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Federal Reserve to increase interest rates by 75 basis points for the third time

federalreserve.gov

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Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#31

Post by nonameiguess »

clarkrinker wrote: post #2

I was wondering why they don't move the interest rate up continuously over a period instead of flat jumps. Is the shock of jumping up in one day useful economically? That would be slightly confusing, because it seems like I'm always reading that the market has already priced in changes to the interest rate by the time the announcement comes out.

They actually do. The announcement is them saying what they target the rise to be. It may be slightly more or slightly less and it's not instantaneous. Direct lending to banks is an instrument available, but most of their influence comes from open market operations, which only indirectly impacts prevailing interest rates and consists of more or less continuous buying and selling of existing debt, which doesn't all happen on the day of the announcement.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#32

Post by Victerius »

ferdowsi wrote: post #16
maxfurman wrote: post #14

I'll echo what some folks have said in other threads, we've had rates down near zero for fifteen years, and we've got to get them back somewhere near historic normals at some point. If only so they can be cut again during the next crisis. How much is our entire culture the result of cheap money?

A substantial chunk of the tech industry are speculative zombie companies that are built on the edifice of zero interest.

Let them fail.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#33

Post by Nifty3929 »

changoplatanero wrote: post #9
maxfurman wrote: post #7

Earlier quoted context omitted.

My understanding is that the US has so much more debt now than we did in the 80s that a rate hike of that magnitude would cause too much harm for the Fed to stomach.

Harm to who? Aren’t rate hikes beneficial to entities that have a lot of debt?

Harm to the politicians that like to spend borrowed money. [Edit: Remember that the US debt is constantly being refinanced at new (now higher) rates] Also remember that debt reflects money ALREADY spent and which therefore provides no additional value, while the ongoing cost of servicing that debt will climb and capture an increasing proportion of the national budget. If all goes well, this will result in reduced spending - but that's not likely. More likely is that this leads to EVEN MORE borrowing, which in turn causes MORE inflation. If we don't get a grip, this is what ultimately ends in a hyper-inflation death spiral as we've seen in other countries over the last 100 years. As the pie shrinks, the govt tries to preserve the absolute size of it's slice by spending more, which causes the pie to shrink still further.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#34

Post by arberx »

ferdowsi wrote: post #16
maxfurman wrote: post #14

I'll echo what some folks have said in other threads, we've had rates down near zero for fifteen years, and we've got to get them back somewhere near historic normals at some point. If only so they can be cut again during the next crisis. How much is our entire culture the result of cheap money?

A substantial chunk of the tech industry are speculative zombie companies that are built on the edifice of zero interest.

Since tech companies use other tech company's products this implies the tech industry is a speculative bubble.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#35

Post by Alex3917 »

ferdowsi wrote: post #16
maxfurman wrote: post #14

I'll echo what some folks have said in other threads, we've had rates down near zero for fifteen years, and we've got to get them back somewhere near historic normals at some point. If only so they can be cut again during the next crisis. How much is our entire culture the result of cheap money?

A substantial chunk of the tech industry are speculative zombie companies that are built on the edifice of zero interest.

Startups generally have only very limited (if any) access to money anyway, so making money more expensive for established companies is probably a net positive for folks who are legitimately trying to start real software businesses.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#36

Post by olivermarks »

mrgalaxy wrote: post #17
changoplatanero wrote: post #9

Earlier quoted context omitted.

Harm to who? Aren’t rate hikes beneficial to entities that have a lot of debt?

I’m no expert here, so someone by all means correct me, but my understanding is that the fed rate correlates to the rate of interest the government has to pay on its debts. The higher the rate, the larger the chance that the government defaults which for the US would be catastrophic.

@mrgalaxy So long as the US onshore Dollar and offshore 'petrodollar' remain as the reserve currency of the planet default is unlikely as they essentially control all our planets money and can print more and more, or reduce money supply. It is good to be king.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#37

Post by hot_gril »

maxfurman wrote: post #14

I'll echo what some folks have said in other threads, we've had rates down near zero for fifteen years, and we've got to get them back somewhere near historic normals at some point. If only so they can be cut again during the next crisis. How much is our entire culture the result of cheap money?

Money-"printing" creates the need to stash money away, which leads to passive investing since most people who have savings aren't market experts, which leads to perpetual bubbles. There's no option to simply hold money. This investment at least tends to go into profitable things like stocks, but not in a proportionate way. It hardly matters how profitable a company is; you just expect the stock to go up regardless because people are parking money there.

Basically, ridiculous startups and ridiculous corporate projects get funding when they shouldn't.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#38

Post by sbaiddn »

ProfessorLayton wrote: post #28
maxfurman wrote: post #14

I'll echo what some folks have said in other threads, we've had rates down near zero for fifteen years, and we've got to get them back somewhere near historic normals at some point. If only so they can be cut again during the next crisis. How much is our entire culture the result of cheap money?

>we've got to get them back somewhere near historic normals at some point. Not a monetary expert here, but do we? Japan has been at zero/near zero since the mid 90s.

They've also been stagnant since the 90s

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#39

Post by cs702 »

On a related note, since mid-April, the Fed has withdrawn –$140B of liquidity from the financial system:

https://news.ycombinator.com/item?id=32929454

and earlier this year announced that it plans to continue withdrawing liquidity from the financial system at the rate of $90B/month for the foreseeable future. The innocuous term for these withdrawals is "quantitative tightening."

There are no historical precedents for quantitative tightening of this magnitude.

It's the first time any central bank has tried it at this scale in a modern monetary regime.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#40

Post by JumpCrisscross »

maxfurman wrote: post #7
markus_zhang wrote: post #3

I'm wondering if they are going to bite the bullet and raise like Volcker. But again I realized that I actually do not understand the source of inflation and how much contribution each source has. We all know that the war, Covid and monetary policy are three sources but are there other structural sources? What about the trade quarrel between US and China? How much does it hurt for each industry? I should read some pa…

My understanding is that the US has so much more debt now than we did in the 80s that a rate hike of that magnitude would cause too much harm for the Fed to stomach.

> the US has so much more debt now than we did in the 80s that a rate hike of that magnitude would cause too much harm for the Fed to stomach

The Treasury pays interest on government debt. The Fed does not. Raising rates causes the Fed no harm other than (a) risking recession and (b) creating accounting losses idiots politicise. (The same way the Fed's accounting gains as it lowered rates are a useful fiction.)

When the Fed raises rates, it increases the rate the U.S. pays on new debt. Over time the U.S. government's interest outlay would thus rise. But we're nowhere near that being an issue. To the degree it would be an issue, it would manifest as inflation. The specter rates are being raised to fight.

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