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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

#61

Post by civilized »

lghh wrote: post #58
Ericson2314 wrote: post #51

Earlier quoted context omitted.

Yes, the only way raising these rates could reduce demand is by increasing unemployment. Powell is much more honest than his predecessors in this regard. I commend him for it. The obsession with this single policy lever is bad, and I hope it changes. But there being little political will to raise rates is a good first step. Eventually we can leave them at zero, and manage the economy by other means.

> Yes, the only way raising these rates could reduce demand is by increasing unemployment. It could also reduce demand by making it more expensive to buy things. Sure, that will probably have a side-effect of increasing unemployment, but that unemployment isn't the goal. The goal is to make it cost more to do things so less people want to do them.

I wonder why we'd want to pull levers to make things cost more, when the goal is to fight inflation, the bad phenomenon in which things cost more.

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

#62

Post by [deleted] »

trelane wrote: post #35
lapetitejort wrote: post #3

If you're a dummy like me, 25 bps means 0.25%.

Technically, it does not, raising 0.25% is always in relation to the existing value of the thing, so increasing a percentage by a quarter of a percent would mean increasing it by a quarter of a percent of its existing value. On the other hand, "basis percentage points" means something absolute, not relative to the existing level. Pedant out. :)

[deleted]

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

#63

Post by rndphs »

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…

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 inflation.

Theoretically, the money needs to be paid back eventually. But as long as the Fed interest rate is below inflation, paying back can always be put off by covering the previous debt with new debt.

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

#64

Post by HWR_14 »

trelane wrote: post #35
lapetitejort wrote: post #3

If you're a dummy like me, 25 bps means 0.25%.

Technically, it does not, raising 0.25% is always in relation to the existing value of the thing, so increasing a percentage by a quarter of a percent would mean increasing it by a quarter of a percent of its existing value. On the other hand, "basis percentage points" means something absolute, not relative to the existing level. Pedant out. :)

Pedantry is useless.

It's very useful to know the difference between the two. It's similar to many other things where there are two concepts that people conflate into one word and then spend a long time complaining or creating humor about confusing the results.

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

#65

Post by MR4D »

mactitan wrote: post #54

The Fed is trapped: It can’t raise too much since trillions of debt rely on very low rates. If it doesn’t raise enough then inflation will cause a recession.

It’s even worse - if the Fed actions tank the markets, then millions of retirees who have been enjoying high market values are screwed and have no other source of wealth or income.

I do not envy the position the Fed is in.

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

#66

Post by posnet »

tryptophan wrote: post #52
throw0101a wrote: post #47

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. 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…

It has everything to do with it. If they were higher, people would go bankrupt, not have money to drive, use less gas/oil, thus reducing demand, thus reducing price, thus reducing inflation.

Yes, but have they tried raising interest rates, and kill all the poor people?

https://www.youtube.com/watch?v=owI7DOeO_yg

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

#67

Post by dragonwriter »

blagie wrote: post #49
phkahler wrote: post #29

Earlier quoted context omitted.

>> Is lowering interest rates a method to overcome a recession? It is claimed to be. The idea is that with lower interest rate, companies and people will be more likely to borrow money to spend and that will boost the economy. I for one do not really believe this to be true. I suspect it's the act of lowering rates that gives a temporary boost until things rebalance. In other words, economic activity has some depende…

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 in 2003-2006 after the 2001 recession, a run up 1992-2001 through the dotcom boom after the short period of easing from 1989-1992, a runup from 1986-1989, etc.

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

#68

Post by windpower »

bshep wrote: post #55
mym1990 wrote: post #40

Earlier quoted context omitted.

Someone posted the graph earlier: https://www.macrotrends.net/2015/fed-funds-rate-historical-c... Fed funds rate in the early 80s were at their historical peak. We are still currently at near historical lows.

How did anyone buy a house or a car with interest rates in the 20%s?

Not 100% sure about cars, but houses were cheaper. Interest rates being higher means that the monthly payment on a given mortgage amount is higher, meaning the house price that an average buyer can afford goes down. Low interest rates mean that people can afford a more expensive house, and that causes prices to go up.

Anecdotally, my dad complains about paying an interest rate in the teens for the house I grew up in. My parents paid $69K ($188K in 2022 dollars) for the house, which was about a year old. Zillow estimates the same house at $457K today. Obviously not all of the price increase is due to lower interest rates, but the house _was_ much cheaper, so even with a high interest rate, the mortgage was pretty affordable.

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

#69

Post by HWR_14 »

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…

> 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?

Yes. Oil/Gas prices are pretty determined by OPEC voting and production of their member countries in conjunction with other macroeconomic issues. OPEC adjusts their production to take into account macroeconomic factors. The Fed rate is one of those issues.

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

#70

Post by just_steve_h »

bshep wrote: post #55
mym1990 wrote: post #40

Earlier quoted context omitted.

Someone posted the graph earlier: https://www.macrotrends.net/2015/fed-funds-rate-historical-c... Fed funds rate in the early 80s were at their historical peak. We are still currently at near historical lows.

How did anyone buy a house or a car with interest rates in the 20%s?

The house cost $30,000 and the car cost $5,000.
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