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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%

#21

Post by monkmartinez »

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.)

Reduce demand, broadly, as credit tightens with increased interest rates. Can't borrow at basically free money rates across the board anylonger.

Translates into, Less money for stock buybacks, less Yolo with stimy checks, left over money to yolo is also reduced == the market returns to mean. People feel less wealthy == slow purchases. Reduced purchases == Business struggle. Businesses lay people off == less demand. All of this == Less driving, less food.

Really very simple.

Re: Fed increases target rate to 3.75-4.00%

#22

Post by nine_zeros »

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 raising interest rates will do is cause less spending in all non-oil/gas goods and services. This means every other industry must expect a reduction in revenues because the average customer is going to be spending more on oil/gas and food.

In other words, the choices for companies are: be ok with reduced revenue or be ok with reducing prices.

The choices for individuals are: be ok with consuming less non-oil/gas/food things or sell assets to fund oil/gas/food things.

Re: Fed increases target rate to 3.75-4.00%

#23

Post by factsarelolz »

glofish wrote: post #20
willcipriano wrote: post #15

Earlier quoted context omitted.

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.

or it could mean people waste a lot less - we all know in the western world waste is gigantic

Easy to waste less of something you don't have much of.

Re: Fed increases target rate to 3.75-4.00%

#24

Post by glofish »

agildehaus wrote: post #16

I just started to have enough money for a decent downpayment on a house when all this rate hike started. Now I'm basically priced out.

that is the exact purpose of the action,

reduce demand

it does suck being on the receiving end - I do sympathise - and I am simply making an observation

Re: Fed increases target rate to 3.75-4.00%

#25

Post by datalopers »

agildehaus wrote: post #16

I just started to have enough money for a decent downpayment on a house when all this rate hike started. Now I'm basically priced out.

Home prices will fall materially once people are forced to sell. That won't happen until broad layoffs occur.

Re: Fed increases target rate to 3.75-4.00%

#26

Post by prottog »

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, and so on; and other demand-side issues, such as more helicopter money sprayed against fixed supply.

Re: Fed increases target rate to 3.75-4.00%

#27

Post by c0nsumer »

agildehaus wrote: post #16

I just started to have enough money for a decent downpayment on a house when all this rate hike started. Now I'm basically priced out.

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.

Re: Fed increases target rate to 3.75-4.00%

#28

Post by adventured »

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're not trying to reduce existing prices per se. They're trying to reduce the extent of price increases going forward.

The Fed can do that be damaging demand by damaging the labor market and reducing the value of assets (which also damages spending power ultimately in numerous ways).

There should be a lot more consideration given to increasing and improving on the production side right now, however the US is not nearly so skilled at that these days (whether industrially or policy wise). If you walk into your typical CVS or Walgreens and look at their empty baby formula section, it tells all. Supply chains are still a mess in the US.

Re: Fed increases target rate to 3.75-4.00%

#29

Post by georgeecollins »

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.)

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 money in the economy. Less of a currency trying to purchase the same amount of goods lowers prices.

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