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This whole interest rate hike exercise and its obvious effects on various markets has really made the economy seem fake to me. How can one government committee

This whole interest rate hike exercise and its obvious effects on various markets has really made the economy seem fake to me. How can one government committee have so much arbitrary decision making power over how hundreds of millions conduct business in this country? It’s extremely demotivating.

phone8675309 4y ago
It's even more of a headscratcher when you realize that the Federal Reserve is not a government committee.
- dragonwriter 4y ago
  > It's even more of a headscratcher when you realize that the Federal Reserve is not a government committee. The Board of Governors of the Federal Reserve System is an executive branch agency whose Governors are appointed by the President and confirmed by the Senate, just like members of other executive branch boards, commissions, and committees... [0] The Federal Reserve System itself is a weird public/private hybrid thing, but the System doesn’t set monetary policy, the Board does. [0] hence, e.g., its inclusion here: https://www.loc.gov/rr/news/fedgov.html https://www.loc.gov/rr/news/fedgov.html
standyro 4y ago
Imagine if the US Congress or the President was in charge of these decisions. To me, anyway, it's more calming. Haha.
- MacsHeadroom 4y ago
  Imagine if the market was in charge of these decisions.
brianwawok 4y ago
How would you prefer to do it? Like China?
- sfe22 4y ago
  Why someone has to fix it for others. Can we let people decide for themselves?
  - koolba 4y ago
    No bank is obligated to use the Fed system. Unless you want to process a Fed wire or ACH. Or you want FDIC insurance. Or you want to offer banking services to consumers. Or you want access ti the Fed window for short term liquidity. But if you put those aside and somehow manage to get a bank charter, you could totally eschew the Fed. Now if you do play in their ballpark you have to play by their rules. And a big one there is the rate that you’ll get on short term deposits. And given the scale it implicitly sets the pace for interbank rates as they have to directly compete with the Fed.
    - pfannkuchen 3y ago
      “No one is forcing you to buy bread from the government run nickel bread company, you are free to start your own company and charge whatever you like. If others choose to buy the government’s bread for a nickel, well, hey, that’s just the free market for you.”
  - gameman144 4y ago
    This is the government's interest rate for lending to banks. What would people deciding for themselves look like in this case?
    - sfe22 4y ago
      I don’t think the (us) government is lending to the banks, it is already on close to trillion dollar deficit, if anything it is borrowing from banks. “People” in my comment includes groups of people too (eg companies, governments). Shouldn’t one be able to set the price of borrowing, why we must have one party deciding for everyone else.
      - 4y ago
mindslight 4y ago
The arbitrary centrally-planned foundation of the economy has been clear to those paying attention on the way down, as rates were repeatedly lowered further and further over decades for one political purpose or another. What has surprised me is that the Fed did end up having the will to raise rates a decent amount. So it seems the Fed actually has been following their technocratic mandate, just with horribly broken criteria based around consumer price inflation - horribly broken because the real price of manufactured goods should have been dropping significantly due to offshoring and technological progress, but the Fed's feedback loop created enough new money so they couldn't (hence the ever-growing asset bubble). As a libertarian student of Austrian economics, seeing this play out is actually warming me up to Modern Monetary Theory - at least it means the newly created money gets directed to deliberate purposes (like sorely needed infrastructure), rather than just handed to banks in a mostly undirected manner while feigning austerity for everyone else.
rightbyte 4y ago
All these rate hikes has made me understand how deeply manipulated the economy is. All these scary stories about the old left going to mess with the market ... It seems to me that the FED arbitrarily can manipulate the lowest return on money invested that is possible to get away with aswell as the highest rate you can expect to get on your money by some opaque banker only interest system. Like, how is printing money and givinging it to the poor any worse. Both are manipulation.
- dangerlibrary 4y ago
  > how is printing money and giving it to the poor any worse. You might be onto something. https://en.wikipedia.org/wiki/Helicopter_money https://en.wikipedia.org/wiki/Helicopter_money
  - rightbyte 4y ago
    My gut feeling is that it is a bad idea too. But the defenders of the system do not bat an eye when the Fed pours helicopter money over the rich. The hypocrisy is maddening. It is so dishonest.
    - gameman144 4y ago
      I can offer my perspective as someone who would probably be considered a "defender of the Fed" (definitely not government policy as a whole, though). Pouring helicopter money down is going to increase inflation, hands-down. Giving it to more people will increase inflation more than giving it to fewer people (since the competition for scarce goods will be more widely distributed), but it's just as bad giving helicopter money to the rich. Helicopter money is largely fiscal policy (i.e. how do we spend our money) instead of monetary policy (i.e. how much money should there be, and how should it flow). I'll not defend fiscal policy, as I find that Congress often just tries to buy votes with money (the right with tax-cuts, the left with loan-forgiveness or entitlements). In terms of monetary policy, though, the Fed's responsibilities are to make the employment market and inflation stay at good levels. Manipulating the interest rate of bank lending does do that (albeit not nearly as much as it could if coupled with good fiscal policy). Raising the interest rate does reduce inflation, since there are fewer free-floating dollars to compete for good. It also does make the job market less hot, since there are fewer free-floating dollars to invest in businesses or employees. There's some deep hypocrisy in fiscal policy, but I think the Fed is doing what the Fed can do to keep jobs and inflation in balance.
blitzar 4y ago
This whole interest rate cutting exercise and its obvious effects on various markets also really made the economy seem fake .... The period of 10 years where rates were 0%+/- with 2-3++% inflation was the fake economy 5% rates with 5% inflation is the real world.
- pfannkuchen 3y ago
  Yes agreed, I don’t mean to suggest that “high rates bad, high rates fake”. The manipulation makes the economy (seem?) fake either way. With the low rates though IIRC things didn’t happen quite so fast, so the causality wasn’t so blatantly observable.
- greyw 4y ago
  Can you please elaborate what you mean by "fake" economy?
  - qbasic_forever 4y ago
    The idea that you will always be able to borrow money at no cost is pure fantasy. Except many, many start-ups and companies built business plans that could only work when they had a constant supply of free loans. A scooter rental startup for example could offer service for less than their operation costs because there was always a spigot of money to borrow.
Workaccount2 4y ago
The fed has a dual mandate (Powell only repeats this 20-30 times during each press conference). Stable prices (2% inflation) and maximum employment. That dual mandate is what dictates policy. The recent string of rate hikes are not arbitrary, they are because of the surge in inflation flowing the extreme policies the fed took on the other end when unemployment was high during the pandemic. If anything the case to be made is that the fed went overboard with its QE during the pandemic, but even then its a bit of "hindsight is 20/20". I think everyone can agree that had this pandemic struck in 2000, even 2010 instead of 2020, the economic impact would have been dramatically greater than it was.

phone8675309 4y ago

It's even more of a headscratcher when you realize that the Federal Reserve is not a government committee.

dragonwriter 4y ago
> It's even more of a headscratcher when you realize that the Federal Reserve is not a government committee. The Board of Governors of the Federal Reserve System is an executive branch agency whose Governors are appointed by the President and confirmed by the Senate, just like members of other executive branch boards, commissions, and committees... [0] The Federal Reserve System itself is a weird public/private hybrid thing, but the System doesn’t set monetary policy, the Board does. [0] hence, e.g., its inclusion here: https://www.loc.gov/rr/news/fedgov.html https://www.loc.gov/rr/news/fedgov.html

standyro 4y ago

Imagine if the US Congress or the President was in charge of these decisions. To me, anyway, it's more calming. Haha.

MacsHeadroom 4y ago
Imagine if the market was in charge of these decisions.

brianwawok 4y ago

How would you prefer to do it? Like China?

sfe22 4y ago
Why someone has to fix it for others. Can we let people decide for themselves?
- koolba 4y ago
  No bank is obligated to use the Fed system. Unless you want to process a Fed wire or ACH. Or you want FDIC insurance. Or you want to offer banking services to consumers. Or you want access ti the Fed window for short term liquidity. But if you put those aside and somehow manage to get a bank charter, you could totally eschew the Fed. Now if you do play in their ballpark you have to play by their rules. And a big one there is the rate that you’ll get on short term deposits. And given the scale it implicitly sets the pace for interbank rates as they have to directly compete with the Fed.
  - pfannkuchen 3y ago
    “No one is forcing you to buy bread from the government run nickel bread company, you are free to start your own company and charge whatever you like. If others choose to buy the government’s bread for a nickel, well, hey, that’s just the free market for you.”
- gameman144 4y ago
  This is the government's interest rate for lending to banks. What would people deciding for themselves look like in this case?
  - sfe22 4y ago
    I don’t think the (us) government is lending to the banks, it is already on close to trillion dollar deficit, if anything it is borrowing from banks. “People” in my comment includes groups of people too (eg companies, governments). Shouldn’t one be able to set the price of borrowing, why we must have one party deciding for everyone else.
    - 4y ago

mindslight 4y ago

The arbitrary centrally-planned foundation of the economy has been clear to those paying attention on the way down, as rates were repeatedly lowered further and further over decades for one political purpose or another. What has surprised me is that the Fed did end up having the will to raise rates a decent amount. So it seems the Fed actually has been following their technocratic mandate, just with horribly broken criteria based around consumer price inflation - horribly broken because the real price of manufactured goods should have been dropping significantly due to offshoring and technological progress, but the Fed's feedback loop created enough new money so they couldn't (hence the ever-growing asset bubble). As a libertarian student of Austrian economics, seeing this play out is actually warming me up to Modern Monetary Theory - at least it means the newly created money gets directed to deliberate purposes (like sorely needed infrastructure), rather than just handed to banks in a mostly undirected manner while feigning austerity for everyone else.

rightbyte 4y ago

All these rate hikes has made me understand how deeply manipulated the economy is. All these scary stories about the old left going to mess with the market ... It seems to me that the FED arbitrarily can manipulate the lowest return on money invested that is possible to get away with aswell as the highest rate you can expect to get on your money by some opaque banker only interest system. Like, how is printing money and givinging it to the poor any worse. Both are manipulation.

dangerlibrary 4y ago
> how is printing money and giving it to the poor any worse. You might be onto something. https://en.wikipedia.org/wiki/Helicopter_money https://en.wikipedia.org/wiki/Helicopter_money
- rightbyte 4y ago
  My gut feeling is that it is a bad idea too. But the defenders of the system do not bat an eye when the Fed pours helicopter money over the rich. The hypocrisy is maddening. It is so dishonest.
  - gameman144 4y ago
    I can offer my perspective as someone who would probably be considered a "defender of the Fed" (definitely not government policy as a whole, though). Pouring helicopter money down is going to increase inflation, hands-down. Giving it to more people will increase inflation more than giving it to fewer people (since the competition for scarce goods will be more widely distributed), but it's just as bad giving helicopter money to the rich. Helicopter money is largely fiscal policy (i.e. how do we spend our money) instead of monetary policy (i.e. how much money should there be, and how should it flow). I'll not defend fiscal policy, as I find that Congress often just tries to buy votes with money (the right with tax-cuts, the left with loan-forgiveness or entitlements). In terms of monetary policy, though, the Fed's responsibilities are to make the employment market and inflation stay at good levels. Manipulating the interest rate of bank lending does do that (albeit not nearly as much as it could if coupled with good fiscal policy). Raising the interest rate does reduce inflation, since there are fewer free-floating dollars to compete for good. It also does make the job market less hot, since there are fewer free-floating dollars to invest in businesses or employees. There's some deep hypocrisy in fiscal policy, but I think the Fed is doing what the Fed can do to keep jobs and inflation in balance.

blitzar 4y ago

This whole interest rate cutting exercise and its obvious effects on various markets also really made the economy seem fake .... The period of 10 years where rates were 0%+/- with 2-3++% inflation was the fake economy 5% rates with 5% inflation is the real world.

pfannkuchen 3y ago
Yes agreed, I don’t mean to suggest that “high rates bad, high rates fake”. The manipulation makes the economy (seem?) fake either way. With the low rates though IIRC things didn’t happen quite so fast, so the causality wasn’t so blatantly observable.
greyw 4y ago
Can you please elaborate what you mean by "fake" economy?
- qbasic_forever 4y ago
  The idea that you will always be able to borrow money at no cost is pure fantasy. Except many, many start-ups and companies built business plans that could only work when they had a constant supply of free loans. A scooter rental startup for example could offer service for less than their operation costs because there was always a spigot of money to borrow.

Workaccount2 4y ago

The fed has a dual mandate (Powell only repeats this 20-30 times during each press conference). Stable prices (2% inflation) and maximum employment. That dual mandate is what dictates policy. The recent string of rate hikes are not arbitrary, they are because of the surge in inflation flowing the extreme policies the fed took on the other end when unemployment was high during the pandemic. If anything the case to be made is that the fed went overboard with its QE during the pandemic, but even then its a bit of "hindsight is 20/20". I think everyone can agree that had this pandemic struck in 2000, even 2010 instead of 2020, the economic impact would have been dramatically greater than it was.