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Fed hikes rates as inflation worries push up bond yields

reuters.com

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Re: Fed hikes rates as inflation worries push up bond yields

#101

Post by Analemma_ »

im_down_w_otp wrote: post #55

It bugs me that the Fed has no mechanism to really deal with supply-shock driven inflation. Prices are shooting up, but not strongly correlated to money supply at the moment. They’re shooting up because there are a dozen or more entirely capricious and totally self-inflicted supply-shocks due to bizzaro tariff “policy”, disastrous military adventurism, and general erosion of the USD the prime vessel for international…

> It bugs me that the Fed has no mechanism to really deal with supply-shock driven inflation.

I mean, what would that actually look like? The Fed is insulated from democratic accountability, for very good reasons, but flipside of that is that their powers are intentionally limited. If they had the same immunity to public opinion but with the power to address supply shocks, that would quickly veer into tyranny.

It's a careful balancing act and there is no perfect solution. What's supposed to happen is that Congress acts on supply-shock driven inflation, but this current Congress would rather eat a bag of broken glass than actually govern, which the Fed can't really do anything about.

Re: Fed hikes rates as inflation worries push up bond yields

#102

Post by AnimalMuppet »

dabinat wrote: post #27

Prediction: this causes a recession in two years, right after a Democrat wins the White House, who will be blamed for it. The economy will turn around after a few years, just in time for a Republican to win and claim they fixed it. This is how Republicans have a reputation for being economically savvy despite actual evidence to the contrary, because the general population doesn’t understand that economics runs on a t…

But not doing this would, in two years, cause (or at least allow) inflation that would cause harm, too. But Trump might get blamed in that case, because inflation would increase for the next two years, and so people would experience the pain during his term.

Re: Fed hikes rates as inflation worries push up bond yields

#103

Post by iamnothere »

tossandthrow wrote: post #25
iamnothere wrote: post #9

Earlier quoted context omitted.

Higher rates means financing/borrowing is more expensive. Mortgage rates will go up, possibly pushing home prices down. This is neutral for buyers because of higher rates, but bad for sellers. Loans (personal or business) will be harder to come by. Layoffs, or at least hiring freezes, are more likely. Companies will move into a defensive rather than an growth mode. Higher unemployment will lead to more desperation, a…

Neutral for buyers? Absolutely not. As a buyer you rather want to take out a loan in a high interest rate environment than a low interest rate environment, given that the monthly payment is the same. 1000 usd extra paid towards your mortgage actually makes a difference when the rate is 15% compared to when it is 1.5%

Only if you expect rates to come down in the future. If the monthly payment is the same, I guess you have a slightly bigger mortgage interest deduction for tax purposes, but you’re still paying the same amount each month.

If you expect rates to come down soon, you can plan to refinance in the future, but that’s a gamble. Rates may not go down, or the value of the house could go down before you refinance, which may make refinancing more expensive depending on how much you owe.

Re: Fed hikes rates as inflation worries push up bond yields

#104

Post by jameslk »

matteoraso wrote: post #97
jameslk wrote: post #57

Earlier quoted context omitted.

Both parties are responsible for the inflation and debt. Fiscal policy is largely driven by congress, not the president

And which party controls congress? I'll give you a hint: It's the party that spent decades advocating for irresponsible tax cuts without cutting spending[0]. [0] Yes, I know that the Republicans said that they were going to cut spending to match the tax cuts, but that never ends up happening.

The high inflation since Covid and $40 trillion in debt didn’t happen under one party

Re: Fed hikes rates as inflation worries push up bond yields

#105

Post by im_down_w_otp »

MarkusQ wrote: post #79
im_down_w_otp wrote: post #55

It bugs me that the Fed has no mechanism to really deal with supply-shock driven inflation. Prices are shooting up, but not strongly correlated to money supply at the moment. They’re shooting up because there are a dozen or more entirely capricious and totally self-inflicted supply-shocks due to bizzaro tariff “policy”, disastrous military adventurism, and general erosion of the USD the prime vessel for international…

> the Fed has no mechanism to really deal with supply-shock driven inflation. Inflation is just a change in the ratio of money to stuff. You can reduce inflation by increasing the stuff or reducing the money, and cause it by doing the opposite. There's no requirement that the solution is applied to "the same factor", either works. Sure, if you're wanting to assign blame or worried about externalities these things sta…

You’re describing only one flavor of inflation. What the Fed is supposed to care about is price stability, and lots of things influence prices, and not all of them are money supply and/or new money supply correspondent.

We saw this during COVID, the prices of things shot through the roof because of a combination of supply-chain shocks as well as the already well capitalized seizing the opportunity to spend their war chests locking down as much of the available supply as possible, which resulted in consolidation, which resulted in less available supply.

The random trade wars directly cause goods to cost more for absolutely no good reason whatsoever, it’s just a tax masquerading as a price increase, but the Fed deals in stabilizing prices, not taxes. So, it changing the money supply parameters does nothing.

The weakening of the international trade position of the USD writ large also causes prices to go up for no good reason, and nothing about that is going to be resolved by the Fed fiddling with the money supply parameters because it has to do with the stability and reliability of the U.S. as a trustworthy geopolitical operator, which the Fed can do next to nothing about.

The inflation being experienced as price instability/increases is being induced acutely by terrible fiscal & trade policy, but the Fed is acting to try to “fix it” using monetary policy, which won’t work at all. So, what’s the point? Just to look like it’s doing something?

Re: Fed hikes rates as inflation worries push up bond yields

#106

Post by bluGill »

tossandthrow wrote: post #25
iamnothere wrote: post #9

Earlier quoted context omitted.

Higher rates means financing/borrowing is more expensive. Mortgage rates will go up, possibly pushing home prices down. This is neutral for buyers because of higher rates, but bad for sellers. Loans (personal or business) will be harder to come by. Layoffs, or at least hiring freezes, are more likely. Companies will move into a defensive rather than an growth mode. Higher unemployment will lead to more desperation, a…

Neutral for buyers? Absolutely not. As a buyer you rather want to take out a loan in a high interest rate environment than a low interest rate environment, given that the monthly payment is the same. 1000 usd extra paid towards your mortgage actually makes a difference when the rate is 15% compared to when it is 1.5%

The question is what will rates do in the future. If rates go down you refinance, if they go up even more you hold your rates. Either way so you are fine long term, but it can be 10 years before it pays off.

Note that the US mostly does fixed rate for life of the loan. Many countries only have ARM (adjustable rates), and those exist in the US as well. If you have an ARM that changes things greatly.

Re: Fed hikes rates as inflation worries push up bond yields

#107

Post by ifyoubuildit »

nemomarx wrote: post #47
rayiner wrote: post #15

Earlier quoted context omitted.

> And the country is run by a broken fool who has no interest or ability to fix any of that. Trump will be gone in three years, but you'll still have an electorate that wants more free stuff while also getting tax cuts. There is zero appetite for fiscal reform in the U.S. The geometric growth rate of U.S. debt has been consistent since 2010 and will remain so when AOC is President: https://usafacts.org/answers/how-mu…

You really really just need to raise taxes. Just find a way to sell that to the public (focus on the rich or large corporations or whatever outgroup you want basically)

Is there anything that can't be solved by bigger government?

Re: Fed hikes rates as inflation worries push up bond yields

#108

Post by ryathal »

Scottn1 wrote: post #66
dabinat wrote: post #27

Prediction: this causes a recession in two years, right after a Democrat wins the White House, who will be blamed for it. The economy will turn around after a few years, just in time for a Republican to win and claim they fixed it. This is how Republicans have a reputation for being economically savvy despite actual evidence to the contrary, because the general population doesn’t understand that economics runs on a t…

At what point into a presidential term does it become their actual mess? And is there evidence of a time delay? Because by that argument, the mess we are in would been caused by Democrats.

All good is due to MyParty, all bad is due to OtherParty.

Re: Fed hikes rates as inflation worries push up bond yields

#109

Post by JMiao »

almost_usual wrote: post #50
andy_ppp wrote: post #23

So, during the Great Depression who ended up doing well? What can be applied to today?

The consistent best thing you can do for yourself and family is sleep well and exercise to increase your aerobic efficiency.

yes, i will become the consummate amazon prime one hour delivery guy

Re: Fed hikes rates as inflation worries push up bond yields

#110

Post by irishcoffee »

ThunderSizzle wrote: post #35
darth_avocado wrote: post #20

Earlier quoted context omitted.

This is the right move. Inflationary pressures due to high oil prices and tariffs are not going away anytime soon. All the economic numbers point to a need for a rate hike. Not doing so has a much larger effect on the financial system than a 25 bps rate hike. Stagflation is a bigger risk to the economy. Counterintuitively the rate hike can help lower things like mortgage rates by stabilizing the bond yields.

We'll continue through the depression we've started since 2008. (GDP growth should be closer to 3.5%-5%, but we haven't really escaped sub-2% since 2008) - our GDP has been depressed by at least 1-2% growth since that crisis, and I think a large part of it has been the inflationary cycle we started and never stopped. The wars already put us into too much debt, Obama continued it for 8 years (granted, the deficit slow…

I agree with you. We are still paying for 2008, and compounded the problem with Covid stimuli. I sure wish we would just rip the band aid off at this point, but it might already be too late. The global economy is jacked, China needs everyone to be consumers, and that well is running dry, globally.
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