Federal Reserve to increase interest rates by 75 basis points for the third time • Hacker News Board

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

#91

Post by hot_gril » Wed, Sep 21, 2022, 6:58 PM UTC

paulpauper wrote: post #53

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.

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. People keep hoping or expecting this, yet prices keep going up. As long as wages for top earners keep rising, so will demand in expensive areas.…

I look at rent to gauge the real cost of living somewhere, cause that takes land speculation out of the equation. It seems like house prices in expensive areas have been rising way more quickly than rent.

So yes, I expect this rate hike to cause a big dump in house prices. In a few months or so I'll be right or wrong.

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

#92

Post by JamesBarney » Wed, Sep 21, 2022, 6:58 PM UTC

Alex3917 wrote: post #35

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.

Startups generally have only very limited (if any) access to money anyway, so making money more expensive for established companies is probably a net positive for folks who are legitimately trying to start real software businesses.

Not really. The money a startup is going to make is farther in the future than an established company.

If you look at discounted future cashflow, a startup as an investment opportunity is much more influenced by the interest rate than an established company because a larger % of the value is coming from money farther in the future.

Basically 20% of net present value of Microsoft comes from the money it'll make next year and 5% from the money it'll generate 5 yrs from now.

But a startup is the opposite where 0% of the value of the startup comes from the profit it'll make next year, and 20% from the profit it'll make in 5.

And when interest rates change it reduces the present value of the profits in 5 years by far more than it reduces the profits next year. Reducing the value of the startup relative to Microsoft, reducing the startups ability to get funded more than Microsofts.

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

#93

Post by HelloMcFly » Wed, Sep 21, 2022, 6:58 PM UTC

sbaiddn wrote: post #38

ProfessorLayton wrote: post #28

Earlier quoted context omitted.

>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.

They've also been stagnant since the 90s

This is an honest question borne of ignorance: in what ways does that matter? I'm sure it does, but people over there are employed, they have a larger safety net, more accessible healthcare access AND better outcomes, seemingly less crime, education seems to be something of a wash (though there is so much variability in the US it's almost a waste of time to do a nation-to-nation comparison).

I only know the major bullet points though, and I haven't found this terribly easy to parse myself. I'm also quite confident that stagnation in the US would manifest differently (not that it must but that it would) so this is really just overall curiosity.

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

#94

Post by Victerius » Wed, Sep 21, 2022, 6:58 PM UTC

Analemma_ wrote: post #79

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?

What does "historic normals" mean? Obviously rates need to be going up right now, but if you look at the very long (i.e. centuries) trend of natural interest rates, there's a clear monotonic downward trend. Who's to say the natural rate of interest isn't zero?

8-15%. I'm looking forward to it. It'll force more people to be more financially responsible. No one should finance furniture, ATVs, or electronics. If you can't pay cash for these things, save, or don't buy.

Edit: @Analemma That's just the extreme end of the scale. 30yr fixed mortgage rates were above 10% during all the 1980s[♤]. I'd like to see a return to that.

[♤] https://fred.stlouisfed.org/series/MORTGAGE30US

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

#95

Post by greatpostman » Wed, Sep 21, 2022, 6:58 PM UTC

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.

This is an insane assertion. The fed has made consistent huge mistakes in monetary policy. No serious investor or public financial figure thinks these cheap rates were necessary

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

#96

Post by a-user-you-like » Wed, Sep 21, 2022, 6:58 PM UTC

hot_gril wrote: post #65

JamesBarney wrote: post #60

Earlier quoted context omitted.

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.

Yep, we print 40% of all known money in the last 2 years, needlessly lock everyone down, and then complain that the rent is too damn high

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

#97

Post by collegeburner » Wed, Sep 21, 2022, 6:59 PM UTC

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…

oh c'mon. there wasn't really precedent for QE before '08 and they did it anyway. there sure ash wasn't precedent for buying corp debt ETFs as a even more radical form of QE in '20. the fed did those anyway but now that they're trying to wind it down that's somehow radical and needs a "innocuous term"??

$90B/month isn't even making much of a dent in the balance sheet.

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

#98

Post by throw_nbvc1234 » Wed, Sep 21, 2022, 6:59 PM UTC

mberning wrote: post #49

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.

What time scale are you thinking of? Short-term 20% haircut seems inevitable compared to 1-2 years ago with the caveat that nothing may be forcing you to sell any vested RSUs.

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

#99

Post by ryandrake » Wed, Sep 21, 2022, 6:59 PM UTC

paulpauper wrote: post #53

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.

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. People keep hoping or expecting this, yet prices keep going up. As long as wages for top earners keep rising, so will demand in expensive areas.…

Prices are not dropping, but sales are drastically slowing down and properties are staying on the market for longer. At least in the Bay Area, a few months ago it was unheard of for a home to stay on the market a month. Now they're sitting there. Definitely think rates are affecting how much buyers are willing to spend.

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

#100

Post by paulpauper » Wed, Sep 21, 2022, 7:00 PM UTC

hot_gril wrote: post #91

paulpauper wrote: post #53

Earlier quoted context omitted.

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. People keep hoping or expecting this, yet prices keep going up. As long as wages for top earners keep rising, so will demand in expensive areas.…

I look at rent to gauge the real cost of living somewhere, cause that takes land speculation out of the equation. It seems like house prices in expensive areas have been rising way more quickly than rent. So yes, I expect this rate hike to cause a big dump in house prices. In a few months or so I'll be right or wrong.

So yes, I expect this rate hike to cause a big dump in house prices. In a few months or so I'll be right or wrong.

But it's also possible that it's priced in. It's been expected for the past 6 months the fed would raise rates a lot.