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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

#61

Post by mym1990 »

arberx wrote: post #34
ferdowsi wrote: post #16

Earlier quoted context omitted.

A substantial chunk of the tech industry are speculative zombie companies that are built on the edifice of zero interest.

Since tech companies use other tech company's products this implies the tech industry is a speculative bubble.

I'm not sure dependency implies a bubble, rather a risk. For companies like Amazon(AWS), there certainly is an element of being too big to fail because AWS and similar cloud operations provide so much of the infrastructure for other applications.

The bubble can clearly be seen by the disassociation of valuations from the underlying value, which for many new companies is nothing.

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

#63

Post by freeone3000 »

friedman23 wrote: post #50
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.

If this isn't true for your area, the general advice is to wait a few years. Your mortgage payments are locked in, rent increases year-over-year at single- or double-digit percents.

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

#64

Post by dageshi »

maxfurman wrote: post #7
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…

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.

Inflation was high for quite a number of years before volker, they kept raising rates but then backed off from the economic pain and never succeeded in killing it completely. Volker came in and raised rates to the point where inflation was done.

The point being, they can try to kill it first time, or maybe they have to raise even higher later on which would be even worse for the problem you're talking about.

Also, they're on record as being fully aware of this.

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

#65

Post by hot_gril »

JamesBarney wrote: post #60
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?

People get this backwards all the time. The fed did not cause cheap money, an aging population, sovereign wealth funds, and increasing inequality caused cheap money. The fed just responds by setting the interest rate to appropriately set the interest rate so we have full employment.

The Fed creates money, which nothing else can do. Of course the money supply has its own ebb and flow from private banks and such offering loans, but it's hard to ignore M2 doubling every 10 years.

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

#67

Post by collegeburner »

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.

there's a joke in economics. there's 4 types of economies: developed, developing, japan and argentina. japan is weird ash and economics still doesn't understand why but it's a pretty safe bet that it won't translate super well to America.

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

#68

Post by wbsss4412 »

cs702 wrote: post #39

On a related note, since mid-April, the Fed has withdrawn –$140B of liquidity from the financial system: https://news.ycombinator.com/item?id=32929454 and earlier this year announced that it plans to continue withdrawing liquidity from the financial system at the rate of $90B/month for the foreseeable future. The innocuous term for these withdrawals is "quantitative tightening." There are no historical precedents for…

Note that many people on this and other forums have been talking about how the fed just prints money forever and is out of control. This is them destroying money.

It might not be enough for you personally, but let’s not pretend that money printing only goes in one direction.

Note: as a base expectation, you want to be printing a small amount of money unless circumstances dictate otherwise. In a growing economy, if the growth in the money supply doesn’t keep up with growth, you’ll eventually see deflation. This is explained by the following identity (where the velocity of money is typically observed to be fairly constant):

[Price] * [output] = [velocity of money] * [money supply]

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

#69

Post by cs702 »

slaw wrote: post #51
cs702 wrote: post #39

On a related note, since mid-April, the Fed has withdrawn –$140B of liquidity from the financial system: https://news.ycombinator.com/item?id=32929454 and earlier this year announced that it plans to continue withdrawing liquidity from the financial system at the rate of $90B/month for the foreseeable future. The innocuous term for these withdrawals is "quantitative tightening." There are no historical precedents for…

at $90B/month it will take 89 months to unload.

$90B/month = $1.1T/year in withdrawals of liquidity from the financial system.

A trillion here and trillion there, and pretty soon we'll be talking about real money.

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

#70

Post by randomdata »

friedman23 wrote: post #50
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.

Rent has skyrocketed recently, largely because people are afraid to buy houses right now, thus more demand for rental units. A mortgage may still be cheaper if you can stomach the reality that you might quickly end up underwater.

That said, if you have rent control locked in, the choice is likely easy.

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