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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

#111

Post by willturman »

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On a related note, since mid-April, the Fed has withdrawn –$140B of liquidity from the financial system: https://news.ycombinator.com/item?id=32929454 and earlier this year announced that it plans to continue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

Here is the historical (since 2004) time series and data: https://fred.stlouisfed.org/series/WALCL

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

#112

Post by hot_gril »

paulpauper wrote: post #100
hot_gril wrote: post #91

Earlier quoted context omitted.

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.

Could be. There's a recent dip in median Sunnyvale home prices that might be this, but I wasn't following the news enough to tell how closely the Fed decision aligned with expectations.

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

#113

Post by curiousllama »

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.

> I have a feeling if SWEs take a 20%+ haircut on salaries things are going to be absolutely abysmal for people in other roles.

Other roles have more direct analogues in other industries that keep compensation stickier. Eg, corporate finance/strategy/legal/etc can just transition industries pretty cleanly, with similar comp. They get paid less in the good times, true, but if the downturn is concentrated in tech, other companies would still be happy to have them.

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

#114

Post by paulpauper »

kyrra wrote: post #83
jollyllama wrote: post #23

Earlier quoted context omitted.

>How much is our entire culture the result of cheap money? Only the parts involving housing, education, transportation, employment, and investments.

College Education pricing has many blames beyond cheap money. The fed getting involved in student loans have totally broken that segment of the economy. 1) Federal loans do not have limits on amount. 2) Loans are non-discharged (you can't shed them in bankruptcy). 3) There is no intensive for schools to charge less. (schools likely should have skin in the game if borrowers end up shedding debt through time expiration…

you forgot the most important variable: the college wage premium, which is the widest ever and shows no signs of narrowing. As long as college grads earn a lot more, tuition will go up. Even after factoring in debt, grads still earn more than non-grads.

Most people would be better served by trade schools or apprenticeship, but the US hasn't figured out how to do this well yet.

This may apply to college dropouts, but college still pays way more than trades, and also trades work req. a lot of training and time and you have to join a guild.

Coding bootcamps seem to be an answer for the software industry

Except that bootcamp grads tend to be woefully deficient in skills and also have a hard time finding jobs, also bootcamps can be very expensive and inflate their success metrics. I am not saying that college is the answer, but it's not bootcamps.

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

#115

Post by bombcar »

mrgalaxy wrote: post #73
bombcar wrote: post #47

Earlier quoted context omitted.

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 i…

Wow thanks putting a number on it. I knew it was high but holy cow is that a lot of money for as you say, nothing more.

To be fair, there's an argument that it's effectively the same as the government printing 400 billion a year, or something (this is MMT). I don't fully follow the argument and honestly it's not something really actionable by me. Personally it's all too complicated for me to think about and any analogies are going to fall short in horrible and painful ways.

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

#116

Post by abm53 »

paulpauper wrote: post #89

10 year treasury bonds looking good or corporate bonds. You are locking in a 3-4% rate for the next decade. It will not take much to force interest rates and inflation back down again...another pandemic, recession, crisis, etc. Yes, 10-year bonds have a negative real yield now, but it seems unlikely inflation will stay at 5-8%/year for the next decade. The problem with cash is the ONLY way you are getting that 3% yie…

The “old bonds on their book” will decline in value if rates rise.

Consequently the ETF will be cheaper by exactly the right amount to keep the income/coupon component of its return in line with buying an equivalent basket of US treasury bonds directly.

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

#117

Post by Analemma_ »

Victerius wrote: post #94
Analemma_ wrote: post #79

Earlier quoted context omitted.

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

This definitely needs a citation. Why would the natural rate be 8%, never mind 15%? Apart from the Volcker Shock it's been less than that for literally all of American history [1]. Are you sure you're not just assuming that whatever the rate was in your formative years is "natural"?

[1]: https://advisor.visualcapitalist.com/wp-content/uploads/2020...

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

#118

Post by bryanlarsen »

greatpostman wrote: post #95
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.

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

We live in a world that is awash in capital because old people & rich people have a large amount of capital. When the supply of something is high, the price goes down. And the price of capital is interest rates.

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

#119

Post by bombcar »

JumpCrisscross wrote: post #88
barelysapient wrote: post #21

Earlier quoted context omitted.

Ended; but there's still about $8T on the books of past QE right? https://www.businessinsider.com/personal-finance/quantitativ...

> there's still about $8T on the books of past QE right? Yes, about $8.8tn [1]. The Fed is running them off at about $60n a month [2]. (The Fed's optimal balance sheet is estimated to be around $4tn [3].) The elephant in the room is the Fed's mortgages [4][5]. Those will have to start being sold soon, since rising rates mean mortgagers aren't refinancing and thus a run-off strategy doesn't reduce holdings. [1] https:…

The sparks will really fly when they begin to require FNMA and FHLMC conforming loans be assumable.

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

#120

Post by slaw »

JumpCrisscross wrote: post #101
slaw wrote: post #51

Earlier quoted context omitted.

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...

Fed doesn't have to fight with inflation if it not creating one. So Fed's balance sheet could be as well $0
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