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Fed increases target rate to 3.75-4.00%

federalreserve.gov

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Re: Fed increases target rate to 3.75-4.00%

#111

Post by apropos_g »

willcipriano wrote: post #15
apropos_g wrote: post #4

"I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas. (This should be the new Deleuze meme.)

More expensive credit to businesses leads to less investment and growth leading to less hiring leading to higher unemployment. Higher unemployment means some people won't be able to afford food and gas lowering the demand for food and gas. That's the theory anyway, they don't say it in plain terms like that though.

> Higher unemployment means some people won't be able to afford food and gas lowering the demand for food and gas.

People need food and gas to survive. They're not going to stop buying food and gas, unless they are dead.

Re: Fed increases target rate to 3.75-4.00%

#112

Post by apropos_g »

foobarian wrote: post #10
apropos_g wrote: post #4

"I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas. (This should be the new Deleuze meme.)

It won't reduce the prices. It will merely reduce the rate of increase of those prices.

Well, I don't see a common sense explanation as to why the rate of increase should decrease either. We could also say, "Eventually, the rate of increase will go down anyway, in the absence of any action from the fed."

Re: Fed increases target rate to 3.75-4.00%

#113

Post by apropos_g »

Analemma_ wrote: post #14
apropos_g wrote: post #4

"I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas. (This should be the new Deleuze meme.)

It won't, because the current inflation is supplyside-driven, not expectations-driven. But if we transition to an expectations-driven inflation regime, that's really bad, because it would require much more severe action to bring under control. The Fed is doing this as a preventive measure to keep expectations-driven inflation from taking hold. It sucks, but it's being done to prevent more pain later.

> It won't, because the current inflation is supplyside-driven, not expectations-driven. But if we transition to an expectations-driven inflation regime, that's really bad, because it would require much more severe action to bring under control. The Fed is doing this as a preventive measure to keep expectations-driven inflation from taking hold. It sucks, but it's being done to prevent more pain later.

We have differing definition of common sense.

Re: Fed increases target rate to 3.75-4.00%

#114

Post by apropos_g »

prottog wrote: post #26
apropos_g wrote: post #4

"I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas. (This should be the new Deleuze meme.)

The Fed's tools are very blunt, and the only way it can reduce at-the-register prices for things like food and gas are indeed by hammering down aggregate demand, i.e. inducing a recession. Of course, whatever the Fed does may be counterbalanced by supply-side issues, whether economic or political; a warmer-than-expected winter moderating gas prices, or executive actions impeding investment into O&G raising prices, an…

> The Fed's tools are very blunt, and the only way it can reduce at-the-register prices for things like food and gas are indeed by hammering down aggregate demand, i.e. inducing a recession.

By some measures, it's not even succeeding in inducing a recession. Demand isn't even necessarily declining - you would need a common sense explanation why the rate of increase in demand doesn't sometimes fluctuate or go down anyway, in the absence of fed action.

The Fed's tools are extremely effective at taking a huge shit on bond prices. They have huge financial impacts. But you are not giving me a common sense explanation for how raising interest rates will reduce the prices of food and gas.

Re: Fed increases target rate to 3.75-4.00%

#115

Post by thehappypm »

hahla wrote: post #74
c0nsumer wrote: post #27

Earlier quoted context omitted.

This affects mortgage rates, but not housing prices. If anything, housing prices should decrease a bit as rates go up, since people tend to buy based on monthly payment which is house price + rate. Therefore, your down payment should be just as effective as it was before, particularly if it's enough to pay for much of the house and keep your monthly payment lower.

This is a pretty blanket statement. That same down payment will not be effective at all. Current interest rates have definitely impacted housing prices but its not significant enough to make up for the difference in monthly payment. Think of it this way: Scenario 0: 500k house, 30yr/3% interest rate, 100k down (20% standard) = 400k total loan amount and 1,686 monthly payment Scenario 1: 400k house, 30yr/7% interest r…

Scenario 2: 400k house, 20% down, 30yr/7% = 320k loan, $2129 payment. You save $20k cash, which covers your increase in payment for ~4 years. By then maybe you can refinance back to Scenario 0.

Re: Fed increases target rate to 3.75-4.00%

#116

Post by apropos_g »

thehappypm wrote: post #106
apropos_g wrote: post #4

"I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas. (This should be the new Deleuze meme.)

Interest rates make things requiring financing (cars, homes, stuff bought on credit) more expensive and out of reach. People either buy less, or buy the same but pay more interest, meaning they have less money for the next purchase.

> Interest rates make things requiring financing (cars, homes, stuff bought on credit) more expensive and out of reach.

This is complex.

Lower interest rates overall increase home prices, because people buy the biggest home they can afford on a monthly payment.

There are many kinds of cars. Some are cheap and some are expensive.

Anyway, how do interest rates make things like food and gas more expensive and out of reach? Those don't require financing. They're hugely impactful on inflation. You can be the Fed, and pretend there's a "core" CPI, but the people who make your clothes and cars need food and gas, your clothes are made with a lot of gasoline directly, via shipping and manufacturing, etc., so it is sort of a fiction that there is this non-food-and-gas CPI.

Re: Fed increases target rate to 3.75-4.00%

#117

Post by apropos_g »

gitfan86 wrote: post #99
apropos_g wrote: post #4

"I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas. (This should be the new Deleuze meme.)

They are not targeting retail food and gas specifically. The hope is that removing money from the economy will cause spending to slow down everywhere and that eventually will hit food.

> They are not targeting retail food and gas specifically.

Then it should be obvious why the Fed is doing a terrible job.

Re: Fed increases target rate to 3.75-4.00%

#118

Post by apropos_g »

glofish wrote: post #17
apropos_g wrote: post #4

"I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas. (This should be the new Deleuze meme.)

By sucking the money out of the system. It reduces demand - in the modern world the prices are disconnected from cost of production - instead reflect the demand for that product - how much can it be sold for

> By sucking the money out of the system.

Does it suck money out of the system? Here's a common sense example: Raising interest rates caused assets like stocks and bonds to decline in price. People sell these equities and now have cash they are willing to spend on more shit, specifically what is in the CPI. So the opposite can also happen.

Re: Fed increases target rate to 3.75-4.00%

#119

Post by apropos_g »

nine_zeros wrote: post #22
apropos_g wrote: post #4

"I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas. (This should be the new Deleuze meme.)

> "I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas. It will not. The only way to reduce prices of oil/gas and fertilizers (for food) is to bring back the amount of oil/gas and ammonia that went offline due to Russia. There is no amount of digging anywhere in the world that will quickly replace this much lost natural resource. What…

> The only way to reduce prices of oil/gas and fertilizers (for food) is to bring back the amount of oil/gas and ammonia that went offline due to Russia. There is no amount of digging anywhere in the world that will quickly replace this much lost natural resource.

At least this has a modicum of common sense to it.

As others have pointed out, oil prices fluctuate all the time though. So do food prices.

Gas can affect retail prices, because to me, common sense says, you use gas, not oil, to move food from wherever it is to the supermarket and into people's carts, back to their homes. And gas prices are not oil prices. And a lot of the price of many goods is, secretly, gas, because that is how the people get to where they work, how the goods that are otherwise useless without transportation get to where they're sold, etc.

> What raising interest rates will do is cause less spending in all non-oil/gas goods and services.

So what? The CPI, even the "core" CPI, is food and gas, or food and gas in disguise.

Even if you buy less clothing, a lot of the price of the clothes doesn't come from demand. It comes from the price of the gas used to move it from A to B and all the people involved moving it, and the price of the food to feed all the people who made it and sell it. Gas and food are hiding in all the inputs of clothes. There is a floor on the cost of clothes, it keeps rising, what exactly will increasing interest rates do to the rising (producer's) cost of clothes?

Re: Fed increases target rate to 3.75-4.00%

#120

Post by stu2b50 »

apropos_g wrote: post #110
georgeecollins wrote: post #29

Earlier quoted context omitted.

Here's my try: - Unlike popular perception, money is not created by "printing it". Money is created, or the supply of money is added to, when entities (corporations, institutions, people) borrow money from a bank. - When interest rates go up, the cost of borrowing goes up because you have to pay back more over time. - When the cost of borrowing goes up people borrow less. - When their is less borrowing their is less…

> ... borrowing... borrowed... Borrowed money is rarely spent on food and gas. You can be stupid and talk about buying food and gas on credit cards. Very few people in this country will stop buying food and gas to prevent default. People need food and gas to survive. So it's not really the borrowed money that is spent on food and gas.

You’re talking on a micro level, the OP is talking about macro monetary theory. It’s not about individuals borrowing money, it’s about companies and banks borrowing money and how difficult that is. Monetary supply past m1 is produced by banks borrowing and lending money, and limiting that directly limits monetary supply.
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