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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

#101

Post by JumpCrisscross »

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On a related note, since mid-April, the Fed has withdrawn –$140B of liquidity from the financial system: https://news.ycombinator.com/item?id=32929454 and earlier this year announced that it plans to continue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 it will take 89 months to unload

The optimal Fed balance sheet is estimated to be around $4tn [1].

A Fed with a ballooning balance sheet distorts financial markets. A Fed with no assets must do weird stuff to fight inflation, which distorts financial markets. (In a non-reserve case, a central bank with no reserves goes bust.)

[1] https://advisors.vanguard.com/insights/article/thefedsplanto...

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

#102

Post by curiousllama »

Victerius wrote: post #72
sbaiddn wrote: post #57

This wont help inflation, interest rates are still effectively negative when inflation is considered. What it will do is rise i interest payments on the US sovereign debt very significantly. The US has two options, as far as I can tell. 1. Slash govt. spending (entitlements and defense) and rise taxes on the laptop class (that's us folks!) 2. Accept structural inflation and high interest rates. The Dollar dominance i…

The dollar survived the Great Depression, Bretton Woods, the oil supply shocks, the abolition of the gold standard, political games of brinkmanship over the debt ceiling, the War on Terror, the Great Financial Crisis, the Volcker shock, and Covid. The dollar's supremacy isn't going anywhere.

Wasn't it Bretton Woods that _established_ USD dominance?

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

#103

Post by bombcar »

unethical_ban wrote: post #76
freeone3000 wrote: post #63

Earlier quoted context omitted.

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.

Mortgages can be refinanced at a lower rate when the market allows, correct?

Correct, however there are costs associated with refinancing (either "built in" or upfront) and in some cases the refinanced loan has fewer protections. For example, a purchase loan in California is non-recourse, but a refinance is not.

However, you can get "trapped" as I did if you bought near a high point, and then interest rates and prices dropped, and since I was now "underwater" I couldn't refinance, even though I was perfectly capable and did continue to pay on the original loan. Eventually the property appraised high enough to refinance again.

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

#104

Post by JamesBarney »

curiousllama wrote: post #85
dcdc123 wrote: post #74

Are rates for investment companies also affected by this? Like if a company wants to buy 30-50 houses to rent out, do they borrow at a similar rate?

> Are rates for investment companies also affected by this? Yes > Like if a company wants to buy 30-50 houses to rent out, do they borrow at a similar rate? [... to regular mortgage borrowers] Typically no

And to expand on that, they usually borrow at a much higher rate than regular mortgage borrows.

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

#105

Post by qeternity »

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.

I agree with your sentiment but this isn’t true, in fact for most of the Fed’s life it was not the primary creator of money.

Fractional reserve banking (which, by definition, the Fed is) creates money. If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money.

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

#106

Post by jazzkingrt »

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.

Many of us have already dealt with a 20% haircut, at least on the RSU portion of compensation.

* Higher cost of borrowing is putting pressure on growth companies that relied on cheap capital

* Economic downturn makes it harder to do business and lowers stock prices, which makes up a big part of any 400K SWE package

* Tech companies can allow RSU grants to expire rather than implementing formal paycuts. Whereas companies in other sectors might lay off 5% of the workforce before giving everyone a 5% paycut, we may see a different trend in tech.

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

#107

Post by selectodude »

bombcar wrote: post #77
idoh wrote: post #56

Earlier quoted context omitted.

Can you elaborate? When I think of tech I think of venture funded (equity side), not debt funded.

The argument is that easy "free money" causes money to flow into equities, and that money goes in search of better returns which includes venture funding. The moment the economy tightens up, suddenly the venture funds have less money. I'm not sure what's causal in it all, but from the outside it certainly looks like that's what happens.

>suddenly the venture funds have less money.

It's not that they have less money, it's just that when 1yr treasuries are paying over 4%, the returns in risk-adjusted investments need to either return a lot more or die.

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

#108

Post by eftychis »

sbaiddn wrote: post #57

This wont help inflation, interest rates are still effectively negative when inflation is considered. What it will do is rise i interest payments on the US sovereign debt very significantly. The US has two options, as far as I can tell. 1. Slash govt. spending (entitlements and defense) and rise taxes on the laptop class (that's us folks!) 2. Accept structural inflation and high interest rates. The Dollar dominance i…

I am not even sure (1) is a practical option. Remember we have increased instability due to the Russo-Ukraine war. Thus, the U.S. Department of Defense is already getting and spending more money all while more money is spent on Ukraine aid -- which ends up in U.S. Defense industry hands. Entitlements not going to change, they should have but we are post pandemic, a lot of things are messy and we are in a midterm election season. And finally taxing the laptop class more might be politically taboo -- see midterm/future election note -- and improbable as a lot of shuffling has been taking place and over taxing might/will scar "unicorns and the VC" system way too much in the long run. Recall, you can't tax capital gains if there are no gains, but huge losses. And the laptop class taxation is based on capital gains I'd say.

Option (3) is already in effect indirectly, due to inflation being world-wide, and Europe being hit much harder due to the conflict.

Like every past pandemic this one is going to hit the economy like a sledgehammer... We failed, once again.

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

#109

Post by bombcar »

dcdc123 wrote: post #74

Are rates for investment companies also affected by this? Like if a company wants to buy 30-50 houses to rent out, do they borrow at a similar rate?

Almost all interest rates are affected by this, because almost all of them are "federal rate + X" - so if the fed rate floats up, so does the amount this company would pay.

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

#110

Post by fckgw »

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.…

Home sales have been falling for several months in all the major US metros though.

We won't see 2008 again but prices will be coming back down to earth from their pandemic rocket ride.

https://www.nar.realtor/blogs/economists-outlook/existing-ho...

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