[HN Gopher] Fed raises rates by another 75 bps to fight inflation
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Fed raises rates by another 75 bps to fight inflation
Author : donsupreme
Score : 98 points
Date : 2022-09-21 18:05 UTC (4 hours ago)
(HTM) web link (www.cnbc.com)
(TXT) w3m dump (www.cnbc.com)
| norwalkbear wrote:
| The sad part is higher interest rates will lead to more layoffs
| justinzollars wrote:
| Probably.
| theandrewbailey wrote:
| Sadly, this proves that the economy is ultimately run on debt.
|
| Someday, maybe we, as a society, will realize that debt,
| credit, and lending is the way bankers scam money out of
| everyone else, and we collectively won't put up with it
| anymore. Banks often have some of the biggest and shiniest
| towers in downtowns all around the world. How did they get
| them? Interest, fees, and charges. I can't count how many times
| people (even on this very site!) have said something like
| "don't buy things with cash, invest it and get a loan for it
| instead because interest." It's no mystery as to why you don't
| have a tower, because you're paying for someone else's.
|
| Normal people figured this out such a long time ago, that a
| verse in the Bible says that the borrower is slave to the
| lender. I'm no slave.
|
| And don't be fooled by the cash and airline miles that your
| credit card throws at you. You're paying for those "rewards" by
| fees that the banks and networks charge merchants, and they're
| ultimately built into increased prices that everyone pays. No
| one got rich from those crumbs, except the bankers.
| scotuswroteus wrote:
| "Someday, maybe we, as a society, will realize" is one of
| those sentences that never delivers what it promises. It's
| always some cockamamie partisan hack job oversimplified
| nonsense that calls for wholesale revisions of the entire
| system based on one semiserious concern.
| SketchySeaBeast wrote:
| Unfortunately debt is a part of our society. How would any
| business that requires a large capital investment start if
| not for debt? Taking on smart debt and making money off it is
| a way to better one's own situation. Without the ability to
| take on debt our social classes would stratify into the haves
| and have nots even greater than it is today.
|
| I don't like debt, and it has truly gotten crazy, but I don't
| know a way around debt.
| bombcar wrote:
| Debt isn't the problem - it's what happens when you can't
| pay the debtor. Personal recourse debt is a scourge on the
| world, especially the poor.
| rozap wrote:
| Except that you only live once. If I can buy a house with a
| mortgage and live in my own place for years of my finite
| existence versus trying to save money while paying for
| someone else's mortgage and living in a basement, what seems
| more rational? You only have a few dozen years left.
|
| It's no utopia, but it works well enough.
| ejb999 wrote:
| taking on debt for an appreciating (or incoming earning)
| asset, is generally OK - taking on debt for a depreciating
| asset is never a good idea if you can avoid it.
|
| Taking on debt to pay your daily living expenses is a
| recipe for disaster - and that is what the US govt. has
| been doing (and many individuals as well)
| jedberg wrote:
| > Taking on debt to pay your daily living expenses is a
| recipe for disaster
|
| Taking on _unsecured_ debt is a bad idea. But if you are
| going to spend $100,000 on living this year and have
| $100,000 in the bank, you have two choices. Spend the
| $100,000 and have nothing. Or use the $100,000 to buy
| bonds or another income producing asset, then take a loan
| using that as collateral. As long as the interest you
| earn from your collateral is more than the rate you pay,
| you come out ahead.
|
| Instead of having a bank account with $0, you have an
| investment account with $100,000, debt of $100,000, and
| you're earning interest on the investment account each
| month that hopefully covers the interest on the debt plus
| provides some extra income.
| bombcar wrote:
| You're also taking on risk (otherwise the bank would just
| skip you and buy the asset directly).
| SketchySeaBeast wrote:
| > taking on debt for a depreciating asset is never a good
| idea if you can avoid it.
|
| Even that isn't necessarily true - if one is broke but
| one needs a car for a better job they need to take on
| debt for the car. The debt definitely isn't an
| appreciating or incoming earning asset, but it is a good
| choice.
| ejb999 wrote:
| thus the "if you can avoid it" part of my answer.
| pixl97 wrote:
| Eh, this is an especially terrible take on your part.
|
| The 'asset' that the government is taking dept on to pay
| for its living expense is YOU. On the averaged timeline
| YOU are an income earning asset. The government takes
| some expenses (roads, education, water, safety) and out
| comes a taxpayer that has an average income earning
| lifespan.
|
| You as an individual don't get to play the averages game
| quite as well. If you are borrowing money today to pay
| for your daily expenses it is highly likely that will be
| true tomorrow. You as an individual have risks like
| getting fired and not getting a new job, or getting
| smooshed in a car accident. These are risks your lenders
| take on when figuring out the rate your loans will have,
| if you even get a loan at all.
| leetcrew wrote:
| > taking on debt for an appreciating (or incoming
| earning) asset, is generally OK - taking on debt for a
| depreciating asset is never a good idea if you can avoid
| it.
|
| this is a good rule of thumb, but there are exceptions.
| say I want to buy something that costs much less than my
| net worth, but more than I typically keep in my checking
| account. I have the choice between a) selling
| investments, b) taking out a loan, or c) deferring new
| investments until I've accumulated enough cash.
|
| there are pros and cons to each. with a), I'm paying
| capital gains tax that I could otherwise defer. with b),
| I'm taking the risk that my cash flow dries up and I need
| to sell assets anyway on top of paying interest. and with
| c), I'm taking the risk that my cash inflates away while
| I'm saving up.
|
| you can't know with certainty which is best, but b) is
| usually optimal with a sufficiently low rate.
| jrwoodruff wrote:
| Yea but the US Government isn't a person. It's repayment
| timespan is, in theory, infinite. And inflation actually
| devalues any debt the government holds, making it easier
| to 'pay back.'
|
| Unpopular opinion, and maybe I'm wrong here and I've just
| been lucky, but I've stopped seeing debt as a bad thing.
| You have to use it smartly of course, but I don't think
| there's a one-size-fits-all answer for what that means.
| Use it for daily living expenses? Sure, as long as you
| can pay it off every month. Never take out a loan and
| spend years saving for a car? Nah, or at least not when
| that interest rate was 2-3%. And I suppose that's where
| increasing interest rates come in: Get the 99% to stop
| buying.
| Gumbercules wrote:
| RspecMAuthortah wrote:
| That is the reason why all the monotheistic religions had
| fatwa on debt. And you can see how countries that are further
| moving away from the religious values at different points in
| histories also immediately adopt a debt based economy.
| [deleted]
| monlockandkey wrote:
| This is why interest is harshly condemned in Islam. One of
| the major major sins with servere punishment. Is it an evil
| which keeps the rich richer and the poor poorer (and
| miserable).
|
| Islamic finance is the solution to a balanced and fair
| economy.
|
| 1. It prohibit interest to outlaw debt based exploitation and
| instead replaces it with loans of generosity (pay back exact
| amount, no interest ) or fund raising through investment.
| Whereby the risk of the person receiving investment is shared
| with the lender. This is in contrast with a conventional loan
| where if your property or business burns down, you still have
| to pay off the loan to the bank.
|
| 2. Zakat - a wealth tax on every Muslim. The value of 2.5% of
| cash, stocks, investment each year is given to the most needy
| of society.
|
| Implement these systems and you will have a just economy that
| prevents hoarding and exploitation. Literally money is forced
| to move down societal class and acquiring more wealth is with
| increased risk. Islamic finance is the solution.
| Lionga wrote:
| Which country is poster child for your Islamic finance?
| Turkey? Sri Lanka? Or Quatar?
| monlockandkey wrote:
| None. There is no Muslim majority country on Earth at
| this moment which fully abides by Sharia. There are some
| Islamic laws here and there mixed with secular rulings.
| As such Muslim countries of today unfortunately engage
| with interest.
|
| The thing with interest, there is very little in terms of
| going back. As mentioned in this thread the entire modern
| global economy is built on usurious financial
| instruments. This was not really the case a few hundred
| years ago where the level and extent of debt was not to
| the extremes of today.
|
| Abu Huraira reported: The Messenger of Allah, peace and
| blessings be upon him, said, _"A time will come upon
| people in which they will consume usury." It was said,
| "All of the people?" The Prophet said, "Whoever does not
| consume it will be affected by its dust."_
|
| Source: Musnad Ahmad 10191
|
| Grade: Sahih (authentic) according to Ahmad Shaki
| pixl97 wrote:
| I know I look back a thousand years when I look for
| reliable ways to operate a modern global financial
| economy. Their insights are just filled with relevant
| information on how to run my business, and treat my
| concubines and slaves.
| monlockandkey wrote:
| With that attitude you would need to condemn democracy as
| it is a 2500 year old system that we implement to run our
| modern political agenda.
|
| Maybe we would not be in this mess in the first place if
| we sustained insights of the past.
| throwaway3838g wrote:
| > Whereby the risk of the person receiving investment is
| shared with the lender.
|
| Is this not already the case?
|
| > This is in contrast with a conventional loan where if
| your property or business burns down, you still have to pay
| off the loan to the bank.
|
| Isn't this what insurance is for?
|
| Interest seems like it can be both good and bad. Condemning
| it completely seems a bit harsh
| bombcar wrote:
| Insurance doesn't cover all possible ways for an asset to
| lose value, and personal recourse loans exist.
|
| Amusingly enough, California mortgages for purchase are
| non-usurious and compatible with this definition, because
| the lender can only go after the property in case of
| default, not the borrower.
| bombcar wrote:
| https://zippycatholic.wordpress.com/2014/11/10/usury-faq-
| or-...
| cercatrova wrote:
| > _Sadly, this proves that the economy is ultimately run on
| debt._
|
| All economies are run on debt [0]
|
| [0] https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years
| jrwoodruff wrote:
| I'm reading the book right now, it's a really interesting
| read.
| aclatuts wrote:
| I use to think this too, but now I believe debt and interest
| is right up there with energy in terms of economic growth.
|
| Without debt, economic growth nearly zero sum. Waiting for
| the money to exist and then spending it is just slow and
| inefficient most of the time. Show me a country that is
| under-banked and has little access to loans and I will show
| you a poor country.
| BuckRogers wrote:
| Yup. I too used to think the same way as the GP. But then I
| realized that most of society's advancements in the west
| started with two things. Technological advancements, and
| fiat currency. No one takes any risks when you're risking a
| finite resource like gold. And having that money available
| has been put the great use for technological advancements
| that pay everyone back down the road.
|
| If, and when the system collapses, who cares? Advancements
| gained through technology will be with us.
| themitigating wrote:
| Would a recession lead to more layoffs?
| avgcorrection wrote:
| Low unemployment causes inflation. Low employment is bad for
| rich people (employers). Inflation is also bad for rich people
| since their wealth decreases. No wonder high inflation is the
| worst thing that The Economy can experience.
| sudden_dystopia wrote:
| Inflation is pretty bad for those in poverty too though...
| chrisco255 wrote:
| The unemployment rate was at multi decade lows in 2019 but we
| did not have high inflation. We also had very low
| unemployment in the 90s and high labor participation rates
| and had relatively low 2-3% inflation.
|
| We only saw high inflation after a year of worldwide Covid
| insanity, driven by cheap and abundant liquidity coupled with
| peak globalism (that is now in decline on an absolute basis,
| exacerbated by the Russia sanctions) coupled with global
| supply chain & labor shortages (some of which is generational
| demographics catching up to us)
| ejb999 wrote:
| I disagree, inflation is a good thing for wealthy, asset
| owning people - wouldn't you liked to have owned 15 or 20
| homes for the past 5 years?
| ch4s3 wrote:
| Low unemployment doesn't cause inflation, money supply vs
| supply of goods and services causes inflation. Inflation
| doesn't necessarily hurt the wealthy, especially asset
| inflation. The wealthy don't generally hold a ton of currency
| which is most vulnerable to inflation.
| alecco wrote:
| This generalization is incorrect. With high inflation hard
| assets and commodities appreciate. Payroll goes down relative
| to price of goods (revenue) so many sectors benefit. And it's
| a fire-sale for people with savings waiting for a big dip.
|
| Source, I lived through high/hyper inflation and was educated
| on this topic by rich people there.
| chollida1 wrote:
| Is it good for low income earners to have their food and
| shelter prices go up due to inflation?
|
| Inflation is considered bad because it affects everyone,
| though the poorer you are the more it affects you.
|
| Job losses affect those who lose their jobs and indirectly
| the economy due to less spending. Inflation affects everyone
| and run away inflation is one of the worst thing a country
| can experience.
| nimish wrote:
| If the alternative is mass unemployment I would rather pay
| 10% more for eggs
|
| Job losses affect the entire economy: the rich don't care
| since they do not rely employment and wages.
|
| In contrast the wealthy are hit enormously by inflation as
| they start losing in real terms.
|
| The fed prioritizing inflation over unemployment is a
| massive hit to the working classes. Doesn't matter if eggs
| only increased by 2% if you lost your home because there
| are no more jobs.
| chollida1 wrote:
| > In contrast the wealthy are hit enormously by inflation
| as they start losing in real terms.
|
| Umm, the poor are hit far harder by inflation than the
| rich. And it hits everyone in a way unemployment does
| not, that's why its far more important to fight
| inflation.
|
| Ask your self this question. If inflation keeps going and
| interest rates go up to 10%. Who will buy the houses that
| come available on the market that people can no longer
| afford?
|
| The rich or the poor?
|
| And who will be the main sellers of those homes?
|
| The rich or the poor?
|
| https://www.brookings.edu/blog/future-
| development/2022/03/18...
|
| https://www.deccanherald.com/opinion/comment/does-
| inflation-...
|
| https://goldcountrymedia.com/news/135064/how-inflation-
| makes....
| bombcar wrote:
| The mortgage carrying middle class is best positioned to
| take advantage of inflation, as they are heavily in debt.
| nimish wrote:
| The key is that wages also rise (not proportionately) in
| step with inflation but investment returns don't.
|
| It matters very little if eggs go up by 10% each year if
| wages go up by 10% each year.
|
| Of course what we have is stagflation: wage growth is not
| keeping up with inflation. Even then, raising interest
| rates to cause a recession is a really awful way to hack
| down a metric. Again: lose a job or lose 3% in real
| income a year?
|
| In contrast the billionaire losing 10% a year in real
| terms looks at inflation as a catastrophic outcome and
| would gladly sacrifice everyone else's well being to keep
| his numbers up.
|
| Best case scenario we end up in late 2008 with 10%
| unemployment but with a 10% rate. Place your bets on
| which drug problem will destroy the working class:
| opioids again?
| themitigating wrote:
| Just to note the rich almost never suffer in real terms,
| like food or housing. They have enough cash on hand to
| survive any recession or depression even if they lose
| their businees.
|
| Also bankruptcy laws if someone is going to mention black
| friday
| bombcar wrote:
| Musk losing 99% of his wealth would still be a quite well
| off person, someone at the poverty line losing 1% could
| be in for a really hard time.
| themitigating wrote:
| It's good for rich people if the price of goods increaes
| greater than wages do. Rich people own more assets
| paulpauper wrote:
| hmm but unemployment rate is rock bottom. Under a rational
| expectations framework, the layoffs in anticipation of higher
| interest rates should have occurred 3-6 months ago. Also,
| unemployment was low in the 90s despite high interest rates.
| Sin2x wrote:
| Official unemployment figures are not very meaningful:
| https://www.investopedia.com/financial-edge/0609/what-the-
| un...
| Ancalagon wrote:
| seems like the issue might be the economy is more active than
| ever and there just arent enough employable people to go
| around (I say employable because there seems to be a growing
| class of people unable or unwilling to be employed, for
| whatever reason).
|
| In a way it kind of looks to me like we have reached peak
| population, at least in the US. Every generation hereafter
| will have a workforce equal or less than the current in size.
| That is, unless birth rates change or immigration is allowed
| on a larger scale.
| [deleted]
| michael1999 wrote:
| That is the explicit goal.
| AnimalMuppet wrote:
| Do you mind supplying some evidence for that claim?
| yieldcrv wrote:
| oh wow let me find any of JPOW's speeches on behalf of the
| The Fed
|
| I'll link when I do but basically for the past 8 months
| he's been explicitly saying he wants to get unemployment
| up, that he doesn't mind risking the labor market in his
| efforts of "demand destruction", never seen an appointed
| official say this before so he's going hard
|
| Here is him being a little tame to Congress
| https://www.cnn.com/2022/06/23/economy/fed-jerome-powell-
| hou...
|
| but he has some speeches where he's basically like "we're
| going to raise unemployment" not "could", not a "maybe a
| soft landing is possible but here are the risks", just pain
| seydor wrote:
| Can we change the title to "fight employment" ?
| time_to_smile wrote:
| Powell has repeatedly, and explicitly stated that softening the
| labor market is required for fighting inflation and that, while
| this is not good, it is preferable to the consequences of not
| fighting it.
| Test0129 wrote:
| This argument is tiring. The massive unprecedented drop in
| unemployment was the result of loose monetary policy. In order
| to properly control the economy there is a certain level of
| unemployment (something like 6-8% iirc) that is expected at at
| any given time.
|
| People aren't really "employed" (in a gainful sense) if the
| money printer keeps printing. Achieving the lowest possible
| unemployment results in rising inflation because the necessary
| availability of surplus capital to allow such a thing to
| happen.
|
| At any rate, 0.75% won't work. The rate changes need to be more
| aggressive if the goal is to actually avoid a 2023/2024
| catastrophe. It takes upwards of 10 years for inflation to cool
| off after the process of reducing it begins. We're in for a
| long ride.
| leviathan235 wrote:
| It's all too little too late. Considering the scale of
| monetary easing in the last 2+ years, this is like pissing in
| desert. Quite frankly, I can't blame the market for being
| skeptical of Powell's "resolve." He did an about face in 2019
| with the taper tantrum.
| slaw wrote:
| I don't see any 'fight' when interest rate at 6% points
| below inflation. Yes, 0.75% is not enough.
| alecco wrote:
| With massive deficits and public/private debt, raising
| more would cause a chain reaction of defaults. I wouldn't
| like to be in Powell's shoes. Can't control spending,
| can't control war, can't control commodities, can only
| raise rates but not too much. And will be the scapegoat,
| for sure.
| Test0129 wrote:
| As he should be, in my opinion. We should've entered a
| mild recession in 2018 but because of TPTB he went whole
| hog on cutting rates as low as possible. We didn't enter
| the recession, and as luck would have it a global
| catastrophe happened. This resulted in more rate cutting
| to the point the rates could not be cut anymore.
|
| He could've avoided some of this by just intelligently
| working the market. It is, in my eyes, entirely his
| fault.
| staticman2 wrote:
| The 10 year breakeven inflation rate is below 2.5%,
| showing the market does not agree with you on how one
| successfully fights inflation and expects inflation to
| plumit.
| Wohlf wrote:
| High employment means nothing when inflation is eating all the
| wage gains and then some.
| avgcorrection wrote:
| I mean, "inflation" is what the article claims. To change it
| would be to editorialize (by admin decree, even). Although I
| guess you're joking.
| [deleted]
| paulpauper wrote:
| and market still down 1%. I guess still not priced in despite a
| 10% drop over the past month and the fed widely expected to rase
| rates by 3/4 of a basis point . Goes to show how bad things have
| become. In early 2021 it seemed like things were going to be ok,
| and then suddenly inflation goes from 2% to 10%.
| queuebert wrote:
| A large part of the market has been very slow to accept
| reality. At every Fed announcement, you see more people coming
| around. The Fed is struggling with how to slap people in the
| face without actually crashing the economy. This time JP kept
| to the planned increase and instead used stronger language
| about the future hikes.
| duped wrote:
| Interest rates causing downturn is exactly what is expected
| time_to_smile wrote:
| > In early 2021 it seemed like things were going to be ok
|
| People have been increasingly concerned about the impacts of
| quantitate easing _long_ before 2020. The only people that
| thought things looked okay in 2021 are people who didn 't want
| to pay attention to the Everything bubble [0] we were (and
| still very much are) in because they were too busy making
| money.
|
| 0. https://en.wikipedia.org/wiki/Everything_bubble
| dragontamer wrote:
| The meeting notes are going to be important. We have another 5
| minutes before the press release comes out.
|
| Things were "mostly" priced in yesterday, or really last
| Tuesday when CPI / inflation numbers came out. They basically
| confirmed .75% because if core-inflation was still a problem,
| then rates have to go up to fix that.
| matrix_overload wrote:
| The market is down to the forward guidance. The previous
| expectation was that the rate will go to about 3% by the end of
| 2022. The current estimation is 4.25%.
| bushbaba wrote:
| Guidance was higher than 4.25%
| staticman2 wrote:
| It was priced in but not with 100% certainty what the fed would
| do.
| hoppyhoppy2 wrote:
| Also being discussed at
| https://news.ycombinator.com/item?id=32928803
| RspecMAuthortah wrote:
| I am baffled at the Fed messaging. A year ago Powell's keynote
| said the inflation is a supply side problem due to "transitory"
| issues. How does raising interest rates with "demand destruction"
| help supply side inflation due to war and chip shortages?
| skohan wrote:
| Well they may have believed (or hoped) at the time that
| inflation was transitory, and are now worried that it's more of
| a wage/price spiral.
| cronix wrote:
| That's kind of laughable. Most people who know the very
| basics of economics knew this was coming after printing and
| dumping that much money into the economy early in the
| pandemic. They increased the supply of money with nothing of
| value backing it, which diluted the total supply's value.
| colinmhayes wrote:
| This just isn't true.
| https://www.igmchicago.org/surveys/inflation/ is a poll of
| the top economists in the country and they certainly didn't
| all agree that the level of inflation we now see was a
| certainty.
| dragontamer wrote:
| Those guys have been calling for runaway inflation since
| 2011 though. So we ignore those permabears.
|
| Calling "inflation" for 10 years in a row is basically boy-
| who-cried wolf. No one believes you, and when you're
| finally "correct" about it, its not because you had any
| analysis, its because inflation inevitably occurs in a
| boom/bust cycle.
|
| Broken clock correct twice a day + Boy who cried wolf
| syndrome. I still won't be listening to the permabears /
| runaway inflation guys even with today's market conditions.
| ejb999 wrote:
| Is the doctor who tells you for 30 years in a row that
| you should stop smoking because you will get lung cancer,
| only right in the year when you actually develop the
| cancer? Was the doctor 'crying wolf' for 29 years?
| dragontamer wrote:
| When the Fed printed a Trillion dollars in November 2008
| through QE1, and those permabears think crazy
| hyperinflation will occur immediately, yes, we ignore
| them.
|
| When they say inflation will occur in QE2 in 2010, and
| those permabears think crazy hyperinflation will occur
| immediately, then yes, we ignore them.
|
| When they say inflation will occur in QE3 in 2012, and
| those permabears think crazy hyperinflation will occur
| immediately, then yes, we ignore them.
|
| When they say inflation will occur in QE4 in 2020, and
| those permabears think crazy hyperinflation will occur
| immediately, then yes, we ignore them.
|
| Now its 2022, the Fed has been Quantitative Tightening
| for a year to deal with the inflation signals we're
| finally seeing. Hundreds of billions of dollars are being
| effectively destroyed by these policies.
|
| -------
|
| So yes, the Fed is finally acting on the inflation issue.
| But only because the data shows it is finally a problem.
| We don't just take the permabear crowd word immediately,
| we move when the data shows an issue. Not before.
|
| There's some people who are just noise and are irrelevant
| to the discussion, unfortunately. You figure these things
| out over the years.
| candiodari wrote:
| > We don't just take the permabear crowd word
| immediately, we move when the data shows an issue. Not
| before.
|
| Following the data means you're inevitably running after
| the facts. Running after the facts inevitably causes
| feedback loops. I'm sure those feedback loops were tuned
| correctly to not blow the whole thing up, right. Right?
| RIGHT??
|
| Say ... what happened last time? Oh ... right.
| smileysteve wrote:
| It would be more appropriate to use something moderately
| healthy as opposed to "smoking". "Protein" might be a
| better metaphor.
|
| You need protein for cells to work, and you want to grow
| and grow strong. But most protein has some potential
| cancer or heart disease correlation.
| smileysteve wrote:
| It's kind of the opposite though.
|
| The fed !wanted! 2% inflation since 2008; even with covid
| fed policy, it took until spring 2022 to catch inflation
| up to the missed targets.
| zthrowaway wrote:
| Came here to say this. I'm still shocked how many people
| including on HN have been fooled by the politics around
| this. I guess it works.
| User23 wrote:
| Fortunately, we can rely on continued immigration to increase
| the labor supply and control wage inflation and that's a good
| thing. The price spiral with flat wages will result in a
| generally reduced quality of life for the American worker
| though. I think that's a bad thing, but nobody in power has
| cared about that for the past fifty years[1] so why start
| now?
|
| [1] https://economics.stackexchange.com/questions/15558/produ
| cti...
| randomdata wrote:
| It was believed that supply would return. It hasn't. Destroying
| demand means that you don't need supply to return.
| NotYourLawyer wrote:
| Spoiler alert, the "transitory" stuff was always bullshit and
| everyone knew it.
| spaetzleesser wrote:
| " A year ago Powell's keynote said the inflation is a supply
| side problem due to "transitory" issues."
|
| This reminds me a lot of the 2008 crisis when Bernanke told us
| that everything was just fine until banks started collapsing.
| Personally I think the Fed has turned into a political
| institution that keeps inflating bubbles until there is no way
| out. I can't see much wisdom or foresight in their moves. They
| seem constantly behind the curve and instead of smoothing out
| business cycles they make them more extreme.
| Loughla wrote:
| I want someone to prove you wrong, because I am right there
| with you. It seems like the swings just get wilder and
| wilder, and no one is at the helm.
|
| Please someone tell me why this is incorrect.
| abakker wrote:
| There have been very few "swings" at all. This response is
| case in point for "so measured it is probably not enough".
| Policy has been incredibly stable in the last decade, and
| then we had a crazy pandemic and the fiscal policy
| response, in hindsight, was wrong.
| staticman2 wrote:
| A simple example: If your mortgage or credit cards debt or car
| loans cost more due to higher interest rates, you are going to
| have less money left over to purchase other products.
|
| This will make you less likely to want the new expensive
| Iphone, especially if you were going to finance the purchase,
| so as Iphone sales plumit, there will be less of a chip
| shortage since supply now meets demand.
| treis wrote:
| Rate cuts don't just hit demand. They hit supply too and
| probably harder than they hit demand.
| merpnderp wrote:
| There is too much demand. If we could make all the stuff we
| can afford to buy, then we wouldn't have inflation. But it
| is how we get $12 for a medium #1 at Burger King, which is
| flipping insane.
| ARandomerDude wrote:
| Alternative: I now don't think a new house and car are worth
| it, so I have more money for things like iPhones, making the
| chip shortage worse.
| 7speter wrote:
| You're incentivized to put your money in savings because of
| the interest you can accrue in a savings account since
| interest rates are up for those accounts.
| pixl97 wrote:
| Eh, not really. Because you're buying the house on a loan
| but not buying iphones on the loan.
|
| When you choose to get a loan you're pumping a few hundred
| thousand that was leveraged into existence into multiple
| industries that gets distributed into the economy, that
| gets distributed to hundreds of people working.
|
| When you choose just to just buy an iphone, that's $1000ish
| your spending of your own money.
| RspecMAuthortah wrote:
| OK so what happens if the chip shortage lasts longer (due to
| war and commodity prices)and with plummeting sales and
| corporate earning (which will reduce tax receipts as well)
| the economy will enter recession? So then what is the game?
| Do Fed keep the economy in recession? Or do they start QE
| again?
| dragontamer wrote:
| > Or do they start QE again?
|
| Why would they start QE? Fed rate is at 4% right now,
| there's more than enough room to drop rates if an issue
| occurs.
|
| Given the data however, its unlikely to happen. We're
| currently at record employment levels. The expectation is
| for the rate to keep going up to maybe 4.5% next year, and
| finally that's when inflation is quelled, and we taper off
| rates sometime next year.
|
| Of course, we need to keep up with economic data and see if
| these rate hikes have the desired effects.
| RspecMAuthortah wrote:
| > Why would they start QE? Fed rate is at 4% right now,
| there's more than enough room to drop rates if an issue
| occurs.
|
| Right but that will also increase demand and induce more
| inflation, no? So Fed will be perpetually stuck, in
| theory at least, to find a balance in their dual
| mandates.
| karatinversion wrote:
| The fed has to keep adjusting rates as economic
| conditions change, yes.
| dragontamer wrote:
| Its like monetary policy is only a tiny piece of overall
| policy.
|
| The big guns is Congress, not the Fed. Possibly the
| President if you consider things like averting the big
| Railroad Union strike last week (which would have
| certainly caused more inflation as shipping costs could
| have gone up).
|
| Lots of little fires happening around the country. The
| fed has one lever: interest rates. Congress / President
| has the other levers.
|
| ----------
|
| Still though: we watch the Fed because the prime rate has
| a large effect on the value of investments, especially in
| the question of stocks vs bonds. Its important for the
| individual investor to follow.
| randomdata wrote:
| The goal is equalize the demand with the supply. Keeping
| with the example, the hope is to see just as many iPhones
| sold, already limited by how many chips are available, but
| not with people fighting over them outbidding each other
| with higher and higher offers to obtain one.
|
| A recession will occur if they overshoot, however.
| queuebert wrote:
| The inflation isn't due to war and chip shortages.
| themitigating wrote:
| Care to elaborate and provide evidence?
| yuan43 wrote:
| > "My main message has not changed since Jackson Hole," Powell
| said in his post-meeting news conference, referring to his policy
| speech at the Fed's annual symposium in August. "The FOMC is
| strongly resolved to bring inflation down to 2%, and we will keep
| at it until the job is done."
|
| That earlier speech was far more direct and succinct than usual.
| Market participants should have gotten the same message then as
| they are now. The Fed intents to break inflation, with all the
| likely consequences that brings.
|
| Whether the Fed actually has the technical tools to do this is
| another question. Most of what it does is mass psychology -
| trying to convince the markets of its resolve one way or another.
| Bank reserves haven't mattered for years as money, but that's
| pretty much the only lever the Fed holds. It holds another -
| margin stock trading requirements, but that path has all but been
| forsaken. Treasuries are the fuel for the financial system. But
| to the US Treasury, they're just a mechanism to fund the deficit.
| The contrast has led to some things that are hard to explain
| otherwise, and more things like this will no doubt arise in the
| future.
| WalterBright wrote:
| > Most of what it does is mass psychology - trying to convince
| the markets of its resolve one way or another.
|
| Inflation isn't the result of mass psychology. It's the result
| of too much money sloshing around in the economy, thanks to
| trillions in deficit spending.
| biomcgary wrote:
| Regardless of the starting point, inflation can persist due
| to mass psychology. See the mass psychology experiment in the
| mid-1990s that worked!() to constrain inflation in Brazil.
| They did have to introduce a new currency that was pegged
| against the dollar (essentially). See:
| https://www.bcb.gov.br/en/monetarypolicy/realplan
| Sparkle-san wrote:
| Inflation has many causes and psychology is one of them. If
| you think prices are going to keep rising, you will be more
| likely to spend your money to "lock in" the price right now.
| If enough people do this, it adds demand to the system which
| keeps prices high and prolongs inflation. If too much money
| in the economy alone caused inflation it would been apparent
| between 2008-2020.
| state_less wrote:
| > Whether the Fed actually has the technical tools to do this
| is another question. Most of what it does is mass psychology -
| trying to convince the markets of its resolve one way or
| another.
|
| Who else can buy up trillions of t-bills and mortgages at a
| moments notice? When they do this, it drops rates. The Fed
| offered up historically cheap money to borrowers to keep the
| economy rolling during the pandemic and housing crisis.
|
| > But to the US Treasury, they're just a mechanism to fund the
| deficit.
|
| The deficit doesn't get funded as well when the Fed is not
| buying. It's not merely a technicality. Someone else will have
| to fill the hole left behind by the Fed leaving the market, and
| that usually means higher rates to draw in money from elsewhere
| to feed the t-bill and mortgage market.
| nimbius wrote:
| >Whether the Fed actually has the technical tools to do this is
| another question.
|
| its unlikely the fed is reactive enough in the short term to
| have any real effect on inflation presuming its tooling is
| effective. the interest rate hike took six months to implement,
| and began with a quarter of one percent increase. this was
| before earnings reports for the prior christmas holiday but
| november itself was a sobering enough red flag that Powell
| should have immediately pushed for 1% or more. its taken us
| nearly a year to arrive at the 3% we're at now, but in my
| opinion this inflation wont stop for another year, and it wont
| stop even at clinton-era interest rates of almost 6%.
| Quantitative easing --and the feds decade long addiction to
| it-- make this thoroughly uncharted territory. the interest
| rate push will likely be the straw that breaks corporate real
| estate, no matter how hard Bloomberg pounds his fists and
| demands a return to cubicles in his newspaper. this will likely
| tumble back into another residential housing or auto lending
| crisis. The student loan forgiveness push and reforms on wage
| garnishment also send a clear signal that our nations 1.73
| trillion dollar nickelodeon of perpetual youth debt is becoming
| a serious threat as well.
| omgwtfbyobbq wrote:
| IIRC, Powell compared the Feds current efforts to tame
| inflation similar efforts in the 70s/80s, so fast in that
| context is over a few years instead of over a decade or more.
| [deleted]
| subsubzero wrote:
| I agree on this thesis, the crux of the problem and I have
| told many people about this, was the handouts given during
| covid. It was totally scattershot and should have been more
| targeted. In addition states like California and others
| extended payouts way longer than they should have(and had way
| over-generous unemployment) which led to entire industries
| being completely short staffed. This led to extreme raises in
| wages and started a spiral of inflation that started at the
| bottom of the economic tiers and has worked its way up.
| Couple that with China doing zero tolerance covid lockdowns
| our supply chain is completely strangled which is also adding
| fuel to the fire, and making prices shoot up even further.
| Real estate sales have completely frozen as prices for all
| houses are priced in at a 3% interest rate and buyers will
| not entertain 25-30% cuts in price.
|
| Against this backdrop California plans on distributing $9.5B
| to any family who makes under a certain amount of money($1k
| each), I expect this huge infusion of cash to make inflation
| even worse and I do not know where this will go except that
| it will not be pretty.
| PaulRobinson wrote:
| The empirical evidence for wage rises causing inflation is
| so weak, few economists take it seriously as an argument
| against wage rises.
|
| The evidence for supply chain issues - as you mention - and
| price gouging being contributory causes is much more
| convincing. If you are not convinced that price gouging is
| going on, consider profit levels in energy companies in
| recent months.
|
| Please don't blame this on workers who if anything need to
| be paid more, and paying them more will not impact
| inflation, only make it easier to cope with. It may even
| bring inflation down if jobs in supply chains become more
| attractive and force profiteers to become more competitive.
| nradov wrote:
| Blaming inflation on price gouging seems way too facile
| and subjective. What is price gouging anyway? In the
| years that energy companies lost money were they doing
| the reverse of gouging?
| mustacheemperor wrote:
| Why is it more facile and subjective to blame the real
| visible increases in consumer product and material supply
| prices than to blame "extreme raises in wages starting a
| spiral of inflation that started at the bottom of the
| economic tiers and has worked its way up?"
|
| I just don't see there being any more reasonable
| objective cause and effect to that claim than the claim
| made by the commenter you are replying to. On the other
| hand in my own industry, prices for materials like lumber
| and steel have shot up massively causing major follow-on
| effects, and nobody at the steel mills are blaming worker
| salary for it. They're blaming the costs of the raw
| materials. And the people on the job site aren't blaming
| the tradespeople wages for the project going over budget,
| they're blaming the high cost of the steel showing up on
| site, late.
|
| When workers are an issue for project delivery or budget
| it's usually not what they're charging, it's just
| availability. There are simply not enough field workers
| out there who can drive steel rivets or manage a
| punchlist. In fact, I hear rising wages brought up as a
| potential way to attract more people to the those field
| roles, because right now there are not enough people
| entering those roles.
| mustacheemperor wrote:
| You made the reply I was thinking of.
|
| It seems a bit too on the nose for the literati on HN to
| have determined the definitive cause of inflation today
| is in-demand workers requesting fair compensation, as of
| the last 2 years.
|
| Software engineer salaries have skyrocketed unbelievably
| over the last 20 years. What crisis is that responsible
| for?
| abakker wrote:
| Agree. It's important to look at retirement rates and
| numbers, too. It's the end of the boomer generations
| workforce participation (except in the senate?). The
| following generations really are smaller.
|
| Couple that with actual crackdowns on immigrations, and
| you get actual labor supply problems for some roles and
| industries. This has knock on effects that raise wages.
|
| Couple this with inflation in CPI, and you get workers in
| a good place to negotiate raises to cancel out inflation
| and then actually increase real salaries commensurate
| with contribution.
|
| Net, labor price increases are a symptom of labor supply
| and cpi. Labor is not driving inflation.
| otikik wrote:
| If a businessman "games the system", for example by
| structuring their companies in a way that avoids paying
| millions in taxes, they are "savvy".
|
| When poor people get even the smallest bit ahead, "they are
| getting scattershot handouts".
|
| You are talking about families earning less than 2k/month.
| In California. I honestly doubt that can cover
| transportation expenses alone in SF.
|
| 9.5bn was what Wework was "worth". Some poor people getting
| slightly ahead is not the problem.
| thebradbain wrote:
| > It holds another - margin stock trading requirements, but
| that path has all but been forsaken
|
| I didn't know this, could you explain when it's last been used,
| if ever? Could they theoretically drastically raise margin
| requirements for some stocks and lower it for others to
| encourage sectors to be rebalanced?
| yuan43 wrote:
| From this 2000 article:
|
| >The recent rise in margin credit has focused attention on
| the Federal Reserve's margin requirements for purchasing
| equities with borrowed funds, which has been at 50% since
| 1974. In November and December of 1999, margin credit grew
| very rapidly, outpacing the sizable appreciation in the
| overall stock market. And in January 2000, it grew further
| while the stock market's valuation dropped, leaving the ratio
| of margin credit to market capitalization at its highest
| level in the past 29 years. This Economic Letter discusses
| the recent trend in margin credit and the merits of using
| margin requirements as a policy tool.
|
| > ...
|
| > The Securities Exchange Act of 1934 mandated federal
| regulation of purchasing securities on margin. The margin
| requirement was motivated by the concern that credit-financed
| securities speculation helped fuel the run-up in stock prices
| prior to the stock market crash of 1929. The act viewed the
| Federal Reserve as responsible for managing the availability
| of credit in the economy, so the Fed was charged with setting
| margin requirements for securities purchases. The Securities
| Exchange Commission was directed to enforce those
| regulations.
|
| https://www.frbsf.org/economic-
| research/publications/economi...
|
| According to Wikipedia, the rate hasn't been changed since
| the 1970s:
|
| > Regulation T governs the extension of credit by securities
| brokers and dealers in the United States.[1] Its best-known
| function is the control of margin requirements for stocks
| bought on margin. The initial margin requirement for such
| margin stock purchases has been 50%[2] since 1974,[3] but
| Regulation T gives the Federal Reserve the authority to
| change this percentage. Raising the margin requirement
| ostensibly reduces risk in the financial system by reducing
| the potential leverage and total buying power of investors.
| Conversely, lowering the margin requirement increases
| systemic risk by expanding the buying power and leverage
| available to investors. Since 1974, the Federal Reserve has
| not deemed it necessary to adjust the margin requirement
| despite periodic extremes of price volatility in the equities
| markets.[4]
|
| https://en.wikipedia.org/wiki/Regulation_T
|
| Given the absolute neglect of the mandate it was given on
| this, I suspect the Fed views even mere talk of increasing
| margin rates as the nuclear option. But if the usual roll
| call of psyops fail to deliver, this thing is there in its
| back pocket. I imagine the mere threat would cut 20% off the
| S&P overnight.
| marcosdumay wrote:
| > Bank reserves haven't mattered for years as money, but that's
| pretty much the only lever the Fed holds.
|
| The FED can make they matter again with a pen strike. It
| doesn't matter because they don't want it to matter.
| User23 wrote:
| Not really. A consequence of doing so would be breaking the
| inter-bank payment system, which is to say crashing the
| economy with no survivors. The Fed simply must provide
| adequate reserves to support the payment system. The so-
| called "dual mandate" of controlling employment and inflation
| rates is necessarily secondary to that. I mean theoretically
| sure they could do whatever, but the end result would be the
| dissolution or restructuring of the Fed by Congress, or
| worse.
| scotuswroteus wrote:
| >Bank reserves haven't mattered for years as money, but that's
| pretty much the only lever the Fed holds.
|
| And this is why they aren't raising it more. If they do, and
| that doesn't work, people will act like the train conductor
| broke off the handle.
| yieldcrv wrote:
| I want to see double digit mortgage rates, everyone with an
| adjustable rate mortgage blown tf out
|
| Then lets look further at how people that have mortgages and
| build home equity make money: they need 5-30 years of zero
| disruption in their income, whatever employs the majority of them
| needs to feel cash strapped and unoptomistic so then the people
| with mortgages get blown tf out too, within a year
|
| We're inching up
|
| Overleveraged investments go bye bye
| WalterBright wrote:
| Fighting inflation with interest rates won't work until the
| government slows down the trillions in deficit spending.
| AmVess wrote:
| Half measures that they are doing will have no positive impact
| on anything, but will instead make the economy worse.
| LatteLazy wrote:
| Isn't that one thing rising interest rates is meant to achieve?
| Stopping anyone from borrowing quite so enthusiastically, be
| they government, corporate or personal.
| throw_nbvc1234 wrote:
| > borrowing quite so enthusiastically
|
| Why do they have to care about the consequences? Corporations
| have the market. Persons have their families, lives etc...
| Why do elected government officials need to care; especially
| in this polarized, 2 party, ~~world~~ country.
|
| I'm pretty sure the closest thing we have to accountability
| in government are blue checkmarks twitter dunking on
| politicians from the opposite party and then being ignored by
| all the followers of that party.
| robocat wrote:
| Walter, you regularly state opinions as fact, and usually don't
| seem to bother to add any analysis to shore up your opinion.
| You have clear skills at creating the D language, however the
| creator of the HolyC[1] compiler had some opinions too ;p
|
| I am not actually disagreeing with your point. I am just saying
| 10 out of your 10 most recent comments lack any external links
| or analysis, and 5 out of 10 comments are low value (IMHO) one-
| liners...
|
| Disclaimer: I admit I am completely ignorant of macro-economics
| (even though I helped create and develop a sizeable business
| that mostly depended on macro-economics!)
|
| [1] https://harrison.totty.dev/p/a-lang-design-analysis-of-
| holyc -- I wished he had called it VitaminC
| rjbwork wrote:
| Glad someone said it. Nearly every day I see Walter spouting
| off at the mouth on shit, asserting ideological opinions and
| viewpoints as fact with little support. Probably the most
| high profile and technically competent user that regularly
| contributes absolute drivel. It's now to the point I often
| don't even bother to read what he writes unless it's on a
| technical topic.
| gregw134 wrote:
| Remember Bernanke's proposal that inflation can always be
| created by dropping money out of helicopters? That's what we
| did.
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