6 ms·

Fed raises interest rates, leaves door open to another increase

28 points by sgerenser 3y ago

RetpolineDrama 3y ago
Ouch, this is going to get a lot worse isn't it?
- toomuchtodo 3y ago
  Nah, labor market is robust and these efforts are still draining money out of the economy (although asset prices aren't deflating like one would hope). I guess the question is, "worse for whom?" Commercial real estate and regional banks still in trouble for sure, as are zombie firms who are going to hit a debt maturity wall when debt comes due and they attempt to refi that debt at current rates.
guluarte 3y ago
Inflation is temporary*
- kqr2 3y ago
  Transitory was the term they initially used.
  - somewhat_drunk 3y ago
    And it was both of those things, just a bit more than anticipated. Economies are complex and difficult. Who knew?
- neilwilson 3y ago
  As it appears to be in Japan - which retained low interest rates. According to mainstream theory theirs should be accelerating to the stratosphere and it isn't. Almost like interest rates are a distributional variable, not a control variable...
  - imtringued 3y ago
    Interest always allocates money to those who don't have money (borrowers) those those that do (lenders). High interest encourages people to stop borrowing which means the rate of repayment will exceed the rate of new borrowing, which results in a decrease of the money supply. I won't deny this but you can only do this until some regions or sectors of the economy have run out of money. Then a crisis sets in and the government will do the opposite. This is why the money supply tends to go up. It is because economists haven't figured out how to do internal distribution properly, which is kind of a big deal because the wrong internal distribution can mean that all your macroeconomic theory becomes meaningless. So the go to answer is 'infinite economic growth' because that is how you can remain clueless and yet pretend that everyone benefits from even the most unfair distribution. The amount of times economists say that "X is an internal redistribution so it is not relevant on the macro scale" is irritating.
autoexec 3y ago
Higher interest rates won't stop greed. It'll hurt families who need to buy a new car or need to sell their home though. If they refuse to address to cause of recent inflation they might as well keep jacking up interest rates. Maybe a few years of recession will do enough real harm to companies who just want to price gouge and squeeze their customers for every penny that they'll get the message, but there will also be a lot of unnecessary harm to people whose behavior has nothing to do with the rising prices we've seen.
- dragonwriter 3y ago
  > If they refuse to address to cause of recent inflation If the causes aren’t “too loose monetary policy”, the Fed can’t address them. The Fed has a specific mandate and a narrow set of tools to pursue it. You need Congress for broader policy.
  - autoexec 3y ago
    That's fair. If the only thing in the Fed's toolbox is a hammer, I can't really blame them for whacking away at screws and bolts. It's going to leave a mess though.
- foldingmoney 3y ago
  >Higher interest rates won't stop greed. we've just come off ~15 years of stubbornly low inflation. if the cause is greed, did companies only just become greedy in the last two years? >It'll hurt families who need to buy a new car or need to sell their home though. but it'll also stop punishing families who have savings. can't please everyone.
  - autoexec 3y ago
    > did companies only just become greedy in the last two years? No, but their greed was kept somewhat in check by consumers who'd rightly feel ripped off if they saw a company suddenly jacked up their prices. Before the pandemic companies generally didn't collude to all raise their prices at the exact same time. When the pandemic first hit, companies lost a lot of money which they wanted to claw back somehow. There were some legit supply chain issues, but companies who were not affected by them said "We know our prices are sky high, but supply chain issues! We're all in this together!" and consumers bought the lie. Long after the supply chain issues improved companies still used them as an excuse. I don't blame consumers here. Things were going on that were totally unprecedented and giving companies some slack seemed perfectly reasonable given that surely we were all suffering. Then as inflation started to soar it was all the news talked about and companies again said "We know you're going into debt to buy groceries, but it's not our fault! It's this damn inflation! We're all in this together!" and fewer consumers were believing their bullshit since by then the news was already talking about how those same companies were pulling in record profits and making money hand over fist, but since every company was doing it, consumers had little choice but to pay up or go without (which isn't always an option). Companies have also tricked a lot of people with the narrative that the pathetic amount of disaster relief people got during the pandemic is to blame for inflation. I'm surprised how many people I see who are convinced that the $1000 checks people got to help pay off the record amounts of debt families went into to keep rent paid and food on the table is the real problem. This helped to deflect attention away from the fact that companies have been price gouging. Lately they've been trying to use that same trick for everything. Some companies had to increase egg prices because of bird flu. The news reports it's the worst outbreak in almost a decade! Consumers are primed to expect egg prices to rise. The largest egg supplier in the country wasn't impacted by bird flu in any way, but they still raised their prices because they had an excuse and made over 700% more in profits. Cal-Maine Foods made a killing by ripping off the public who were already struggling and being taken advantage of. They got away with it entirely. So companies were always greedy, but they didn't always have convenient excuses to point at to deflect the public's anger. Now they know they can lie to the public and collude to raise prices openly without fear of any repercussions. The scapegoating scheme actually started a little bit before the pandemic with rising gas prices (notice how many companies increased their prices and told the public it was all because of gas prices but didn't lower their prices after the price of gas dropped?). They made money on that, and the pandemic was just the next major excuse. I suspect it's going to continue with companies looking for any and every excuse to jack up prices at insane rates.
somewhat_drunk 3y ago
The FED needs to stop and wait.
- jfengel 3y ago
  The Fed meets eight times a year. It's not as if they're reacting to the daily news. The haven't raised rates since May. They've been raising rates as gradually as they felt they could. Two years ago, the rate was basically zero. That was very bad for the economy -- arguably, they waited much too long to start acting.

28 points by sgerenser 3y ago

RetpolineDrama 3y ago

Ouch, this is going to get a lot worse isn't it?

toomuchtodo 3y ago
Nah, labor market is robust and these efforts are still draining money out of the economy (although asset prices aren't deflating like one would hope). I guess the question is, "worse for whom?" Commercial real estate and regional banks still in trouble for sure, as are zombie firms who are going to hit a debt maturity wall when debt comes due and they attempt to refi that debt at current rates.

guluarte 3y ago

Inflation is temporary*

kqr2 3y ago
Transitory was the term they initially used.
- somewhat_drunk 3y ago
  And it was both of those things, just a bit more than anticipated. Economies are complex and difficult. Who knew?
neilwilson 3y ago
As it appears to be in Japan - which retained low interest rates. According to mainstream theory theirs should be accelerating to the stratosphere and it isn't. Almost like interest rates are a distributional variable, not a control variable...
- imtringued 3y ago
  Interest always allocates money to those who don't have money (borrowers) those those that do (lenders). High interest encourages people to stop borrowing which means the rate of repayment will exceed the rate of new borrowing, which results in a decrease of the money supply. I won't deny this but you can only do this until some regions or sectors of the economy have run out of money. Then a crisis sets in and the government will do the opposite. This is why the money supply tends to go up. It is because economists haven't figured out how to do internal distribution properly, which is kind of a big deal because the wrong internal distribution can mean that all your macroeconomic theory becomes meaningless. So the go to answer is 'infinite economic growth' because that is how you can remain clueless and yet pretend that everyone benefits from even the most unfair distribution. The amount of times economists say that "X is an internal redistribution so it is not relevant on the macro scale" is irritating.

autoexec 3y ago

Higher interest rates won't stop greed. It'll hurt families who need to buy a new car or need to sell their home though. If they refuse to address to cause of recent inflation they might as well keep jacking up interest rates. Maybe a few years of recession will do enough real harm to companies who just want to price gouge and squeeze their customers for every penny that they'll get the message, but there will also be a lot of unnecessary harm to people whose behavior has nothing to do with the rising prices we've seen.

dragonwriter 3y ago
> If they refuse to address to cause of recent inflation If the causes aren’t “too loose monetary policy”, the Fed can’t address them. The Fed has a specific mandate and a narrow set of tools to pursue it. You need Congress for broader policy.
- autoexec 3y ago
  That's fair. If the only thing in the Fed's toolbox is a hammer, I can't really blame them for whacking away at screws and bolts. It's going to leave a mess though.
foldingmoney 3y ago
>Higher interest rates won't stop greed. we've just come off ~15 years of stubbornly low inflation. if the cause is greed, did companies only just become greedy in the last two years? >It'll hurt families who need to buy a new car or need to sell their home though. but it'll also stop punishing families who have savings. can't please everyone.
- autoexec 3y ago
  > did companies only just become greedy in the last two years? No, but their greed was kept somewhat in check by consumers who'd rightly feel ripped off if they saw a company suddenly jacked up their prices. Before the pandemic companies generally didn't collude to all raise their prices at the exact same time. When the pandemic first hit, companies lost a lot of money which they wanted to claw back somehow. There were some legit supply chain issues, but companies who were not affected by them said "We know our prices are sky high, but supply chain issues! We're all in this together!" and consumers bought the lie. Long after the supply chain issues improved companies still used them as an excuse. I don't blame consumers here. Things were going on that were totally unprecedented and giving companies some slack seemed perfectly reasonable given that surely we were all suffering. Then as inflation started to soar it was all the news talked about and companies again said "We know you're going into debt to buy groceries, but it's not our fault! It's this damn inflation! We're all in this together!" and fewer consumers were believing their bullshit since by then the news was already talking about how those same companies were pulling in record profits and making money hand over fist, but since every company was doing it, consumers had little choice but to pay up or go without (which isn't always an option). Companies have also tricked a lot of people with the narrative that the pathetic amount of disaster relief people got during the pandemic is to blame for inflation. I'm surprised how many people I see who are convinced that the $1000 checks people got to help pay off the record amounts of debt families went into to keep rent paid and food on the table is the real problem. This helped to deflect attention away from the fact that companies have been price gouging. Lately they've been trying to use that same trick for everything. Some companies had to increase egg prices because of bird flu. The news reports it's the worst outbreak in almost a decade! Consumers are primed to expect egg prices to rise. The largest egg supplier in the country wasn't impacted by bird flu in any way, but they still raised their prices because they had an excuse and made over 700% more in profits. Cal-Maine Foods made a killing by ripping off the public who were already struggling and being taken advantage of. They got away with it entirely. So companies were always greedy, but they didn't always have convenient excuses to point at to deflect the public's anger. Now they know they can lie to the public and collude to raise prices openly without fear of any repercussions. The scapegoating scheme actually started a little bit before the pandemic with rising gas prices (notice how many companies increased their prices and told the public it was all because of gas prices but didn't lower their prices after the price of gas dropped?). They made money on that, and the pandemic was just the next major excuse. I suspect it's going to continue with companies looking for any and every excuse to jack up prices at insane rates.

somewhat_drunk 3y ago

The FED needs to stop and wait.

jfengel 3y ago
The Fed meets eight times a year. It's not as if they're reacting to the daily news. The haven't raised rates since May. They've been raising rates as gradually as they felt they could. Two years ago, the rate was basically zero. That was very bad for the economy -- arguably, they waited much too long to start acting.