8 ms·

So much for a rate cut

blitzar 3y ago
I am old enough (i.e. > 2 years) to remember when politicians were complaining that rates were too low and pledged to increase them to make things great again, in stark contrast to now where they are all but promising to slash rates to make things great again. Lest we forget that actually they have nothing at all to do with the government on your tv screens every day; and in all likelihood cutting rates is a sign of bad things in the economy and hiking rates is a sign the economy running a bit too hot.
mdorazio 3y ago
All the pundits who have been predicting large rate cuts this year just baffle me. The jobs situation is very strong, wages are still rising, and consumer spending is still going up [1] despite predictions that everyone was going to run out of money in Q4. On top of that, housing is still sky-high and the commercial real estate market hasn't collapsed yet. I must be missing something. [1] https://nrf.com/research/monthly-economic-review-december-2023 https://nrf.com/research/monthly-economic-review-december-20...
- matwood 3y ago
  Anyone predicting large rate cuts is also predicting a recession. Felt like nearly everyone predicted a recession last year that never came. More likely given the data is we end up with 2-4 small rate cuts this year as the Fed tries to stick the landing.
- rKarpinski 3y ago
  >> I must be missing something. The upcoming presidential election
  - HDThoreaun 3y ago
    The fed is independent.
    - hammock 3y ago
      Independent of what?
- hibikir 3y ago
  If you want housing prices to come down due to raising rates instead of home building, we wouldn't just need the rates themselves to be up. If rates are high, most people don't want to sell their house either, as moves to a bigger house become prohibitive when you go from a smaller house at 2.5% to a bigger one at 7%. What we have now is relatively few home sales, which aren't enough to stay on the market for long, as there are barely enough to meet the demand of people who don't care much about mortgage interest rates. The typical force for prices to go down in a situation like this involves too many houses for sale. And given that most new construction froze, as the interest rates also hurt builders, we'd need an increase of supply from people being forced to sell, at a time few want to. That means large job losses and being unable to afford the mortgage they already have. A job market so bad, we'd most likely been in a pretty big recession. Given that the fed wants to avoid this, it's very unlikely that we'll see home prices fall at all unless they mess up. This isn't that weird in other parts of the world: There's been soft landings in other countries, just never in the US. The whole idea of rate cuts isn't just a matter of pundits. Jerome Powell suggested up to three rate cuts in 2024, and him speaking is not punditry: Depending of who you are learning macro from, it is forward guidance, a form of monetary policy. Covid, the lockdowns, and the post-lockdown period have been large natural experiments, testing whether different macroeconomics theories hold water. We had a by-the-book supply shock, followed by different levels of fiscal and monetary stimulus throughout the world. Economists will argue about this for decades.
  - sgerenser 3y ago
    I think home construction will be the thing to do the job, it just takes time. For years, my area (The Triangle area of NC) has had a huge amount of home construction that has kept home prices rising at only a very reasonable 3-4% per year over the past few decades, despite large job growth and lots of tech employment. No reason to get into a bidding war over an existing house if you can go a mile down the street and have your pick of 7 different new home communities. Suddenly when construction ground to a halt in early 2020, prices started spiking by 30%+ per year (extremely low interest rates obviously was a factor as well). Construction seems to be back in full swing over the past year, so basically anyone who wants a new house can buy one if they're willing to wait 6 months or so. New construction prices have leveled off and the junkiest tract houses are closing at $100K or more below their prices a year ago (still $200K more than they would have sold for in 2019 though).
- sf_rob 3y ago
  The argument for a rate cut is that the effective rate (real rate adjusted for inflation) will increase as inflation subsides and headline rate is held. So the same rate that was pumping the brakes at 7% inflation would be slamming them at 2% inflation. I agree with your skepticism though.
el-dude-arino 3y ago
Rate cuts will still likely happen, just look at what's going on with the bond market; we're already in conditions similar to the 2010's. The US Gov can't afford it's current debt load at the current rates. We're probably never going back to ~0% interest rates again but current inflation numbers show that the inflation we felt in 2021 and 2022 were transitory because of supply-chain shocks and corporate greed. Now we'll have to deal with the boomers retiring and moving into consumption-only mode instead of consuming AND producing, the former of which is inflationary. Besides, corporate and white collar donations are Biden's bread and butter, and they're pricing in cuts of 75-150 bps over the next year. TL;DR - Don't discount that we're on the up from a low in a slow-rolling business cycle.
deleted 3y ago
[deleted]
wombat-man 3y ago
Last I heard they were maybe going to cut towards end of 2024, so it could still happen. I am reading optimism for the US economy's 'soft landing'. Fingers crossed
oldpersonintx 3y ago
[dead]

I am old enough (i.e. > 2 years) to remember when politicians were complaining that rates were too low and pledged to increase them to make things great again, in stark contrast to now where they are all but promising to slash rates to make things great again. Lest we forget that actually they have nothing at all to do with the government on your tv screens every day; and in all likelihood cutting rates is a sign of bad things in the economy and hiking rates is a sign the economy running a bit too hot.

mdorazio 3y ago

All the pundits who have been predicting large rate cuts this year just baffle me. The jobs situation is very strong, wages are still rising, and consumer spending is still going up [1] despite predictions that everyone was going to run out of money in Q4. On top of that, housing is still sky-high and the commercial real estate market hasn't collapsed yet. I must be missing something. [1] https://nrf.com/research/monthly-economic-review-december-2023 https://nrf.com/research/monthly-economic-review-december-20...

matwood 3y ago
Anyone predicting large rate cuts is also predicting a recession. Felt like nearly everyone predicted a recession last year that never came. More likely given the data is we end up with 2-4 small rate cuts this year as the Fed tries to stick the landing.
rKarpinski 3y ago
>> I must be missing something. The upcoming presidential election
- HDThoreaun 3y ago
  The fed is independent.
  - hammock 3y ago
    Independent of what?
hibikir 3y ago
If you want housing prices to come down due to raising rates instead of home building, we wouldn't just need the rates themselves to be up. If rates are high, most people don't want to sell their house either, as moves to a bigger house become prohibitive when you go from a smaller house at 2.5% to a bigger one at 7%. What we have now is relatively few home sales, which aren't enough to stay on the market for long, as there are barely enough to meet the demand of people who don't care much about mortgage interest rates. The typical force for prices to go down in a situation like this involves too many houses for sale. And given that most new construction froze, as the interest rates also hurt builders, we'd need an increase of supply from people being forced to sell, at a time few want to. That means large job losses and being unable to afford the mortgage they already have. A job market so bad, we'd most likely been in a pretty big recession. Given that the fed wants to avoid this, it's very unlikely that we'll see home prices fall at all unless they mess up. This isn't that weird in other parts of the world: There's been soft landings in other countries, just never in the US. The whole idea of rate cuts isn't just a matter of pundits. Jerome Powell suggested up to three rate cuts in 2024, and him speaking is not punditry: Depending of who you are learning macro from, it is forward guidance, a form of monetary policy. Covid, the lockdowns, and the post-lockdown period have been large natural experiments, testing whether different macroeconomics theories hold water. We had a by-the-book supply shock, followed by different levels of fiscal and monetary stimulus throughout the world. Economists will argue about this for decades.
- sgerenser 3y ago
  I think home construction will be the thing to do the job, it just takes time. For years, my area (The Triangle area of NC) has had a huge amount of home construction that has kept home prices rising at only a very reasonable 3-4% per year over the past few decades, despite large job growth and lots of tech employment. No reason to get into a bidding war over an existing house if you can go a mile down the street and have your pick of 7 different new home communities. Suddenly when construction ground to a halt in early 2020, prices started spiking by 30%+ per year (extremely low interest rates obviously was a factor as well). Construction seems to be back in full swing over the past year, so basically anyone who wants a new house can buy one if they're willing to wait 6 months or so. New construction prices have leveled off and the junkiest tract houses are closing at $100K or more below their prices a year ago (still $200K more than they would have sold for in 2019 though).
sf_rob 3y ago
The argument for a rate cut is that the effective rate (real rate adjusted for inflation) will increase as inflation subsides and headline rate is held. So the same rate that was pumping the brakes at 7% inflation would be slamming them at 2% inflation. I agree with your skepticism though.

el-dude-arino 3y ago

Rate cuts will still likely happen, just look at what's going on with the bond market; we're already in conditions similar to the 2010's. The US Gov can't afford it's current debt load at the current rates. We're probably never going back to ~0% interest rates again but current inflation numbers show that the inflation we felt in 2021 and 2022 were transitory because of supply-chain shocks and corporate greed. Now we'll have to deal with the boomers retiring and moving into consumption-only mode instead of consuming AND producing, the former of which is inflationary. Besides, corporate and white collar donations are Biden's bread and butter, and they're pricing in cuts of 75-150 bps over the next year. TL;DR - Don't discount that we're on the up from a low in a slow-rolling business cycle.

deleted 3y ago

[deleted]

wombat-man 3y ago

Last I heard they were maybe going to cut towards end of 2024, so it could still happen. I am reading optimism for the US economy's 'soft landing'. Fingers crossed

oldpersonintx 3y ago

[dead]