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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

#681

Post by adamhp »

twh270 wrote: post #43
adamhp wrote: post #25

Earlier quoted context omitted.

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…

"Money is cheap" yes, also "you can buy a house if you can fog a mirror". (Buy as in acquire a piece of paper that says you'll pay $$$$ per month to whoever holds the note.)

Yes, fortunately we've learned from that mistake and I don't think are repeating that this time around. People really are qualified to buy these days, and there just isn't enough supply of housing to go around.

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

#682

Post by adamhp »

voisin wrote: post #230
adamhp wrote: post #25

Earlier quoted context omitted.

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…

> Lowering interest rates makes capital cheaper, which does spur investment and thus economic development There are diminishing marginal returns to this, and when rates were already close to zero it is hard to imagine going to zero spurred much more than meme stocks and YOLO gambles.

Correct. It is surely a non-linear function, but the statement "lowering interest rates makes capital cheaper" is generally true, and used as an economic lever in monetary policy.

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

#683

Post by hackerfromthefu »

jeffalbertson wrote: post #655
spiralx wrote: post #552

Earlier quoted context omitted.

> Bitcoin, gold, and anti-fed fanboys have a tendency to have a poor understanding at best of global economics with very basic misunderstandings like thinking that bumping the rate bumps the rates of all previous bonds. Discussion on this post is worse than the usual level of discussion here, and the usual level around these topics isn't great at best. Hard to discuss monetary policy with someone who doesn't know wha…

Not trying to be a rude but why even make this comment? Just saying something is bad and inferring people are amateurs without offering any insight yourself is just as useless as the opinions you think are uninformed

Seems like the point of the comment is a reality check against hubris. This can have value to help people who don't know what they don't know begin to understand what the things they don't know are. Possibly the most valuable kind of learning at all.

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

#684

Post by hackerfromthefu »

analyte123 wrote: post #456
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.

This is a common sentiment and credit supply is probably a contributing factor to the run up in housing prices. However the value of the asset you’re buying is highly sensitive to interest rates in both directions. It is a bet on decade-long uncontrollable monetary inflation that will also push wages up so you can actually sell or rent the house to someone at the end of it all.

I don't know about uncontrollable inflation, but 2% inflation is the stated target so the bet is that they will keep to the plan.

Then it seems that the reported cpi is consistently lower than reality.

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

#685

Post by hackerfromthefu »

odonnellryan wrote: post #661
hackerfromthefu wrote: post #622

Earlier quoted context omitted.

Please elaborate

Because interest rates don't immediately go up. Because the government has ways to ensure that they do not have to pay too much to service the debt. Because the government doesn't have to issue new debt to pay the old debt. Etc.. etc.. etc..

I don't understand these, let's look at them one at a time.

1)

>> Interest rates don't immediately go up.

But the ops question is what if rates did go up (wouldn't it be unaffordable for the government). So your answer seems to be a different scenario to the one discussed? What am I missing?

2)

>> Because the government has ways to ensure that they do not have to pay too much to service the debt.

What ways, specifically? There's just not enough information to be able to make sense of the answer?

3)

>> Because the government doesn't have to issue new debt to pay the old debt.

Can you explain how this works? If they don't issue new debt, where does the money come from the pay the old debt? It's not like they are going to suddenly come into massive surplus by reducing all other spending is it?

4)

>> Etc.. etc.. etc..

I'm seriously thinking about this question, if there's any real reasons, very interested to hear?

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

#686

Post by odonnellryan »

hackerfromthefu wrote: post #685
odonnellryan wrote: post #661

Earlier quoted context omitted.

Because interest rates don't immediately go up. Because the government has ways to ensure that they do not have to pay too much to service the debt. Because the government doesn't have to issue new debt to pay the old debt. Etc.. etc.. etc..

I don't understand these, let's look at them one at a time. 1) >> Interest rates don't immediately go up. But the ops question is what if rates did go up (wouldn't it be unaffordable for the government). So your answer seems to be a different scenario to the one discussed? What am I missing? 2) >> Because the government has ways to ensure that they do not have to pay too much to service the debt. What ways, specifica…

Just look at these charts:

https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/DGS10

I admit I'm not an expert here - but unless someone comes to be with a really good argument why the US Government is on verge of collapse b/c of raising rates (they are the ones why raise rates!!!) I am not sure how much I need to prove the counterpoint?

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

#687

Post by odonnellryan »

refurb wrote: post #677
odonnellryan wrote: post #663

Earlier quoted context omitted.

Obviously it is not guaranteed bro. We only have history to base these assumptions on. The history backs the fact that housing prices will not go down - unless there is another major issue like the fraud during 2008, which seems unlikely but not impossible. Nothing is a guarantee. Silly to base your argument on that. Nothing is for certain.

Huh? Housing prices crashed several times before 2008. This is the same mentality of 2008. Wave your hands around and say "it's different this time". No, it's not. Housing is cyclical. It goes up, it goes down. It will go down, but but amazingly many will claim "I never saw it coming".

Crashed? What do you consider a crash?

Housing (at least in the US) never crashed if you're not adjusting for inflation.

If you do adjust for inflation, housing was mostly flat.

It is not hard to find this data.

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

#688

Post by odonnellryan »

refurb wrote: post #676
odonnellryan wrote: post #662

Earlier quoted context omitted.

You're just being silly. Just look at the data: https://inflationdata.com/articles/wp-content/uploads/2021/1... It is easy to see that even during insane rates (80s etc) housing prices didn't collapse. They went down a little, but only after adjusting for inflation. :)

The inflation adjustment hides the magnitude of the changes but you may also realize the prices haven’t gone up nearly as much in 1980.

There is also the non-inflation adjusted line there. Nevermind. I think I can tell you're not really interested in having your opinion changed lol

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

#689

Post by hackerfromthefu »

odonnellryan wrote: post #686
hackerfromthefu wrote: post #685

Earlier quoted context omitted.

I don't understand these, let's look at them one at a time. 1) >> Interest rates don't immediately go up. But the ops question is what if rates did go up (wouldn't it be unaffordable for the government). So your answer seems to be a different scenario to the one discussed? What am I missing? 2) >> Because the government has ways to ensure that they do not have to pay too much to service the debt. What ways, specifica…

Just look at these charts: https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/DGS10 I admit I'm not an expert here - but unless someone comes to be with a really good argument why the US Government is on verge of collapse b/c of raising rates (they are the ones why raise rates!!!) I am not sure how much I need to prove the counterpoint?

I didn't think I was asking for expertise, but for actual substance regarding the things you assert.

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

#690

Post by hellojesus »

Ericson2314 wrote: post #578
hellojesus wrote: post #103

Earlier quoted context omitted.

Increased costs lead to decreased demand, which ultimately will dampen further price increases. They're shifting the intersection of supply and demand.

So then inflation will defeat itself by its own, per your reasoning. The actual truth is to the extent raising interest rates does anything at all to prices, it is via reducing employment.

Yes, inflation would burn itself out with permanent price increases in a world where the Fed wasn't holding down the print button.

The goal of increased interest rates is to make borrowing more expensive, which means business and consumers would cut down on investment or loans, since those are good mechanisms for money creation. It slows the velocity of money and therefore demand.

Of course, we also have supply shocks right now which are causing price increases due to scarcity as well.

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