Federal Reserve to increase interest rates by 75 basis points • Hacker News Board

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

#211

Post by kelnos » Wed, Jul 27, 2022, 7:28 PM UTC

mjr00 wrote: post #87

mywittyname wrote: post #47

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…

Wait, so you want to prohibit individual landlords in favor of large corporations managing the country's rental stock? That sounds like a perfect recipe for monopolistic behavior. And significantly raises the barrier for new entrants into the market.

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

#212

Post by 8note » Wed, Jul 27, 2022, 7:28 PM UTC

standardUser wrote: post #60

nodesocket wrote: post #10

Now if we can only get states (like California) to stop giving out stimulus payments (they literally calling it inflation stimulus; learn economics 101) and drop student debt forgiveness nonsense. The fed is trying to curb inflation, while politicians are trying to get re-elected at any cost, fighting the fed.

Raising taxes on the wealthy could offset any changes to the money supply caused by a slightly more generous welfare state. An obvious solution.

That's unlikely to reduce demand though. If the inflation is trigger by a lack of supply for things poor people want, taxing the rich won't change anything

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

#213

Post by pessimizer » Wed, Jul 27, 2022, 7:29 PM UTC

650 wrote: post #200

RIMR wrote: post #185

Earlier quoted context omitted.

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.

"Every one percent unemployment goes up, 40,000 people die" – this comes from the film The Big Short.

Unemployment is historically low.

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

#214

Post by sfe22 » Wed, Jul 27, 2022, 7:29 PM UTC

throwaway4good wrote: post #96

mywittyname wrote: post #47

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%.

The US is bankrupt at 10% interest rate. Russia’s economy was in much better shape than us.

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

#215

Post by nonameiguess » Wed, Jul 27, 2022, 7:30 PM UTC

nonameiguess wrote: post #194

colinsane wrote: post #56

anyone know of bullet-proof analyses into central banking policy out there? after dealing with crypto projects that offer high interest rates, and do so by just inflating their token supply, fed policy seems magical to me. the fed’s offering you yield on your dollars, and that yield comes from printing new dollars (right? there’s no tax increase as part of this announcement). your share of dollars stays constant. so…

This is the exact opposite of what the Fed does. They have many instruments by which to influence interest rates, but mostly what they do is target the federal funds rate. This is the rate at which banks lend to each other overnight. The Fed mostly hits the target rate in two ways. One, by directly lending at the top of band rate and borrowing at the bottom of band rate, so banks will never lend to each other outside…

Reading my answer after posting, I think your confusion is really coming from the way bond pricing works, not anything to do with central banking. The price of a bond is determined by a pretty simple formula, P = M / (1 + i)^n, where P is the market price, M is the redemption value at maturity, i is the interest rate per period, and n is the number of periods at which interest is paid. Since interest rate is in the denominator, this means a higher interest rate bond has a lower market value and vice versa. Thus, boosting the market value of a US Treasury instrument by buying them decreases the interest rate they need to offer to sell them. But, boosting the market rate also increases the capital gains of current owners of the bonds who sell them to you. The "yield" on a bond is only fully determined by the interest rate if you actually hold it to maturity.

Some of the mechanisms at play here overlap with cryptocurrencies, but a lot of them don't. Cryptocurrencies have no maturity value or coupon payments, so the yield on holding them is entirely determined by capital gains. Nothing else. This isn't the same thing as an "interest rate" in the sense that it means with bonds. The Fed is decreasing the interest rate of new Treasury offerings, but also increasing the capital gains of current owners of Treasuries. So the interest rate decrease is a bad thing for people who want to buy new debt, but a good thing for holders of current debt.

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

#216

Post by JumpCrisscross » Wed, Jul 27, 2022, 7:32 PM UTC

throwaway4good wrote: post #198

JumpCrisscross wrote: post #134

Earlier quoted context omitted.

> by raising interest rates to 20% And confiscating hard currency and implementing capital controls.

I think we (the west) did that ...

> we (the west) did that

Some countries implemented capital controls in the crisis. Some haircut depositors, which is akin to (but still quite distinct from) seizure. Neither happened in America.

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

#217

Post by beiller » Wed, Jul 27, 2022, 7:32 PM UTC

pbk1 wrote: post #103

mjr00 wrote: post #87

Earlier quoted context omitted.

> 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…

> if housing is far and away the best investment you can possibly make, both in the short, medium, and long-term. citation needed? genuinely curious - are there studies about long-term returns from housing vs. other asset classes (namely public equities)?

There is a lot of research suggesting that housing is not the best investment compared to equities. Many people conflate leverage with real-estate investment. If you apply the same leverage to equities they will far and away outperform real-estate. Try S and P 500 calculator with dividend reinvestment to get an idea. In my opinion, if real-estate out-paces equities or other forms of investment, then we barrel towards a world where no one can afford to save for shelter any more which doesn't make sense, but that's just my opinion. Unfortunately, real-estate is still a profitable investment, and small piddly fed rate hikes won't change that any time soon.

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

#218

Post by staticman2 » Wed, Jul 27, 2022, 7:32 PM UTC

setgree wrote: post #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 employmen…

Second, of the fourteen sentences here, a full six are trivially true

None of those things are trivially true to people who regularly post contrarian and/or conspiracy theory takes about the fed on this very web site. It makes sense for the fed to restate these "trivial" matters rather than ceding the discussion to "alternative" facts spread by contrarians.

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

#219

Post by lazerpants » Wed, Jul 27, 2022, 7:32 PM UTC

zamalek wrote: post #190

ta8645 wrote: post #164

Earlier quoted context omitted.

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.

Most Americans are using gasoline produced from crude drilled by Americans, Canadians, workers in Saudi Arabia, and Mexicans, that has been refined by Americans, in America, and supporting jobs in those countries. Russia accounted for only 3% of total crude imports before the war. Yes, the environmental impact is negative, but lets not pretend the relatively high wages in oil and gas jobs doesn't help American workers.

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

#220

Post by kelnos » Wed, Jul 27, 2022, 7:34 PM UTC

enragedcacti wrote: post #166

pbk1 wrote: post #103

Earlier quoted context omitted.

> if housing is far and away the best investment you can possibly make, both in the short, medium, and long-term. citation needed? genuinely curious - are there studies about long-term returns from housing vs. other asset classes (namely public equities)?

My understanding is that it shakes out to a couple of things: 1) while not beating the S&P, historical returns on real estate are pretty good and less volatile 2) There are a number of significant tax advantages to home ownership 3) you can't live inside a stock. Building equity instead of paying rent is a good thing 4) you can rent it out, making it pay for itself while accruing value as long as you are willing to a…

> Building equity instead of paying rent is a good thing

That depends heavily on your goals. I hear this a lot, but it always reads to me like people think equity just magically happens when you buy a home (with a mortgage). No, you have to put money into it monthly, and a portion of that goes to pay of principal, which builds equity.

Whether or not putting that money into a large, fixed, illiquid asset (versus stocks/bonds) is a good idea... well, it depends. Personally, if I could get an interest-only mortgage with a reasonable interest rate (for my primary home), I would probably go for it. I personally don't care all that much about building equity, and I'd rather free up that cash for other investments.

Of course, many people would use the option of an interest-only mortgage in order to buy even more house than they can afford, instead of for the purposes of freeing up cash, and then end up in dire financial straits, as we saw in the 00s.

Also, re: paying rent vs. building equity: yes, I do have a larger space than when I was renting, but I am also paying more than my last rent, in property tax + mortgage interest + HOA dues. That's money that's just as equivalently "thrown away" as if I was just renting. I don't regret this decision, but let's not pretend that renting is throwing away money, and owning is perfect use of money.