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US Federal Reserve raises interest rates for first time since 2018

theguardian.com

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Re: US Federal Reserve raises interest rates for first time since 2018

#231

Post by boppo1 »

throw0101a wrote: post #146
rndphs wrote: post #63

Earlier quoted context omitted.

The amount of money being circulated absolutely does affect inflation (almost by definition). The Fed interest rate affects the amount of money in circulation because the Fed credit money is simply printed. This printed credit money gets spent and ends up circulating. The lower the interest rate, the easier it is to borrow, the more borrowing gets done, the more money is printed and enters circulation, which leads to…

> The amount of money being circulated absolutely does affect inflation (almost by definition). No, money supply ≠ inflation. E.g., Japan M2: * https://fred.stlouisfed.org/series/MYAGM2JPM189S Japan inflation: * https://fred.stlouisfed.org/series/FPCPITOTLZGJPN Why do Friedman-esqe Monetarists continue to ignore velocity? * https://fred.stlouisfed.org/series/M2V I personally like Cullen Roche's analogy: > But this is…

Sure, but if the interest rate is lowered arbitrarily rather than based on some market function, don't unworthy businesses get loans? Seems like we sacrificed efficiency and price discovery to keep employment numbers high.

Re: US Federal Reserve raises interest rates for first time since 2018

#232

Post by voisin »

jjoonathan wrote: post #182
reflexco wrote: post #122

Earlier quoted context omitted.

It seems that Putin is the scapegoat for inflation and will be the scapegoat for recession as well.

This isn't a rate-hike recession, it's stimulus withdrawal. Rates are at 0.25%. Last time it took 20.00% to stop inflation. We haven't even started. We haven't soft-defaulted on the national debt, so we can't even think about starting. The Ukraine conflict will be dusty history by the time actual rate hikes and an actual rate hike recession come around.

> Rates are at 0.25%. Last time it took 20.00% to stop inflation.

This is good context. Is anything different this time that would make one believe we won’t need much, much higher rates to tame inflation?

Re: US Federal Reserve raises interest rates for first time since 2018

#233

Post by paulpauper »

trgn wrote: post #228
paulpauper wrote: post #138

here begins the process of the fed sllowwwwly raising rates, well behind the rate of inflation. Either buy stocks or lose $ due to inflation. NO way out

Which isn't what's happening. It's been months now that this was being floated, and the stock market has been volatile the last half year, an outright bear market in some sectors. Trillions in equity have evaporated already, and that's not even taking into account the wealth erosion of high inflation. Now's the time to be skilled, but not the time to be a rentier.

Probably half of that selling is due to Ukraine . Also, a few months of weakness does not change the long-standing trend of stocks being a good hedge against inflation. Stocks generated real returns in the 80s, 90s, 2003-2007, 2015-2017 despite the fed raising rates.

Re: US Federal Reserve raises interest rates for first time since 2018

#234

Post by AviationAtom »

paulpauper wrote: post #138

here begins the process of the fed sllowwwwly raising rates, well behind the rate of inflation. Either buy stocks or lose $ due to inflation. NO way out

This is pretty much it. The engine already overheated, now we're just dumping water on it.

Re: US Federal Reserve raises interest rates for first time since 2018

#235

Post by cjsplat »

simpthrown8id wrote: post #159
andreyk wrote: post #137

An interesting aspect of this is that the endless printing of money in the last few years was a sort of stress test of modern monetary theory, which has been seeing lots of discussion in those same years. I never quite understood how this theory would work while avoiding inflation, and what's happening now seems to at least be related - https://www.nytimes.com/2022/02/06/business/economy/modern-m... Conceptually the…

>>Conceptually the answer in the theory is to suck up the excess money with taxes Govt spending is already 45% of GDP, so there's not much room to increase it more. As for MMT, I think what the MMT crowd doesn't realize is that there's a lot of latent inflation coming. Asset prices and CPI do not go up in tandem. First Asset prices are inflated, then later for the next decade or so, as people slowly make withdrawals…

I can't repro the 45% number.

BEA says 2021 US GDP is nearly $23T, CBO says total 2021 budget is $6.8T.

Re: US Federal Reserve raises interest rates for first time since 2018

#236

Post by deeg »

jldugger wrote: post #184
cubano wrote: post #116

Inflation is almost 100% caused by "too much money" chasing "too few goods". "Too much money" is a condition almost always caused by the creation of too much "fiat currency" (ie a currency that is backed by nothing but the good faith and credit of the issuing government) As we all should know, in the US, on 6/5/1933 FDR took the US off gold-backed currency and started the fiat currency situation we still find ourselv…

> Inflation is almost 100% caused by "too much money" chasing "too few goods". I find it baffling that the "always and everywhere a monetary phenomenon" crowd never inspects velocity.

I think this group is afraid of hyperinflation, which is almost always caused by governments printing too much money. (And, if we're honest, hyperinflation is a scary situation.) The problem is that they then extrapolate and decide that nominal inflation must be the result of the same problem and that all government action will lead to hyperinflation.

Re: US Federal Reserve raises interest rates for first time since 2018

#237

Post by latchkey »

throw0101a wrote: post #47
nimbius wrote: post #37

Earlier quoted context omitted.

imo this has been a comically glacial effort, and im not sure the feds 1.9% interest target by EOY is anywhere near aggressive enough to stave off 10% or greater inflation by Q4. What i really think are needed --Clinton era 4-5% rates-- are all but taboo to the market post-housing-collapse. nearly a year ago the fed was cheerleading "transient" inflation in an attempt to avoid culpability for the corporate credit bub…

> imo this has been a comically glacial effort, and im not sure the feds 1.9% interest target by EOY is anywhere near aggressive enough to stave off 10% or greater inflation by Q4. How much of the current inflation has anything to do with interest rates? You think oil/gas prices will care much about the Fed's action? And we still have supply chain issue before all geopolitical problems even started: just try asking n…

I run several datacenters. Switches are impossible to find right now.

Re: US Federal Reserve raises interest rates for first time since 2018

#238

Post by voisin »

dragonwriter wrote: post #67
blagie wrote: post #49

Earlier quoted context omitted.

I think what you're describing is exactly what's claimed. /Lowering/ interest rates leads to growth, not low interest rates. I don't think many economists would dispute that. The general model is that interest rates, lowering taxes, and increasing government spending are tools for shoring up the economy during a recession. During a growth period, interest rates should be raised, government spending lowered, and taxes…

> The problem is that we rarely raise interest rates Not really true; there was a long period of near-zero rates not moving during and after the Great Recession, but that was a unique event; from 2015-2018 there was a fairly consistent notching up of rates typical of an expansion with inflationary signals, then an ease back from 2019 until COVID hit at rates were cut sharply. Looking at history there's a long run up…

Throughout these time periods there was a dramatic increase in the money supply (from my view of FRED stats it doesn’t look like there’s ever been a contraction of the monetary supply), so we’re rate increases just offset by enough monetary growth to offset?

Re: US Federal Reserve raises interest rates for first time since 2018

#239

Post by nine_zeros »

slaw wrote: post #90
nine_zeros wrote: post #11

Earlier quoted context omitted.

They need to go slow. An abrupt rate increase will cause a recession.

They need to slowly hike interest rate by 25 bps every week for the next 8 months to match inflation.

That is silly. With mere speculation of interest rate increase, housing sales have already started to slow down. With every 25 bps increase, real asset interest rates will go much higher, causing much more slowdown in sales, GDP and inflation.

If fed accelerates rate increases, we are very likely to see a recession. Which will automatically reduce demand for goods and services and thus inflation.

But reducing inflation by causing mass unemployment will lead to other problems.

Re: US Federal Reserve raises interest rates for first time since 2018

#240

Post by AviationAtom »

mtoner23 wrote: post #205
paulpauper wrote: post #138

here begins the process of the fed sllowwwwly raising rates, well behind the rate of inflation. Either buy stocks or lose $ due to inflation. NO way out

Or you could use your capital to invest in a business to increase the supply of goods that this excess money is chasing. That would help fight inflation.

This is one of the best ideas, but it would be wise to find a business that is recession resistant.
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