6 ms·

Well, this is good news. Rate rises might slow, but I wouldn't expect them to come down all that quickly based on our last fight with inflation in the 1980s.

Well, this is good news. Rate rises might slow, but I wouldn't expect them to come down all that quickly based on our last fight with inflation in the 1980s. The era of zero interest rates are probably over for good. That's probably a good thing, but VCs won't be playing nearly as fast and loose with funding as they were over the past decade.

Workaccount2 3y ago
>That's probably a good thing If you own a home already...
- KptMarchewa 3y ago
  If you don't, then the prices won't be pushed as fast as they would outside of that. Low rates==home price rise.
  - lolinder 3y ago
    Can confirm. We bought during the minimum rates, and the competition for housing was absolutely insane.
  - Workaccount2 3y ago
    Except that in areas where people actually live, higher rates haven't done much to lower those "low rate" prices. There is an insane supply problem and the fed's hand in the mortgage market doesn't make anything better. It's sensible for mortgages to all be ARMs, then rates will actually have a very real and unavoidable impact on home values. We are now going to be stuck with this before covid and after covid homeowner situation. People who bought prior to 2022, and especially prior to 2020 will be death gripping their 2% mortgage, to the point that you could basically write off that parcel of land as even existing for the next 20-25 years.
    - zpeti 3y ago
      That takes years to play out. Also, except for Miami every major city has had price decreases, so your personal anecdote is not what the stats show. And in fact, at 10% inflation, if prices don’t rise, that means they are getting 10% cheaper in real terms. So in fact prices definitely are falling, no city has had a 10% price rise in the last 12-18 months.
      - Workaccount2 3y ago
        "Haven't done much" refers to reversing the price increases seen during low rates. Prices ran 20-30% in major markets and now getting pull backs of a few percent, mostly on the back of totally choked supply. Raise rates all you want, if there aren't houses being put on the market, it's not going to do shit.
        zpeti 3y ago
        There are plenty of houses being put on the market, just not in super trendy blue metropolitan areas.
        nebula8804 3y ago
        by living in the hood or in MAGA country you are paying the same price, its just taken out of your wealth in different ways. The market is pricing things appropriately.
        zpeti 3y ago
        Spoken like a true liberal elite.
        nebula8804 3y ago
        There is something that is scaring people away from living in those areas. the market does not care about your political views. You can deny reality all you want.
  - andy_ppp 3y ago
    You can expect house prices to continue to rise given the money printing and where it ended up during COVID. A lot of rich people need somewhere to put their increases in wealth post COVID, my guess is a boom for about 2-3 years before big problems and they might not need the size of mortgage to get a decent return that the interest rate matters all that much.
  - bluefishinit 3y ago
    You can get much less house for the same monthly mortgage payment now then you could before rates went up. The small decline in home prices doesn't offset the much higher monthly payment you have to pay now. People are constrained by how much they can afford to pay every month, not the overall amount they have to borrow.
- wing-_-nuts 3y ago
  Or you're a cash buyer (I'm not in the Bay Area, obviously)
femiagbabiaka 3y ago
What are you using to draw this conclusion?
- JumpCrisscross 3y ago
  The yield curve would be one [1]. Markets have materially increased their long-term rate expectations in the last month and year. [1] https://www.bloomberg.com/markets/rates-bonds/government-bonds/us https://www.bloomberg.com/markets/rates-bonds/government-bon...
  - femiagbabiaka 3y ago
    It seems like a flawed argument -- the yield curve didn't predict rate increases either.
    - JumpCrisscross 3y ago
      > the yield curve didn't predict rate increases either Neither did, by its own admission, the Fed.
      - femiagbabiaka 3y ago
        Agreed. Seems like the only certainty is uncertainty in that case?
        nmhancoc 3y ago
        Every prediction has error bars, some error bars are smaller than others. I wouldn’t be so quick to throw my hands up. For example, the yield curve inversion has had quite good predictive ability so far, and it’s predicting a recession. If you buy the fed’s data driven approach, that means its predicting rate decreases. In that case the long term bond market’s prediction is supported more strongly than the fed’s prediction.
        3y ago
zeroonetwothree 3y ago
Predicting interest rates accurately in the long run is impossible, you have no basis for these statements.
- wing-_-nuts 3y ago
  As someone who's studied economics, predicting interest rates in the long run is fairly straight forward. It's the short term movements that are impossible. I base my statements on historical fed moves in a similar environment, but I'm not paul volcker
  - deleted 3y ago
    [deleted]
  - hotpotamus 3y ago
    I've also studied finance and economics, like in university and everything, though not to any great extent. I came away from the experience thinking that it might have a bit more predictive power than reading chicken entrails. What long term predictions from the past accurately tell you today's rates? That is do you have any back testing?
- reaperman 3y ago
  Long term (>9 months), yes. Medium term (3-6 months) predictions of medium precision is entirely reasonable given the size of the economy (like steering/stopping a container ship) as long as your cite your assumption that no black swan event will occur.
- throw0101c 3y ago
  > Predicting interest rates accurately in the long run is impossible, you have no basis for these statements. Define "long run". Because over a few centuries the trend has been down: * https://www.bankofengland.co.uk/working-paper/2020/eight-centuries-of-global-real-interest-rates-r-g-and-the-suprasecular-decline-1311-2018 https://www.bankofengland.co.uk/working-paper/2020/eight-cen... * https://www.visualcapitalist.com/700-year-decline-of-interest-rates/ https://www.visualcapitalist.com/700-year-decline-of-interes...
rubyn00bie 3y ago
Powell has said the Fed plans to hold rates. We’ll likely see one last increase this month, before a flat-lining and then an eventual cut. I wouldn’t expect the cut(s) to be substantial unless demand falls off a cliff. Powell goes with what the market is pricing in, if you want to know what that is look at “fed funds rate” odds: https://m.investing.com/central-banks/fed-rate-monitor https://m.investing.com/central-banks/fed-rate-monitor I’ve been using that tool for over a year now and it absolutely will show what Powell will do. The odds will change as information enters the market but in general it’s spot on.
- lotsofpulp 3y ago
  This is the source for that: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html https://www.cmegroup.com/markets/interest-rates/cme-fedwatch... > I’ve been using that tool for over a year now and it absolutely will show what Powell will do. >The odds will change as information enters the market but in general it’s spot on. Sounds more like “it absolutely will show what Powell might do”. Also, Powell does not do it single handedly, there are 12 members on the Federal Open Market Committee that vote on setting the interest rate policy.
  - rubyn00bie 3y ago
    I know there are other members of the committee it’s just a colloquialism I suppose. And yeah, I thought about saying it “will absolutely show” but my inner economist said “it depends” because there could be a surprise (even though it’d be absolute madness).
onlyrealcuzzo 3y ago
If the market thought interest rates were never going back down, then the 30-year rate would be higher than the 1-year rate. The bond market isn't always right, but it's usually closer to the truth than some random speculator on the Internet (wisdom of the crowd, and all). A simple bit of reasoning with the Federal government being in debt $33T - means that if rates were to forever stay this high - their interest burden would be AT LEAST $1.75T per year. Current Federal tax receipts (minus payroll taxes) is $1.93T. Either Federal Tax rates are going to ~75%, the government stops doing anything beside servicing debt, we default on our debt, or short-term Interest Rates eventually go back to ~0%. Gee, I wonder which one people will vote for.
- jmoak3 3y ago
  Or we let inflation eat away the debt, turkey style. But for real I agree in general - where is the money going to come from? The interest on the debt and the federal receipts don’t work! I see the ratio (linked below) hitting 0.5 this decade. What’s crazier is that % of GDP taxed according to the FRED is at historically normal levels dating back to 1950 - we’re not even at a point of low taxation relative to output. FRED data ------------- Debt to GDP: https://fred.stlouisfed.org/series/GFDEGDQ188S https://fred.stlouisfed.org/series/GFDEGDQ188S % GDP Taxed by Federal Gov: https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S Interest Payments / Federal Receipts: https://fred.stlouisfed.org/graph/?g=sOG https://fred.stlouisfed.org/graph/?g=sOG
  - onlyrealcuzzo 3y ago
    Except Turkey keeps adding to their debt, so it's not getting eaten away...
    - jmoak3 3y ago
      Also true. Most of our largest expenses - Medicare, Social Sec, Medicaid, Mil - are a mix of soft/hard pegging to inflation I believe.
  - khuey 3y ago
MuffinFlavored 3y ago
> Rate rises might slow Why is it good for rates to come down: financing mortgages/cars/etc. comes down Why is it bad for rates to come down: money market accounts/etc. won't yield ~4.75% for doing nothing Anything I am missing? Do they weigh each other out perfectly? Is one a bigger deal/better/worse than the other?
- nmhancoc 3y ago
  > Why is it good for rates to come down: financing mortgages/cars/etc. comes down Not necessarily, it depends on the principal cost as well. If principal costs increase in tandem with rate declines, the financed cost doesn’t necessarily change. You’re missing the inputs into rates rather than the outputs from rates. Rates mathematically represent the value of a dollar available today versus a dollar available in N years. If we were to find capital intensive, large scale, low assessed risk, economically productive ventures tomorrow, we would expect rates to rise ceteris paribus as the dollars necessary for those ventures would compete with bonds for investment dollars today. For example wide spread nuclear fusion, or some kind of rail infrastructure, etc. In that sense secular declines in rates represent a society that has decided it has reached diminishing returns on capital, at least on a risk adjusted basis. Similarly rates embed a consideration for default risk, or in the case of a bond denominated by the issuer currency risk. In this sense rates going up is bad. There’s also the sheer debt and deficits governments run. Higher rates imply higher costs for both. Which situation you want probably starts to encroach on your political leanings, subject to a few parameters.
lamontcg 3y ago
> The era of zero interest rates are probably over for good. The ZIRP policies held for ~12 years probably created a lot of malinvestment due to kicking-the-can-down-the-road financing which will need to get cleared out in the next recession, when that recession hits, the Fed will slash rates again. Nothing really fundamental has changed in the way the Fed operates, and it still has its 2% inflation target. They just increased rates at what was a pretty breakneck pace and are talking foldly of Volker. This isn't the post-WWII Fed that let inflation get up to 10% in the 70s. Most of the effects of inflation and rates were due to shocks caused by the pandemic, which are over now. I don't see why people think that inflation or rates have fundamentally changed.

Workaccount2 3y ago

>That's probably a good thing If you own a home already...

KptMarchewa 3y ago
If you don't, then the prices won't be pushed as fast as they would outside of that. Low rates==home price rise.
- lolinder 3y ago
  Can confirm. We bought during the minimum rates, and the competition for housing was absolutely insane.
- Workaccount2 3y ago
  Except that in areas where people actually live, higher rates haven't done much to lower those "low rate" prices. There is an insane supply problem and the fed's hand in the mortgage market doesn't make anything better. It's sensible for mortgages to all be ARMs, then rates will actually have a very real and unavoidable impact on home values. We are now going to be stuck with this before covid and after covid homeowner situation. People who bought prior to 2022, and especially prior to 2020 will be death gripping their 2% mortgage, to the point that you could basically write off that parcel of land as even existing for the next 20-25 years.
  - zpeti 3y ago
    That takes years to play out. Also, except for Miami every major city has had price decreases, so your personal anecdote is not what the stats show. And in fact, at 10% inflation, if prices don’t rise, that means they are getting 10% cheaper in real terms. So in fact prices definitely are falling, no city has had a 10% price rise in the last 12-18 months.
    - Workaccount2 3y ago
      "Haven't done much" refers to reversing the price increases seen during low rates. Prices ran 20-30% in major markets and now getting pull backs of a few percent, mostly on the back of totally choked supply. Raise rates all you want, if there aren't houses being put on the market, it's not going to do shit.
      - zpeti 3y ago
        There are plenty of houses being put on the market, just not in super trendy blue metropolitan areas.
        nebula8804 3y ago
        by living in the hood or in MAGA country you are paying the same price, its just taken out of your wealth in different ways. The market is pricing things appropriately.
        zpeti 3y ago
        Spoken like a true liberal elite.
        nebula8804 3y ago
        There is something that is scaring people away from living in those areas. the market does not care about your political views. You can deny reality all you want.
- andy_ppp 3y ago
  You can expect house prices to continue to rise given the money printing and where it ended up during COVID. A lot of rich people need somewhere to put their increases in wealth post COVID, my guess is a boom for about 2-3 years before big problems and they might not need the size of mortgage to get a decent return that the interest rate matters all that much.
- bluefishinit 3y ago
  You can get much less house for the same monthly mortgage payment now then you could before rates went up. The small decline in home prices doesn't offset the much higher monthly payment you have to pay now. People are constrained by how much they can afford to pay every month, not the overall amount they have to borrow.
wing-_-nuts 3y ago
Or you're a cash buyer (I'm not in the Bay Area, obviously)

femiagbabiaka 3y ago

What are you using to draw this conclusion?

JumpCrisscross 3y ago
The yield curve would be one [1]. Markets have materially increased their long-term rate expectations in the last month and year. [1] https://www.bloomberg.com/markets/rates-bonds/government-bonds/us https://www.bloomberg.com/markets/rates-bonds/government-bon...
- femiagbabiaka 3y ago
  It seems like a flawed argument -- the yield curve didn't predict rate increases either.
  - JumpCrisscross 3y ago
    > the yield curve didn't predict rate increases either Neither did, by its own admission, the Fed.
    - femiagbabiaka 3y ago
      Agreed. Seems like the only certainty is uncertainty in that case?
      - nmhancoc 3y ago
        Every prediction has error bars, some error bars are smaller than others. I wouldn’t be so quick to throw my hands up. For example, the yield curve inversion has had quite good predictive ability so far, and it’s predicting a recession. If you buy the fed’s data driven approach, that means its predicting rate decreases. In that case the long term bond market’s prediction is supported more strongly than the fed’s prediction.
        3y ago

zeroonetwothree 3y ago

Predicting interest rates accurately in the long run is impossible, you have no basis for these statements.

wing-_-nuts 3y ago
As someone who's studied economics, predicting interest rates in the long run is fairly straight forward. It's the short term movements that are impossible. I base my statements on historical fed moves in a similar environment, but I'm not paul volcker
- deleted 3y ago
  [deleted]
- hotpotamus 3y ago
  I've also studied finance and economics, like in university and everything, though not to any great extent. I came away from the experience thinking that it might have a bit more predictive power than reading chicken entrails. What long term predictions from the past accurately tell you today's rates? That is do you have any back testing?
reaperman 3y ago
Long term (>9 months), yes. Medium term (3-6 months) predictions of medium precision is entirely reasonable given the size of the economy (like steering/stopping a container ship) as long as your cite your assumption that no black swan event will occur.
throw0101c 3y ago
> Predicting interest rates accurately in the long run is impossible, you have no basis for these statements. Define "long run". Because over a few centuries the trend has been down: * https://www.bankofengland.co.uk/working-paper/2020/eight-centuries-of-global-real-interest-rates-r-g-and-the-suprasecular-decline-1311-2018 https://www.bankofengland.co.uk/working-paper/2020/eight-cen... * https://www.visualcapitalist.com/700-year-decline-of-interest-rates/ https://www.visualcapitalist.com/700-year-decline-of-interes...

rubyn00bie 3y ago

Powell has said the Fed plans to hold rates. We’ll likely see one last increase this month, before a flat-lining and then an eventual cut. I wouldn’t expect the cut(s) to be substantial unless demand falls off a cliff. Powell goes with what the market is pricing in, if you want to know what that is look at “fed funds rate” odds: https://m.investing.com/central-banks/fed-rate-monitor https://m.investing.com/central-banks/fed-rate-monitor I’ve been using that tool for over a year now and it absolutely will show what Powell will do. The odds will change as information enters the market but in general it’s spot on.

lotsofpulp 3y ago
This is the source for that: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html https://www.cmegroup.com/markets/interest-rates/cme-fedwatch... > I’ve been using that tool for over a year now and it absolutely will show what Powell will do. >The odds will change as information enters the market but in general it’s spot on. Sounds more like “it absolutely will show what Powell might do”. Also, Powell does not do it single handedly, there are 12 members on the Federal Open Market Committee that vote on setting the interest rate policy.
- rubyn00bie 3y ago
  I know there are other members of the committee it’s just a colloquialism I suppose. And yeah, I thought about saying it “will absolutely show” but my inner economist said “it depends” because there could be a surprise (even though it’d be absolute madness).

onlyrealcuzzo 3y ago

If the market thought interest rates were never going back down, then the 30-year rate would be higher than the 1-year rate. The bond market isn't always right, but it's usually closer to the truth than some random speculator on the Internet (wisdom of the crowd, and all). A simple bit of reasoning with the Federal government being in debt $33T - means that if rates were to forever stay this high - their interest burden would be AT LEAST $1.75T per year. Current Federal tax receipts (minus payroll taxes) is $1.93T. Either Federal Tax rates are going to ~75%, the government stops doing anything beside servicing debt, we default on our debt, or short-term Interest Rates eventually go back to ~0%. Gee, I wonder which one people will vote for.

jmoak3 3y ago
Or we let inflation eat away the debt, turkey style. But for real I agree in general - where is the money going to come from? The interest on the debt and the federal receipts don’t work! I see the ratio (linked below) hitting 0.5 this decade. What’s crazier is that % of GDP taxed according to the FRED is at historically normal levels dating back to 1950 - we’re not even at a point of low taxation relative to output. FRED data ------------- Debt to GDP: https://fred.stlouisfed.org/series/GFDEGDQ188S https://fred.stlouisfed.org/series/GFDEGDQ188S % GDP Taxed by Federal Gov: https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S Interest Payments / Federal Receipts: https://fred.stlouisfed.org/graph/?g=sOG https://fred.stlouisfed.org/graph/?g=sOG
- onlyrealcuzzo 3y ago
  Except Turkey keeps adding to their debt, so it's not getting eaten away...
  - jmoak3 3y ago
    Also true. Most of our largest expenses - Medicare, Social Sec, Medicaid, Mil - are a mix of soft/hard pegging to inflation I believe.
- khuey 3y ago

MuffinFlavored 3y ago

> Rate rises might slow Why is it good for rates to come down: financing mortgages/cars/etc. comes down Why is it bad for rates to come down: money market accounts/etc. won't yield ~4.75% for doing nothing Anything I am missing? Do they weigh each other out perfectly? Is one a bigger deal/better/worse than the other?

nmhancoc 3y ago
> Why is it good for rates to come down: financing mortgages/cars/etc. comes down Not necessarily, it depends on the principal cost as well. If principal costs increase in tandem with rate declines, the financed cost doesn’t necessarily change. You’re missing the inputs into rates rather than the outputs from rates. Rates mathematically represent the value of a dollar available today versus a dollar available in N years. If we were to find capital intensive, large scale, low assessed risk, economically productive ventures tomorrow, we would expect rates to rise ceteris paribus as the dollars necessary for those ventures would compete with bonds for investment dollars today. For example wide spread nuclear fusion, or some kind of rail infrastructure, etc. In that sense secular declines in rates represent a society that has decided it has reached diminishing returns on capital, at least on a risk adjusted basis. Similarly rates embed a consideration for default risk, or in the case of a bond denominated by the issuer currency risk. In this sense rates going up is bad. There’s also the sheer debt and deficits governments run. Higher rates imply higher costs for both. Which situation you want probably starts to encroach on your political leanings, subject to a few parameters.

lamontcg 3y ago

> The era of zero interest rates are probably over for good. The ZIRP policies held for ~12 years probably created a lot of malinvestment due to kicking-the-can-down-the-road financing which will need to get cleared out in the next recession, when that recession hits, the Fed will slash rates again. Nothing really fundamental has changed in the way the Fed operates, and it still has its 2% inflation target. They just increased rates at what was a pretty breakneck pace and are talking foldly of Volker. This isn't the post-WWII Fed that let inflation get up to 10% in the 70s. Most of the effects of inflation and rates were due to shocks caused by the pandemic, which are over now. I don't see why people think that inflation or rates have fundamentally changed.