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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

#51

Post by Ericson2314 »

civilized wrote: post #41
arawde wrote: post #21

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

> you don't usually hear the quiet part out loud like that from this Fed chair Is it implying / could be construed in some negative way? Like, "slow demand" means "poor people need to buy less", or something?

Yes, the only way raising these rates could reduce demand is by increasing unemployment.

Powell is much more honest than his predecessors in this regard. I commend him for it.

The obsession with this single policy lever is bad, and I hope it changes. But there being little political will to raise rates is a good first step.

Eventually we can leave them at zero, and manage the economy by other means.

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

#52

Post by tryptophan »

throw0101a wrote: post #47
nimbius wrote: post #37

Earlier quoted context omitted.

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 bub…

> 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. How much of the current inflation has anything to do with interest rates? You think oil/gas prices will care much about the Fed's action? And we still have supply chain issue before all geopolitical problems even started: just try asking n…

It has everything to do with it.

If they were higher, people would go bankrupt, not have money to drive, use less gas/oil, thus reducing demand, thus reducing price, thus reducing inflation.

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

#53

Post by hgomersall »

throw0101a wrote: post #47
nimbius wrote: post #37

Earlier quoted context omitted.

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 bub…

> 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. How much of the current inflation has anything to do with interest rates? You think oil/gas prices will care much about the Fed's action? And we still have supply chain issue before all geopolitical problems even started: just try asking n…

It might possibly have an effect, in the same way that anything that causes more unemployment and increases the likelihood of a recession might have an effect.

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

#55

Post by bshep »

mym1990 wrote: post #40
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.

How did anyone buy a house or a car with interest rates in the 20%s?

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

#57

Post by mywittyname »

ceejayoz wrote: post #42
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?

They don't raise rates rapidly, as that can cause a shock. They're expecting to dribble small increases out regularly over the next year. If you chart inflation and interest rates you'll see the close relationship: https://www.gzeromedia.com/the-graphic-truth-50-years-of-us-...

They have been "expecting" to raise rates for years now. Most of the time, they chicken out, and last time they went through with it (2018), the Fed Chairman was replaced with someone who was well known to be "dovish" on rate increases.

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

#58

Post by lghh »

Ericson2314 wrote: post #51
civilized wrote: post #41

Earlier quoted context omitted.

> you don't usually hear the quiet part out loud like that from this Fed chair Is it implying / could be construed in some negative way? Like, "slow demand" means "poor people need to buy less", or something?

Yes, the only way raising these rates could reduce demand is by increasing unemployment. Powell is much more honest than his predecessors in this regard. I commend him for it. The obsession with this single policy lever is bad, and I hope it changes. But there being little political will to raise rates is a good first step. Eventually we can leave them at zero, and manage the economy by other means.

> Yes, the only way raising these rates could reduce demand is by increasing unemployment.

It could also reduce demand by making it more expensive to buy things. Sure, that will probably have a side-effect of increasing unemployment, but that unemployment isn't the goal. The goal is to make it cost more to do things so less people want to do them.

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

#59

Post by blawson »

qwertyuiop_ wrote: post #50
pclmulqdq wrote: post #6

It's worth noting that this is actually a rate target, not the rate. Previously, the rate floated between 0% and 0.25% based on a market. Now, it is going to be between 0.25% and 0.5%.

First I have heard of this and quite interesting to learn. Could you explain the difference ? Does this mean they are going to implement the rate increase some point in future ala target ?

Not GP, but I don't think there's an actual "rate" as such - it's the actions the Fed takes to balance prices such that it falls within their target: https://www.newyorkfed.org/markets/reference-rates/effr

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

#60

Post by colinmhayes »

tryptophan wrote: post #52
throw0101a wrote: post #47

Earlier quoted context omitted.

> 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. How much of the current inflation has anything to do with interest rates? You think oil/gas prices will care much about the Fed's action? And we still have supply chain issue before all geopolitical problems even started: just try asking n…

It has everything to do with it. If they were higher, people would go bankrupt, not have money to drive, use less gas/oil, thus reducing demand, thus reducing price, thus reducing inflation.

It certainly does not have everything to do with it. The answer is somewhere in the middle. Cheap money absolutely causes inflation, but so do global supply chain breakdowns.
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