5 ms·

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 leve

by 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.
      - cpeterso 4y ago
        To avoid reacting too late, maybe the Fed should have a policy of always adjusting funds rate every month, even in a stable economy. Like TCP congestion control, the funds rate would tack up and down around the "optimal" value. This would also reduce the market surprises because people would know the rate will go up or down every month. And with smaller, more frequent changes, people can more easily anticipate which way the rate will tack.
        beezle 4y ago
        In an ideal world the Fed would not "set" any rates - it would be up to the market. However, the risk is there could be more volatility on the short end without the Fed 'anchor'. A compromise might be to greatly increase the target range from 25bp to funds target rate +/- 200 bp, lower bound 0.00 thus making a bounded floating rate. That might also require a shift in how lenders set rates on very short term debt to some type of period average, ie 3 or 6m average rate.
  - twblalock 4y ago
    Not really. Where are the mass layoffs like we had after 2008? Housing prices are still way higher than they were a year ago. This is not what a serious downturn looks like.
- rdsubhas 4y ago
  Or rather, it ensures they avoid a one-off under-correction. One big rate hike will be forgotten quickly and worked around. Inflation is a beast that needs long-term trends, not one-off actions.
  - fomine3 4y ago
    Japan did it on bubble, then...
- 88913527 4y ago
  Where was this thinking when it came to applying trillions of dollars in monetary policy? We're supposed to cautious with interest rate hikes, yet free with the money printer. Quite the double standard I'd say.
  - hackerfromthefu 4y ago
    When you drive a car you don't use the accelerator and the brake in quite the same way ..
whatevenisthat 4y ago
Too many dollars are chasing too few goods because of supply chain issues caused by these governments locking everyone down when they overreacted. You can't reduce inflation this way except by affecting tens of millions of innocent people who now have austerity measures imposed on them from on high courtesy of Janet Yellen and her posse. They should have avoided the steep lockdowns and given cash directly to households instead of the giant infusion/bailout to failing states and companies that didn't even need the money.
- FabHK 4y ago
  FWIW, Jerome Powell is the Fed chair.
  - DantesKite 4y ago
    Janet Yellen left interest rates at 0% for nearly two years during her time as the Fed Chair. She's also to blame for the situation we're in.
ABeeSea 4y ago
I know simple metaphors for complex problems aren’t great, but I’ve always liked this one: Think of an economics equilibrium as a guitar string. The harder you pluck it (shock) the longer if vibrates back and forth before reaching equilibrium. Plucking it softer but more often, keeps the string closer to equilibrium across the entire time horizon. This also applies to things like minimum wage increases.

by beezle 4y ago

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.
    - cpeterso 4y ago
      To avoid reacting too late, maybe the Fed should have a policy of always adjusting funds rate every month, even in a stable economy. Like TCP congestion control, the funds rate would tack up and down around the "optimal" value. This would also reduce the market surprises because people would know the rate will go up or down every month. And with smaller, more frequent changes, people can more easily anticipate which way the rate will tack.
      - beezle 4y ago
        In an ideal world the Fed would not "set" any rates - it would be up to the market. However, the risk is there could be more volatility on the short end without the Fed 'anchor'. A compromise might be to greatly increase the target range from 25bp to funds target rate +/- 200 bp, lower bound 0.00 thus making a bounded floating rate. That might also require a shift in how lenders set rates on very short term debt to some type of period average, ie 3 or 6m average rate.
- twblalock 4y ago
  Not really. Where are the mass layoffs like we had after 2008? Housing prices are still way higher than they were a year ago. This is not what a serious downturn looks like.
rdsubhas 4y ago
Or rather, it ensures they avoid a one-off under-correction. One big rate hike will be forgotten quickly and worked around. Inflation is a beast that needs long-term trends, not one-off actions.
- fomine3 4y ago
  Japan did it on bubble, then...
88913527 4y ago
Where was this thinking when it came to applying trillions of dollars in monetary policy? We're supposed to cautious with interest rate hikes, yet free with the money printer. Quite the double standard I'd say.
- hackerfromthefu 4y ago
  When you drive a car you don't use the accelerator and the brake in quite the same way ..

whatevenisthat 4y ago

Too many dollars are chasing too few goods because of supply chain issues caused by these governments locking everyone down when they overreacted. You can't reduce inflation this way except by affecting tens of millions of innocent people who now have austerity measures imposed on them from on high courtesy of Janet Yellen and her posse. They should have avoided the steep lockdowns and given cash directly to households instead of the giant infusion/bailout to failing states and companies that didn't even need the money.

FabHK 4y ago
FWIW, Jerome Powell is the Fed chair.
- DantesKite 4y ago
  Janet Yellen left interest rates at 0% for nearly two years during her time as the Fed Chair. She's also to blame for the situation we're in.

ABeeSea 4y ago

I know simple metaphors for complex problems aren’t great, but I’ve always liked this one: Think of an economics equilibrium as a guitar string. The harder you pluck it (shock) the longer if vibrates back and forth before reaching equilibrium. Plucking it softer but more often, keeps the string closer to equilibrium across the entire time horizon. This also applies to things like minimum wage increases.