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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

#211

Post by hot_gril »

qeternity wrote: post #199
andrekandre wrote: post #133

Earlier quoted context omitted.

> If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money im kind of ignorant so please forgive if this is not correct, but i've heard its not necessarily "creating" money since its (the 900 dollars) all on the balance sheets as liabilities?

Money supply is not a fixed constant, it never has been. But under your argument, then the Fed doesn’t technically create money either. It lends money like any other bank. Now this money is created out of thin air, but in theory it’s eventually repaid.

A bank isn't creating money in the same way the Fed does. Yes they can increase the "money supply," which for whatever academic reason doesn't include the liabilities, but not the money in circulation. And they can only physically lend out the amount that's deposited, or legally more like 90%, and they're hosed if everyone wants their money back.

Only the Fed can create money out of nowhere. They can create endless dollars and owe nothing, diluting the currency permanently. Inflation and other metrics keep them in check. The common sense is actually right, not the overly technical explanation of lending that somehow concludes that the Fed isn't special.

> in theory it’s eventually repaid

It doesn't have to be, and it hasn't been. M2 has generally just gone up.

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

#212

Post by greatpostman »

JamesBarney wrote: post #196
greatpostman wrote: post #95

Earlier quoted context omitted.

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

Lots of people who wished the natural interest rate was lower liked to blame the Fed instead of fundamentals. But if the Fed has set the interest rates too low we would have had runway inflation from an overheating economy instead of a low prime age employment % (which suggests the interest rates were too high).

No you don’t get it. Risk assets are priced from interest rates. Low interest rates inflated assets, which caused mass wealth inequality and excess wealth made by owners of capital. The picture is way more complex, we have had deflation due to outsourcing and technology. So it’s been impossible to get inflation.

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

#213

Post by rufus_foreman »

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.

>> The rate has a huge impact on the monthly payment required to service a loan

Which means people with 2% mortgage rates aren't going to be likely to sell their houses and buy another one at 7%. Which puts upward pressure on house prices due to fewer houses on the market. You have both demand and supply effects.

In the past in the US, nominal house prices haven't gone down during periods of rising interest rates. Maybe it will be different this time, maybe it won't.

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

#214

Post by rufus_foreman »

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.

>> it seems that mortgages have generally been less expensive than rent?

This is very location-dependent. In some cities it is true, it some it isn't, in some it depends on the segment of the market.

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

#215

Post by naveen99 »

JumpCrisscross wrote: post #40
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.

> 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 The Treasury pays interest on government debt. The Fed does not. Raising rates causes the Fed no harm other than (a) risking recession and (b) creating accounting losses idiots politicise. (The same way the Fed's accounting gains as it lowered rates are a useful fiction.) When…

The fed pays interest on reserves and reverse repo. But it can just create deferred assets to pay for them… https://fedguy.com/fed-balance-sheet-faqs/

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

#216

Post by raincom »

fny wrote: post #82
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?

I'll mention something that most people are forgetting. The Fed was forced to cut rates to zero for a long time because fiscal policy was not stimulative enough. Rates are a shitty stimulative tool. Here's Bernanke in 2012: https://www.theatlantic.com/business/archive/2012/12/ben-ber... Low rates help people with money borrow more cheaply, accrue more wealth, and kick bankruptcy cans down the road indefinitely. It al…

Janet Yellen didn’t want to raise interest rates during the Obama time, and when she tried to raise interest rates during the Trump administration, Trump didn’t like it and didn’t renominate her. Here Janet Yellen was helping Obama by not raising interest rates; she got back to her senses when Trump came in. That’s how the politics of federal reserve is.

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

#217

Post by wahern »

tssva wrote: post #141
kyrra wrote: post #83

Earlier quoted context omitted.

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…

"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 is more of a cultural problem, that I hope employers can figure out." Employers including technology companies used to provide training and apprenticeships but purposely shifted their job training costs on to job seekers and the education system. You are in effect looking to those that a…

> Employers including technology companies used to provide training and apprenticeships but purposely shifted their job training costs on to job seekers and the education system

AFAIU, both historically and today, most apprenticeships are managed by unions through programs funded (in part) by union-contracting companies. This benefited companies as they didn't have to maintain apprentice programs themselves; and it benefited unions and especially apprentices as apprenticeships weren't tied to any specific company, providing some (albeit limited) employment mobility from the outset.

As unions have receded, so to have these programs, or at least the visibility of these programs.

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

#218

Post by fny »

nine_zeros wrote: post #209
fny wrote: post #202

Earlier quoted context omitted.

I'm the parent commenter, and I strongly disagree with the idea that stimulus should be directed by the federal government. The federal government is an extremely poor resource allocator. It knows nothing about local and personal wants and needs. In my view, funding should be dolled out to individuals and maybe local governments. That way money flows from the bottom up, not top down. The money flow is an extremely im…

It is exactly this thought process that is preventing good fiscal stimulus during recessions. Well intentioned thoughts like these are a good default for the government running in cruise control - when there is no financial volatility. A stimulus is only required during a recession. In each recession, we have only allowed the Fed to print more money, which hasn't turned out well. Instead of printing this money and ra…

How is subsidizing food producers any different than giving everyone money to buy food?

In both cases you give money to food producers and in turn they increase production. The only difference is in your case the price signal is entirely lost.

For example, say we decide to subsidize corn. In theory, the government is taking money out of your pocket and giving it to the corn farmer who in turn gives corn to you a lower cost. So you're still effectively paying more for the same damn thing, the government just did it for you! Over time a massive bureaucracy and incentive structure will grow around corn farming and special interest groups will fight to the death to make sure corn subsidies never go away. Oh, wait, that's actually the world we live in.

Now imagine I give you cash for food--not specifically corn--you get to decide which food you spend it on. Say everyone can't get enough of corn. Sure, you're right, everyone will pay more for corn the difference is though we also see the price go up instead of the government hiding it. This price signal is very important. Once the price of corn gets too high for you, you will switch to some other food, and in turn different areas of the economy will be stimulated.

Food subsidies are exactly how you get big agriculture. Certain players know how to play the government game better and take advantage of it.

If I give everyone money, sure prices go up, but everyone has gained voting power against existing institutional players, and in my opinion, that is exactly how you get competition and growth.

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

#219

Post by [deleted] »

WalterBright wrote: post #170
_ea1k wrote: post #166

Earlier quoted context omitted.

https://www.prnewswire.com/news-releases/inflation-reduction... - It seems like it just puts it on an equal footing with other solutions. Unless there's a downside that I'm not aware of, that seems like a reasonable thing to do?

The downside is it is expensive, while much cheaper methods are available.

[deleted]

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

#220

Post by afpx »

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've only been alive since the 70s. What was life like before the Fed created money? Was it better?
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