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Fed raises rates by another 75 bps to fight inflation
- paulpauper 4y agoand market still down 1%. I guess still not priced in despite a 10% drop over the past month and the fed widely expected to rase rates by 3/4 of a basis point . Goes to show how bad things have become. In early 2021 it seemed like things were going to be ok, and then suddenly inflation goes from 2% to 10%.
- matrix_overload 4y agoThe market is down to the forward guidance. The previous expectation was that the rate will go to about 3% by the end of 2022. The current estimation is 4.25%.
- bushbaba 4y agoGuidance was higher than 4.25%
- dragontamer 4y agoThe meeting notes are going to be important. We have another 5 minutes before the press release comes out. Things were "mostly" priced in yesterday, or really last Tuesday when CPI / inflation numbers came out. They basically confirmed .75% because if core-inflation was still a problem, then rates have to go up to fix that.
- duped 4y agoInterest rates causing downturn is exactly what is expected
- time_to_smile 4y ago> In early 2021 it seemed like things were going to be ok People have been increasingly concerned about the impacts of quantitate easing long before 2020. The only people that thought things looked okay in 2021 are people who didn't want to pay attention to the Everything bubble [0] we were (and still very much are) in because they were too busy making money. 0. https://en.wikipedia.org/wiki/Everything_bubble https://en.wikipedia.org/wiki/Everything_bubble
- staticman2 4y agoIt was priced in but not with 100% certainty what the fed would do.
- queuebert 4y agoA large part of the market has been very slow to accept reality. At every Fed announcement, you see more people coming around. The Fed is struggling with how to slap people in the face without actually crashing the economy. This time JP kept to the planned increase and instead used stronger language about the future hikes.
- norwalkbear 4y agoThe sad part is higher interest rates will lead to more layoffs
- justinzollars 4y agoProbably.
- paulpauper 4y agohmm but unemployment rate is rock bottom. Under a rational expectations framework, the layoffs in anticipation of higher interest rates should have occurred 3-6 months ago. Also, unemployment was low in the 90s despite high interest rates.
- Sin2x 4y agoOfficial unemployment figures are not very meaningful: https://www.investopedia.com/financial-edge/0609/what-the-unemployment-rate-doesnt-tell-us.aspx https://www.investopedia.com/financial-edge/0609/what-the-un...
- Ancalagon 4y agoseems like the issue might be the economy is more active than ever and there just arent enough employable people to go around (I say employable because there seems to be a growing class of people unable or unwilling to be employed, for whatever reason). In a way it kind of looks to me like we have reached peak population, at least in the US. Every generation hereafter will have a workforce equal or less than the current in size. That is, unless birth rates change or immigration is allowed on a larger scale.
- michael1999 4y agoThat is the explicit goal.
- AnimalMuppet 4y agoDo you mind supplying some evidence for that claim?
- seydor 4y agoCan we change the title to "fight employment" ?
- Test0129 4y agoThis argument is tiring. The massive unprecedented drop in unemployment was the result of loose monetary policy. In order to properly control the economy there is a certain level of unemployment (something like 6-8% iirc) that is expected at at any given time. People aren't really "employed" (in a gainful sense) if the money printer keeps printing. Achieving the lowest possible unemployment results in rising inflation because the necessary availability of surplus capital to allow such a thing to happen. At any rate, 0.75% won't work. The rate changes need to be more aggressive if the goal is to actually avoid a 2023/2024 catastrophe. It takes upwards of 10 years for inflation to cool off after the process of reducing it begins. We're in for a long ride.
- leviathan235 4y agoIt's all too little too late. Considering the scale of monetary easing in the last 2+ years, this is like pissing in desert. Quite frankly, I can't blame the market for being skeptical of Powell's "resolve." He did an about face in 2019 with the taper tantrum.
- slaw 4y agoI don't see any 'fight' when interest rate at 6% points below inflation. Yes, 0.75% is not enough.
- alecco 4y agoWith massive deficits and public/private debt, raising more would cause a chain reaction of defaults. I wouldn't like to be in Powell's shoes. Can't control spending, can't control war, can't control commodities, can only raise rates but not too much. And will be the scapegoat, for sure.
- yuan43 4y ago> “My main message has not changed since Jackson Hole,” Powell said in his post-meeting news conference, referring to his policy speech at the Fed’s annual symposium in August. “The FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.” That earlier speech was far more direct and succinct than usual. Market participants should have gotten the same message then as they are now. The Fed intents to break inflation, with all the likely consequences that brings. Whether the Fed actually has the technical tools to do this is another question. Most of what it does is mass psychology - trying to convince the markets of its resolve one way or another. Bank reserves haven't mattered for years as money, but that's pretty much the only lever the Fed holds. It holds another - margin stock trading requirements, but that path has all but been forsaken. Treasuries are the fuel for the financial system. But to the US Treasury, they're just a mechanism to fund the deficit. The contrast has led to some things that are hard to explain otherwise, and more things like this will no doubt arise in the future.
- thebradbain 4y ago> It holds another - margin stock trading requirements, but that path has all but been forsaken I didn’t know this, could you explain when it’s last been used, if ever? Could they theoretically drastically raise margin requirements for some stocks and lower it for others to encourage sectors to be rebalanced?
- yuan43 4y agoFrom this 2000 article: >The recent rise in margin credit has focused attention on the Federal Reserve’s margin requirements for purchasing equities with borrowed funds, which has been at 50% since 1974. In November and December of 1999, margin credit grew very rapidly, outpacing the sizable appreciation in the overall stock market. And in January 2000, it grew further while the stock market’s valuation dropped, leaving the ratio of margin credit to market capitalization at its highest level in the past 29 years. This Economic Letter discusses the recent trend in margin credit and the merits of using margin requirements as a policy tool. > ... > The Securities Exchange Act of 1934 mandated federal regulation of purchasing securities on margin. The margin requirement was motivated by the concern that credit-financed securities speculation helped fuel the run-up in stock prices prior to the stock market crash of 1929. The act viewed the Federal Reserve as responsible for managing the availability of credit in the economy, so the Fed was charged with setting margin requirements for securities purchases. The Securities Exchange Commission was directed to enforce those regulations. https://www.frbsf.org/economic-research/publications/economic-letter/2000/march/margin-requirements-as-a-policy-tool/ https://www.frbsf.org/economic-research/publications/economi... According to Wikipedia, the rate hasn't been changed since the 1970s: > Regulation T governs the extension of credit by securities brokers and dealers in the United States.[1] Its best-known function is the control of margin requirements for stocks bought on margin. The initial margin requirement for such margin stock purchases has been 50%[2] since 1974,[3] but Regulation T gives the Federal Reserve the authority to change this percentage. Raising the margin requirement ostensibly reduces risk in the financial system by reducing the potential leverage and total buying power of investors. Conversely, lowering the margin requirement increases systemic risk by expanding the buying power and leverage available to investors. Since 1974, the Federal Reserve has not deemed it necessary to adjust the margin requirement despite periodic extremes of price volatility in the equities markets.[4] https://en.wikipedia.org/wiki/Regulation_T https://en.wikipedia.org/wiki/Regulation_T Given the absolute neglect of the mandate it was given on this, I suspect the Fed views even mere talk of increasing margin rates as the nuclear option. But if the usual roll call of psyops fail to deliver, this thing is there in its back pocket. I imagine the mere threat would cut 20% off the S&P overnight.
- hoppyhoppy2 4y agoAlso being discussed at https://news.ycombinator.com/item?id=32928803 https://news.ycombinator.com/item?id=32928803
- RspecMAuthortah 4y agoI am baffled at the Fed messaging. A year ago Powell's keynote said the inflation is a supply side problem due to "transitory" issues. How does raising interest rates with "demand destruction" help supply side inflation due to war and chip shortages?
- skohan 4y agoWell they may have believed (or hoped) at the time that inflation was transitory, and are now worried that it's more of a wage/price spiral.
- cronix 4y agoThat's kind of laughable. Most people who know the very basics of economics knew this was coming after printing and dumping that much money into the economy early in the pandemic. They increased the supply of money with nothing of value backing it, which diluted the total supply's value.
- dragontamer 4y agoThose guys have been calling for runaway inflation since 2011 though. So we ignore those permabears. Calling "inflation" for 10 years in a row is basically boy-who-cried wolf. No one believes you, and when you're finally "correct" about it, its not because you had any analysis, its because inflation inevitably occurs in a boom/bust cycle. Broken clock correct twice a day + Boy who cried wolf syndrome. I still won't be listening to the permabears / runaway inflation guys even with today's market conditions.
- ejb999 4y agoIs the doctor who tells you for 30 years in a row that you should stop smoking because you will get lung cancer, only right in the year when you actually develop the cancer? Was the doctor 'crying wolf' for 29 years?
- 4y ago
- WalterBright 4y agoFighting inflation with interest rates won't work until the government slows down the trillions in deficit spending.
- AmVess 4y agoHalf measures that they are doing will have no positive impact on anything, but will instead make the economy worse.
- LatteLazy 4y agoIsn't that one thing rising interest rates is meant to achieve? Stopping anyone from borrowing quite so enthusiastically, be they government, corporate or personal.
- throw_nbvc1234 4y ago> borrowing quite so enthusiastically Why do they have to care about the consequences? Corporations have the market. Persons have their families, lives etc... Why do elected government officials need to care; especially in this polarized, 2 party, ~~world~~ country. I'm pretty sure the closest thing we have to accountability in government are blue checkmarks twitter dunking on politicians from the opposite party and then being ignored by all the followers of that party.
- robocat 4y agoWalter, you regularly state opinions as fact, and usually don’t seem to bother to add any analysis to shore up your opinion. You have clear skills at creating the D language, however the creator of the HolyC[1] compiler had some opinions too ;p I am not actually disagreeing with your point. I am just saying 10 out of your 10 most recent comments lack any external links or analysis, and 5 out of 10 comments are low value (IMHO) one-liners... Disclaimer: I admit I am completely ignorant of macro-economics (even though I helped create and develop a sizeable business that mostly depended on macro-economics!) [1] https://harrison.totty.dev/p/a-lang-design-analysis-of-holyc https://harrison.totty.dev/p/a-lang-design-analysis-of-holyc — I wished he had called it VitaminC - and some of his comments: https://news.ycombinator.com/threads?id=TerryADavis https://news.ycombinator.com/threads?id=TerryADavis
- yieldcrv 4y agoI want to see double digit mortgage rates, everyone with an adjustable rate mortgage blown tf out Then lets look further at how people that have mortgages and build home equity make money: they need 5-30 years of zero disruption in their income, whatever employs the majority of them needs to feel cash strapped and unoptomistic so then the people with mortgages get blown tf out too, within a year We’re inching up Overleveraged investments go bye bye
- hulitu 4y agobps is bits per second.
- quesera 4y ago> bps is bits per second. The financial definition predates the networking definition by centuries. We're the newcomers here. Literally.
- hackeraccount 4y agoThere are a huge number of ways to fight inflation. You can do wage and price controls. You spend money to increase supply. You mandate this and create a law that does that. You could reduce the money supply with tax increases. All of those things are politically tricky. Each has a constituent that likes it and one that opposes it. Here's the thing though - none of those ways works. The way that works isn't politically tricky it's politically toxic. Raising interest rates works. It will ultimately piss off just about everyone but if you really want to cut inflation it's the only way to do it everything else is just politicians doing politics.