezle 4y ago

Ridiculous that the Fed doesn't just raise 200bp and be done. They could have done this six months ago (call it 250bp then) if they truly believe that the level of interest rates will have a material effect on the inflation rate. The piece meal, drip drip increases just raises uncertainty for consumers and businesses while ensuring they are "behind the curve"

afterburner 4y ago
The piecemeal approach ensures they avoid massive shocks and over-correction. The cure should not be worse than the disease.
- misiti3780 4y ago
  that happened.
  - afterburner 4y ago
    It could have been worse, that's the point. It is also unknown exactly how much of a total raise is needed, hence the iterative approach to ensure no over-correction. The world economy has many moving parts, you can't panic when trying to manipulate it.
    - syspec 4y ago
      It /could/ have been better.
    - beezle 4y ago
      The dot plot indicates they want the funds rate around 3.75% by end of 2023 and over 3% by start of 2023. There is absolutely no reason to do 75 today, 75 next month and 50s the rest of the 2022. That pattern is actually more shocking than just a one and done hike. An analogy would be a bad tasting medicine - I don't know anyone who prefers sipping to just down the hatch. There is also nothing to say they can't lower the funds rate should conditions warrant, as unlikely as that may be. Perhaps a reminder to those who are younger - the past 10 years have been an aberration and not the norm when it comes to interest rates. The US and world economies have had long periods of growth with 10 year rates of 6% or higher. The current moves are as much about current inflation as they are cover for a Fed that has been looking for a way to end the mistake of ZIRP without actually saying it was a bad idea.

kerblang 4y ago

Dang. Well if it's enough to pop the various housing/cryptocurrency/startup bubbles, good. They were already pretty squishy but only for a threat that had to be carried out. It can always be walked back, and probably will be in year...

smartmic 4y ago

I know this may sound petty and the wording is regularly found even in the best editorial offices, but the engineer in me resists every time: the correct wording should be "by 0.75%-points" instead of "by 0.75%". Am I the only one who is bothered by this?

malfist 4y ago
Yes. Everyone else can use context.
- isitmadeofglass 4y ago
  Just because you can use context doesn’t less annoying.
adammarples 4y ago
No, it should either be 0.75% or 75 basis points
- deleted 4y ago
  [deleted]
- randomdata 4y ago
  You are half right. Per the article body, contradicting the headline, the rates increased by 0.75pp, which is equivalent to 75bp. The previous rates ranged from 0.75% to 1% making the 0.75pp hike a 75-100% increase, not the 0.75% increase you and the incorrect headline claim.
  - adammarples 4y ago
    Nobody ever talks about rate increases in terms of their ratio to the previous rate (ie. talking about a 75-100% rate increase), this would be insanely confusing and irrelevant. To avoid confusion, people always discuss the absolute additive change in the base rate itself. ie., 75bp or 0.75%, which are equivalent.

tiffanyh 4y ago

Stagflation? Do we have a good sense if this will stifle inflation because from all accounts I've seen, it appears we're in the worse possible situation of stagflation (recession + inflation).

resters 4y ago

Interest rates are not the only government mechanism that can be used to control interest rates. Stimulus can be done in a way that is highly targeted. When it is not, it has the same effect as rates being too low and can lead to things like overemployment and inflation. Politically, there has been significant demand for overemployment, that is, unemployment levels that are lower than they should be, or, put another way, an economy where labor is too scarce. Anyone who has tried to hire tech talent domestically in recent years has faced significant scarcity and can attest to the quality tradeoffs that must often be made such as hiring someone with insufficient experience and hoping it works out, or needing to invest more heavily in training and mentorship than seems reasonable. In growth areas like tech, this is normal and is the result of growth itself, but recently the US economy has seen this kind of thing in many different kinds of jobs, even retail and food service jobs. It's not uncommon to find a packed restaurant being handled by one or two waitstaff, leading to slower turnaround and overall reduced capacity of the restaurant and less money being made overall. This is blamed on the pandemic and all kinds of other causes, but the root cause is the infliction of intentional labor shortages on the economy for political reasons. Similarly, the COVID stimulus in the previous administration was given out with minimal vetting and significant misallocation (payments to businesses that didn't need it), and there has been no retrospective accountability for any of it. It boils down to something that was supposed to be a targeted stimulus (to prevent firms from going out of business or laying off workers) became an untargeted one and spoils were given to firms that misrepresented need and used the money for things other than staying solvent or keeping payroll going. So of course we are seeing the consequences of this now in the form of both inflation and economic stagnation. This is not the fault of one political party. Neither has any restraint when it comes to wanting broad stimulus and artificially low unemployment numbers, and there is a lot of finger pointing about the extremely predictable inflation that is occurring. Raising rates penalizes all the firms that did not seek stimulus inappropriately, as well as the ones who sought it because they needed it. Chances are rates will go up at least another 1.5 or 2 percent in the next year. This is unfortunate, and the economic correction resulting from it will be significant and will last for many years longer than the brief period of artificial joy we got over the past few years.

susanasj 4y ago

remarkable how many people in this thread are assuming the bottom of the income distribution is hurt the most by inflation. Think about who has debt (mortgage, student, medical expenses, car payments) and who that debt is owed to (banks, corporations) and what happens to that debt in real dollars when inflation is happening. The debt becomes less meaningful. Wages rise (they have in fact been rising), and the payments are less of a burden, while the people that are owed money get less value from the payments.

qgin 4y ago
You're very right, but I think the trick is that prices rise faster than wages, if they ever fully catch up. That lag between price and wage increase is a super immediate problem for anyone going paycheck-to-paycheck.
- susanasj 4y ago
  yes definitely agree.
- deleted 4y ago
  [deleted]
laputan_machine 4y ago
Inflation affects the poor more than the wealthy. Food, energy, shelter all become less attainable for the poor. They will always be attainable for the rich. In absolute terms the rich will "lose" more money, or not gain as much, but this isn't the concern. The concern is the inevitable increase of absolute poverty that will happen, and that is because the poor will be worse affected. Rich people aren't going to struggle to pay their gas bill, or struggle to buy food.
- TimTheTinker 4y ago
  Any change at all from the ideal will disproportionately negatively affect the poor, marginalized, disadvantaged, etc. This is true in any sphere of life, not just economics. That's why "love your neighbor as yourself" is indispensable. No policy or variable tweaking can take the place of simply caring for others.

acd 4y ago

Prediction higher interest rates will reverse the following trends: * Private car leases at near zero interest rate will stop. At one point it was sometime cheaper to lease than to buy a car for cash * Housing bubble. Near zero central bank/bank interest rates has inflated a housing bubble. Higher interest rates will decrease housing prices since fewer buyers will be able to afford higher interest mortages. * Tech bubble. Cheap interest has also funded some startups with non viable long term business ideas * Electric scooter rental companies. There will be fewer electric scooters since the interest rate to lease them will be higher. Electric scooter rental companies will afford fewer scooters. * Less investment companies buying up farmland. It will be more expensive to finance these deals * High leverage tech stocks over schiller p/e 15 rate will deflate. * There was no exponential startups growing forever. There was however debt growing an exponential rate. The world is still linear. Linear power production. * Graphic cards for gaming will be more available for gamers again. Reason crypto currency mining will decrease deflate by higher interest rate not flowing as much into crypto. * Tech bubble less tech startups will effect cloud vendor footprint. Fewer tech startups less need to rent cloud services.

scoofy 4y ago
I generally agree with all of this, though, i think two of the points may see counter-intuitive outcomes: >* Housing bubble. Near zero central bank/bank interest rates has inflated a housing bubble. Higher interest rates will decrease housing prices since fewer buyers will be able to afford higher interest mortages. Ehh... we should expect this, but supply may meet demand, instead of the other way around. We could see an unprecedented ramp down in the already unprecedentedly low inventory. >* Less investment companies buying up farmland. It will be more expensive to finance these deals I would be skeptical of this. There will be fewer financed deals, but there are likely firms out there betting on these rate hikes failing, which still make farmland a safe bet against inflation.
- jgust 4y ago
  > Ehh... we should expect this, but supply may meet demand, instead of the other way around. We could see an unprecedented ramp down in the already unprecedentedly low inventory. This seems likely. As a hypothetical homeowner, I would have very little incentive to sell my house for less than I paid for it AND take the hit borrowing more expensive money unless there exists some external factor for me to move.

eftychis 4y ago

Savings are low. We have supply issues -- just not enough stuff, including food, even if you had all the money in the world. It is a joke now that people complained about babyfood and government said it will give money; only to get a reply of: no there just isn't any baby food delivered. Increasing rates will likely have the opposite result. The goal of the Fed is to break the backs of people with low means. I am not sure why I should applaud that instead of the government doing its job and taking steps and establish agreements to stabilize supply of oil and food. Generally establish "world peace for trade" again. P.S. Yes I know there is a war out there but right now U.S. oil companies are simply not improving supply to even pre pandemic levels. P.S.2 We opened the economy too early, and by we I mean the government. You need to have the resources to run the economy. We did not.

datadata 4y ago
What's worse is that some of the inflation becomes masked because of shortages. So in a simple picture if the government gives money out to buy baby food, but there is no baby food, the price people are willing to pay for baby food would go up since they have money, but not recorded as inflation since they are not making purchases.
erichocean 4y ago
> right now U.S. oil companies are simply not improving supply to even pre pandemic levels Supply will continue to decrease in the US, both for raw inputs and refined outputs. It has nothing to do with the pandemic or the war in Ukraine and everything to do with the world moving off of fossil fuels, making any kind of long-term investment foolish. We will continue to exploit our existing infrastructure and…that's it. The main reason things are going offline earlier than expected is because of supply change issues related to parts (i.e. if things can't be repaired, they go offline earlier than scheduled).
- eftychis 4y ago
  Thank you for the additive comment. We lack serious infrastructure investment in a lot of the developed nations. For some reason we feel that one can just stop infrastructure investment and risk no instability and loss of growth in the long term.

jmyeet 4y ago

The returns that capital demands (and the government obliges to) are ultimately unsustainable. That's the core problem here. Rising wages? There has been no meaningful real increase in wages in 40 years despite a massive increase in productivity. Profits keep going up and up. The expectations for profits keep going up. The problem here is that the people who make companies possible don't get to share in the proceeds of what they contribute to. Rising wages and lower profits would actually represent in workers actually getting an actual real increase in wages and getting a greater share in the fruits of their labor. But no, that's unacceptable. We have to raise prices to maintain the profits and effectively erode those wage increases. The real failure here is the government. Take rising energy prices. The government could take action to hasten development of existing leases and/or restrict the export of refined petroleum products. Oil hasn't gotten more expensive to produce. Oil and gas companies are simply raking in massive profits. What we actually need is a system like Norway where we don't simply give away natural resources like this for private investors to profit off. At least in Norway, the government is making a ton of revenue from the increased prices, which it can direct back to people who need it. Housing? Shelter is or should be a human right. What we're allowing to happen here through investors buying up housing stock (and jacking up the prices), second homes, AirBnB and so on has reached the point of being a human rights violation IMHO. Also those skyrocketing rents do even more to erode the income of particularly lower income people to keep them living paycheck to paycheck. This is modern serfdom in action. The government acts at the behest of the capital-owning class regardless of party and part of that is having a compliant labor pool. This is turning into the West's version of Pakistan's brick kilns. After going into massive debt for college, having to pay a huge amount for your car, gas and rent and so on, you're absolutely showing up to work. That's the point. A budget shortfall is built into your existence.

tonguez 4y ago
TheBlight 4y ago
>What we're allowing to happen here through investors buying up housing stock (and jacking up the prices), second homes, AirBnB and so on has reached the point of being a human rights violation IMHO. There are plenty of affordable places to live. People just don't want to move there. Buying a house in a hip U.S. city/suburb isn't a human right.

gw67 4y ago

Why the market went up after the FED raised interest rate? Shouldn’t raising rates bad for stocks?

eftychis 4y ago
Funds pulled to see what would happen, now reallocated back. Is when everyone is screaming something bad is going to happen, something happens and people realize it was OK they can go back into the room.
30944836 4y ago
The interest rate was hike was baked into the price already. Now there's a re-shuffle where people with higher risk tolerances start buying up stocks that are on sale.

Barrera 4y ago

> The Fed’s hike Wednesday and its new projections are expected to ripple through the economy, sharply pushing up rates for credit cards, home equity lines of credit and mortgages, among other loans. Fixed, 30-year mortgages already have climbed to 5.23% from 3.22% early this year on the expectation of significant Fed moves. The notion that the Federal Reserve has this kind of influence over longer rates may not be correct. Have a look at the 10-year rate over many decades (click on "Max" for full range): https://fred.stlouisfed.org/series/DGS10 https://fred.stlouisfed.org/series/DGS10 Is this the curve you'd expect if the Fed really controlled rates that far out? I'm not so sure. Seems like factors well beyond the Fed's control are running the show, demographics and deindustrialization being the most likely contenders. That blip out of trend near the end is where we are today. When any chart exits a channel that long-running, it's time to pay attention and consider that the old models are broken. Those rates might be rising for reasons that have nothing to do with the whatever the FOMC thinks it wants.

JaggerFoo 4y ago

When is this information first release? I was watching the Fed Reserve Youtube feed and expected the announcement there, but my phone streamed a Yahoo Finance feed discussing the announced 0.75% rate hike.

everdrive 4y ago

At what point does my savings account at my bank make money?

bullen 4y ago
In Sweden we got 0.75% since a week back on the closest thing to a state bank (SBAB) since the Riksgalden was closed a few years back.
rybosworld 4y ago
That could take a long time. Banks are only going to raise the rates when they want/need more deposits. Right now the excess reserves are near all time highs. So banks already have more liquidity than they know what to do with.
- skrbjc 4y ago
  And with rising interest rates, more and more will be priced out of the housing market, meaning lending will fall, which is one of the biggest reasons banks need cash in the first place.
thfuran 4y ago
As soon as you use it to buy I bonds.

lend000 4y ago

Predictably, the Fed's quantitative easing combined with stimulus created inflation. You can make a decent argument that the initial policy was the right thing to do. I mean, if you're going to force people not to work because of a pandemic, you have to give them some money. Whether there was (or is ever) a need to prop up the stock market as well is less obvious. But where they VERY clearly f'ed up is labeling the inflation as "transitory" and allowing the market to keep running up ridiculous returns (which were detached from underlying value) and now having to clamp down much harder to get a hold on inflation, which will cause significant structural unemployment as those companies that were running red hot and expanding until a few months ago have to do a bunch of layoffs.

dragonwriter 4y ago
> Predictably, the Fed's quantitative easing combined with stimulus created inflation. Combined with the removal of the conditions to which the stimulus and easing were responding, largely, the effects of both voluntary and mandatory behavior changes associated with the pandemic. (That's also why this didn't happen with last fiscal/monetary stimulus, because the underlying conditions didn't snap back as fast, allowing stimulus to unwind without overshooting.)
coryfklein 4y ago
A much greater proportion of this inflation is due to supply side shocks, and very little (if any at all) has to do with QE. COVID simultaneously destroyed supply chains while shifting consumer from spending on services to spending on goods which, by the laws of supply and demand, meant prices for goods went up: inflation. Energy and locomotion are core aspects of the US economy that factor into just about everything including – you guessed it – the price of goods! And just as the impacts of the pandemic were easing in the US, one of the world's largest oil producers started a war and then was subject to sanctions and embargos by the US and Europe. And so, surprise, the price at the pump has skyrocketed! Again, no connection to QE. The stimulus, on the other hand, I would agree with you; those checks increased the purchasing power of individuals right as supply chain issues cut the supply of goods. I imagine the alternative world where the stimulus hadn't happened might have been more structurally worse, albeit with lower inflation.

a_ba 4y ago

Actually, the raise is 0.75%p (percentage points). Not 0,75% as the headline states

dcchambers 4y ago

The housing bubble really interests me because conditions are so different than 2007/8/9. Common sense says that prices should be falling with interest rates going up, but... - Supply is still insanely low and demand is high. Americans want to own single family homes, end of story. - New home prices are at an all time high because the cost of materials and labor is so high. That, and people just don't want to build small/reasonable new homes any more. Everything needs to be 3000+ sqft and have luxury appliances and finishes. - So many people are locked into a 30 or 15 year fixed-rate mortgage with only 2.5%-3.5% interest. Even if you didn't move/buy a home in the last two years, virtually every homeowner I know refinanced their mortgage to these historically low rates. Even if they could sell their house and make a nice profit, who is going to want to do that when they're then staring down the prospect of a 7%+ interest rate on their next mortgage? This also keeps supply down and, thus, prices up.

bombcar 4y ago
This is the graph to watch: https://fred.stlouisfed.org/series/ACTLISCOUUS https://fred.stlouisfed.org/series/ACTLISCOUUS but it's delayed by months.

coryfklein 4y ago

If you've come here for informed commentary on economics, so far it seems the comments section is about par for the course by internet standards. If you're looking for informed professional analysis, I highly recommend the Inside Economics podcast by Moody's Analytics[0]. They post at least once per week and they often discuss recession odds, they break down the causes of inflation, and regularly host industry experts. (One of my favorites was an episode featuring an economist that works for a US car manufacturer and the insight they could give into the economics of new vs used cars and how auto makers are having to adapt to new economics of vehicles.) [0] https://about.moodys.io/podcast-series/moodys-talks-inside-economics https://about.moodys.io/podcast-series/moodys-talks-inside-e...

sghiassy 4y ago
Thanks for the link
ericns 4y ago
Hmmm, Moody's where do I remember that name from? Oh ya here it is - https://www.theguardian.com/business/2017/jan/14/moodys-864m-penalty-for-ratings-in-run-up-to-2008-financial-crisis https://www.theguardian.com/business/2017/jan/14/moodys-864m... Economics is the lies told by some middle class assholes with a degree and/or credential that get paid just enough by upper class assholes to trick low class rubes.
- millimeterman 4y ago
  > Economics is the lies told by some middle class assholes with a degree and/or credential that get paid just enough by upper class assholes to trick low class rubes. Why does nonsense like this get parroted so much? Economics is as much a science as any other social science. Which is to say that it's certainly imperfect and is subject to social problems surrounding science (e.g. the replication crisis), but it's still very much a science. Obviously it's an evolving field with many areas of disagreement among experts, but what science isn't? Plenty of economic principles/models have strong predictive power and broad consensus from economists. As for your (apparent) critique, economics currently isn't very good at long-term (especially macroeconomic) forecasting. But then science isn't great at predicting weather or earthquakes long term, yet we don't dismiss those fields as lies propagated by the elite. This isn't a defense of Moody's or anything - they may well have ignored the risks of mortgage-backed securities for financial gain, and I can't speak to the accuracy of their podcast. But your argument seems no different than claims that because pharmaceutical companies have lied and caused harm in the name of profits, the entire field of medicine is nothing but lies and propaganda and we should throw it out and switch to curing cancer with juice cleanses.

coryfklein 4y ago

The Fed has been placed in a tough position here. A huge portion of the inflation from this year comes from temporary supply-side shocks, and the federal funds rate is quite a blunt instrument to counter such a complex dynamic. Were it not for the pandemic and Russia's war with Ukraine, this would probably be a non-news 0.25% rate hike. But now the Fed has to thread the needle and find that "soft landing", something that they don't have a great track record of doing. But they'd rather trigger a recession then deal with the greater issues that come with persistent 8% inflation, so they have to bite the bullet. Of course equity markets are all down significantly ("the stock market") but equity prices are actually a quite poor indicator of recession. The ol' saying "the stock market predicted 9 of the last 5 recessions" is very true. But in addition to the aforementioned supply side shocks, the economy is indeed running quite hot. We're nearly at full employment, open job listings are at record highs. Although real wage growth is still stagnant, nominal wage growth – particularly for the lowest paid workers – is growing; something it has historically been loathe to do. An otherwise robust economy could deal with a few issues like this, but throw in the shocks to the economy and, indeed, the Fed has to step in with a moderating influence.

credit_guy 4y ago

> The returns that capital demands What does that mean? Are you "demanding" any returns from your investments? How? Who exactly is "demanding" returns on capital? And who are they demanding it from?

RickJWagner 4y ago