Fed increases target rate to 3.75-4.00% • Hacker News Board

Re: Fed increases target rate to 3.75-4.00%

#71

Post by saxonww » Wed, Nov 02, 2022, 6:56 PM UTC

factsarelolz wrote: post #12

nightski wrote: post #6

Earlier quoted context omitted.

The way I see it, it is still rising. But that was hidden by the fact that oil & gas prices dropped during the last period which was largely due to dipping into strategic reserves pretty heavily. Unfortunately I don't think oil & gas will continue to drop, or even stay even going forward. Especially with the middle east cutting production.

Oil dropped in the US because the current administration is depleting the strategic reserve. It's almost gone but the current administration doesn't care. The current administration punched down Trump attempting to top off the reserve for $24/barrel. Once the reserve runs out we'll be at 5.50 a gallon again but midterms will be over and I'm sure the other party will get the blame.

> Oil dropped in the US because the current administration is depleting the strategic reserve. It's almost gone but the current administration doesn't care.

This is not exactly true, there are still hundreds of millions of barrels in the reserve, well over 50% of its alleged capacity.

While it is true that stock has been dropping more quickly in the past year, the reserve has been slowly depleting since February of 2017.

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M...

Re: Fed increases target rate to 3.75-4.00%

#72

Post by czinck » Wed, Nov 02, 2022, 6:56 PM UTC

BitwiseFool wrote: post #37

c0nsumer wrote: post #27

Earlier quoted context omitted.

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.

There's a lag in the index, but in August (most recent data available) housing prices were down 0.7% month over month, and 0.6% the month before https://www.fhfa.gov/AboutUs/Reports/Pages/US-House-Price-In....

But, as others have pointed out, housing prices are sticky for a variety of reasons.

Re: Fed increases target rate to 3.75-4.00%

#73

Post by whimsicalism » Wed, Nov 02, 2022, 6:56 PM UTC

connorgutman wrote: post #67

hornd wrote: post #42

Earlier quoted context omitted.

This is the current talking point du-jour of the American progressive left, but I think it's safe to say the Fed knows what they're doing and have done this before.

Ah yes, the almighty Fed which knew exactly what to do in 2020, 2008, 2001, 1990, 1987...

2008 was clearly a failure for the Fed but I would love to see the counterfactuals of no Fed action for many of the other times you are mentioning.

Re: Fed increases target rate to 3.75-4.00%

#74

Post by hahla » Wed, Nov 02, 2022, 6:56 PM UTC

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 is a pretty blanket statement. That same down payment will not be effective at all. Current interest rates have definitely impacted housing prices but its not significant enough to make up for the difference in monthly payment. Think of it this way:

Scenario 0: 500k house, 30yr/3% interest rate, 100k down (20% standard) = 400k total loan amount and 1,686 monthly payment

Scenario 1: 400k house, 30yr/7% interest rate, 100k down (let's say you still have that cash and put it all towards down payment) = 300k total loan amount and 1,996 monthly payment.

This is assuming in your housing market prices have cooled by 20%, I'm not seeing drops like that in my market. Your monthly payment just increased $300.

Re: Fed increases target rate to 3.75-4.00%

#75

Post by WillPostForFood » Wed, Nov 02, 2022, 6:57 PM UTC

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…

It already seems to have had an impact on inflation though - we are in a much better place today than 6 months ago with inflation. If real wages decline, and housing declines (both tied to interest rates), then rents will decline. If we need to get energy prices down, we have abundant domestic supply waiting for extraction. High prices are currently a executive branch policy choice.

Re: Fed increases target rate to 3.75-4.00%

#76

Post by whimsicalism » Wed, Nov 02, 2022, 6:57 PM UTC

r00fus wrote: post #62

hornd wrote: post #42

Earlier quoted context omitted.

This is the current talking point du-jour of the American progressive left, but I think it's safe to say the Fed knows what they're doing and have done this before.

The "Fed" isn't some apolitical entity. It's lobbied and banks want to crash the economy so their wealthy clients can get in at the bottom. They have an agenda.

Those wealthy clients are already heavily "in." You can make up motives for anything, I guess, but the obvious motive for the Feds actions is surging prices.

Re: Fed increases target rate to 3.75-4.00%

#77

Post by Sin2x » Wed, Nov 02, 2022, 6:57 PM UTC

factsarelolz wrote: post #12

nightski wrote: post #6

Earlier quoted context omitted.

The way I see it, it is still rising. But that was hidden by the fact that oil & gas prices dropped during the last period which was largely due to dipping into strategic reserves pretty heavily. Unfortunately I don't think oil & gas will continue to drop, or even stay even going forward. Especially with the middle east cutting production.

Oil dropped in the US because the current administration is depleting the strategic reserve. It's almost gone but the current administration doesn't care. The current administration punched down Trump attempting to top off the reserve for $24/barrel. Once the reserve runs out we'll be at 5.50 a gallon again but midterms will be over and I'm sure the other party will get the blame.

It's not gone but -35% YoY certainly doesn't look good. Especially when it's the 'better' medium-sore oil that is getting depleted faster:

https://ycharts.com/indicators/us_ending_stocks_of_crude_oil...

https://www.washingtonpost.com/business/energy/the-us-is-dep...

Re: Fed increases target rate to 3.75-4.00%

#78

Post by georgeecollins » Wed, Nov 02, 2022, 6:57 PM UTC

monkmartinez wrote: post #21

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.)

Reduce demand, broadly, as credit tightens with increased interest rates. Can't borrow at basically free money rates across the board anylonger. Translates into, Less money for stock buybacks, less Yolo with stimy checks, left over money to yolo is also reduced == the market returns to mean. People feel less wealthy == slow purchases. Reduced purchases == Business struggle. Businesses lay people off == less demand. A…

That's not quite right, because if you only reduce demand you could also reduce supply and prices would be unchanged. Higher interest rates reduces money supply (which can induce a recession) but does not necessarily reduce the supply of goods. Less money chasing the same amount of goods (ideally) causes lower prices.

I don't think you are wrong intuitively. I am just trying to be a little more specific because get very vague about monetary policy and it leads to some bad assumptions.

Re: Fed increases target rate to 3.75-4.00%

#79

Post by c0nsumer » Wed, Nov 02, 2022, 6:59 PM UTC

lazide wrote: post #54

BitwiseFool wrote: post #37

Earlier quoted context omitted.

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.

It takes years for existing sellers to wake up to market shifts, unless they’re desperate is why. If it’s a nicer area, many can ride it out through an entire bust cycle. Most folks can get 30 yr fixed rates, so any area where most owners have stable employment and/or strong capital reserves, can cruise with zero movement for years if conditions aren’t favorable, barring estate sales, forced sales from divorces, etc.

Your second sentence is the position we're in. We were very fortunate to buy a house in a nice area a year ago. Right at the peak, but it was a fixer-upper from a friend, so we got a good deal and skipped a lot of fees/commissions. Even with what we've put in to fix it up, we should still be above water post-dip.

And that sweet, sweet 2.375% mortgage...

Re: Fed increases target rate to 3.75-4.00%

#80

Post by kibwen » Wed, Nov 02, 2022, 6:59 PM UTC

factsarelolz wrote: post #12

nightski wrote: post #6

Earlier quoted context omitted.

The way I see it, it is still rising. But that was hidden by the fact that oil & gas prices dropped during the last period which was largely due to dipping into strategic reserves pretty heavily. Unfortunately I don't think oil & gas will continue to drop, or even stay even going forward. Especially with the middle east cutting production.

Oil dropped in the US because the current administration is depleting the strategic reserve. It's almost gone but the current administration doesn't care. The current administration punched down Trump attempting to top off the reserve for $24/barrel. Once the reserve runs out we'll be at 5.50 a gallon again but midterms will be over and I'm sure the other party will get the blame.

The whole point of the SPR is to deal with supply shocks. I know, it's weird to see an administration doing something that's actually popular while using the exact legal mechanism for achieving that popular thing. Frankly, I'm surprised too. Furthermore, the SPR was already at 90% of its all-time high when the previous administration proposed to top it off; enough perhaps to make a marginal difference, but not nearly enough to change the outcome of a drawn-out crisis.