7 ms·
Fed raises rates 25 bps
- leemelone 3y agoI'm floored that people are willing to keep accumulating debt at these rates. I have a feeling it can't go on much longer...
- WaxProlix 3y agoFor things like mortgages, they're still historically low(ish). See the graph on this page for instance https://www.bankrate.com/mortgages/historical-mortgage-rates/ https://www.bankrate.com/mortgages/historical-mortgage-rates... so folks have been taking on debt at current rates, and substantially higher ones, for some time.
- S201 3y agoTrue, but home prices are also much higher than in the past partly thanks to that long period of low interest rates. Taking on these huge loans with corresponding (comparatively) high rates is a different ballgame than it was in the past.
- mholt 3y agoHome prices in the '80s were ~$60,000; equivalent homes now are about 10x that [0]. With inflation bouncing around 2-6% on average [1], and only modest wage increases over decades [2], that makes the median home today way less affordable even with these relatively low interest rates. [0]: https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS [1]: https://tradingeconomics.com/united-states/inflation-cpi https://tradingeconomics.com/united-states/inflation-cpi [2]: https://fred.stlouisfed.org/series/CES0500000003 https://fred.stlouisfed.org/series/CES0500000003
- travisgriggs 3y agoAll 4 of my children, in various stages of degreedness, have told me they have no hope of ever owning a home of their own like they were able to grow up in.
- nojvek 3y agoI wonder if there is a metric tracking # of homes owned by <30 year olds compared to # of homes owned by <60 year olds. Even at current interest rates, the prices are quite nuts.
- hnuser847 3y agoHomeownership by age demographic has been surprisingly stable over the past 20 years. https://www.census.gov/housing/hvs/data/charts/fig07.pdf https://www.census.gov/housing/hvs/data/charts/fig07.pdf
- ojbyrne 3y agoFrom https://en.wikipedia.org/wiki/Early_1980s_recession https://en.wikipedia.org/wiki/Early_1980s_recession: "The federal funds rate, which was about 11% in 1979, rose to 20% by June 1981. The prime interest rate, an important economic measure, eventually reached 21.5% in June 1982"
- lamontcg 3y agoIt doesn't really matter what rates were in the early 80s. We're adjusted to the ZIRP rates from 2008-2021. Unprofitable business ventures that were kicking the can down the road rolling over cheap short term borrowing should go broke as their borrowing rates adjust higher. And sectors like commercial real estate are getting squeezed by remote work and online shopping, raising their borrowing rates should accelerate their failure.
- sudobash1 3y agoThese aren't the exact rates that ordinary folks will be borrowing at. See credit cards for instance (way higher), or mortgages (a little higher). Counterintuitively, it is possible for mortgage rates to go down even when the Feds are raising their rates. The interest rates for us normies are dictated in large part to how confident the financial sector feels. If the Fed's raising of the interest rate makes the financial sector feel that inflation is under control, then mortgage rates may go down.
- aaomidi 3y agoRight but it won’t go below the fed’s rate which is already huge for the prices of housing these days anyway.
- chriscappuccio 3y agoHalf of the federal govt's $31 trillion debt comes due in the next two years. It will be refinanced at much higher rates...Or we'll see Yield Curve Control from the federal reserve. Take your pick.
- dragontamer 3y agoPress Conference: https://www.youtube.com/watch?v=Wy0_JtAMjps https://www.youtube.com/watch?v=Wy0_JtAMjps I haven't watched it yet, but Powell's speech is traditionally the more important thing with FOMC meetings, because the speech gives more insight into what the FOMC was worried about / not worried about / etc. etc. The +25 BPS was long predicted. All eyes are on September, and the only hint at what happens in September is what Powell said today (and the questions the press asked him).
- candiddevmike 3y agoDoesn't seem like the Fed has any other moves that won't tank the economy (https://fortune.com/2023/07/10/jerome-powell-federal-reserve-trillions-balance-sheet-unwinding-quantitative-tightening/ https://fortune.com/2023/07/10/jerome-powell-federal-reserve...). They really need Congress to step in and help soak up the excess.
- seatac76 3y agoI think they are banking of student loan payments resuming as one lane to absorb liquidity.
- arcticbull 3y agoThey don't have any other moves, period, they've really only got a hammer. That said your article is about the balance sheet, not the funds rate. The balance sheet will sort itself out over time. They can just let their long-duration assets mature and roll off.
- jjoonathan 3y agoNo, the balance sheet will not sort itself out over time. Every time the fed starts making progress markets tank and rich people flex their influence to get their assets pumped back up. How much do you want to bet that it goes under, say, $1T by 2030?
- arcticbull 3y agoThat's not the argument I am making, I'm saying if you leave the balance sheet alone it will shrink. We don't need anyone to step in and sop anything up. I'm not opining on - nor do I really care - about future growth of the balance sheet. Generally speaking increases in the size of the balance sheet represent flows into the economy of money. Static balance sheets, or ones that roll off over time, have little to no impact.
- jjoonathan 3y ago
- ginko 3y ago25 bits per second?
- dragontamer 3y agoBasis points. Aka: a percent-of-a-percent, or one-tenthousanth. 25 BPS is therefore 0.25%.
- mhh__ 3y agobasis points i.e. 0.01%
- ginko 3y agoWhy not say 0.25%? No one knows obscure English language economics terms.
- sudobash1 3y agoPresumably the target audience of federalreserve.gov does. I also know the terms, just from talking to a loan officer while shopping for a mortgage. So calling obscure may be a bit unfair. Also, bits per second is very familiar to many of us in the HN audience, but that is just because of our particular technical background. It is the same in other technical areas (such as finance).
- mhh__ 3y agoThe Fed could do a better job wrt to expanding that target audience. I've always found it slightly silly that getting the rates and prices needed to judge the performance of the Fed, Treasury, and so on effectively requires use of a Bloomberg terminal (there are structural reasons why this is the case but the fed wields a big stick). Even worse in the UK - DMO supposedly not competent in general but I have no first-hand experience.
- marvin 3y agoIt's a term of art in finance; people who work with it daily don't think twice before using it. Computer science has a whole book full of these; comes with the subject.
- Dig1t 3y agoIs this whole thing caused by those stupid covid relief checks that they sent out? Or are there other reasons why inflation got so out of control?
- baseballdork 3y agoI can't tell if this is a serious question or not considering the past few years of disease and war.
- Dig1t 3y agoLegitimate question, I’m not very economically literate. We went through wars in the past without crazy inflation, gulf war, Iraq, Afghanistan. Is it because of all the Ukraine aid we’re sending? If so, why is this different than other conflicts? How does disease cause inflation?
- stu2010 3y agoDisease, disaster, war all cause significant inflation because they harm or destroy both things and productivity in the real world without destroying money. If factories shut down and supply chains are disrupted and we only make half as many cars this year, how much would people be willing to pay for those cars? Much more.
- pers0n 3y agoThe mere $2000 stimulus checks are nothing. It was the billions in PPP loans that lots of people used fraudulently, including our own politicians. On top of that, it was decided they didnt need to be paid back, so people go to keep all the fancy cars, electronics and real estate they bought with it.
- lamontcg 3y agoIt wasn't even that since you've got entirely normal bullwhip effects on top of that. Nearly everything physical shut down (except for home remodeling). Then everyone wanted everything again right away.
- 7e 3y agoIf the Fed wants to get serious, they should sell assets.