14 ms·

Federal Reserve to increase interest rates by 50 basis points

122 points by scrlk 4y ago

xeromal 4y ago
So far so good. Inflation is slowing down.
- scrlk 4y ago
  I don't think we are out of the woods yet. China reopening could put upwards pressure on energy markets that are already supply constrained.
- jerf 4y ago
  Albeit only to the extent where it could be holding even or even slightly growing, but the noise in the data happened to be high before and lower now. If you look back over other periods of inflation growth, they have periods like this in them; nothing goes straight up or straight down. I'd be much less likely to say something like this if it was down by 1 or 2% or something. However, it is also compatible with the Fed slowly getting it under control, and slowly under control is better in a lot of ways that quickly getting it under control. Basically, the numbers we have now don't mean a lot, except that extreme things aren't happening.
  - draw_down 4y ago
- codeslave13 4y ago
  Energy is still very fickle. Locally ive had 30-40 cent price swing both ways over 7-8 days. Diesel is still in the shitter. We simply cant produce more. And all it will take this winter is some good storms and i think energy will crank back up. Nit just energy though (thats where most of the drop has come from) most supply chains are still barely functional. Its just all still a giant mess
  - toomuchtodo 4y ago
    Fed can’t print refining capacity or EVs unfortunately. Demand destruction is a blunt force tool. Tangentially, "Green Banks" are popping up from the inflation reduction act, which will improve the targeting of economic policy in this regard (cheaper money for clean energy, storage, energy efficiency, electric mobility). https://reasonstobecheerful.world/green-banks-are-turning-climate-action-dreams-into-realities/ https://reasonstobecheerful.world/green-banks-are-turning-cl... https://www.epa.gov/inflation-reduction-act/greenhouse-gas-reduction-fund https://www.epa.gov/inflation-reduction-act/greenhouse-gas-r...
  - Analemma_ 4y ago
    The Fed generally reacts to core (i.e. without energy and food) inflation. You really can't count on monetary policy to help you with energy costs; buy an EV and/or a heat pump.
  - themitigating 4y ago
    The amount of diesel used for entertainment in the US is shocking considering how vital it is to the economy.
    - SV_BubbleTime 4y ago
      >diesel used for entertainment As in?
      - gedy 4y ago
        Maybe Vin?
      - vondur 4y ago
        Im guessing large bands on tour with tour busses and trucks for the equipment? Look at how large of a show the recent Rammstein concerts were.
      - thwayunion 4y ago
        Presumably non-commercial vehicles and non-commercial boats; the quantity used may be large but as a percentage of commercial, industrial, and heating it's fairly small.
- time_to_smile 4y ago
  When you look at the various lens of CPI over time for this chart [0] it's not completely obvious to me that we're in a long term downward trend for inflation. We've definitely seen some important dips in inflation the last two months, and I think the fed is correct in not being too aggressive. At the same time it's really hard to predict the next point in any of those lines. Additionally all of those "lower" inflation values are still above anything (outside of energy) we've seen in 20 years. Not to mention that inflation this November, while lower than this October, is still higher than last November. 0. https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm https://www.bls.gov/charts/consumer-price-index/consumer-pri...
  - tiahura 4y ago
    What do you mean by long term?1 year or 10? If you watch CNBC most CEOs are saying that the price pressures have been abating over the last quarter or so. The take away is that we’ve peaked. Getting down to 2% is going to take time and pain.
    - no_wizard 4y ago
      Are these cash rich businesses that the CEOs are head of that will benefit from the inflation curbing measures though? Lots of cash on hand while the value of the currency goes up means you can buy overseas material far cheaper than before. I don't think its going to be "even" on price pressure though. Businesses that routinely borrow money - which are alot actually, and not just in speculative ways - are of course going to be hurt. The most obvious is real estate / mortgage / construction industries . However the restaurant, automotive, and light manufacturing[0] industries (to name a few) are also going to be negatively impacted. [0]: https://en.wikipedia.org/wiki/Light_industry https://en.wikipedia.org/wiki/Light_industry
- ClarityJones 4y ago
  Inflation is an increase in the general price of goods and services in an economy. Ask yourself what is currently driving price increases? In my estimation it's the Fed's own rate hikes. The price of mortgages is going up. The price of car loans is high. The production of consumer goods relies on leverage and the increased finance expenses are pushing up the price of milk, gas, clothes, etc. Of course the rate of inflation is slowing, the Fed is slowing their hikes from the previously imposed a .75 raise to the present .5 hike.
  - georgeecollins 4y ago
    >> Ask yourself what is currently driving price increases? It's good to remind people that the reason for inflation up to this point is probably: - The US government spending a huge deficit during covid. - The war in Ukraine causing shortages / high prices for grain but most importantly oil and gas. - Covid lockdowns in China creating shortages. I understand that inflation sucks, particularly for people where gas or food is a big part of their spending. But I am also amazed at how our economy seems to be enduring a world wide pandemic and major war. There are many times in history when shocks like this caused much worse problems. As an American I am proud of how resilient our institutions are. But I could be counting my chickens before they hatch.
  - JamesBarney 4y ago
    Mortgage rates and interest rates on car loans aren't factored into the CPI.
- paulpauper 4y ago
  We're going to need a year of price stability before confidence comes back. It probably will not take much to get prices going up again.
  - alphabettsy 4y ago
    How much of confidence is tied to inflation and how much is tied to talk of inflation?
- bitshiftfaced 4y ago
  Nah, it's been teeter tottering around 6% for the last 12 months. Maybe it'll continue to trend down, but we could've said that in April based on the same belief, and we would've been wrong. Disregarding the last year, we haven't seen our current level of inflation for forty years. We are by no means out of the woods yet. The balance sheet is trending down, but we're only where we were a year ago, so still up ~5 trillion from pre-covid levels.
  - mywittyname 4y ago
    But if you look at the past 3 months, it's sub-3.0% annualized. Overall CPI-U was 0.4%, 0.4%, and 0.1% for the past three months, with some sectors seeing price declines.
- hajile 4y ago
  Remember, we've now inflated 30+% (wholesale goods) since April 2020 and even if it stabilized 100% right now, the results of that inflation are going to haunt the system for a long time.
  - mywittyname 4y ago
    We also just exited a decade of extraordinarily low inflation. Cumulative inflation over the past decade for the CPI-U "all items, all regions" is 31% since 2012 (228 -> 298). Which is basically 3% annualized, or "normal".
chollida1 4y ago
Well the big loser in this will be any other country with their own currency as this will only draw more money into US treasuries. The FED DOT plot shows projected rates of 5.1%( median forecast) so we may be near the end of rate hikes. So expect atleast another 0.25bps to 50bps raise early next year. Though 2024 and 2025 both show 100bps cuts which is up slightly from the previous report. interestingly there is both a market sell of and treasury sellof, the former we'd expect, the later has pushed up yields up 5bps, which is material for Treasuries. Unemployment forecast for End of year employment moved up only slightly from 4.4% to 4.6%. And the side by side comparison of the FED notes, which seems to be all the rage these days, shows very little change from their prior release which indicates we shouldn't expect any surprises from the FED next meeting, from Renaissance Macro
- cm2187 4y ago
  Keeping in mind increasing rates isn't the only way the fed can tighten the screw. I am always surprised how little attention is given in non financial newspapers to the movements in the fed balance sheet [1]. Even if rates remain stable, if the Fed keeps draining QE, it will apply a strong downward pressure on markets. [1] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
  - chollida1 4y ago
    Fully agree, and to be honest I didn't have that on my quick checklist for FED reporting. Appreciate the response!!
  - JumpCrisscross 4y ago
    > how little attention is given in non financial newspapers to the movements in the fed balance sheet The rate is the nail, the balance sheet the hammer. Balance sheet movement informs professionals of the trades the Fed is placing to reach its target. For most people, who aren't looking at financial markets but instead the real economy, the rate per se is enough.
    - 4y ago
zackees 4y ago
Flatcircle 4y ago
Feels like a rate hike doesn't cause as much pain relative to the elation that occurs with a rate cut. If rates move up to 5+ or 6 percent, and then move back down to 4 or 3, the market will explode up. Not saying that will happen, it's just interesting.
- gregw134 4y ago
  It's going to be painful, it's just expected pain.
- westpfelia 4y ago
  It sure hurts me. My student loans are pegged to the federal interest rates. I went from like 4% to as of today nearly 10%
  - irrational 4y ago
    Same with my HELOC.
  - bushbaba 4y ago
    Something to note is that Federal student loans are paused. I've wondered if the government can resume requiring payments without causing a massive recession.
    - UncleOxidant 4y ago
      Payments are paused, but does interest still accrue?
      - ModernMech 4y ago
        No.
  - Forgeties79 4y ago
    If you’ve been setting aside what you would have paid while the interest was frozen, you could have a decent little pile that should insulate you for a while. I have friends who said the pause is approaching a point where it’s more valuable to them than the cancellation at this point. I’m not saying that’s definitely the case for you, and I’m guessing you’ve already thought about this, but figured I would throw it out there. Sorry you have to stress about this.
Kye 4y ago
Fun trivia: a basis point is 0.01%. So 50 basis point is half a percent (0.50%).
- didgeoridoo 4y ago
  I wouldn’t call that trivia, as it is central to understanding what actually happened :) Trivia would be: “The basis point is named after Theodorus Basis, the grand-nephew of the first chairman of the Federal Reserve Bank.”
  - Kye 4y ago
    Infamous for creating a paradox when he picked up a dollar from the ground.
  - aksss 4y ago
    That Basis is the basis of basis is basically a surprise to me. TIL.
    - bombcar 4y ago
      It's basically bullshit is what it is - basis in basis point comes from the same root as basis in cost basis, apparently.
- foobarian 4y ago
  Another fun trivia: a less frequently used name for 0.01% is a permyriad[1]. [1] https://en.wikipedia.org/wiki/Basis_point#Permyriad https://en.wikipedia.org/wiki/Basis_point#Permyriad
- SomewhatLikely 4y ago
  Well you see now you've made it ambiguous. Basis points are unambiguously absolute points. But if you say half a percent increase you could mean 50 basis points or you could mean the the new value is 1.005x the old value.
- throw7 4y ago
bmitc 4y ago
Has the Federal Reserve always been this powerful and active? Over the past few years, it seems that they have been molding the economy to their will. Are there any detailed retrospectives on this in terms of it being good or not? From my naive perspective, it seems like a lot of meddling, and it isn't clear if such frequent changes are required. If they are required, I suppose that bothers me just as much since it implies a fragile economic system.
- gjsman-1000 4y ago
  I completely agree with you. We used to sue companies and individuals for the crime of Market Manipulation. Now the Fed is in the business of Market Manipulation as a Service (MMaaS?).
- Analemma_ 4y ago
  They are particularly active right now because they took too long to start raising rates to begin with, and are now kind of frantically correcting. Given the circumstances I don't think there's much else they can do; they should have started gently raising rates in the spring or summer of 2021 and then the current intervention might not have needed to be so dramatic, but we can't undo the past.
  - AnimalMuppet 4y ago
    They tried gently raising rates before that (2018-ish, maybe?) and the market freaked out, so they backed off.
- rglover 4y ago
  > From my naive perspective, it seems like a lot of meddling, and it isn't clear if such frequent changes are required. This is the result of fiat-based currencies and why Bitcoin is a necessity for the survival of Western civilization. In the words of Max Keiser: "you can't taper a ponzi scheme."
  - highwaylights 4y ago
    Can’t tell if this is sarcasm or not. I mean, Max Keiser is quoted so I assume it has to be, but it still doesn’t read like it.
paulpauper 4y ago
Hmmm..the yield curve is so inverted. The bond market is behaving as if it's not expecting interest rates or inflation to remain as high 5+ years down the road. 10 year yields crashed like a rock even though < 1-year is being pulled up.
- lamontcg 4y ago
  Which is a prediction of... a recession.
Octokiddie 4y ago
For those wondering how the Fed can possibly be so aggressive in light of the recent CPI miss, go back to Powell's Jackson Hole speech: https://www.federalreserve.gov/newsevents/speech/powell20220826a.htm https://www.federalreserve.gov/newsevents/speech/powell20220... It ran a total of 8 or so minutes and mentioned Paul Volcker twice: https://en.wikipedia.org/wiki/Paul_Volcker https://en.wikipedia.org/wiki/Paul_Volcker This speech is a masterpiece of clarity and focus. It said: rates are going much, much higher than you think possible. So buckle up. It's rare to get such a clear signal from the Fed. Volcker was the chair of the Fed during The Great Inflation of the 1970s and early 1980s. He's seen as a legend among those who favor responsible monetary policy because unlike his predecessors, he hiked and hiked and hiked. As the legend goes, he crushed US inflation, which lead the US out of the 70s inflationary quagmire to the prosperity of the 80s and 90s. Not so widely known is that Volcker didn't just raise, he also cut rates in mid-1980 when CPI started to cool and the US fell into recession. After the rate cuts, inflation ripped higher. And Volcker's Fed responded by jacking rates to 19%. The result is the second recession just one year after the first. Talk about a whipsaw. Not great for credibility. Valid or not, the lesson policy makers learned is this: don't give inflation one inch or you'll regret it. The economy is far stronger than it appears and you'll be back raising rates far, far too soon. This appears to be the play book Powell is drawing from now. The good news is that what the Fed does matters very little. Through the great inflation, companies continued to borrow despite double-digit interest rates. For all of 2022, bond markets have been screaming recession by causing multiple yield curve inversions. Inflation is headed lower, but it has nothing to do with the Fed and its irrelevant bank reserve manipulation schemes. The bad news is that Volcker's rate hike blitz earned the deep respect of markets. Even though the Fed has very little direct control over the US dollar or the business cycle, the vast majority of market participants believe the Fed is in the driver's seat. This is why backing down isn't an option. That credibility the Fed gained was hard won and no chair wants to risk being known as Arthur Burns.
- nverno 4y ago
  > The good news is that what the Fed does matters very little. I cant reconcile this statement with the previous history you've discussed.
pjkundert 4y ago
Lesser men make-believe playing Volcker. Sure, he can raise interest rates all he wants. Until the US Treasury implodes, unable to pay interest on their existing debts. Of course, the Fed can monetize new debt directly to allow the US Treasury to fund government liabilities - not neutralizing the created money from creating more inflation. You can’t pretend that a sick or dead body is living, until you take it off life-support. No plan from these play-actors even hints at such a test…
- snapcaster 4y ago
  What would you do if you were in their shoes?
  - neural_thing 4y ago
    Ooooh I like this one. I would raise 25bp here, openly say that I expect a recession in 2023, and release a dot plot that doesn't have ANY rate cuts through 2025
    - neural_thing 4y ago
      The reasoning is that cyclically we are entering a recession, but there are structural reasons for inflation now, and that the era of hyper low interest rates is over.
  - veidelis 4y ago
    Allow an audit.
    - snapcaster 4y ago
      What do you expect this to accomplish?
      - veidelis 4y ago
        Transparency.
tareqak 4y ago
Which Federal Reserve symbol/instrument corresponds to the 4.25 -> 4.5 rate increase in https://fred.stlouisfed.org/release/tables?rid=18&eid=289&od=# https://fred.stlouisfed.org/release/tables?rid=18&eid=289&od... ? Is it https://fred.stlouisfed.org/series/DCPF1M https://fred.stlouisfed.org/series/DCPF1M ?
voisin 4y ago
I don’t think Powell needs to imitate Volcker here. Corporate, Household, and state debt levels are so much higher today than in the late 70’s / early 80’s that economic activity will falter with far less than double digit interest rates, causing inflation to fall quickly.

122 points by scrlk 4y ago

xeromal 4y ago

So far so good. Inflation is slowing down.

scrlk 4y ago
I don't think we are out of the woods yet. China reopening could put upwards pressure on energy markets that are already supply constrained.
jerf 4y ago
Albeit only to the extent where it could be holding even or even slightly growing, but the noise in the data happened to be high before and lower now. If you look back over other periods of inflation growth, they have periods like this in them; nothing goes straight up or straight down. I'd be much less likely to say something like this if it was down by 1 or 2% or something. However, it is also compatible with the Fed slowly getting it under control, and slowly under control is better in a lot of ways that quickly getting it under control. Basically, the numbers we have now don't mean a lot, except that extreme things aren't happening.
- draw_down 4y ago
codeslave13 4y ago
Energy is still very fickle. Locally ive had 30-40 cent price swing both ways over 7-8 days. Diesel is still in the shitter. We simply cant produce more. And all it will take this winter is some good storms and i think energy will crank back up. Nit just energy though (thats where most of the drop has come from) most supply chains are still barely functional. Its just all still a giant mess
- toomuchtodo 4y ago
  Fed can’t print refining capacity or EVs unfortunately. Demand destruction is a blunt force tool. Tangentially, "Green Banks" are popping up from the inflation reduction act, which will improve the targeting of economic policy in this regard (cheaper money for clean energy, storage, energy efficiency, electric mobility). https://reasonstobecheerful.world/green-banks-are-turning-climate-action-dreams-into-realities/ https://reasonstobecheerful.world/green-banks-are-turning-cl... https://www.epa.gov/inflation-reduction-act/greenhouse-gas-reduction-fund https://www.epa.gov/inflation-reduction-act/greenhouse-gas-r...
- Analemma_ 4y ago
  The Fed generally reacts to core (i.e. without energy and food) inflation. You really can't count on monetary policy to help you with energy costs; buy an EV and/or a heat pump.
- themitigating 4y ago
  The amount of diesel used for entertainment in the US is shocking considering how vital it is to the economy.
  - SV_BubbleTime 4y ago
    >diesel used for entertainment As in?
    - gedy 4y ago
      Maybe Vin?
    - vondur 4y ago
      Im guessing large bands on tour with tour busses and trucks for the equipment? Look at how large of a show the recent Rammstein concerts were.
    - thwayunion 4y ago
      Presumably non-commercial vehicles and non-commercial boats; the quantity used may be large but as a percentage of commercial, industrial, and heating it's fairly small.
time_to_smile 4y ago
When you look at the various lens of CPI over time for this chart [0] it's not completely obvious to me that we're in a long term downward trend for inflation. We've definitely seen some important dips in inflation the last two months, and I think the fed is correct in not being too aggressive. At the same time it's really hard to predict the next point in any of those lines. Additionally all of those "lower" inflation values are still above anything (outside of energy) we've seen in 20 years. Not to mention that inflation this November, while lower than this October, is still higher than last November. 0. https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm https://www.bls.gov/charts/consumer-price-index/consumer-pri...
- tiahura 4y ago
  What do you mean by long term?1 year or 10? If you watch CNBC most CEOs are saying that the price pressures have been abating over the last quarter or so. The take away is that we’ve peaked. Getting down to 2% is going to take time and pain.
  - no_wizard 4y ago
    Are these cash rich businesses that the CEOs are head of that will benefit from the inflation curbing measures though? Lots of cash on hand while the value of the currency goes up means you can buy overseas material far cheaper than before. I don't think its going to be "even" on price pressure though. Businesses that routinely borrow money - which are alot actually, and not just in speculative ways - are of course going to be hurt. The most obvious is real estate / mortgage / construction industries . However the restaurant, automotive, and light manufacturing[0] industries (to name a few) are also going to be negatively impacted. [0]: https://en.wikipedia.org/wiki/Light_industry https://en.wikipedia.org/wiki/Light_industry
ClarityJones 4y ago
Inflation is an increase in the general price of goods and services in an economy. Ask yourself what is currently driving price increases? In my estimation it's the Fed's own rate hikes. The price of mortgages is going up. The price of car loans is high. The production of consumer goods relies on leverage and the increased finance expenses are pushing up the price of milk, gas, clothes, etc. Of course the rate of inflation is slowing, the Fed is slowing their hikes from the previously imposed a .75 raise to the present .5 hike.
- georgeecollins 4y ago
  >> Ask yourself what is currently driving price increases? It's good to remind people that the reason for inflation up to this point is probably: - The US government spending a huge deficit during covid. - The war in Ukraine causing shortages / high prices for grain but most importantly oil and gas. - Covid lockdowns in China creating shortages. I understand that inflation sucks, particularly for people where gas or food is a big part of their spending. But I am also amazed at how our economy seems to be enduring a world wide pandemic and major war. There are many times in history when shocks like this caused much worse problems. As an American I am proud of how resilient our institutions are. But I could be counting my chickens before they hatch.
- JamesBarney 4y ago
  Mortgage rates and interest rates on car loans aren't factored into the CPI.
paulpauper 4y ago
We're going to need a year of price stability before confidence comes back. It probably will not take much to get prices going up again.
- alphabettsy 4y ago
  How much of confidence is tied to inflation and how much is tied to talk of inflation?
bitshiftfaced 4y ago
Nah, it's been teeter tottering around 6% for the last 12 months. Maybe it'll continue to trend down, but we could've said that in April based on the same belief, and we would've been wrong. Disregarding the last year, we haven't seen our current level of inflation for forty years. We are by no means out of the woods yet. The balance sheet is trending down, but we're only where we were a year ago, so still up ~5 trillion from pre-covid levels.
- mywittyname 4y ago
  But if you look at the past 3 months, it's sub-3.0% annualized. Overall CPI-U was 0.4%, 0.4%, and 0.1% for the past three months, with some sectors seeing price declines.
hajile 4y ago
Remember, we've now inflated 30+% (wholesale goods) since April 2020 and even if it stabilized 100% right now, the results of that inflation are going to haunt the system for a long time.
- mywittyname 4y ago
  We also just exited a decade of extraordinarily low inflation. Cumulative inflation over the past decade for the CPI-U "all items, all regions" is 31% since 2012 (228 -> 298). Which is basically 3% annualized, or "normal".

chollida1 4y ago

Well the big loser in this will be any other country with their own currency as this will only draw more money into US treasuries. The FED DOT plot shows projected rates of 5.1%( median forecast) so we may be near the end of rate hikes. So expect atleast another 0.25bps to 50bps raise early next year. Though 2024 and 2025 both show 100bps cuts which is up slightly from the previous report. interestingly there is both a market sell of and treasury sellof, the former we'd expect, the later has pushed up yields up 5bps, which is material for Treasuries. Unemployment forecast for End of year employment moved up only slightly from 4.4% to 4.6%. And the side by side comparison of the FED notes, which seems to be all the rage these days, shows very little change from their prior release which indicates we shouldn't expect any surprises from the FED next meeting, from Renaissance Macro

cm2187 4y ago
Keeping in mind increasing rates isn't the only way the fed can tighten the screw. I am always surprised how little attention is given in non financial newspapers to the movements in the fed balance sheet [1]. Even if rates remain stable, if the Fed keeps draining QE, it will apply a strong downward pressure on markets. [1] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
- chollida1 4y ago
  Fully agree, and to be honest I didn't have that on my quick checklist for FED reporting. Appreciate the response!!
- JumpCrisscross 4y ago
  > how little attention is given in non financial newspapers to the movements in the fed balance sheet The rate is the nail, the balance sheet the hammer. Balance sheet movement informs professionals of the trades the Fed is placing to reach its target. For most people, who aren't looking at financial markets but instead the real economy, the rate per se is enough.
  - 4y ago

zackees 4y ago

Flatcircle 4y ago

Feels like a rate hike doesn't cause as much pain relative to the elation that occurs with a rate cut. If rates move up to 5+ or 6 percent, and then move back down to 4 or 3, the market will explode up. Not saying that will happen, it's just interesting.

gregw134 4y ago
It's going to be painful, it's just expected pain.
westpfelia 4y ago
It sure hurts me. My student loans are pegged to the federal interest rates. I went from like 4% to as of today nearly 10%
- irrational 4y ago
  Same with my HELOC.
- bushbaba 4y ago
  Something to note is that Federal student loans are paused. I've wondered if the government can resume requiring payments without causing a massive recession.
  - UncleOxidant 4y ago
    Payments are paused, but does interest still accrue?
    - ModernMech 4y ago
      No.
- Forgeties79 4y ago
  If you’ve been setting aside what you would have paid while the interest was frozen, you could have a decent little pile that should insulate you for a while. I have friends who said the pause is approaching a point where it’s more valuable to them than the cancellation at this point. I’m not saying that’s definitely the case for you, and I’m guessing you’ve already thought about this, but figured I would throw it out there. Sorry you have to stress about this.

Kye 4y ago

Fun trivia: a basis point is 0.01%. So 50 basis point is half a percent (0.50%).

didgeoridoo 4y ago
I wouldn’t call that trivia, as it is central to understanding what actually happened :) Trivia would be: “The basis point is named after Theodorus Basis, the grand-nephew of the first chairman of the Federal Reserve Bank.”
- Kye 4y ago
  Infamous for creating a paradox when he picked up a dollar from the ground.
- aksss 4y ago
  That Basis is the basis of basis is basically a surprise to me. TIL.
  - bombcar 4y ago
    It's basically bullshit is what it is - basis in basis point comes from the same root as basis in cost basis, apparently.
foobarian 4y ago
Another fun trivia: a less frequently used name for 0.01% is a permyriad[1]. [1] https://en.wikipedia.org/wiki/Basis_point#Permyriad https://en.wikipedia.org/wiki/Basis_point#Permyriad
SomewhatLikely 4y ago
Well you see now you've made it ambiguous. Basis points are unambiguously absolute points. But if you say half a percent increase you could mean 50 basis points or you could mean the the new value is 1.005x the old value.
throw7 4y ago

bmitc 4y ago

Has the Federal Reserve always been this powerful and active? Over the past few years, it seems that they have been molding the economy to their will. Are there any detailed retrospectives on this in terms of it being good or not? From my naive perspective, it seems like a lot of meddling, and it isn't clear if such frequent changes are required. If they are required, I suppose that bothers me just as much since it implies a fragile economic system.

gjsman-1000 4y ago
I completely agree with you. We used to sue companies and individuals for the crime of Market Manipulation. Now the Fed is in the business of Market Manipulation as a Service (MMaaS?).
Analemma_ 4y ago
They are particularly active right now because they took too long to start raising rates to begin with, and are now kind of frantically correcting. Given the circumstances I don't think there's much else they can do; they should have started gently raising rates in the spring or summer of 2021 and then the current intervention might not have needed to be so dramatic, but we can't undo the past.
- AnimalMuppet 4y ago
  They tried gently raising rates before that (2018-ish, maybe?) and the market freaked out, so they backed off.
rglover 4y ago
> From my naive perspective, it seems like a lot of meddling, and it isn't clear if such frequent changes are required. This is the result of fiat-based currencies and why Bitcoin is a necessity for the survival of Western civilization. In the words of Max Keiser: "you can't taper a ponzi scheme."
- highwaylights 4y ago
  Can’t tell if this is sarcasm or not. I mean, Max Keiser is quoted so I assume it has to be, but it still doesn’t read like it.

paulpauper 4y ago

Hmmm..the yield curve is so inverted. The bond market is behaving as if it's not expecting interest rates or inflation to remain as high 5+ years down the road. 10 year yields crashed like a rock even though < 1-year is being pulled up.

lamontcg 4y ago
Which is a prediction of... a recession.

Octokiddie 4y ago

For those wondering how the Fed can possibly be so aggressive in light of the recent CPI miss, go back to Powell's Jackson Hole speech: https://www.federalreserve.gov/newsevents/speech/powell20220826a.htm https://www.federalreserve.gov/newsevents/speech/powell20220... It ran a total of 8 or so minutes and mentioned Paul Volcker twice: https://en.wikipedia.org/wiki/Paul_Volcker https://en.wikipedia.org/wiki/Paul_Volcker This speech is a masterpiece of clarity and focus. It said: rates are going much, much higher than you think possible. So buckle up. It's rare to get such a clear signal from the Fed. Volcker was the chair of the Fed during The Great Inflation of the 1970s and early 1980s. He's seen as a legend among those who favor responsible monetary policy because unlike his predecessors, he hiked and hiked and hiked. As the legend goes, he crushed US inflation, which lead the US out of the 70s inflationary quagmire to the prosperity of the 80s and 90s. Not so widely known is that Volcker didn't just raise, he also cut rates in mid-1980 when CPI started to cool and the US fell into recession. After the rate cuts, inflation ripped higher. And Volcker's Fed responded by jacking rates to 19%. The result is the second recession just one year after the first. Talk about a whipsaw. Not great for credibility. Valid or not, the lesson policy makers learned is this: don't give inflation one inch or you'll regret it. The economy is far stronger than it appears and you'll be back raising rates far, far too soon. This appears to be the play book Powell is drawing from now. The good news is that what the Fed does matters very little. Through the great inflation, companies continued to borrow despite double-digit interest rates. For all of 2022, bond markets have been screaming recession by causing multiple yield curve inversions. Inflation is headed lower, but it has nothing to do with the Fed and its irrelevant bank reserve manipulation schemes. The bad news is that Volcker's rate hike blitz earned the deep respect of markets. Even though the Fed has very little direct control over the US dollar or the business cycle, the vast majority of market participants believe the Fed is in the driver's seat. This is why backing down isn't an option. That credibility the Fed gained was hard won and no chair wants to risk being known as Arthur Burns.

nverno 4y ago
> The good news is that what the Fed does matters very little. I cant reconcile this statement with the previous history you've discussed.

pjkundert 4y ago

Lesser men make-believe playing Volcker. Sure, he can raise interest rates all he wants. Until the US Treasury implodes, unable to pay interest on their existing debts. Of course, the Fed can monetize new debt directly to allow the US Treasury to fund government liabilities - not neutralizing the created money from creating more inflation. You can’t pretend that a sick or dead body is living, until you take it off life-support. No plan from these play-actors even hints at such a test…

snapcaster 4y ago
What would you do if you were in their shoes?
- neural_thing 4y ago
  Ooooh I like this one. I would raise 25bp here, openly say that I expect a recession in 2023, and release a dot plot that doesn't have ANY rate cuts through 2025
  - neural_thing 4y ago
    The reasoning is that cyclically we are entering a recession, but there are structural reasons for inflation now, and that the era of hyper low interest rates is over.
- veidelis 4y ago
  Allow an audit.
  - snapcaster 4y ago
    What do you expect this to accomplish?
    - veidelis 4y ago
      Transparency.

tareqak 4y ago

Which Federal Reserve symbol/instrument corresponds to the 4.25 -> 4.5 rate increase in https://fred.stlouisfed.org/release/tables?rid=18&eid=289&od=# https://fred.stlouisfed.org/release/tables?rid=18&eid=289&od... ? Is it https://fred.stlouisfed.org/series/DCPF1M https://fred.stlouisfed.org/series/DCPF1M ?

voisin 4y ago

I don’t think Powell needs to imitate Volcker here. Corporate, Household, and state debt levels are so much higher today than in the late 70’s / early 80’s that economic activity will falter with far less than double digit interest rates, causing inflation to fall quickly.