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Federal Reserve to increase interest rates by 75 basis points for the third time

federalreserve.gov

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Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#41

Post by plandis »

ProfessorLayton wrote: post #28
maxfurman wrote: post #14

I'll echo what some folks have said in other threads, we've had rates down near zero for fifteen years, and we've got to get them back somewhere near historic normals at some point. If only so they can be cut again during the next crisis. How much is our entire culture the result of cheap money?

>we've got to get them back somewhere near historic normals at some point. Not a monetary expert here, but do we? Japan has been at zero/near zero since the mid 90s.

Japans declining population is surely influenced to some extent by their fiscal policy. I don’t think being near as low as it has for them has been a huge success?

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#43

Post by JamesBarney »

mrgalaxy wrote: post #17
changoplatanero wrote: post #9

Earlier quoted context omitted.

Harm to who? Aren’t rate hikes beneficial to entities that have a lot of debt?

I’m no expert here, so someone by all means correct me, but my understanding is that the fed rate correlates to the rate of interest the government has to pay on its debts. The higher the rate, the larger the chance that the government defaults which for the US would be catastrophic.

The US can't be forced to default. They can literally print money.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#44

Post by boiler_up800 »

I am seeing companies really start to feel these rate hikes and the corresponding market moves. I can’t tell where we are in the correction but it is definitely not at the start. I just hope it’s somewhere close to the middle.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#45

Post by plandis »

dougmwne wrote: post #13

Given that mortgage rates recently rose past 6%, seems to me this latest rate increase is going to put strong pressure on house prices. The rate has a huge impact on the monthly payment required to service a loan, more so than is immediately apparent without doing the math.

Good time to buy if you’re wealthy with cash on hand.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#46

Post by xyzzyz »

changoplatanero wrote: post #9
maxfurman wrote: post #7

Earlier quoted context omitted.

My understanding is that the US has so much more debt now than we did in the 80s that a rate hike of that magnitude would cause too much harm for the Fed to stomach.

Harm to who? Aren’t rate hikes beneficial to entities that have a lot of debt?

To US government. It holds a lot of short term debt that it continuously rolls over into new short term debt. If the rate go up, new short term debt will become much more expensive to service.

Here is a simple example with made up (but not completely off base) figures. Assume US government has debt amounting to 100% GDP. Assume also that it collects taxes amounting to 20% of GDP. If rates are 2%, then interest payments are 2% of GDP, which is 10% of the budget. Now, if bond rates go to, say, 6% (current mortgage rates), then interest payments are 6% of GDP, which is now actually 30% of the budget.

Basically, at high debt-to-GDP ratio, small changes in the interest rates cause huge swings in how much budget is spent on interest payments. This money has to come from somewhere, and more debt is only a short term answer.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#47

Post by bombcar »

mrgalaxy wrote: post #17
changoplatanero wrote: post #9

Earlier quoted context omitted.

Harm to who? Aren’t rate hikes beneficial to entities that have a lot of debt?

I’m no expert here, so someone by all means correct me, but my understanding is that the fed rate correlates to the rate of interest the government has to pay on its debts. The higher the rate, the larger the chance that the government defaults which for the US would be catastrophic.

https://www.crfb.org/blogs/just-how-big-are-federal-interest...

> According to the Congressional Budget Office's (CBO) latest baseline, the federal government will spend $400 billion on interest payments on the national debt this fiscal year (FY). That's equivalent to just over 8 percent of all federal revenue collections and roughly $3,055 per household ... Interest costs and the national debt could be even higher if interest rates continue their upward trajectory and outperform CBO's latest economic forecast. Each one percentage point increase in interest rates would increase FY 2022 interest spending by $38 billion at today's debt levels.

As the interest rate increases, those payments increase also - this is money that is spent and doesn't "get us anything more" - it's just maintaining the current debt load. The site linked is obviously arguing for "spend less money" but the math checks out, and if the debt never goes down interest rates can have a major effect. (Now sure, some/most of this debt is paid to the government itself.)

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#48

Post by jhallenworld »

markus_zhang wrote: post #3

I'm wondering if they are going to bite the bullet and raise like Volcker. But again I realized that I actually do not understand the source of inflation and how much contribution each source has. We all know that the war, Covid and monetary policy are three sources but are there other structural sources? What about the trade quarrel between US and China? How much does it hurt for each industry? I should read some pa…

>I actually do not understand the source of inflation

I think this is the source of the problem:

https://www.bls.gov/charts/employment-situation/civilian-lab...

Demand is coming from 100% of the population, but supply comes only from those who are working. Thanks to Covid, the supply of workers is less, but also there is a long term trend (maybe compensated for by productivity gains..)

It's interesting to compare it with this one:

https://www.bls.gov/charts/employment-situation/employment-p...

This one shows the percent of people working of employment age. This doesn't look so bad, but the people not of employment age also create demand.

IMHO, the only price that really matters is the cost of labor (no matter what they say). IMHO, because the value of money is defined by average annual salary (the real value is work, not money).

https://fred.stlouisfed.org/series/CES0500000003

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#49

Post by mberning »

donsupreme wrote: post #27

there is a whole generation of SWE who will face the reckoning that $400K total comp with RSU is far from the norm

Something dramatic is going to have to happen for SWE salaries to drop significantly. I have a feeling if SWEs take a 20%+ haircut on salaries things are going to be absolutely abysmal for people in other roles.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#50

Post by friedman23 »

dougmwne wrote: post #13

Given that mortgage rates recently rose past 6%, seems to me this latest rate increase is going to put strong pressure on house prices. The rate has a huge impact on the monthly payment required to service a loan, more so than is immediately apparent without doing the math.

As someone that has been exploring real estate for the first time, after speaking with some people it seems that mortgages have generally been less expensive than rent? Good luck finding something like that with today's prices and interest rates.
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