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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%

#31

Post by monkmartinez »

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.

I disagree. Supply constraints were a figment of unsustainable demand. There was simply too much money sloshing around to satisfy the hedonistic human treadmill of MORE!

Re: Fed increases target rate to 3.75-4.00%

#32

Post by HPsquared »

Raydovsky wrote: post #8

I dont get it. Prices are rising because fossil fuels are more expensive. How do interest rate hikes fix that?

Flip the causality: fossil fuel (and everything else) prices are increasing because of an increased money supply. Raising the interest rate indirectly lowers the money supply.

https://fred.stlouisfed.org/series/M1SL

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

Re: Fed increases target rate to 3.75-4.00%

#33

Post by r00fus »

This will do nothing for actually impacting inflation. Instead it will crash the economy. Real inflation seems to be due to price gouging by companies[0], combined with energy increases due to OPEC price fixing [1], and rent increases due to collusion [2] and corporate domination housing market [3].

Jerome Powell had no answers to the Senate Oversight committee when asked how increasing rates would actually reduce that kind of inflation because his goal is to crash the economy for his buddies on Wall Street - they have lobbyists at the Fed too. [4]

[0] https://www.theguardian.com/commentisfree/2022/sep/25/inflat...

[1] https://newrepublic.com/article/166752/opec-cartel-gas-price...

[2] https://www.propublica.org/article/yieldstar-rent-increase-r...

[3] https://wjno.iheart.com/featured/brian-mudd/content/2022-02-....

[4] https://theintercept.com/2022/10/26/federal-reserve-bank-lob...

Re: Fed increases target rate to 3.75-4.00%

#35

Post by cj »

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.

(Not sure if this is good advice, but...) remember that you can always refinance at a lower rate when the rates come back down.

It's obviously still not advisable to buy a house if you can't afford the monthly payments, but remembering that you can always refinance in a couple years when the rates normalize might help if you have FOMO from the super low rates of the past few years.

Re: Fed increases target rate to 3.75-4.00%

#36

Post by rpmw »

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.

If you have good credit, you'd be surprised how low PMI can get when you put less than 20% down. I wish I had learned it sooner. Saved 6 figures for a down payment only to find out that my PMI was only $103/mo on a $600k mortgage. Ended up doing 5% down instead and threw the rest of the cash into immediate home improvements and the market.

Disclaimer: I did get in when rates were in the low 3s. No clue what PMI is like nowadays or if it changes with the current rate environment.

Re: Fed increases target rate to 3.75-4.00%

#37

Post by BitwiseFool »

c0nsumer wrote: post #27
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.

This should be happening, but prices do not seem to be falling in-line with what we would expect. I have no answer as to why this is.

Re: Fed increases target rate to 3.75-4.00%

#38

Post by monkmartinez »

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.

A few months from now will be the best time to buy. You can renegotiate the terms of the loan, but you can never renegotiate the price you pay!!!!

Re: Fed increases target rate to 3.75-4.00%

#39

Post by bwb »

guyzero wrote: post #5
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 reducing demand. I guess.

This is it. You trigger a pull back in the economy, if you get lucky you don't trigger a recession. But, if you need to trigger a recession you do it rather than out of control inflation.

Re: Fed increases target rate to 3.75-4.00%

#40

Post by stu2b50 »

r00fus wrote: post #33

This will do nothing for actually impacting inflation. Instead it will crash the economy. Real inflation seems to be due to price gouging by companies[0], combined with energy increases due to OPEC price fixing [1], and rent increases due to collusion [2] and corporate domination housing market [3]. Jerome Powell had no answers to the Senate Oversight committee when asked how increasing rates would actually reduce th…

Crashing the economy would ease inflation though by cause a big demand hit.
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