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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

#41

Post by douglasisshiny »

sfe22 wrote: post #19
gameman144 wrote: post #14

Earlier quoted context omitted.

This is the government's interest rate for lending to banks. What would people deciding for themselves look like in this case?

I don’t think the (us) government is lending to the banks, it is already on close to trillion dollar deficit, if anything it is borrowing from banks. “People” in my comment includes groups of people too (eg companies, governments). Shouldn’t one be able to set the price of borrowing, why we must have one party deciding for everyone else.

If you're trying to understand what the federal funds rate is (what interest rates refer to here), you can read here: https://fred.stlouisfed.org/series/FEDFUNDS

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

#42

Post by hospitalJail »

ur-whale wrote: post #22
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…

Just rent instead and negociate a fixed rent for the next X years.

Basically, just sad to see that money disappear. Not to mention, our last landlord promised the moon and never even fixed their parking lot which caused at least 1 flat tire.

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

#43

Post by gameman144 »

sfe22 wrote: post #19
gameman144 wrote: post #14

Earlier quoted context omitted.

This is the government's interest rate for lending to banks. What would people deciding for themselves look like in this case?

I don’t think the (us) government is lending to the banks, it is already on close to trillion dollar deficit, if anything it is borrowing from banks. “People” in my comment includes groups of people too (eg companies, governments). Shouldn’t one be able to set the price of borrowing, why we must have one party deciding for everyone else.

> I don’t think the (us) government is lending to the banks

Lending to banks is precisely what the Federal Reserve does.

> Shouldn’t one be able to set the price of borrowing, why we must have one party deciding for everyone else.

This is also already the case. If you want to take out a mortgage or a personal loan or a credit card, the interest rate is negotiated entirely between you and the lender (the government has no say in dictating that rate).

The reason Fed interest rates affect your interest rates is that if banks have to pay more interest to borrow from the Fed, they are willing to offer consumers more money for their deposits, and are also going to charge more for money they lend out (since they still need to make a profit on it).

This is part of the reason for recent bank failures: if you're a bank and you offer depositors 1% on their deposits to go and make long-term investments at 2%, you'll make that 1% difference as profit.

If other banks suddenly start offering depositors 3% (due to increased bank-borrowing rates), you're going to either lose depositors to the much better interest rates at other banks or you're going to have to take a loss on those 2%-investments you made, offload them, and make other investments at a higher interest rate.

In all of this, the only hand the Fed had in things is saying "We're charging banks this much interest on the money we lend them"

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

#44

Post by douglasisshiny »

uptownfunk wrote: post #13
elzbardico wrote: post #8

The US have maybe a few months to completely undo their stupid sanctions on the Russians and return their money or the de-dollarizarion movement will keep gaining steam and those bank failures will look like children’s play. There’s no way the USA can survive as a world power if they keep stupidly weaponizing the dollar and weakening its status as the world currency. How do people think we will keep our standards of…

You raise a valid point so don't know why you're being downvoted. A lot of my investors reallocated their portfolios when SVB happened to minimize risk due to dollar volatility. I think perhaps this runs counter to the mainstream woke narratives whenever russia comes up

Can you explain what you mean by dollar volatility?

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

#45

Post by [deleted] »

uptownfunk wrote: post #13
elzbardico wrote: post #8

The US have maybe a few months to completely undo their stupid sanctions on the Russians and return their money or the de-dollarizarion movement will keep gaining steam and those bank failures will look like children’s play. There’s no way the USA can survive as a world power if they keep stupidly weaponizing the dollar and weakening its status as the world currency. How do people think we will keep our standards of…

You raise a valid point so don't know why you're being downvoted. A lot of my investors reallocated their portfolios when SVB happened to minimize risk due to dollar volatility. I think perhaps this runs counter to the mainstream woke narratives whenever russia comes up

[deleted]

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

#46

Post by eftychis »

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.…

What banking sector? I think until the AT1 bond lawsuit gets resolved with a win for the bond holders, all but the biggest banks have serious liquidity issues. There is not going to be a sector but a few chosen survivor banks and some lucky ones.

Private banks are the ones that "print" the money -- common misconception on who does. Fed is saying "well someone needs to lose the money or I will keep increasing rates (until I break the game)" while FDIC and executive branch are saying "nobody will lose any money."

Who do you think is going to win this game of chicken?

We need actions at the speed of "light" compared to Congress speed. That is the reason Congress does not directly handle these issues but a third party, the Federal Reserve, does.

We are practically waiting for the real estate sector to collapse, commercial first, and that money to disappear right now.

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

#47

Post by avn2109 »

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 Federal Reserve will keep pushing those interest rates higher and higher..."

They really can't raise interest rates much above 5%, this follows straightforwardly from observing how much of the national budget is consumed by debt service as a function of the interest rate. (Higher rate = larger fraction of budget allocated to debt service, obviously.)

If they go above five-ish percent, this implies that they'll need to either A) raise taxes to a level that would likely inspire mutiny, B) greatly reduce borderline-impossible-to-cut parts of the budget such as the military industrial complex + welfare spending broadly construed, C) increase productivity by a lot, D) monetize the debt or E) default on the debt.

Probably they will attempt to pick F) all of these, in varying degrees, though obviously some are easier to implement than others. Anyway it is very unlikely that we will see rates much above 5% in the foreseeable future.

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

#48

Post by HFguy »

Yeahsureok wrote: post #33
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.

They have a mandate to do sensible things. And a massive 2nd round of additional fiscal stimulus was not sensible.

Additionally, fiscal policy is little slower or more crude than monetary levers. They could be part of the solution.

But putting on the breaks is not going to get them elected.

So we have the Fed who get to be the bad guys.

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

#49

Post by rightbyte »

tsjackson wrote: post #24

Lots of smoke in the comments here. The Fed is doing what needs to create relative stability. Uncomfortable, but real. Demand is outstripping supply and prices are going up. The least painful option is raising interest rates. Alternatives are hyperinflation, (very bad), or various price fixing schemes (which have literally never worked despite many attempts and are even worse in the ultimate outcomes). There are lots…

> The least painful option is raising interest rates. Alternatives are hyperinflation

Why is this taken as a fact everywhere. Surely, interest rates is a zero sum game?

I honestly don't understand.

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

#50

Post by bryanlarsen »

tsjackson wrote: post #24

Lots of smoke in the comments here. The Fed is doing what needs to create relative stability. Uncomfortable, but real. Demand is outstripping supply and prices are going up. The least painful option is raising interest rates. Alternatives are hyperinflation, (very bad), or various price fixing schemes (which have literally never worked despite many attempts and are even worse in the ultimate outcomes). There are lots…

The least bad option would be to raise taxes. If the problem is too much money, directly removing the money from the system is the solution. Taxes can be precisely targeted and work quickly. Call it a "windfall tax" for political cover, but given that it would have to be large to be effective, it would be more than that. The Inflation Reduction Act was a good start, but it only raised taxes by $700B.

The next least bad option would be to reduce spending. It'd be slower to act, can't be targeted as easily as increased taxes and there's no possible way to reduce spending by the trillions necessary to have an effect on inflation.

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