Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

federalreserve.gov

Post reply on HN
Print view View original

221–230 of 236 posts

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

#221

Post by nine_zeros »

fny wrote: post #218
nine_zeros wrote: post #209

Earlier quoted context omitted.

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 lowe…

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

Subsidizing production by incentivizing number of units is different from just creating demand and waiting for producers to match up.

By incentivizing number of units of production, say x% incentive for per 1000 bushels of corn AFTER 10k bushels, you are literally incentivizing production of food and suppressing prices. You are asking farmers to use as much land as possible to produce corn. This is assuming that there is a shortage of corn in the market. In this way, the market is flooded with cheap corn and prevents recession caused by corn. The benefit of this approach is that something useful actually got produced besides money.

By only creating demand, production is not guaranteed to ramp up. Many farmers will be happy to take more dollars for the same amount of corn, causing inflation, thus causing fed to raise rates, thus causing recession. The disadvantage of this is that nothing got produced except money.

This fiscal support should be timeboxed (say 1-year during a recession) to prvent the big ag monopolies you are talking about.

We don't even need to think in hypotheticals. Today, the biggest cause of inflation (and thus fed rate hikes and thus recession) is housing. There is some merit to raising rates and flattening demand. But the biggest solution would be to flood the market with supply of housing. Just incentivize builders to build 2 million units within a year with fiscal policy and bam, inflation is gone.

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

#222

Post by stjohnswarts »

maerF0x0 wrote: post #206
majormunky wrote: post #192

Earlier quoted context omitted.

Workers making good wages increases demand on goods that are already in high demand.

> Workers making good wages Wouldn't that be a baseline value of a society? It makes me think that the price increases that are happening is simply a return to norms after we had like 50yrs of productivity increases w/o increasing wages -- meaning prices were actually suppressed.

I don't think that's the way it works in capitalism, unless it's part of the government's goals. Right now it isn't. The goal is to stop inflation, not make your or my life better. That was never the role of the Fed, that is for the legislature to decide with policy

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

#223

Post by credit_guy »

tuatoru wrote: post #195
nine_zeros wrote: post #128

Earlier quoted context omitted.

> The Fed was forced to cut rates to zero for a long time because fiscal policy was not stimulative enough. It's not just fiscal stimulus but "how" the stimulus was applied. It's not like the government isn't spending enough. It is spending. Until recently, all the spending went on tax credits and military. What we need is fiscal stimulus in industries of the future. Only the current administration gets it and made i…

Oh, I think there's enough to do in "legacy" areas: roads, bridges, ports and airports, water supplies, electricity transmission grids, and so on. Also flood control measures and drought and wildfire mitigation. Your industries of the future won't operate well if the basics aren't kept up.

But should these be done only in times of recession? Should we hold some projects in "shovel-ready" state so we can have something to quickly spend money on when the economy starts faltering? Or should the government just do these things when they need to be done?

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

#224

Post by credit_guy »

WalterBright wrote: post #198
mattmoose21 wrote: post #194

Earlier quoted context omitted.

Would this product be aimed more at businesses and high-rises? Also this seems a bit more aesthetically pleasing than the alternatives and especially newspaper.

Just pointing out how cheap solutions can be.

I don't know. LED light bulbs used to be very expensive. A market study 15 years ago would have found close to zero demand for them. Now they are affordable, they cut electricity bills and people do buy them. Technologies need to go over a certain threshold for demand to show up. The government can help with this.

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

#225

Post by jazzkingrt »

maerF0x0 wrote: post #149

Anyone else notice Powell mentioned multiple times that they're trying to weaken the labor market? (and by extension the ability of workers to negotiate good wages, good conditions) Anyone know why?

One reason is that inflation has a lot of inertia, because inflationary expectations drive more inflation.

A strong labor market drives up wages. When not matched by GDP growth, those wages increase costs, which cause workers to demand higher wages to keep up with those costs, and so on.

The cycle needs to be broken even if there is short term pain for workers.

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

#226

Post by credit_guy »

JumpCrisscross wrote: post #29
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 Estimating the neutral interest rate, i.e. "the real (net of inflation) interest rate that supports the economy at full employment/maximum output while keeping inflation constant" [1], is closer to art than science. It's almost certainly not a simple historical average, particularly not in a dynamic economy.

It does not need to be that complex. It could be the interest rate where the supply and demand of money meet, assuming the Fed stays out of the way.

The Fed does not need to skew the market for money by conducting QE or QT, or manipulating short term rates.

I'm not a "no-Fed"-type of guy. The Fed is great at a lot of things. Their research arm is top-notch. They regulate and oversee banks. They are the bank of the commercial banks; in particular they are a lender of last resort for them. Also they can be a lender of last resort for US dollars for other central banks, and for the World Bank and the IMF. They can monitor and interdict financial crime. There are lots of things to do.

Stimulating the economy should not be their business.

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

#227

Post by junofan »

nine_zeros wrote: post #221
fny wrote: post #218

Earlier quoted context omitted.

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 lowe…

> How is subsidizing food producers any different than giving everyone money to buy food? Subsidizing production by incentivizing number of units is different from just creating demand and waiting for producers to match up. By incentivizing number of units of production, say x% incentive for per 1000 bushels of corn AFTER 10k bushels, you are literally incentivizing production of food and suppressing prices. You are…

You’re talking about a how a centrally planned economy can in theory overcome market failure.

> Just incentivize builders to build 2 million units within a year with fiscal policy and bam, inflation is gone.

Why fiscal policy and not zoning laws or something? Why would giving money to developers lead to zero inflation?

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

#228

Post by DoingIsLearning »

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…

> 10 year treasury bonds looking good or corporate bonds. You are locking in a 3-4% rate for the next decade.

I don't follow, inflation is way higher than 3-4% all over the globe. How are bonds looking good? Do you mean going for bonds as a safe option that will lose less than cash?

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

#229

Post by nickpp »

credit_guy wrote: post #224
WalterBright wrote: post #198

Earlier quoted context omitted.

Just pointing out how cheap solutions can be.

I don't know. LED light bulbs used to be very expensive. A market study 15 years ago would have found close to zero demand for them. Now they are affordable, they cut electricity bills and people do buy them. Technologies need to go over a certain threshold for demand to show up. The government can help with this.

55" 4K TVs used to be very expensive as well. Now they are so cheap and thin and good I hug one in my basement just for the occasional workout video streamed from YouTube.

Technological progress is the secret to price reduction. No government interaction required or even wanted, it's usually much more likely to create problems...

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

#230

Post by credit_guy »

nickpp wrote: post #229
credit_guy wrote: post #224

Earlier quoted context omitted.

I don't know. LED light bulbs used to be very expensive. A market study 15 years ago would have found close to zero demand for them. Now they are affordable, they cut electricity bills and people do buy them. Technologies need to go over a certain threshold for demand to show up. The government can help with this.

55" 4K TVs used to be very expensive as well. Now they are so cheap and thin and good I hug one in my basement just for the occasional workout video streamed from YouTube. Technological progress is the secret to price reduction. No government interaction required or even wanted, it's usually much more likely to create problems...

> No government interaction required or even wanted, it's usually much more likely to create problems...

That's generally true, but there are exceptions. Solar panels are very cheap now because of decades of government subsidies. Battery electric vehicles are still more expensive than their regular counterparts, but certainly one day they'll be cheaper (they have many more fewer moving parts). But would they have caught on without government subsidies?

Post reply on HN