6 ms·

That and/or rates

by PKop 3y ago

That and/or rates

game_the0ry 3y ago
Why would the fed cut rates?
- PKop 3y ago
  Short answer for why they would is the economy broadly can't sustain rates this high. But I think it's worth considering there are many that subscribe to the theory the Fed has almost no control over long term rates (mortgage rates being one type of these), which are set by the market alone based on inflation + growth expectations. [0] I think it is inevitable that issues like this thread and others whereby many businesses and individuals cannot cope with debt service (see record high credit card delinquency rates) [1] and inflation, along with near record low unemployment means economy will hit a brick wall and prices and rates will fall, regardless of what the Fed wants or does or says. This is already part of the reason long rates have been underneath short rates, as market has been pricing a slowdown for a while, and Fed wasn't able to set long rates above where they put short. Additionally, to the degree Fed can influence long rates at all, some would argue raising short rates very high very fast (yes of course to counter inflation) itself can depress long term growth thereby beyond some threshold lowering longer term rates if market expects lower growth. [0] https://medium.com/the-investors-handbook/why-the-fed-doesnt-control-long-term-interest-rates-5a132979419 https://medium.com/the-investors-handbook/why-the-fed-doesnt... [1] https://archive.is/s14dY https://archive.is/s14dY
  - game_the0ry 3y ago
    > Short answer for why they would is the economy broadly can't sustain rates this high. I disagree, but... Putting aside the fed and the degree they can set interest rates at the long end of the yield curve - what you are saying is that rates will go down bc the economy can't sustain the debt (in your words - "economy will hit a brick wall and prices and rates will fall"). In other words, there would be a recession bc interest rates are too high. By the time that recession hits, people will be losing job - people sell assets (houses + stocks) when they lose their jobs. In the event that the fed lowers rates, it will be bc of a recession, not to prevent one. By then, the damage is done.
    - PKop 3y ago
      Yea that's why I mentioned unemployment being so low now, nowhere to go but up, and once it does that will exacerbate recession. I do think Fed will lower because of recession yes. The damage will be done yes. It sounds like you do agree.

That and/or rates

by PKop 3y ago

That and/or rates

game_the0ry 3y ago

Why would the fed cut rates?

PKop 3y ago
Short answer for why they would is the economy broadly can't sustain rates this high. But I think it's worth considering there are many that subscribe to the theory the Fed has almost no control over long term rates (mortgage rates being one type of these), which are set by the market alone based on inflation + growth expectations. [0] I think it is inevitable that issues like this thread and others whereby many businesses and individuals cannot cope with debt service (see record high credit card delinquency rates) [1] and inflation, along with near record low unemployment means economy will hit a brick wall and prices and rates will fall, regardless of what the Fed wants or does or says. This is already part of the reason long rates have been underneath short rates, as market has been pricing a slowdown for a while, and Fed wasn't able to set long rates above where they put short. Additionally, to the degree Fed can influence long rates at all, some would argue raising short rates very high very fast (yes of course to counter inflation) itself can depress long term growth thereby beyond some threshold lowering longer term rates if market expects lower growth. [0] https://medium.com/the-investors-handbook/why-the-fed-doesnt-control-long-term-interest-rates-5a132979419 https://medium.com/the-investors-handbook/why-the-fed-doesnt... [1] https://archive.is/s14dY https://archive.is/s14dY
- game_the0ry 3y ago
  > Short answer for why they would is the economy broadly can't sustain rates this high. I disagree, but... Putting aside the fed and the degree they can set interest rates at the long end of the yield curve - what you are saying is that rates will go down bc the economy can't sustain the debt (in your words - "economy will hit a brick wall and prices and rates will fall"). In other words, there would be a recession bc interest rates are too high. By the time that recession hits, people will be losing job - people sell assets (houses + stocks) when they lose their jobs. In the event that the fed lowers rates, it will be bc of a recession, not to prevent one. By then, the damage is done.
  - PKop 3y ago
    Yea that's why I mentioned unemployment being so low now, nowhere to go but up, and once it does that will exacerbate recession. I do think Fed will lower because of recession yes. The damage will be done yes. It sounds like you do agree.