Most surprising part of this FOMC had to be when Powell said "we would like to slow demand" during the press conference, you don't usually hear the quiet part out loud like that from this Fed chair. Also shift upwards in PCE in the SEP, plus the dots, all seems appropriately hawkish
US Federal Reserve raises interest rates for first time since 2018
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Re: US Federal Reserve raises interest rates for first time since 2018
#22It's worth taking a look at the effective federal funds rate over time, which clearly shows how low it's been recently: https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
It seems interest rates lower during recessions. Right now we are already low and are raising which seems to be a different pattern. Is lowering interest rates a method to overcome a recession?
The thinking is that lowering rates will increases spending (why save if you aren't getting much of return, you will find other ways to invest your money rather than have it sit in a bank account). So, if the economy seems to be in a recession central banks will often lower rates to encourage spending. But if you are already at near 0% for a record length of time, and have printed massive amounts of money, well friend we are in uncharted territory. What's better than do nothing? Doing something, we have this interstate rate lever, we can't pull it down, lets push it up!
Re: US Federal Reserve raises interest rates for first time since 2018
#23It's worth taking a look at the effective federal funds rate over time, which clearly shows how low it's been recently: https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
It seems interest rates lower during recessions. Right now we are already low and are raising which seems to be a different pattern. Is lowering interest rates a method to overcome a recession?
Yes, lowering interest rates during tough times has the effect of making borrowing capital cheaper, thus incentivizing people to take on risk via opening a business, investing, etc...
In contrast, raising interest rates is a way to fight a hot economic market. While in theory having massive growth might be ideal, it would be the equivalent of a sprinter using all of his/her energy in the first 100m while running a marathon...it needs to be a balancing act.
Lowering interest rates has been one of the major tools in fighting recessions, and one of the main concerns has been that lowering interest rates isn't possible(or effective) when they are already at such a low level.
Re: US Federal Reserve raises interest rates for first time since 2018
#24It's worth taking a look at the effective federal funds rate over time, which clearly shows how low it's been recently: https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
It seems interest rates lower during recessions. Right now we are already low and are raising which seems to be a different pattern. Is lowering interest rates a method to overcome a recession?
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Re: US Federal Reserve raises interest rates for first time since 2018
#25It's worth taking a look at the effective federal funds rate over time, which clearly shows how low it's been recently: https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
It seems interest rates lower during recessions. Right now we are already low and are raising which seems to be a different pattern. Is lowering interest rates a method to overcome a recession?
Lowering interest rates makes capital cheaper, which does spur investment and thus economic development, so, it can certainly have that effect given the right circumstances. But keep it too low, too long, and you see money start flying around too quickly, getting a little too loose because everyone wants to get theirs, and then they start inventing things like mortgage-backed securities and everyone starts over-leveraging, because, why not, money is cheap! Then you get 2008.
Re: US Federal Reserve raises interest rates for first time since 2018
#26It's worth taking a look at the effective federal funds rate over time, which clearly shows how low it's been recently: https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
It seems interest rates lower during recessions. Right now we are already low and are raising which seems to be a different pattern. Is lowering interest rates a method to overcome a recession?
It used to be, until they reached 0%.
The usual metaphor is that the interest rate is how hard you pull a rope. Pulling harder slows down the economy more.
But below 0%, you're trying to push the rope. And, as any rope expert will tell, you that doesn't do anything.
Re: US Federal Reserve raises interest rates for first time since 2018
#27It's worth taking a look at the effective federal funds rate over time, which clearly shows how low it's been recently: https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
It seems interest rates lower during recessions. Right now we are already low and are raising which seems to be a different pattern. Is lowering interest rates a method to overcome a recession?
The last couple of recessions have placed a ton of deflationary pressure on the USD, and the fed has reacted to maintain a small positive inflation by both lowering interest rates and QE.
Now that inflation is rising and the economy is also at nearly full employment, its pretty straightforward for them to raise interest rates to rein in inflation.
Re: US Federal Reserve raises interest rates for first time since 2018
#28We had soaring inflation in the early 80’s, but at that time loan interest rates and certificate of deposit rates were much higher than they are now. Does anyone know why the difference?
Re: US Federal Reserve raises interest rates for first time since 2018
#29It's worth taking a look at the effective federal funds rate over time, which clearly shows how low it's been recently: https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
It seems interest rates lower during recessions. Right now we are already low and are raising which seems to be a different pattern. Is lowering interest rates a method to overcome a recession?
>> Is lowering interest rates a method to overcome a recession?
It is claimed to be. The idea is that with lower interest rate, companies and people will be more likely to borrow money to spend and that will boost the economy.
I for one do not really believe this to be true. I suspect it's the act of lowering rates that gives a temporary boost until things rebalance. In other words, economic activity has some dependence on the derivative of interest rates. This is why things were so good from 198x through 2003 or so, rates were dropping the entire time (filtered of course).
Re: US Federal Reserve raises interest rates for first time since 2018
#30They did the absolute minimum to appear to be able to say they are dong something. With official inflation nearing 8%, this is nowhere near enough. SO far equity markets agree this is effectively nothing
They need to go slow. An abrupt rate increase will cause a recession.
Could they go any slower? The consensus seems to be that this is far too little way too late.