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

Fed increases target rate to 3.75-4.00%

federalreserve.gov

Post reply on HN
Print view View original

151–160 of 183 posts

Re: Fed increases target rate to 3.75-4.00%

#151

Post by whoooooo123 »

xhrpost wrote: post #83
whoooooo123 wrote: post #51

Earlier quoted context omitted.

If inflation is caused by selfish companies raising their prices, why are they only doing it now and not, say, three years ago? Did they only decide recently that they want to make more money?

It's a good question, seems like corporations have more power to do so now, from linked article: >Corporations have the power to raise prices without losing customers because they face so little competition. Since the 1980s, two-thirds of all American industries have become more concentrated.

Hmmmm, I suppose we did just spend two years crushing small businesses into the ground, so I imagine that big corporations do have less competition than ever at the moment.

Re: Fed increases target rate to 3.75-4.00%

#152

Post by dragontamer »

bern4444 wrote: post #147
dragontamer wrote: post #139

Earlier quoted context omitted.

> The market shot up initially on a 3 line statement in the released notes that was interpreted as beginning of the end of rate hikes. I'm not sure about that. My coworkers are arguing that a bunch of people are buying put options, effectively shorting the stock market, in the days prior to these FOMC meetings. At 2pm, the meeting notes come out, and we see that the expected .75% rate happened. Since that was "expect…

I don’t think “A bunch of people” could affect the entire market like that even with derivatives unless it’s including substantial institutional investors. Maybe a single stock but not the entire market. I see this as, everyone bought on the news that the fed would begin tampering down rate hikes in the near future. Powell spoke and said we remain committed to getting inflation down and will continue to do what is ne…

> I see this as, everyone bought on the news that the fed would begin tampering down rate hikes in the near future.

But this pattern has occurred over and over again in the last 4 rate hikes. You are suggesting that people haven't learned their lesson yet, which seems absurd to me. This is the 4th consecutive rate hike, with the numbers (0.75 increase) exactly the amount everyone expected.

It seems more likely that the people "buying at 2pm" today were covering hedged bets (such as selling off their put options, bought to protect against the volatility today).

The fundamental question is whether or not you want to believe that these buyers (and sellers) knew what they were doing. I think its more likely (than not) that they knew what they were doing, and favor the stories that have that mindset.

Re: Fed increases target rate to 3.75-4.00%

#153

Post by nine_zeros »

apropos_g wrote: post #119
nine_zeros wrote: post #22

Earlier quoted context omitted.

> "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…

There is a floor to the cost of clothes. And at an extreme people will have to buy 2 t-shirts a year instead of 20. That means that tshirt producers will make less sales and go bust. The remaining few tshirt companies will bargain with all the suppliers to reduce their prices. Families will have to go back to hand me downs, wearing the same shoes and socks for years.

The reality is that as long as so much of oil/gas inflation exists and interest rates rise, something other things will HAVE to give. People will just have to be ok with a life of less abundance.

Re: Fed increases target rate to 3.75-4.00%

#154

Post by bern4444 »

dragontamer wrote: post #152
bern4444 wrote: post #147

Earlier quoted context omitted.

I don’t think “A bunch of people” could affect the entire market like that even with derivatives unless it’s including substantial institutional investors. Maybe a single stock but not the entire market. I see this as, everyone bought on the news that the fed would begin tampering down rate hikes in the near future. Powell spoke and said we remain committed to getting inflation down and will continue to do what is ne…

> I see this as, everyone bought on the news that the fed would begin tampering down rate hikes in the near future. But this pattern has occurred over and over again in the last 4 rate hikes. You are suggesting that people haven't learned their lesson yet, which seems absurd to me. This is the 4th consecutive rate hike, with the numbers (0.75 increase) exactly the amount everyone expected. It seems more likely that t…

> But this pattern has occurred over and over again in the last 4 rate hikes. You are suggesting that people haven't learned their lesson yet

Yes.

> which seems absurd to me

Yes. It seems absurd to me as well. :). Markets aren’t quite as rational as everyone likes to believe

I think they “knew what they were doing” when they heard something they thought meant this would soon be ending and then knew what they were doing when Powell spoke and wiped that idea out of existence.

We are witnessing the end of over a decade of cheap if not free money. This has all taken place in ~6 months. 14 years of expectations and beliefs will take some undoing before markets accept the new reality.

Re: Fed increases target rate to 3.75-4.00%

#155

Post by alienicecream »

apropos_g wrote: post #114
prottog wrote: post #26

Earlier quoted context omitted.

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 any…

They're trying to reduce the rate of inflation, not "the price of food and gas". Depending on the measure of inflation you're using, food and gas might not even be in that measure.

Re: Fed increases target rate to 3.75-4.00%

#156

Post by bryanlarsen »

lamontcg wrote: post #150
miamibre wrote: post #145

Earlier quoted context omitted.

I think a lot of people aren't approaching the problem correctly. Prices going down (Deflation) in a modern economy is very very very bad even if it's for Food and Gas. Since WW2 our economic system has been based on prices going up because that means people are producing goods to make money to spend it on goods. The real goal of these interest rate is to slow the rate of price increase because now there is less mone…

Economists have predicted "soft landings" before every recession I can remember where I've followed what the Fed has been saying (I don't quite remember the Volker Fed, I was a little too preoccupied with Star Wars toys and Legos).

And economists have predicted 9 of the last 5 recessions. And in an economy with 3.5% unemployment, the odds of a recession seem pretty low in my opinion.

Re: Fed increases target rate to 3.75-4.00%

#157

Post by guyzero »

apropos_g wrote: post #108
guyzero wrote: post #5

Earlier quoted context omitted.

By reducing demand. I guess.

How exactly do rising interest rates reduce demand for food? How does it reduce demand for gas? This is what I mean.

Per other commenters less money in the economy reduces aggregate demand. Per previous inflationary periods where interest rates were raised basically by putting people out of work.

Re: Fed increases target rate to 3.75-4.00%

#158

Post by harambae »

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 necessary reduce the price of food or gas much (some nominal decrease from "discretionary," or non-essential, spending on both).

It will bring down housing, which is 1/3 of the CPI by weight and helps get the Fed's inflation metrics down. (Just as an example, it won't make as much sense to leverage up and buy 5 Airbnb's at higher interest rates.)

Re: Fed increases target rate to 3.75-4.00%

#159

Post by guyzero »

whimsicalism wrote: post #85
guyzero wrote: post #81

Earlier quoted context omitted.

It's an unexpected result that shortages of core consumer goods - specifically gas and food - cause a rise in prices due to demand but this has become more decoupled from underlying input costs thus... high corporate profits in these areas. It's true that Exxon isn't any more or less rapacious than ever, but their profits are objectively much, much higher.

Of course it depends on the market but many of these "shortages" are only relative to record-high consumer demand for durable goods. Yes, during periods of extremely high demand relative to current supply, profit for suppliers increases. This encourages new entrants to the market who can help boost supply. This is just the basic functioning of the economy and price signals in action. If producing things in short supp…

Gas prices are significantly higher than 2019, total vehicle miles travelled are about the same (https://fred.stlouisfed.org/series/M12MTVUSM227NFWA) so there must be a reduction in supply or just straight price gouging to justify the price increase.

Re: Fed increases target rate to 3.75-4.00%

#160

Post by SideQuark »

HPsquared wrote: post #133
SideQuark wrote: post #97

Earlier quoted context omitted.

Yes, the Fed that stopped the much longer, more frequent, and deeper panics and recessions that occurred before it. In fact, it did so well for so long compared to previous methods, that the Great Moderation is a term in economics for the stability it gave. Instead of snarkily listing places you think it failed, compare that to pre-Fed failures, and you'll see that the Fed is a lot better than other solutions. And th…

The Great Depression wasn't so good.. that came after the Fed.

One example does not negate the evidence I just posted including 51 examples, nor does it change the vastly better trends under the Fed.

So why pick a single event, ignore 50 others, ignore the trends shown in US (and 100's of other country) datasets, covering hundreds of years?

I just posted a decent intro to the evidence. Please read it. The economic evidence for the benefits of central banking versus not having a central bank are so thoroughly answered in economic literature that not a single country is stupid enough to go without one, despite those 100s of countries having a lot of other variety.

Post reply on HN