Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

finance.yahoo.com

Post reply on HN
Print view View original

61–70 of 112 posts

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

#61

Post by pseg134 »

bryanlarsen wrote: post #50
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 b…

The inflation reduction act couples 2.4 trillion of spending with 740 billion of taxes.

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

#62

Post by notahacker »

avn2109 wrote: post #34
brianwawok wrote: post #5

Earlier quoted context omitted.

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.

But the "free market theme" is an illusion, since the interbank lending rate is a function of how much base money is available to banks, and base money is by definition the money not produced by "free markets".

The alternative of trying to fix the money supply growth and let the rate "float" doesn't look less like government intervention, and it does involve a lot more wild lurches in interest rates and bank/company failures.

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

#63

Post by zie »

rightbyte wrote: post #49
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.

Interest rates affect debt. The higher the interest rate(s) the less debt people are willing to take on. Debt is the lube that keeps the economic wheels spinning.

If you can borrow for 5% but can make 20% return on that money, then you obviously are heavily incentivized to borrow at 5%. If you can borrow at 5% but can only make 6%, you are not really incentivized to borrow. This means less purchasing will happen, slowing down the economy.

To think about it another way, which might help: borrowing is moving money from the future to today. To do that costs you something. The more it costs, the less likely you are to do it.

Credit Cards move money from 30 days in the future to today without much cost(and in the US often incentivized with rewards/cash back, etc). As soon as 31 days happen, the cost to move that money forward in time is suddenly 20+%, making it ridiculous for anyone with a clue to borrow money on credit cards past 30 days.

Mortgages move up your house purchase by up to 30 years. If it costs you a lot more to borrow today than it did a few years ago, you are much less likely to move up that purchase.

The same is true for companies and everyone else. The more it costs to borrow, the less likely you are to borrow, decreasing spending today.

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

#64

Post by TexanFeller »

Workaccount2 wrote: post #59
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…

A de-dollariztion and a move to what? Yuan? Ruble? Bitcoin? Sure countries might be unhappy with the dollar as of late, but there really is no serious competitor. It's like being upset with the Ritz and threatening them with moving your stay to the Comfort Inn.

If people start hating the Ritz's policies and prices someone will eventually build a comparable competing hotel, a ready to go alternative doesn't have to already exist. We've created incentives for alternatives to the dollar to spring up, we need to either pray to God they somehow don't or stop incentivizing the alternatives.

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

#65

Post by rightbyte »

gameman144 wrote: post #55
rightbyte wrote: post #26

Earlier quoted context omitted.

My gut feeling is that it is a bad idea too. But the defenders of the system do not bat an eye when the Fed pours helicopter money over the rich. The hypocrisy is maddening. It is so dishonest.

I can offer my perspective as someone who would probably be considered a "defender of the Fed" (definitely not government policy as a whole, though). Pouring helicopter money down is going to increase inflation, hands-down. Giving it to more people will increase inflation more than giving it to fewer people (since the competition for scarce goods will be more widely distributed), but it's just as bad giving helicopte…

> There's some deep hypocrisy in fiscal policy, but I think the Fed is doing what the Fed can do to keep jobs and inflation in balance.

Sure, I guess I agree on this.

But there has to be something more I don't understand. The interest on savings goes up with the interest on loans.

Is it maybe "quantitive easing" that is the real culprit?

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

#66

Post by notahacker »

G3rn0ti wrote: post #58
rightbyte wrote: post #7

Earlier quoted context omitted.

All these rate hikes has made me understand how deeply manipulated the economy is. All these scary stories about the old left going to mess with the market ... It seems to me that the FED arbitrarily can manipulate the lowest return on money invested that is possible to get away with aswell as the highest rate you can expect to get on your money by some opaque banker only interest system. Like, how is printing money…

Try reading this classic: „What Has Government Done to Our Money?“ https://mises.org/library/what-has-government-done-our-money It’s a good introduction to banking, money and the business cycle.

Learning about banking and money from a gold-standard era Rothbard polemic which predates the policies of the modern Fed (and most of the theoretical debates and practical results that informed them) is a bit like learning about the practice of modern medicine from the writings of a 19th century homeopath.

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

#67

Post by AnimalMuppet »

hospitalJail wrote: post #40
NationalPark wrote: post #20

Earlier quoted context omitted.

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.

Rent some finance people. Get someone you can consult with on this stuff. There's almost certainly more pitfalls than we engineer types can logic out from what we know.

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

#68

Post by tsjackson »

bryanlarsen wrote: post #50
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 b…

Too slow. While I fully agree that taxes have gotten out of whack and should be raised, raising taxes would have an impact a year from now (way too slow of timeframe to manage inflation). Additionally, practically speaking, the government would have one shot and no realistic way to quickly correct if they raised taxes too much or too little. Finally, there's so much uncertainty in the market when major political decisions like that are afoot, that you risk doing harm just from the perception.

The fed has the power to act quickly. They raised rates a little on almost a monthly basis last year. Each was a little experiment. If they raised them too much, they could reduce them the next month. If they raised them too little to fully counter inflation, they could continue raising them.

Finally, the issue isn't getting "money" out of the system - it's getting purchasing power out of the system - reducing demand. And most people are buying 5-20% of houses, banks are buying the rest. Most large businesses aren't paying cash reserves to pay employees, they're using debt to pay those salaries.

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

#69

Post by mitthrowaway2 »

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?

I'd prefer a rules-based monetary policy, eg. the Taylor rule, automatically setting interest rates based on measured inflation, with little room for subjective influence.

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

#70

Post by tsjackson »

tsjackson wrote: post #68
bryanlarsen wrote: post #50

Earlier quoted context omitted.

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 b…

Too slow. While I fully agree that taxes have gotten out of whack and should be raised, raising taxes would have an impact a year from now (way too slow of timeframe to manage inflation). Additionally, practically speaking, the government would have one shot and no realistic way to quickly correct if they raised taxes too much or too little. Finally, there's so much uncertainty in the market when major political deci…

Also, reducing spending is even slower than reducing taxes.

The vast majority of government spending is on Medicare, Social Security, Medicaid, and defense spending. Politically those are untouchable, mostly for good reasons - reducing any of them will result in people literally dying.

The vast majority of what's left is hugely impactful high ROI activities like scientific research, infrastructure projects, and other basic good governance activities.

Post reply on HN