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Dropping rates doesn't really affect spending that much (but can contribute to increasing asset prices, like houses and stocks). The whole thing is basically a

Dropping rates doesn't really affect spending that much (but can contribute to increasing asset prices, like houses and stocks). The whole thing is basically a cargo-cult kind of thing at this point. Need to stimulate? Drop rates. Inflation too high? Raise rates. But the theory doesn't actually match the real world, and it never actually does any good. At this point, they'll keep raising rates either until some unrelated factor happens to moderate inflation, or their rate-raising unnecessarily causes a crash and big recession (which will reduce inflation, but really not in a good way).

pas 4y ago
macroeconomics is complex, but at least this part is not that complex. in monetary policy there's one lever, the money supply expansion rate. as long as there's a sufficiently large part of the economy infused with debt (banks rolling over short term debts, large companies using credit to fund payroll, any new investment compared to "risk free rate" of central banks, etc) the lever has some effect. of course it's a blunt instrument. fiscal policy is needed to pick up the slack. but that's mostly bludgeoned to death long ago by polarization of politics.
alfiedotwtf 4y ago
> Dropping rates doesn't really affect spending that much Have that conversation with people who aren't on tech salaries. Each rate rise brings more cuts to the weekly budget.
sokoloff 4y ago
If rates don’t affect spending, what’s the mechanism by which raising them will “unnecessarily [cause] a crash and a big recession”?
nly 4y ago
In the UK a large % of take home pay goes to mortgages that are running on fixed rate, short term contracts. Raising rates definitely has a cooling effect
shagie 4y ago
Jaw-Dropping Stats About the State of Debt in America - https://www.yahoo.com/video/jaw-dropping-stats-state-credit-130022967.html https://www.yahoo.com/video/jaw-dropping-stats-state-credit-... > A recent GOBankingRates survey found that 30% of Americans have between $1,001 and $5,000 in credit card debt, 15% have $5,001 or more in credit card debt and about 6% have more than $10,000 in credit card debt. Although 6% may seem like a small amount, that means that based on the survey results, 14 million Americans have over $10,000 of credit card debt. The change to the rates increases the amount of interest paid on holding credit card debt. That directly does impact spending for a significant portion of the population. --- The awkward part is that the fed's tools for managing the economy are rather blunt and take time to cause a change. Monetary policy vs Fiscal policy. However, fiscal policy is tied to the gridlock in congress and so all the responsibility for managing the rate of inflation and jobs has been pushed onto the central bank... and this is what you get. Dropping rates and raising rates are the tools that they have until a majority of elected politicians want to take the responsibility for making a decision that impacts people's finances.

pas 4y ago

macroeconomics is complex, but at least this part is not that complex. in monetary policy there's one lever, the money supply expansion rate. as long as there's a sufficiently large part of the economy infused with debt (banks rolling over short term debts, large companies using credit to fund payroll, any new investment compared to "risk free rate" of central banks, etc) the lever has some effect. of course it's a blunt instrument. fiscal policy is needed to pick up the slack. but that's mostly bludgeoned to death long ago by polarization of politics.

alfiedotwtf 4y ago

> Dropping rates doesn't really affect spending that much Have that conversation with people who aren't on tech salaries. Each rate rise brings more cuts to the weekly budget.

sokoloff 4y ago

If rates don’t affect spending, what’s the mechanism by which raising them will “unnecessarily [cause] a crash and a big recession”?

nly 4y ago

In the UK a large % of take home pay goes to mortgages that are running on fixed rate, short term contracts. Raising rates definitely has a cooling effect

shagie 4y ago

Jaw-Dropping Stats About the State of Debt in America - https://www.yahoo.com/video/jaw-dropping-stats-state-credit-130022967.html https://www.yahoo.com/video/jaw-dropping-stats-state-credit-... > A recent GOBankingRates survey found that 30% of Americans have between $1,001 and $5,000 in credit card debt, 15% have $5,001 or more in credit card debt and about 6% have more than $10,000 in credit card debt. Although 6% may seem like a small amount, that means that based on the survey results, 14 million Americans have over $10,000 of credit card debt. The change to the rates increases the amount of interest paid on holding credit card debt. That directly does impact spending for a significant portion of the population. --- The awkward part is that the fed's tools for managing the economy are rather blunt and take time to cause a change. Monetary policy vs Fiscal policy. However, fiscal policy is tied to the gridlock in congress and so all the responsibility for managing the rate of inflation and jobs has been pushed onto the central bank... and this is what you get. Dropping rates and raising rates are the tools that they have until a majority of elected politicians want to take the responsibility for making a decision that impacts people's finances.