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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

#411

Post by brimble »

stale2002 wrote: post #375
dragonwriter wrote: post #364

Earlier quoted context omitted.

MMT isn't a thing to try or be tried: it's not an ideology or set of policies or even policy goals (there is a very loose correlation between adherence to MMT and certain progressive policy goals, but they aren't the same thing.) MMT is an understanding of factual nature of the environment in which government operates . Reduced to one sentence it is “the entire concept of fiscal balance is play-acting as if the gover…

> it's not an ideology or set of policies or even policy goals That might be true in the academic sense. But in reality, the only people who talk about MMT are people who just want to spend money infinitely and claim that there is no negative consequences to doing so. Which of course, doesn't make any sense if you know anything about MMT in the academic sense, which absolutely admits that there is negative consequenc…

As someone who took a lot of political science and economics classes once upon a time, and has an ongoing amateur interest in these things, MMT is the first time I've looked at one of these macro-level explanations/descriptions and not felt like I needed to ask a bunch of stupid questions that are (inevitably) going to be dismissed with a heaping dose of condescension. Finally, something that makes total sense when I look at how real world systems (and especially governments) behave.

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

#412

Post by 01100011 »

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.

I have no idea if any of this is correct, but my understanding is that mortgage rates are set, more or less, by the market. You have buyers(say, pension funds) with a lot of cash that they need to invest in a relatively safe way. They bid on mortgages and whatever they're willing to pay for those loans sets the mortgage rate. Up until(or maybe still including) now, the Fed has also been one of those buyers in an attempt to push down those mortgage rates.

Rates are low because there aren't a lot of alternatives for safely storing cash right now. Normally you could buy government bonds, but rates on those are also negative for the same reasons(demand along with fed buying).

When rates on government bonds rise, or when it's obvious we're back in a period of consistent inflation(likely, given the fed's weak move today), investors will have other options and the demand for cheap mortgage debt will dry up at the current price, pushing rates higher.

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

#413

Post by 01100011 »

yalogin wrote: post #254

We did waste the 3 yrs before Covid hit by not increasing interest rates and not reducing Fed's money printing. I don't know if it's the fed or if the government pushing to win elections, but feels like we didn't take care of the house in good times and we have led ourselves into this cycle.

IIRC the fed tried a few times to tighten and the market reacted badly(i.e. taper tantrum). Rather than focus on economic health, Powell chose to support asset prices owned by the upper half of Americans(and, by a huge majority, the 1%).

That sort of makes sense given Powell was a Trump appointee and Trump favored a weak dollar in order to boost American manufacturing.

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

#414

Post by regpertom »

Hello, I wonder, concerning unemployment stats, people are saying u-3 or u-6 etc. is there something like “full utilisation”? What would that look like? Say, assume drones/advanced future cyborgs are free and everyone works and likes it. It’s not going to be infinite growth since it would have to be locked to a pop and region. Simplify for example: it works out to be a Mac Donald’s every second street corner. How many jobs and res?

I also heard of a thing called money velocity. ~how much a particular dollar moves around. I heard it’s worth considering when understanding inflation stuff. I heard it said that recent stimulus has been like adding gas to a cold system (low velocity) where last time it was a hot system. The worry is we are going to explode if the temp goes up. Have a nice day everyone.

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

#415

Post by xienze »

solveit wrote: post #338
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?

Shouldn't be too relevant if they're planning on living in the house for the next ~30 years.

Everybody “plans” on living in the same house forever. Unfortunately, life gets in the way. Job change, moving for a different school district, divorce, death, etc. Stuff happens.

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

#416

Post by babypuncher »

voisin wrote: post #267
jldugger wrote: post #184

Earlier quoted context omitted.

> Inflation is almost 100% caused by "too much money" chasing "too few goods". I find it baffling that the "always and everywhere a monetary phenomenon" crowd never inspects velocity.

Velocity always seems to be treated as independent. When velocity plummets, Fed increases money supply. When velocity recovers, the money supply never shrinks. It is a one-way ratchet. Why is that?

People who enjoy the cheap capital afforded by the Fed increasing supply do not want to see their gravy train end, even if it is better for the economy as a whole to temper it while it's hot. See Trump et al gnashing their teeth at the fed for talking about raising rates back in 2018.

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

#417

Post by nickles »

bogomipz wrote: post #373
monktastic1 wrote: post #244

Earlier quoted context omitted.

As I mentioned in a sibling comment, there hasn't been a reserve requirement for two years. I'm not sure what's primarily driving the interbank borrowing now.

The Fed Funds rate is still the reference for policy but the Fed has been using a new framework called "ample reserves" since the latter part of 2020. See: "How Does the Fed Influence Interest Rates Using Its New Tools?" https://www.stlouisfed.org/open-vault/2020/august/how-does-f...

> the Fed has been using a new framework called "ample reserves" since the latter part of 2020

It’s been using an ample reserve regime for much longer than that. The Fed received congressional approval to implement a floor system around 2007 (it had been seeking it since the 80’s, I think), and has used it since the GFC. Are you possibly referring to the average inflation targeting framework?

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

#418

Post by MatteoFrigo »

boppo1 wrote: post #283
czbond wrote: post #12

Earlier quoted context omitted.

And no one believes them. The bond market is doing the rate cuts for them.

> The bond market is doing the rate cuts for them. Can you elaborate? I don't understand.

I am not the person you are replying to, but perhaps the cleanest indication of what "the bond market" "thinks" is to look at the Eurodollar futures quotes at https://www.cmegroup.com/markets/interest-rates/stirs/eurodo...

It is hard to define exactly what a "Eurodollar" is, but for now assume that a Eurodollar is a bank deposit in a jurisdiction not subject to the Fed's authority. ("Eurodollar" has nothing to do with Euro the currency. People are surprised that "dollars" exist outside the authority of the Fed.)

A Eurodollar future is a contract to borrow a "Eurodollar" for typically 3 months some time in the future. The price of the future is quoted as (100 - interest rate). For example, the Sep 2023 contract (called GEU3) is currently priced at 97.225, meaning that people are agreeing to lend money for 3 months in Sep 2023 at a 2.775% interest rate. Now to my point: the Eurodollar futures curve is currently inverted starting in Sep 2023. For example, the price of the GEU4 future (Sep 2024) is 97.50, implying a 2.50% interest rate, or a rate cut in GP's parlance relatively to Sep 2023.

Why would you pay attention to Eurodollar futures? For one thing, the notional value of all futures is about $12T. (This market used to be larger than the Treasury bond market until Congress fixed the problem.) Like all markets, it may be right or wrong, but if you strongly believe that rates will not be cut between 2023 and 2024, there is a ton of money to be made in that market. The curve started getting nervous, with small inversions of 1-4 basis points, in December 2021, and the inversion has grown larger since. The inversion peak-to-through was ~30bp yesterday and is ~40bp after the Fed's announcement today.

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

#419

Post by voisin »

tmn wrote: post #304
voisin wrote: post #232

Earlier quoted context omitted.

> Rates are at 0.25%. Last time it took 20.00% to stop inflation. This is good context. Is anything different this time that would make one believe we won’t need much, much higher rates to tame inflation?

The system will seize up and collapse with anything close 20% interest rates. Look at what happened in September 2019. The rates shot back to 0 because there was a liquidity problem in the repo market. The system is rife with zombie companies servicing their debt with nearly free debt. This will not go like the 70s. When rates stop increasing and go back to zero within the next two years remember this comment

If rates stop increasing and inflation continues with barely a pause, then what happens? We have massive social instability? Retirees are screwed? Lenders will have to increase rates just to earn a real return.

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

#420

Post by adam_arthur »

yalogin wrote: post #254

We did waste the 3 yrs before Covid hit by not increasing interest rates and not reducing Fed's money printing. I don't know if it's the fed or if the government pushing to win elections, but feels like we didn't take care of the house in good times and we have led ourselves into this cycle.

Because Powell cares more about markets than the real economy or wealth inequality. Also they tend to care much more about the short term than the long term.

People will tell you that it's not in the Feds mandate to care about those things, and they don't actually care about markets, but it's clearly not true when cast in the light of their actions. Or to any rational observer that follows them closely.

Even in Powell's presser today he spent a lot of time talking about being sensitive to markets. Why didn't they raise rates in the entire year while inflation was increasing and the labor market already showed signs of overheating? That one's easy too. Because Powell's nomination was coming up and he wanted to maintain easy policy to boost his chances to get reappointed.

Why did they continue QE policy of buying assets to drive down interest rates while inflation was over 7%? Because he knew if he ended it abruptly it would cause a market selloff.

He cares about the real economy to the extent that their policy doesn't significantly impair asset pricing.

Pretty sad tbh

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