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Federal Reserve pushes interest rates above 5% for first time since 2007

finance.yahoo.com

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Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#31

Post by qbasic_forever »

greyw wrote: post #15
blitzar wrote: post #9

Earlier quoted context omitted.

This whole interest rate cutting exercise and its obvious effects on various markets also really made the economy seem fake .... The period of 10 years where rates were 0%+/- with 2-3++% inflation was the fake economy 5% rates with 5% inflation is the real world.

Can you please elaborate what you mean by "fake" economy?

The idea that you will always be able to borrow money at no cost is pure fantasy. Except many, many start-ups and companies built business plans that could only work when they had a constant supply of free loans. A scooter rental startup for example could offer service for less than their operation costs because there was always a spigot of money to borrow.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#32

Post by TinyRick »

htag wrote: post #23

This shows a level of confidence in the banking sector that I find questionable. Risks associated with raising bond interest rates were one of largest factors in the recent bank failures. Surely more bank failures would be seen as worse for the economy than inflation. If more, larger banks fail in the next twelve months then the Federal Reserve will be sheepish about raising interest rates for the next hundred years.…

> Surely more bank failures would be seen as worse for the economy than inflation.

I disagree with this. Also keep in mind that the Fed has a dual mandate (price stability and maximum employment); they aren't guardians of the overall economy nor are the responsible for ensuring that banks don't fail.

> Personally, I'd like to see Congress take more action to reduce inflation.

100% agree

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#33

Post by Yeahsureok »

htag wrote: post #23

This shows a level of confidence in the banking sector that I find questionable. Risks associated with raising bond interest rates were one of largest factors in the recent bank failures. Surely more bank failures would be seen as worse for the economy than inflation. If more, larger banks fail in the next twelve months then the Federal Reserve will be sheepish about raising interest rates for the next hundred years.…

Congress has no electoral mandate to lower inflation, that's not their job.

Using fiscal policy for inflation targeting is crude and horrendously slow.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#34

Post by avn2109 »

brianwawok wrote: post #5
pfannkuchen wrote: post #2

This whole interest rate hike exercise and its obvious effects on various markets has really made the economy seem fake to me. How can one government committee have so much arbitrary decision making power over how hundreds of millions conduct business in this country? It’s extremely demotivating.

How would you prefer to do it? Like China?

The common answer to this question is that the base rate could be set by some free-market themed mechanism, where the price (aka base rate) depends on the balance of supply and demand for loans, instead of the current status quo of centrally-planned rates.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#35

Post by abduhl »

htag wrote: post #23

This shows a level of confidence in the banking sector that I find questionable. Risks associated with raising bond interest rates were one of largest factors in the recent bank failures. Surely more bank failures would be seen as worse for the economy than inflation. If more, larger banks fail in the next twelve months then the Federal Reserve will be sheepish about raising interest rates for the next hundred years.…

The Fed probably believes that any banking sector issues related to interest rate risk are adequately addressed by the Bank Term Funding Program which allows banks to gradually get past their low interest rate problems and that any banks with assets that can’t take advantage of this program are mismanaged and deserve to fail. And they’re probably not wrong since durational risk arbitrage is literally the core business model of a bank.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#36

Post by MacsHeadroom »

standyro wrote: post #4
pfannkuchen wrote: post #2

This whole interest rate hike exercise and its obvious effects on various markets has really made the economy seem fake to me. How can one government committee have so much arbitrary decision making power over how hundreds of millions conduct business in this country? It’s extremely demotivating.

Imagine if the US Congress or the President was in charge of these decisions. To me, anyway, it's more calming. Haha.

Imagine if the market was in charge of these decisions.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#37

Post by headPoet »

curiousllama wrote: post #27
hospitalJail wrote: post #18

Just a perspective to share from someone trying to buy property for a small business(since most people think about it from a residential POV). Unlike residential mortgages, corporate loans are not fixed interest rates. They are all adjustable. What in 2020 seems financially sound, becomes impossible a few years later. I can't imagine how other companies do this, do you just make sure your business can handle 12% inte…

Are there no hedging instruments for something like this?

Yes, you can buy an interest rate swap. But I don't know how readily available they are to small businesses.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#38

Post by Workaccount2 »

pfannkuchen wrote: post #2

This whole interest rate hike exercise and its obvious effects on various markets has really made the economy seem fake to me. How can one government committee have so much arbitrary decision making power over how hundreds of millions conduct business in this country? It’s extremely demotivating.

The fed has a dual mandate (Powell only repeats this 20-30 times during each press conference). Stable prices (2% inflation) and maximum employment.

That dual mandate is what dictates policy. The recent string of rate hikes are not arbitrary, they are because of the surge in inflation flowing the extreme policies the fed took on the other end when unemployment was high during the pandemic.

If anything the case to be made is that the fed went overboard with its QE during the pandemic, but even then its a bit of "hindsight is 20/20". I think everyone can agree that had this pandemic struck in 2000, even 2010 instead of 2020, the economic impact would have been dramatically greater than it was.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#39

Post by toast0 »

hospitalJail wrote: post #18

Just a perspective to share from someone trying to buy property for a small business(since most people think about it from a residential POV). Unlike residential mortgages, corporate loans are not fixed interest rates. They are all adjustable. What in 2020 seems financially sound, becomes impossible a few years later. I can't imagine how other companies do this, do you just make sure your business can handle 12% inte…

> Unlike residential mortgages, corporate loans are not fixed interest rates. They are all adjustable. What in 2020 seems financially sound, becomes impossible a few years later.

> I can't imagine how other companies do this, do you just make sure your business can handle 12% interest rates just incase a politician decides to give away free money for a few years?

There's probably a larger area of acceptable risk to take for a business loan vs a personal loan, IMHO; but if it's a business loan that you're also personally liable for, that's different. Businesses fail all of the time, and it's acceptable. You also have to consider what leverage the borrower has against the lender. If your business can't pay the loan, will the lender be able to find a buyer if they foreclose? If not, they may be likely to let a default slide. I've heard many stories of commercial landlords that let businesses stay rent-free for years because they couldn't attract a new tenant for the space, and it was better to have it occupied and active than empty. I've never heard of residential landlords letting tenants stay for years rent free unless required to or some other special circumstance.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#40

Post by hospitalJail »

NationalPark wrote: post #20
hospitalJail wrote: post #18

Just a perspective to share from someone trying to buy property for a small business(since most people think about it from a residential POV). Unlike residential mortgages, corporate loans are not fixed interest rates. They are all adjustable. What in 2020 seems financially sound, becomes impossible a few years later. I can't imagine how other companies do this, do you just make sure your business can handle 12% inte…

Can you hedge against it with interest rate swaps? It seems interest rate risk is probably one of the more manageable risks of a small business that is fundamentally dependent on other people's money - how do you know it's going to succeed in the first place even if rates don't increase?

Interesting, thank you and I will look into this.

Engineer married a doctor who owns the clinic, no finance people in the family. The company is already doing great, we are just expanding. We have the past performance of the company, so we have an idea if we can afford a set monthly cost.

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