7 ms·
> to a high interest one We're at 4.50–4.75, no? That's not low, but it's not high either. https://en.m.wikipedia.org/wiki/Federal_funds_rate#Historical_rates
by ethbr0 4y ago
> to a high interest one
We're at 4.50–4.75, no?
That's not low, but it's not high either. https://en.m.wikipedia.org/wiki/Federal_funds_rate#Historical_rates https://en.m.wikipedia.org/wiki/Federal_funds_rate#Historica...
- satellite2 4y agoInterpreting interest rates linearly is a fallacy. As we have seen the asset markets have adapted to low rates by increasing assets prices. Thus an increase in interest rates to what historically has been low does not offer a great way to analyze its effect. The question we should rather answer is by how much the assets will lose in value and what are the options of people depending on this value (retirement, disability funds etc...) and for people indebted, did they forecast and are they able to stomach an increase in interest spending of roughly an order of magnitude?
- almog 4y agoNot only it's not high compared to historical rates but worse I think is that Fed's real interest rate is still in the negative territory: January CPI report headline came at 6.3% YoY and core at 5.3% YoY (it's negative with current rates even if you use the PCE index as a baseline, which is the Fed's favorite index to measure inflation).
- shjake 4y agoAnnualized inflation in last quarter was just 3.1% and Core was 4.6%. The peak in Q2 was 10.5% and 6.6%. So looking just at the YoY figure is problematic cause it’s a strongly lagging indicator. Of course it depends if the current trend continues. It starting going back up in January so it might not (then again certain components in CPI like housing generally tend to lag more than others).
- roflyear 4y agoseems the consensus is "a little more inflation" is better than "a bigger recession" which is probably true. People are still trying to get on their feet, and inflation is "felt" a lot less than losing your job (and not being able to find a new one for a long time).
- mym1990 4y agoIt depends on a person's financial situation, from my understanding: if you have a lot of debt(which the average USA household does), you benefit greatly the more inflation goes up. If you have money sitting in the bank, you're basically getting eaten alive. If you have assets, they typically should be tracking inflation somewhat(real estate, some stock categories, TIPS, etc...). People will be in between any of the above situation simultaneously, but between having to get fired and seeing costs go up a little at a time, I imagine most people will defer the gut punch and take the erosion of spending power.
- ethbr0 4y agoThere's also one big winner in an inflationary environment: the US federal government, who happens to owe a LOT of debt. Inflation shrinks the present value of that debt, without requiring the government to cut spending to pay it down, which would have serious economic consequences (see: austerity).
- tempsy 4y agohow is a saver getting eaten alive when high yield savings accounts and short term t-bills are paying 5% holding cash is paying something for the first time in more than a decade
- positr0n 4y agoBecause you don't care about the number in your bank account, you care about what you can buy with that number. Park your cash in a 5% instrument for a year and you can still afford 3-4% less stuff than you could at the beginning of the year. That's fine for me with a mortgage, but less retirement headroom for many older people.
- roflyear 4y agoCash was paying out plenty a few years ago.
- mym1990 4y agoBecause inflation was still anywhere from 6-9% on average, but was higher than that for things like housing, healthcare, education, food, and transportation. Holding cash is not "paying" anything, even though you can't see it happen, the purchase power of that cash has deteriorated massively in the past 3 years. I personally have a hard time going out to a restaurant and getting a 2 person meal for less than say 30-40$. Car market is absolutely through the roof. Housing market, although cooling slightly, is still through the roof. Our base rent went up 15% last year. Gas is now double in my area.
- boppo1 4y agoHow does one determine the 'real' interest rate?
- raincom 4y agoNominal interest rate = inflation + real interest rate, now your question boils down to 'how does one determine inflation?'
- jcalvinowens 4y agohttps://en.m.wikipedia.org/wiki/Real_interest_rate https://en.m.wikipedia.org/wiki/Real_interest_rate
- jaggederest 4y agoTo parallel the other comment with a wiki leak, the short version is the risk-free interest rate (e.g. treasury bills) minus the rate of inflation. So if you have 6% inflation, and the return on e.g. the 1 year t bill is 4.75%, you have -1.25% "real" interest rates, because your money at the end of your year of investment will be worth ~1.23% less than it was at the beginning of the year. I'm not sure I completely agree that the result is actually as bad as that, since stuffing your money in the mattress would put you -5.5% in the hole by comparison, but still.
- hayksaakian 4y agodoes that really work? inflation is a backward looking metric and interest rates are forward looking. this is just about making a prediction of the future. if you believe that inflation will decrease then your guaranteed rate of return from interest rates is great. if you believe that inflation will increase or stay the same, then yes we have "negative interest rates" I don't think it's reasonable to call it a "real" interest rate, because I can't buy T bills against it and it has no guarantees
- niij 4y agohttps://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics) https://en.wikipedia.org/wiki/Real_versus_nominal_value_(eco...
- chiefalchemist 4y agoThe better question is: what rate are most ppl paying on their credit card debt.
- metaphor 4y agoAs of November 2022, 20.40% in the aggregate[1]. [1] https://fred.stlouisfed.org/series/TERMCBCCINTNS https://fred.stlouisfed.org/series/TERMCBCCINTNS
- LeonB 4y agoTo someone who took out a loan expecting it to stay at the rate it was at… It’s extremely high.
- bobthepanda 4y agoVariable rate is less common than fixed rate in the US, which I would suspect is why US spending in particular is proving to be sticky.
- abduhl 4y agoAnd why would they expect that?
- deleted 4y ago[deleted]
- LeonB 4y agoBefore I answer that I’d be interested to know if you have ever met any people? And secondly, do you have any compassion? Because it seems like the answer to one or the other might be “no”, in which case you’re going to struggle to understand any answer I can provide.
- shapefrog 4y agoI can safely answer yes and yes and still laugh at someone for taking their life savings to the casino and putting it all on red. If it came up red they would be telling me they were a financial genius who had unlocked the secret to riches.
- ssss11 4y agoBut are the publicised rates correct - theyre based on a basket of goods, of which my understanding is, many standard items are not included. I think petrol might have been one? I’ve seen online estimates recently 3 or 4x what you’ve stated and it wouldn’t surprise me if those were correct but we’ll never know.
- teekert 4y agoFor reference, my mortgage from 13 years ago was 4.85%, the one I got 6 months ago was 4.25%, about 1.5 years ago we got 2%. When I was born in the early 80's, my parents were doing 12%. Of course, housing prices adapt so that banks always extract a nice, steady amount from the people. Even more nowadays, when there's more to extract because more women started working. More to the daycare, more to the banks, the American (and European now as well) dream of barely making it!
- mym1990 4y agoMaybe a hot take but I feel like high(er) interest rates for homes should be the standard. This allows for demand to be modulated, and puts up a barrier to rent seekers from flooding the market. The problem is that over the past 5-10 years a lot of property has already been snapped up by investors at minimal interest rates, so as long as rents stay somewhat stable, they investors will be raking in the returns. I guess at the end of the day the money still flows to a third party rather than the homeowner that is trying to stay in one place for long term.
- pbhjpbhj 4y agoHow does it put up a barrier to rent seekers, it makes homes less affordable, which impacts the poorer people more. The rich can but the homes. The poor still need somewhere to live and so tent the homes, they're paying more just they're helping wealth move to the bankers more as well as the property owners. Allowing ownership of houses as an investment is just wrong. (The usual response to this is that you need investors or housing won't be built. The idea no-one would pay for a house to be built is silly, but we also have not-for profit housing associations.)
- ianai 4y agoHigher rates mean lower property values - and lower property values mean the rent/mortgage trade off pushes rents lower. It’s instructive to look up how much those SFHs rent for and compare it to local apartment complexes. There’s a huge premium. (And it’s of note that dealing with renting a SFH is possibly a worse experience than renting from a complex. Large enough complexes have maintenance staff and professional management. Someone renting a SFH might well have just that unit to rent - amateur hour. Or they could be a corporation but because you’re just one unit in probably a more spread out population of properties the renter might well experience lowered services from the property management.) I do agree the investment activity we’ve seen in simply hoarding up SFH properties for investment is deeply problematic. There are all sorts of ways to push the market back towards owner occupiers. It’d also be nice if it was a standard thing for working people to be able to make it to public local government meetings. Those tend to be timed when working people are at work. That could help something’s, but there’s probably still be a lot of NIMBYism…