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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

#111

Post by dmurray »

monktastic1 wrote: post #81
trelane wrote: post #35

Earlier quoted context omitted.

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.

While we're at it, we should remember that this isn't a unitless number although it's often confused for one.

Interest rates are being raised by .25% per year.

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

#112

Post by atlgator »

Recession is inevitable. If you’re only considering interest rates, you haven’t bothered to look at the Fed’s balance sheet or FOMC meeting minutes from 2020. We bailed out the world through currency swaps, corporate bonds, and MBS purchases and we’re still doing it to the tune of $120B per month.

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

#113

Post by dragonwriter »

sillyquiet wrote: post #91
thehappypm wrote: post #72

Earlier quoted context omitted.

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

What a horrific ageist and bigoted comment. This literally could mean the difference between living independently or not for a lot of people. Not to mention everybody working today with a 401k as their retirement plan will lose value no matter their age, which means they have to work longer than planned. This is a real life impact to a lot of people.

> This literally could mean the difference between living independently or not for a lot of people.

Given that quality of assistive care matters, it could literally mean the difference between living and not for people.

Of course, on the other hand, so could runaway inflation for lots of people into the same age group (not every elderly person is self-sufficient on retirement income; many are supported by younger, working family members.)

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

#114

Post by 0xB31B1B »

jcranberry wrote: post #97
anonporridge wrote: post #74

Earlier quoted context omitted.

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…

You think retirees are keeping all their savings in cash in their mattresses or something?

The point is, the things that make the economy work and grow is the production of things. Regardless of how many investments a retired person has, they by definition do not produce things.

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

#115

Post by lastofus »

MR4D wrote: post #65
mactitan wrote: post #54

The Fed is trapped: It can’t raise too much since trillions of debt rely on very low rates. If it doesn’t raise enough then inflation will cause a recession.

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.

A typical retiree portfolio should have a significant portion in bonds (or more likely, bond funds). Initially this will hurt, but over time, higher rates mean higher bond returns

Equity markets can take a hit at pretty much any time for completely unforeseen reasons. This is expected and should be factored into a "safe" withdrawal rate (see Bill Bingham and the 4% rule).

Anyone who was relying on an equity market that never tanked, to survive retirement, was doomed from the outset.

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

#116

Post by cubano »

Inflation is almost 100% caused by "too much money" chasing "too few goods".

"Too much money" is a condition almost always caused by the creation of too much "fiat currency" (ie a currency that is backed by nothing but the good faith and credit of the issuing government)

As we all should know, in the US, on 6/5/1933 FDR took the US off gold-backed currency and started the fiat currency situation we still find ourselves in.

Over the past 13 years, the US M3 money supply (see https://fred.stlouisfed.org/series/MABMM301USM189S ) has grown from around $7.5T to $22T.

This number represents the "too much money" part of the original equation, and to be honest I'm quite surprised that price inflation isn't significantly worse then what it currently is. This is almost certainly being caused by the fact that the US dollar is the world's Reserve Currency.

Looking at the graph, starting Aug 2020 the line is starting to approach vertical, so it should be completely unsurprising that price inflation is occurring.

Finally, a 0.25% increase in the Federal Funds Rate is laughably small, and will do absolutely nothing to help with the price inflation the US is currently seeing.

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

#117

Post by mywittyname »

adamhp wrote: post #25
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?

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-lever…

It's important to separate out fraud from low interest rates. Low rates absolutely drive investment, and riskier investment at that. But the issue with 2008 was fraud in the lending market, not necessarily the low rates.

Risky investments aren't necessarily bad investments. Low interest rates give businesses more runway to operate investments that might take a while to show returns. A million dollar loan at 10% for an investment means that it needs to return into ~$80k a month to break even. At 2%, that same investment only needs a ~$16k monthly return. That's a huge difference in runway needed to start generating cash flow.

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

#118

Post by photochemsyn »

mcs5280 wrote: post #56

The Fed has created a debt bomb.

Probably best to not let Wall Street gamble with boomer retirement money on when the debt bomb will blow up. Putting Glass-Steagall rules on investment vs. commercial banking back in place would probably make sense around now.

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

#119

Post by tootie »

kipchak wrote: post #75
thehappypm wrote: post #72

Earlier quoted context omitted.

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

Unfortunately most people with 401(k)s are in SPY as the default, boomers or not

SPY is up >2% today. I think the market wants inflation to be tamped more than they want cheap money right now.

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

#120

Post by akvadrako »

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."

Lots of people live on social security alone.
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