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Federal Reserve to increase interest rates by 75 basis points

federalreserve.gov

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Re: Federal Reserve to increase interest rates by 75 basis points

#181

Earlier quoted context omitted.

Probably just my pet peeve, but everyone conflates inflation with CPI. We've had the ridiculous inflation starting in 2008 (and doubling down in 2020), now we're seeing the CPI. Why this matters (just my theory): previously all that new money went to banks, the stock market, VC, etc., not so much directly to consumers. So we saw the stock market explode, but not so much for the price of eggs. Now we have supply chain…

> everyone conflates inflation with CPI. We've had the ridiculous inflation starting in 2008 (and doubling down in 2020) You may be confusing money supply with inflation. Inflation measures price levels. We haven’t had “ridiculous inflation” since 2008. (In the early parts of the crisis we actually deflated.) CPI is a good measure of inflation, albeit one among many.

we had crazy asset inflation, which is what he is probably talking about.

Re: Federal Reserve to increase interest rates by 75 basis points

#182
post #87

I'm skeptical that interest rate hikes will curb inflation. I'm even skeptical that a recession will curb inflation. We have significant shortages of so many products and services that people rely on and the only way I see the situation improving is if supplies increase, maybe dramatically. It's too difficult to curb demand for things like food and housing if the population is growing. Those are things we just need t…

> It's too difficult to curb demand for things like food and housing if the population is growing. It's also difficult (impossible) to curb demand for housing if housing is far and away the best investment you can possibly make, both in the short, medium, and long-term. Unfortunately, so many people in the west have their net worth tied up in their homes that policies directly targeting property values is political s…

> Unfortunately, so many people in the west have their net worth tied up in their homes that policies directly targeting property values is political suicide.

I long ago concluded that the only way to escape high housing costs is to leave high cost of living places. No reform large enough to make a real dent is politically feasible, and in some overpriced cities the sheer amount of construction that would be required to ease demand is itself problematic.

My generation (late gen-X / early gen-Y) was all about moving to cool cities and living where you want, but I don't think this works anymore. If you move to a place like New York or San Francisco without the move bringing with it a job that pays more than the real estate cost increase, you will never be able to accumulate wealth. Much of your surplus will be eaten by rent and you'll never be able to get on the ownership side where you can accumulate home equity because the rent won't let you gather a large enough down payment or buffer. (The prices are so high even a 5% down payment can be pretty sizable and you won't get a loan on decent terms for less than that.)

When these hipster urbanism trends got going the market was very different. It was right after the great urban crime wave of the early 1990s. Urban real estate was underpriced and going urban was seen as very contrarian, even bizarre and frightening. Going downtown meant affordable housing with nearby walkable stuff, cool old architecture (including those old school warehouse lofts... try getting one now!), and cool people. The underpriced real estate and semi-abandoned old buildings also provided a ton of "marginal space" for wild parties, underground performances, art, and all kinds of cool stuff.

Then the prices went absolutely crazy starting in the early 2000s and exploding after the re-inflation of the housing market post-2008. The core problem is that price signals didn't work. There should have been an urban building boom as more people urbanized, but a combination of NIMBYism and bad zoning largely prevented it. Demand went up and supply did not and grade school economics tells you the rest.

Personally I think the value proposition is gone now. Not only are the prices nuts but the cool stuff that provided a big part of the draw is all priced out. If I were 20 I would stay away from inflated real estate markets.

The only exception might be moving to one of them for a short while to build your career and then leaving. That may still make sense. But don't plan to settle there unless you land a massively high paying job. E.g. I would not stay in the SF Bay Area for less than $350k/year. If you're not in a field with high earning potential just forget about those places.

I'm seeing a quiet trend these days of artists and other creators working in areas that don't pay as handsomely as tech moving to small towns, and not even necessarily the "hot" cool ones. There are a few small towns in the Appalachian region that have become little artist havens.

Re: Federal Reserve to increase interest rates by 75 basis points

#183

Earlier quoted context omitted.

> It's also difficult (impossible) to curb demand for housing if housing is far and away the best investment you can possibly make, both in the short, medium, and long-term. Rapid population decline. The coronavirus helped in this regard.

not when you want to import the rest of the world. I mean immigration, ofcourse. Now before downvoting, understand that exactly this has been the strategy of canadian government to keep property prices up.

To keep property prices up or to deal with an aging population / lack of manual labor?

Re: Federal Reserve to increase interest rates by 75 basis points

#184

I'm skeptical that interest rate hikes will curb inflation. I'm even skeptical that a recession will curb inflation. We have significant shortages of so many products and services that people rely on and the only way I see the situation improving is if supplies increase, maybe dramatically. It's too difficult to curb demand for things like food and housing if the population is growing. Those are things we just need t…

The Russians curbed inflation at the start of the war quite effectively ... by raising interest rates to 20%.

Russia has stopped imports of many vital goods and industrial machinery, and the economy will likely seize up at one point after spare parts for machinery, etc. runs out

Re: Federal Reserve to increase interest rates by 75 basis points

#185

I wonder if people are starting to question if the magnitude of the Covid response was justified now the bill is becoming due? Is anyone willing to put their head above the parapet of supporting the shutdowns and now realising it wasn’t worth the cost? Huge inflation, generational debts, increased poverty, broken systems left right and centre etc etc. Or does Putin get all the credit?

I think that if we have to choose between letting hundreds of thousands of additional people die, or having a healthy economy, we utterly failed our priorities as a society long before the pandemic started.

Re: Federal Reserve to increase interest rates by 75 basis points

#186
It seems from the statement that the fed understands that the inflation is being caused by supply chains and the war in Russia. What I don't get though is how that's considered monetary inflation as opposed to the money supply increasing. I thought that it was just price increases.

So the fed mandate is just to ensure that the prices of goods and services barely ever changes even if it means tanking all the markets?

Re: Federal Reserve to increase interest rates by 75 basis points

#187

Earlier quoted context omitted.

Probably just my pet peeve, but everyone conflates inflation with CPI. We've had the ridiculous inflation starting in 2008 (and doubling down in 2020), now we're seeing the CPI. Why this matters (just my theory): previously all that new money went to banks, the stock market, VC, etc., not so much directly to consumers. So we saw the stock market explode, but not so much for the price of eggs. Now we have supply chain…

> everyone conflates inflation with CPI. We've had the ridiculous inflation starting in 2008 (and doubling down in 2020) You may be confusing money supply with inflation. Inflation measures price levels. We haven’t had “ridiculous inflation” since 2008. (In the early parts of the crisis we actually deflated.) CPI is a good measure of inflation, albeit one among many.

That stock market bull run from 2008 with crazy all-time-high P/E ratios? That's inflation. We just don't include security prices in CPI because it's not politically expedient to let the poors know they're getting priced out of having a meaningful stake in the economy.

Re: Federal Reserve to increase interest rates by 75 basis points

#188
post #153

Considering The Fed's abysmal track record, I fear the only outcome of this is more boom and bust cycles. Maybe we would be better off without Fed and Treasury intervention.

The fed and it’s macroeconomic policy is one of the biggest reasons for economic growth in the post world war 2 era. Obviously they’re not perfect, but they’re the main reason we don’t have 40 year recessions anymore like we did in the 19th century.

Re: Federal Reserve to increase interest rates by 75 basis points

#189
Why does the Fed write the way it does?

First, this article buries the lede. The first seven sentences are framing. Only sentences 8-9 are actually news. The next four are, again, context. The headline also does not actually say what happened.

Second, of the fourteen sentences here, a full six are trivially true -- "The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run." & everything from "The Committee is strongly committed to returning inflation to its 2 percent objective" through "The Committee's assessments will take into account a wide range of information". These are all obvious and don't add any actual information -- or maybe they do and it requires more cultural knowledge than I possess to read between the lines?

Third, use of jargon, e.g. "Recent indicators of spending and production have softened". WTH does 'softened' mean? From context, I'm guessing it means "show evidence of decelerating growth." Why not just say that?

Fourth, hyperlinks? references? Why not provide links to the economic data that's informing the decision?

Molly Young has a great article called "Why do cdorporations speak the way they do?" [0] that provides a compelling account of exactly that. Do we have something similar for the Fed? Or for bureaucracies in general?

[0] https://www.vulture.com/2020/02/spread-of-corporate-speak.ht...

Re: Federal Reserve to increase interest rates by 75 basis points

#190
post #164

What is being to address the price gouging by companies? Oil and gas companies are seeing record profits, how can it be just inflation that costs are going up?

How exactly can a company price-gouge in a free market? First, nobody is compelled to buy anything from them. Second, anyone else is allowed to become a supplier, and easily make a fortune by offering a cheaper price. And the only thing that prevents the above from being true, is oppressive government policies that undermine the freemarket, which are sold to the people as "for their protection".

Unfortunately the (usually imported) gasoline car is somehow heavily tied into the image of the American dream. While I am no fan of Tesla (mostly because of right to repair), it baffles me that a patriot would choose an imported car that uses Russian gasoline over an American-designed car that uses American-produced energy.

While it is definitively a free market, it isn't in practicality.

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