4 ms·

Fed Cuts Rates by a Half Percentage Point

80 points by impish9208 2y ago

travismcpeak 2y ago
Anyone else think this indicates a lower short-term floor (say, 4.x%) than previously thought?
- sbelskie 2y ago
  Why?
- nostrademons 2y ago
  What counts as short-term? On a monthly basis this is definitely lower because they cut by 0.5% instead of 0.25%. On a 2026+ basis expectations have been steady at ~3%, don't understand how 4.x% could be lower than that. Personally I think the 3% long-term expectation is ridiculous, and we'll either see high (10%+) rates as inflation spirals out of control, or low (0%) rates as we get another depression, and likely oscillation between the two of them. You can't use monetary policy to fix a demographic problem. But the projection for 3+ years out has held constant at 2.5-3% since at least 2018, even as the reality went from 2.5% to 0% to 5% during that time period. Just like all the projections for inflation always converge on 2% even if they're wrong.
  - okdood64 2y ago
    > On a 2026+ basis expectations have been steady at ~3% Source?
    - nostrademons 2y ago
      Couple ways to think about it: One is the Fed dot plots that the Fed puts out with each FOMC statement. These are a poll of Fed governors about what they think interest rates will be like at various points in the future. The midpoint of the current spread is about 3%. You can Google for past FOMC statements and look up historical data, but it's stayed at around 3% since at least 2018, with a slight dip to maybe 2.5% in 2020/2021: https://finance.yahoo.com/news/fed-dot-plot-suggests-central-bank-will-slash-interest-rates-two-more-times-in-2024-after-mega-50-basis-point-cut-182511834.html https://finance.yahoo.com/news/fed-dot-plot-suggests-central... The other is the rates on 3Y Treasury Bonds, which measure what bond traders consensus expectation for the average interest rate over that 3Y period will be. To go out further (and minimize the impact of short-term fluctuations), you could also go out to 5Y. Currently, both are trading at 3.5%, which indicates that the market expects that the Fed will equilibrate at about 3.5%. https://www.cnbc.com/quotes/US3Y https://www.cnbc.com/quotes/US3Y https://www.cnbc.com/quotes/US5Y https://www.cnbc.com/quotes/US5Y
impish9208 2y ago
> Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Lisa D. Cook; Mary C. Daly; Beth M. Hammack; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Voting against this action was Michelle W. Bowman, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting. This would be the first dissent by a governor in the FOMC since 2005.
- sigmar 2y ago
  >This would be the first dissent by a governor in the FOMC since 2005. Yes, but for context- not the first dissent broadly, as there are 5 non-governors on the FOMC. >In June 2022, Kansas City Fed President Esther George cast what until Wednesday had been the most recent dissent. She had argued for a smaller rate hike, but her colleagues opted for a 75-basis-point increase to battle accelerating inflation. https://www.reuters.com/markets/rates-bonds/fed-bowmans-dissent-is-first-fed-governor-since-2005-2024-09-18/ https://www.reuters.com/markets/rates-bonds/fed-bowmans-diss...
ChrisArchitect 2y ago
Some more discussion: https://news.ycombinator.com/item?id=41583327 https://news.ycombinator.com/item?id=41583327
treebeard901 2y ago
Meanwhile, $1 trillion every 3 months is added to the national debt.
- more_corn 2y ago
  This is the argument that republicans always throw around before they make a run for office, but somehow magically it turns into more spending. Things like the trillion dollar boondoggle of the F35 and the massive shit show of the war in Iraq.
  - FooBarBizBazz 2y ago
    It's possible for this to be a real problem and for Republicans to simultaneously be full of shit. The increasing debt represents a wealth transfer to asset holders. If you can exchange your dollars for things like houses, before those dollars are devalued, then you win. This is regressive. This is not an argument for fewer social programs. It is an argument for more taxes.
    - 486sx33 2y ago
      Spending more in order to force taxes up later isn’t good policy. We need to cut spending to match taxes, then start deciding what’s important and what people want to pay for with increased taxes Giving people everything for “free” to win the next election is very bad policy for the country
  - treebeard901 2y ago
    I am not sure why so many take it as a partisan observation. There was a time when a total debt of $1 trillion was controversial in politics and economics. Lowering the rate also determines how much it costs to sustain the debt spending. So my comment was related in an economic sense. I also prefer to have sustainable Government institutions and social programs which increasing debt will eventually threaten. Maybe the system can sustain $50 trillion with $2 trillion added every month. We will find out eventually with the current path. It already costs more to service existing debt than even defense spending.
indigo0086 2y ago
> economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low.
rendang 2y ago
If this round of cutting manages to keep GDP stable or up, it would be the first time on record that the unemployment rate rose so much from its trough without a recession occurring soon after https://fred.stlouisfed.org/series/UNRATE https://fred.stlouisfed.org/series/UNRATE
- okdood64 2y ago
  Does that mean the US is more productive with less labor? (I guess it's not normalized against working age population.)

80 points by impish9208 2y ago

travismcpeak 2y ago

Anyone else think this indicates a lower short-term floor (say, 4.x%) than previously thought?

sbelskie 2y ago
Why?
nostrademons 2y ago
What counts as short-term? On a monthly basis this is definitely lower because they cut by 0.5% instead of 0.25%. On a 2026+ basis expectations have been steady at ~3%, don't understand how 4.x% could be lower than that. Personally I think the 3% long-term expectation is ridiculous, and we'll either see high (10%+) rates as inflation spirals out of control, or low (0%) rates as we get another depression, and likely oscillation between the two of them. You can't use monetary policy to fix a demographic problem. But the projection for 3+ years out has held constant at 2.5-3% since at least 2018, even as the reality went from 2.5% to 0% to 5% during that time period. Just like all the projections for inflation always converge on 2% even if they're wrong.
- okdood64 2y ago
  > On a 2026+ basis expectations have been steady at ~3% Source?
  - nostrademons 2y ago
    Couple ways to think about it: One is the Fed dot plots that the Fed puts out with each FOMC statement. These are a poll of Fed governors about what they think interest rates will be like at various points in the future. The midpoint of the current spread is about 3%. You can Google for past FOMC statements and look up historical data, but it's stayed at around 3% since at least 2018, with a slight dip to maybe 2.5% in 2020/2021: https://finance.yahoo.com/news/fed-dot-plot-suggests-central-bank-will-slash-interest-rates-two-more-times-in-2024-after-mega-50-basis-point-cut-182511834.html https://finance.yahoo.com/news/fed-dot-plot-suggests-central... The other is the rates on 3Y Treasury Bonds, which measure what bond traders consensus expectation for the average interest rate over that 3Y period will be. To go out further (and minimize the impact of short-term fluctuations), you could also go out to 5Y. Currently, both are trading at 3.5%, which indicates that the market expects that the Fed will equilibrate at about 3.5%. https://www.cnbc.com/quotes/US3Y https://www.cnbc.com/quotes/US3Y https://www.cnbc.com/quotes/US5Y https://www.cnbc.com/quotes/US5Y

impish9208 2y ago

> Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Lisa D. Cook; Mary C. Daly; Beth M. Hammack; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Voting against this action was Michelle W. Bowman, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting. This would be the first dissent by a governor in the FOMC since 2005.

sigmar 2y ago
>This would be the first dissent by a governor in the FOMC since 2005. Yes, but for context- not the first dissent broadly, as there are 5 non-governors on the FOMC. >In June 2022, Kansas City Fed President Esther George cast what until Wednesday had been the most recent dissent. She had argued for a smaller rate hike, but her colleagues opted for a 75-basis-point increase to battle accelerating inflation. https://www.reuters.com/markets/rates-bonds/fed-bowmans-dissent-is-first-fed-governor-since-2005-2024-09-18/ https://www.reuters.com/markets/rates-bonds/fed-bowmans-diss...

ChrisArchitect 2y ago

Some more discussion: https://news.ycombinator.com/item?id=41583327 https://news.ycombinator.com/item?id=41583327

treebeard901 2y ago

Meanwhile, $1 trillion every 3 months is added to the national debt.

more_corn 2y ago
This is the argument that republicans always throw around before they make a run for office, but somehow magically it turns into more spending. Things like the trillion dollar boondoggle of the F35 and the massive shit show of the war in Iraq.
- FooBarBizBazz 2y ago
  It's possible for this to be a real problem and for Republicans to simultaneously be full of shit. The increasing debt represents a wealth transfer to asset holders. If you can exchange your dollars for things like houses, before those dollars are devalued, then you win. This is regressive. This is not an argument for fewer social programs. It is an argument for more taxes.
  - 486sx33 2y ago
    Spending more in order to force taxes up later isn’t good policy. We need to cut spending to match taxes, then start deciding what’s important and what people want to pay for with increased taxes Giving people everything for “free” to win the next election is very bad policy for the country
- treebeard901 2y ago
  I am not sure why so many take it as a partisan observation. There was a time when a total debt of $1 trillion was controversial in politics and economics. Lowering the rate also determines how much it costs to sustain the debt spending. So my comment was related in an economic sense. I also prefer to have sustainable Government institutions and social programs which increasing debt will eventually threaten. Maybe the system can sustain $50 trillion with $2 trillion added every month. We will find out eventually with the current path. It already costs more to service existing debt than even defense spending.

indigo0086 2y ago

> economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low.

rendang 2y ago

If this round of cutting manages to keep GDP stable or up, it would be the first time on record that the unemployment rate rose so much from its trough without a recession occurring soon after https://fred.stlouisfed.org/series/UNRATE https://fred.stlouisfed.org/series/UNRATE

okdood64 2y ago
Does that mean the US is more productive with less labor? (I guess it's not normalized against working age population.)