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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

#401

Post by ThePhysicist »

MuffinFlavored wrote: post #398
andreyk wrote: post #137

An interesting aspect of this is that the endless printing of money in the last few years was a sort of stress test of modern monetary theory, which has been seeing lots of discussion in those same years. I never quite understood how this theory would work while avoiding inflation, and what's happening now seems to at least be related - https://www.nytimes.com/2022/02/06/business/economy/modern-m... Conceptually the…

How did "printing lots of money" https://fred.stlouisfed.org/series/CURRCIR not spike USD to EUR? did EUR also print lots of money? https://finance.yahoo.com/quote/USDEUR=X/ basically unchanged 5 years ago -> now

M3 has roughly tripled in the last 20 years, so yeah we've printed lots of money too.

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

#402

Post by mercutio2 »

tlogan wrote: post #387

We have an inflation which is about 8% while mortage rates on 30 year fixed are just 4.7% (15 year fixed are just 3.8%). So I really do not understand logic here: how can bank give me money at rate 2x times lower than inflation. Seems like free money (and it is no surprise that home prices are going thru the roof). But I’m probably naiive here and do not understand how banking works.

The finance industry is not predicting that inflation will continue at its current pace.

That, plus the 30 year fixed interest mortgage market is not a naturally occurring market, it is heavily subsidized.

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

#403

Post by HeavenFox »

tlogan wrote: post #387

We have an inflation which is about 8% while mortage rates on 30 year fixed are just 4.7% (15 year fixed are just 3.8%). So I really do not understand logic here: how can bank give me money at rate 2x times lower than inflation. Seems like free money (and it is no surprise that home prices are going thru the roof). But I’m probably naiive here and do not understand how banking works.

Presumably inflation is not going to stay at 8% over the next 30 years.

In fact the current 30-year expected inflation is only at 2.2%: https://fred.stlouisfed.org/series/EXPINF30YR

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

#404

Post by nwmcsween »

jcadam wrote: post #372
seizethecheese wrote: post #305

Earlier quoted context omitted.

What do you think is going to happen to your home price is interest rates go up to 5% and then people can’t afford huge mortgages anymore?

We'll see. we didn't have inflation like this during the last big downturn in 2008. I also don't think the Fed is going to be able to raise rates as high as they did back in the early 80s.

We currently have runaway inflation, if you look at how inflation was calculated in 1980s compared to now it would be between 12-16%.

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

#405

Post by MuffinFlavored »

tlogan wrote: post #387

We have an inflation which is about 8% while mortage rates on 30 year fixed are just 4.7% (15 year fixed are just 3.8%). So I really do not understand logic here: how can bank give me money at rate 2x times lower than inflation. Seems like free money (and it is no surprise that home prices are going thru the roof). But I’m probably naiive here and do not understand how banking works.

Have you peeled back the categories measured by the 8% inflation? This is stupid for me to say but, for example... Used car prices factor into that 8% number. But if you aren't shopping for a used car... it doesn't really affect you, right?

Housing affects mostly everybody. Same with energy. I don't truly understand the weighting or everything that goes into the 8% CPI getting tossed around and I understand that it comes out to "on average as a whole, you as a consumer are most likely seeing a roughly 8% increase in cost" but I wonder if it is worth calling out that "actual personally perceived inflation" might be less (or more) than 8%

My rent hasn't gone up, I haven't bought a different (new or used) car. Gas is more expensive surely but I think that's an extra $40/mo for me or so. I think Chipotle bowls cost about $3 more now... Not exactly life changing?

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

#406

Post by nickles »

monktastic1 wrote: post #378
drexlspivey wrote: post #324

Earlier quoted context omitted.

> As another reply indicated, the Fed doesn't actually set interest rates. That's a common misconception. The FED absolutely sets the interest rates by controlling the federal reserve rate which is the interaste rate paid to banks every day for their deposits with the FED

The Fed (not FED, BTW) doesn't "set" the rates, but has policies (including IORB, or what you call the federal reserve rate) which guide the markets to arrive at their target. Maybe that's a small distinction, but I think it helps OP, because I labored under the same confusion for a while.

> The Fed (not FED, BTW) doesn't "set" the rates, but has policies (including IORB, or what you call the federal reserve rate)

The Fed does explicitly set certain interest rates. IORB is an interest rate that gets paid out every single day to market participants. “Federal reserve rate” does not exist; what you’re probably referring to is the fed funds rate. The Fed sets a target range for this, and, if the effective fed funds rate does not stay within the target corridor, the Fed will conduct open market operations to push it there.

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

#407

Post by RichardHeart »

Be nation. Mint money out of thin air. Prices go up for everything. Citizens sell stuff for other stuff. Because prices all went up, causes tax on "gains." But was no real gain. Citizen robbed twice. Once when all prices up. Once when taxed on fake gain.

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

#408

Post by notch656a »

qbasic_forever wrote: post #388
notch656a wrote: post #379

Earlier quoted context omitted.

>Sure if you define 'household' as home owners I don't. All households. Majority of households have > 100k wealth. Your claim is patently wrong, when taken against your citation which shows nearly everyone found _some_ way to pay the expense. Personally I would just pay with a credit card so I can let inflation shred away ~0.5% of the real cost, but I'd be tossed away with those who 'cant afford' it by your interpret…

I'm really trying to understand how you can agree that 56% of people can't find $1k, and yet over 50% of people have $100k in assets. I don't think we're looking at the same ~50% of people here...

I'm skeptical but willing to believe 56% of people can't find $1k on the spot in fiat cash because of the structure of their wealth. However statistically _most_ households have a hundred times over that in net wealth. Carefully reading the study, it becomes apparent the vast majority are able to alter the composition of their wealth or future spending to accommodate the expense. 59% were going to pay outright (if you add in the 15% that said they would pay and cut their budget), and if you add in people like me that would let it sit on credit to let some real value inflate away, it goes up to 79% who would pay it outright either by debiting from their fiat stockpiles or credit card. Only 4% actually needed to take out a personal loan, and only 10% would resort to family. Factor in that probably 14% of adults are 25 or younger or in school, and it starts to become apparent that the overwhelming majority of adults can afford a $1k expense.

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

#409

Post by xxpor »

jjoonathan wrote: post #182
reflexco wrote: post #122

Earlier quoted context omitted.

It seems that Putin is the scapegoat for inflation and will be the scapegoat for recession as well.

This isn't a rate-hike recession, it's stimulus withdrawal. Rates are at 0.25%. Last time it took 20.00% to stop inflation. We haven't even started. We haven't soft-defaulted on the national debt, so we can't even think about starting. The Ukraine conflict will be dusty history by the time actual rate hikes and an actual rate hike recession come around.

There's still a lot of debate if raising interest rates is what actually caused inflation to fall.

Another theory is that it was actually Regulation Q.

https://pages.stern.nyu.edu/~asavov/alexisavov/Alexi_Savov_f...

I also personally think that high inflation is treated as bad axiomatically. This needs some justification if the only proposed solution is to intentionally cause a recession.

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

#410

Post by mushbino »

hn_version_0023 wrote: post #344
throwaway894345 wrote: post #260

Earlier quoted context omitted.

Irrespective of its economic merits, any policy which depends on a competent and upright Congress does not inspire confidence. It feels like it's bound to be one of those "True MMT Hasn't Ever Been Tried (TM)" things.

The best definition of Congress I’ve ever seen was this: Congress: 535 ants on a leaf, floating down a river towards a waterfall, with each ant thinking they’re steering. I share your lack of confidence.

If it said being paid not to steer, I think that would make more sense in our current oligarchy.
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