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US Federal Reserve raises interest rates for first time since 2018

theguardian.com

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Re: US Federal Reserve raises interest rates for first time since 2018

#31

Post by mym1990 »

downrightmike wrote: post #14
whoseonthat wrote: post #7

Earlier quoted context omitted.

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, because it increases the money supply. We are supposed to tighten when things are good by raising rates. At this point they need to raise rates to pull money out of the system. Because with covid, not only did we cut rates, we put in a HUGE amount of money and that was really irresponsible. And now we are seeing the repercussions with inflation lowering the value of the dollar.

I am not sure if it is really useful to evaluate what happened vs the other outcomes that we were not able to experience. We don't really even have that many precedents for the situation. It was, and still is, an extremely complex problem to address. Injecting large amounts into the system ultimately doesn't create long term wealth, but in that short term gap during the first 1 of the pandemic many people were undoubtedly pulled out of a hole.

Re: US Federal Reserve raises interest rates for first time since 2018

#32

Post by ayngg »

avrionov wrote: post #17

Not only that they increased the rate, but also they'll reduce the buying of securities: "In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting." Which may have a bigger effect.

IIRC they have already stopped purchasing them as of a week ago I think, they were supposed to announce their plans on quantitative tightening (selling the things they bought) which is what that quote is referring to.

Re: US Federal Reserve raises interest rates for first time since 2018

#33

Post by [deleted] »

avrionov wrote: post #17

Not only that they increased the rate, but also they'll reduce the buying of securities: "In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting." Which may have a bigger effect.

[deleted]

Re: US Federal Reserve raises interest rates for first time since 2018

#34

Post by phkahler »

nine_zeros wrote: post #11
frockington1 wrote: post #4

They 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.

In particular a bursting of the housing bubble that has been reinflated (and then some) since the last time it popped in '08.

Re: US Federal Reserve raises interest rates for first time since 2018

#35

Post by trelane »

lapetitejort wrote: post #3

If you're a dummy like me, 25 bps means 0.25%.

Technically, it does not, raising 0.25% is always in relation to the existing value of the thing, so increasing a percentage by a quarter of a percent would mean increasing it by a quarter of a percent of its existing value.

On the other hand, "basis percentage points" means something absolute, not relative to the existing level.

Pedant out. :)

Re: US Federal Reserve raises interest rates for first time since 2018

#36

Post by mym1990 »

hedora wrote: post #19
whoseonthat wrote: post #7

Earlier quoted context omitted.

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?

Welcome to stagflation.

We are not yet in stagflation, unless I really missed something. The economy is actually fairly strong by most indicators. The question is whether inflation can be tamed by the time we hit a recession(which we will, whether it is in 6 months, 2 years, 5 years, etc...)

Re: US Federal Reserve raises interest rates for first time since 2018

#37

Post by nimbius »

lapetitejort wrote: post #3

If you're a dummy like me, 25 bps means 0.25%.

imo this has been a comically glacial effort, and im not sure the feds 1.9% interest target by EOY is anywhere near aggressive enough to stave off 10% or greater inflation by Q4. What i really think are needed --Clinton era 4-5% rates-- are all but taboo to the market post-housing-collapse. nearly a year ago the fed was cheerleading "transient" inflation in an attempt to avoid culpability for the corporate credit bubble it created during 2008's post financial meltdown. the article is pretty fixative about 2018 but IMO this goes a long way back. Quantitative easing measures from from 2010 lke low credit and bond buyback were still going on in 2021. The coming to jesus moment for the fed that july bond buyback cessation targets would be a disaster was likely the 2021 holiday shopping slump, and we didnt start honestly talking about raising prime interest until febuary.

the reason 1.9%, and the reason this is a desperate tightrope, is that the fed has the very real ability to blow up the corporate credit bubble with prime interest.

Re: US Federal Reserve raises interest rates for first time since 2018

#38

Post by chipgap98 »

bequanna wrote: post #30
nine_zeros wrote: post #11

Earlier quoted context omitted.

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.

Consensus from who?

Re: US Federal Reserve raises interest rates for first time since 2018

#39

Post by trelane »

trelane wrote: post #35
lapetitejort wrote: post #3

If you're a dummy like me, 25 bps means 0.25%.

Technically, it does not, raising 0.25% is always in relation to the existing value of the thing, so increasing a percentage by a quarter of a percent would mean increasing it by a quarter of a percent of its existing value. On the other hand, "basis percentage points" means something absolute, not relative to the existing level. Pedant out. :)

Obligatory Jayne: "let's see... A quarter percent of nothing, carry the nothing, is.. nothing!"

Re: US Federal Reserve raises interest rates for first time since 2018

#40

Post by mym1990 »

tamaharbor wrote: post #28

We 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?

Someone posted the graph earlier: https://www.macrotrends.net/2015/fed-funds-rate-historical-c...

Fed funds rate in the early 80s were at their historical peak. We are still currently at near historical lows.

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