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They need to cut at least 100bps. This is the only way to bring all those mortgage and treasury bonds back a bit and not be so under water. This may or may not

They need to cut at least 100bps. This is the only way to bring all those mortgage and treasury bonds back a bit and not be so under water. This may or may not restart inflation but it’s the only option that will be effective. The Fed has been cargo-culting Volkner in the 80’s without considering this is a different beast. They needed to raise rates but they needed to do it far more deliberately and cautiously. And of course should have started sooner. We need to accept multiple years of 6-10% (possibly more) inflation or collapse everything and create carnage no one wants to live in.

benjaminwootton 4y ago
This round of rate rises seem so political. They know they were slow out of the gate so now seem to want to compensate, appear strong and even actively cause some damage to prove their commitment. And all of this with the context that most of the inflation is supply side so interest rate rises are anaemic anyway. I don’t see a pivot unfortunately even though it seems they are playing with fire here.
JumpCrisscross 4y ago
> need to cut at least 100bps They need to hold pattern for a few months, then continue raising. The bank crisis is showing no signs of prompting deflation.
- nemo44x 4y ago
  Deflation? Are you even understanding what’s going on right now? With 200+ banks insolvent basically? Hyper inflation is the risk right now. That it total anarchy as we see 40% unemployment. Pick your poison.
  - JumpCrisscross 4y ago
    > inflation is the risk right now When deposits are destroyed, that causes deflation. Deposits aren’t being destroyed. But wealth, in the form of banks’ non-deposit liabilities, is. The Fed would welcome such deflation (though not its cause). But that doesn’t seem to be likely. That said, nothing which is happening right now is inflationary other than, potentially, the Fed pausing its rate increases.
    - postingawayonhn 4y ago
      I'd argue deposits are being destroyed as banks no longer have the assets to make depositors whole. Of course central banks seem to be adopting the position that no depositors will lose any money and everyone will be bailed out.
      - JumpCrisscross 4y ago
        > central banks seem to be adopting the position that no depositors will lose any money and everyone will be bailed out Not the Fed per se. And that’s the point. Quantity of deposits in the system is preserved. Wealth down. Fed support of banks up. How this balances is uncertain, but nothing is unilaterally inflationary.
postingawayonhn 4y ago
I don't know why this is getting downvoted. I have been arguing for years that they'd never get rates back to where they were pre-GFC as so much debt has been taken on at low rates. Increasing rates to pre-GFC levels will have a massive impact on the ability of borrowers to service debt and push down asset prices. Now that they're trying to put rates back to pre-GFC levels we can see that playing out. If they choose to continue of this path it will lead to a significant recession.
- nemo44x 4y ago
  Thanks for the support. I think in general people are tired of doom and gloom predictions and analysis. Downvoting, even if you know it to be possibly right, feels good. I’m not trying to doom and gloom though. I’m just saying the Fed did not consider the time aspect of all the bonds/etc and have haphazardly raised rates too fast. If they slow it down it’s not such an issue since bonds respect time. It has been too much too fast. Erratic. Especially since just over a year ago they guided totally differently. So they need to cut. We need to deal with reasonable inflation for at least 4 more years and then we can aggressively hike rates if need be as the mountain of low interest bonds will be turning the corner.

benjaminwootton 4y ago

This round of rate rises seem so political. They know they were slow out of the gate so now seem to want to compensate, appear strong and even actively cause some damage to prove their commitment. And all of this with the context that most of the inflation is supply side so interest rate rises are anaemic anyway. I don’t see a pivot unfortunately even though it seems they are playing with fire here.

JumpCrisscross 4y ago

> need to cut at least 100bps They need to hold pattern for a few months, then continue raising. The bank crisis is showing no signs of prompting deflation.

nemo44x 4y ago
Deflation? Are you even understanding what’s going on right now? With 200+ banks insolvent basically? Hyper inflation is the risk right now. That it total anarchy as we see 40% unemployment. Pick your poison.
- JumpCrisscross 4y ago
  > inflation is the risk right now When deposits are destroyed, that causes deflation. Deposits aren’t being destroyed. But wealth, in the form of banks’ non-deposit liabilities, is. The Fed would welcome such deflation (though not its cause). But that doesn’t seem to be likely. That said, nothing which is happening right now is inflationary other than, potentially, the Fed pausing its rate increases.
  - postingawayonhn 4y ago
    I'd argue deposits are being destroyed as banks no longer have the assets to make depositors whole. Of course central banks seem to be adopting the position that no depositors will lose any money and everyone will be bailed out.
    - JumpCrisscross 4y ago
      > central banks seem to be adopting the position that no depositors will lose any money and everyone will be bailed out Not the Fed per se. And that’s the point. Quantity of deposits in the system is preserved. Wealth down. Fed support of banks up. How this balances is uncertain, but nothing is unilaterally inflationary.

postingawayonhn 4y ago

I don't know why this is getting downvoted. I have been arguing for years that they'd never get rates back to where they were pre-GFC as so much debt has been taken on at low rates. Increasing rates to pre-GFC levels will have a massive impact on the ability of borrowers to service debt and push down asset prices. Now that they're trying to put rates back to pre-GFC levels we can see that playing out. If they choose to continue of this path it will lead to a significant recession.

nemo44x 4y ago
Thanks for the support. I think in general people are tired of doom and gloom predictions and analysis. Downvoting, even if you know it to be possibly right, feels good. I’m not trying to doom and gloom though. I’m just saying the Fed did not consider the time aspect of all the bonds/etc and have haphazardly raised rates too fast. If they slow it down it’s not such an issue since bonds respect time. It has been too much too fast. Erratic. Especially since just over a year ago they guided totally differently. So they need to cut. We need to deal with reasonable inflation for at least 4 more years and then we can aggressively hike rates if need be as the mountain of low interest bonds will be turning the corner.