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Federal Reserve raises rates by 0.75%

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Re: Federal Reserve raises rates by 0.75%

#81

Post by jejeyyy77 »

nostromo wrote: post #4

It seems the Fed is stuck in a state of overreaction. First they overshoot on money printing, then they disregard early signs of inflation, and now they're in a panic in the opposite direction. Seeing the news this week that Bernanke said that the Fed should be able to pull off a soft-landing now in 2022 gave me an uncomfortable déjà vu -- he said the same in 2006 and 2007, right before he raised rates enough to kick…

This. Even in today's announcement, they seemed behind again claiming "American companies are in a strong position to weather through" - but we are already seeing mass layoffs and hiring freezes.

Re: Federal Reserve raises rates by 0.75%

#82

Post by darth_avocado »

mark_l_watson wrote: post #17

You can argue either side to this, and make a good case. My personal preference is to trigger a recession and reduce inflation. The easy cop-out solution is to say a "big f*ck off" to pensioners, lower middle class, and poor people and let inflation soar, but I believe that long term this would be more destructive to the general economy. Better take the long term view here and not kick the can down the street.

Here's another perspective to this. An induced recession at a time when most people and businesses are recovering from historic losses that came about in the pandemic, is the worst.

In a recession, spending from the top 10% of the population slows down, which in turn stops the trickle down economics, and hits the lower 90% of the society the hardest. And when that happens after a 2 year long period where they were already hit hard, the effects will be even more long lasting.

[Edit]: Since most of you latched on to the argument that "trickle down economics" doesn't work, I'll clarify. Outside the rhetoric of "Billionaires are hoarding all the money", in a healthy economy, trickle down economics is how most of the businesses work. Every time a person earning six figures goes out buys that extra pair of shoes or goes on that extra vacation or orders in food because they were feeling lazy, it's trickle down economics. It works. When the people with higher purchasing power (I said top 10% for a reason and not top 0.1%) feel the pinch, it has a disproportionate impact on people with less money to spare.

Re: Federal Reserve raises rates by 0.75%

#83

Post by toomuchtodo »

Someone1234 wrote: post #79
mark_l_watson wrote: post #17

You can argue either side to this, and make a good case. My personal preference is to trigger a recession and reduce inflation. The easy cop-out solution is to say a "big f*ck off" to pensioners, lower middle class, and poor people and let inflation soar, but I believe that long term this would be more destructive to the general economy. Better take the long term view here and not kick the can down the street.

Inflation is largely being driven by import problems and oil prices, therefore, it is unclear if a recession is a golden key to lower inflation. Keep in mind that oil is internationally expensive, and even a reduction in the US may not bring down prices significantly . So we could see recession AND inflation at the same time. Then tack on higher interest rates, and everything goes squish.

The Fed can only manage monetary policy. If Congress wants to fix the petroleum energy crisis with policy, it has the tools to do so.

Re: Federal Reserve raises rates by 0.75%

#84

Post by lpasselin »

Mountain_Skies wrote: post #41
djbusby wrote: post #12

Earlier quoted context omitted.

How does IRS win here?

Unless the tax brackets are adjusted, inflation with rising wages means more people in higher tax brackets. If corporate earnings go up, there's more for the IRS too though that might be wiped out by the lessening value of each dollar.

Are you saying the IRS does not adjust tax brackets to follow inflation properly?

Re: Federal Reserve raises rates by 0.75%

#85

Post by whimsicalism »

jgust wrote: post #69
whimsicalism wrote: post #35

Earlier quoted context omitted.

Day 212 of HN forgetting that velocity is a thing. [0] [0]: https://fred.stlouisfed.org/series/M2V

What's the ELI5 version of how to interpret this trend line?

The basic Fisher equation of exchange is that

Velocity * Money Supply = Price Level (changes in this are inflation) * Economic Output

During early pandemic, velocity tanked because people were spending less so it was not a foregone conclusion that increasing the money supply as much as the Fed did would lead to inflationary changes in the price level.

Now, we are seeing velocity somewhat rebound while output is not increasing as much as we would expect and the Fed is doing little to scale back money supply.

Re: Federal Reserve raises rates by 0.75%

#87

Post by cavisne »

dnadler wrote: post #26

Something I haven’t seen discussed much is the impact of inflation on the existing federal debt. This is actually a positive for taxpayers as the federal debt will become cheaper. Obviously we’re still spending a ton and are issuing debt at higher rates now, so it’s not some kind of magic cure or anything.

Is the debt rate fixed on federal debt? I can’t find much info on this.

Ie if the fed funds rate doubles what’s the impact on the interest rate payments the government makes.

Re: Federal Reserve raises rates by 0.75%

#88

Post by Aloha »

toomuchtodo wrote: post #83
Someone1234 wrote: post #79

Earlier quoted context omitted.

Inflation is largely being driven by import problems and oil prices, therefore, it is unclear if a recession is a golden key to lower inflation. Keep in mind that oil is internationally expensive, and even a reduction in the US may not bring down prices significantly . So we could see recession AND inflation at the same time. Then tack on higher interest rates, and everything goes squish.

The Fed can only manage monetary policy. If Congress wants to fix the petroleum energy crisis with policy, it has the tools to do so.

High gas prices are mostly a function of insufficient refining capacity, short of the government building more, I dont see a policy fix here. The market is responding to the probability of an electric future.

Re: Federal Reserve raises rates by 0.75%

#89

Post by QuarterReptile »

maerF0x0 wrote: post #51
dnadler wrote: post #26

Something I haven’t seen discussed much is the impact of inflation on the existing federal debt. This is actually a positive for taxpayers as the federal debt will become cheaper. Obviously we’re still spending a ton and are issuing debt at higher rates now, so it’s not some kind of magic cure or anything.

Sort of. But the government also has a deficit. Which means it's exchanging low % notes for high % notes.

Nitpick:

Bonds coming to term means it's exchanging low% for high %. Deficit means that the problem accelerates even faster than that, because the total value of bonds continues to increase.

Re: Federal Reserve raises rates by 0.75%

#90

Post by Retric »

JumpCrisscross wrote: post #20
mark_l_watson wrote: post #17

You can argue either side to this, and make a good case. My personal preference is to trigger a recession and reduce inflation. The easy cop-out solution is to say a "big f*ck off" to pensioners, lower middle class, and poor people and let inflation soar, but I believe that long term this would be more destructive to the general economy. Better take the long term view here and not kick the can down the street.

> personal preference is to trigger a recession and reduce inflation These aren't binary outcomes. Tight money does nothing to ease supply-side bottlenecks. It does little to target demand displaced by rising energy prices. If those are the principal drivers of inflation, tightening could depress non-energy demand in a way that causes a recession without alleviating inflation. Stagflation. (To be clear, we're not at…

It keeps supply side bottlenecks from being inflated with cheap money.
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