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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

#81

Post by monktastic1 »

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. :)

The claim wasn't that "raising by 25 bps" should be interpreted the same as "raising by .25%", it was:

> 25 bps means 0.25%.

In a sense, that is technically correct: it does refer to .25% -- not of the current value but of the 100% value.

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

#82

Post by mrmuagi »

anonporridge wrote: post #74
MR4D wrote: post #65

Earlier quoted context omitted.

It’s even worse - if the Fed actions tank the markets, then millions of retirees who have been enjoying high market values are screwed and have no other source of wealth or income. I do not envy the position the Fed is in.

It's rough. On the one hand, retirees bring nothing of real value to the economy. We serve them because of the obligations they built up over their working careers. But, they get the focus of attention because a) they have all the money, b) they have all the time to be engaged in politics, and c) they vote. But they're purely an extractive cost center. A kind of economic parasite that keeps getting bigger and bigger…

> retirees bring nothing of real value to the economy.

Sure they may not be producing anything, but is there any value to the idea they consumers still? A lot of FIRE philosophy is you work hard so you can earn retirement early too -- people aren't going to work all their lives either, there has to be a light at the end of the tunnel. It is saddening that it may not be the case for many.

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

#83

Post by Qub3d »

thehappypm wrote: post #72
MR4D wrote: post #65

Earlier quoted context omitted.

It’s even worse - if the Fed actions tank the markets, then millions of retirees who have been enjoying high market values are screwed and have no other source of wealth or income. I do not envy the position the Fed is in.

Oh no! Boomers will lose 401(k) value! The horror!

That's a bit callous of you, not to mention shortsighted. If the Baby Boomer generation loses financial security, they will as a group A) tighten their spending habits and B) not retire.

Either of these effects on their own would hurt the younger generations, and together would make the already slow wealth building hit a brick wall. (I'm 25, for the record, and I don't expect to be debt-free or a homeowner until well into middle age)

While it really shouldn't be true, and at the level of financial mechanics probably isn't, the stock market has become the measure of the economy. Remember, pensions are dead and buried, and the nuclear family standard means that relying on your children (read: you and I) is not the bulwark it once was. That means 401(k) performance is really, really important, as terrible as that may be -- its just the reality right now.

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

#84

Post by budoso »

colordrops wrote: post #76
thehappypm wrote: post #72

Earlier quoted context omitted.

Oh no! Boomers will lose 401(k) value! The horror!

Phrased less sarcastically: "Millions of retirees won't have enough money to survive until they pass away."

Phrased sarcastically again, but from the opposite point of view: “Jerome Powell wants your grandma to starve!”

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

#85

Post by mikeyouse »

phkahler wrote: post #34
nine_zeros wrote: post #11

Earlier quoted context omitted.

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.

There's no evidence at all for this.

The exotic mortgage products (e.g. reverse ARMs) have essentially disappeared, people's homes are well capitalized, lending standards are much higher than they were, there's very low levels of home equity debt, overall debt payments as a percent of household income are at very low levels.

The people waiting for a housing crash are going to wait a long time. This one chart sums it up well:

https://fred.stlouisfed.org/series/MDSP

Mortgage debt service payments as a percent of disposable income are near all-time lows and at roughly 1/2 the number of the GFC peak. Since the vast majority of home loans are fixed -- what's the mechanism for rate hikes to cause a housing crash?

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

#86

Post by amanaplanacanal »

thehappypm wrote: post #72
MR4D wrote: post #65

Earlier quoted context omitted.

It’s even worse - if the Fed actions tank the markets, then millions of retirees who have been enjoying high market values are screwed and have no other source of wealth or income. I do not envy the position the Fed is in.

Oh no! Boomers will lose 401(k) value! The horror!

A big chunk of those boomers have almost nothing. The only thing they'll have to look forward to is poverty.

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

#87

Post by mtremsal »

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.

> Which may have a bigger effect.

Could you please explain? Isn't that just a way to "enforce" the target rate in auctions to the primary market?

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

#88

Post by mym1990 »

bshep wrote: post #55
mym1990 wrote: post #40

Earlier quoted context omitted.

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?

From this chart(https://inflationdata.com/articles/wp-content/uploads/2021/1...) we can see that in inflation adjusted terms, housing was much more affordable prior to about 2001(give or take). I think generally speaking, housing changes hands now much more often than it did before the internet, and there is much more investment/speculation going on as well, which drives a lot of the additional cost nowadays.

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

#89

Post by dc-programmer »

anonporridge wrote: post #74
MR4D wrote: post #65

Earlier quoted context omitted.

It’s even worse - if the Fed actions tank the markets, then millions of retirees who have been enjoying high market values are screwed and have no other source of wealth or income. I do not envy the position the Fed is in.

It's rough. On the one hand, retirees bring nothing of real value to the economy. We serve them because of the obligations they built up over their working careers. But, they get the focus of attention because a) they have all the money, b) they have all the time to be engaged in politics, and c) they vote. But they're purely an extractive cost center. A kind of economic parasite that keeps getting bigger and bigger…

Probably not. Estate taxes are low

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

#90

Post by slaw »

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.

They need to slowly hike interest rate by 25 bps every week for the next 8 months to match inflation.
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