[HN Gopher] Fed raises rates 25 bps
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Fed raises rates 25 bps
Author : mutant_glofish
Score : 52 points
Date : 2023-07-26 21:31 UTC (1 hours ago)
(HTM) web link (www.federalreserve.gov)
(TXT) w3m dump (www.federalreserve.gov)
| ginko wrote:
| 25 bits per second?
| dragontamer wrote:
| Basis points. Aka: a percent-of-a-percent, or one-tenthousanth.
|
| 25 BPS is therefore 0.25%.
| mhh__ wrote:
| basis points i.e. 0.01%
| ginko wrote:
| Why not say 0.25%? No one knows obscure English language
| economics terms.
| xnx wrote:
| "25 bps" eliminates that ambiguity between "0.25%" meaning
| (current rate% + 0.25%) or (current rate% * 1.0025)
| marvin wrote:
| It's a term of art in finance; people who work with it
| daily don't think twice before using it. Computer science
| has a whole book full of these; comes with the subject.
| sudobash1 wrote:
| Presumably the target audience of federalreserve.gov does.
| I also know the terms, just from talking to a loan officer
| while shopping for a mortgage. So calling obscure may be a
| bit unfair.
|
| Also, bits per second is very familiar to many of us in the
| HN audience, but that is just because of our particular
| technical background. It is the same in other technical
| areas (such as finance).
| mhh__ wrote:
| The Fed could do a better job wrt to expanding that
| target audience.
|
| I've always found it slightly silly that getting the
| rates and prices needed to judge the performance of the
| Fed, Treasury, and so on effectively requires use of a
| Bloomberg terminal (there are structural reasons why this
| is the case but the fed wields a big stick).
|
| Even worse in the UK - DMO supposedly not competent in
| general but I have no first-hand experience.
| shove wrote:
| That's exactly why
| ginko wrote:
| Exactly why what? "0.25%" is a lot easier to understand.
| It's even fewer characters than "25 bps"
| nequo wrote:
| But it isn't 0.25 percent. It's 0.25 _percentage points._
| [1] Writing 25 basis points is shorter than that.
|
| [1] https://en.wikipedia.org/wiki/Percentage_point
| bryanlarsen wrote:
| It's inaccurate. An 0.25% increase on 5% is 5.0125%.
| [deleted]
| linhvn wrote:
| Traders learn bps on the first day of their job, similar to
| you learn version control on your first day of your SWE
| intern. What's the difference?
| AdamH12113 wrote:
| It would have been better to spell out "basis points" in
| the title, but the term is not at all obscure -- it's very
| widely used in the finance sector.
| ginko wrote:
| This is a tech forum, not a finance forum though.
|
| The original article doesn't even use bps. It just says
| "In support of these goals, the Committee decided to
| raise the target range for the federal funds rate to
| 5-1/4 to 5-1/2 percent"
|
| The title could have just said "Fed raises rate from 5.25
| to 5.50". That'd contained a lot more information.
| signatoremo wrote:
| This is not a tech forum. I bet the tech posts are less
| than 50%.
|
| How many times have you seen a post when the submitted
| article was scorned for not using accurate terminologies?
| LikesPwsh wrote:
| Bps is also specifically a flat change rather than relative
| to the previous value.
|
| E.g. If without bps if you have an interest rate of 2% and
| somebody states that it has increased by 10%, it's unclear
| whether they meant a result of 2.2% or 12%.
| Analemma_ wrote:
| bps = basis points. A basis point is 0.01% (absolute), so this
| means they raised rates by an absolute amount of 0.25%.
| Dig1t wrote:
| Is this whole thing caused by those stupid covid relief checks
| that they sent out? Or are there other reasons why inflation got
| so out of control?
| baseballdork wrote:
| I can't tell if this is a serious question or not considering
| the past few years of disease and war.
| Dig1t wrote:
| Legitimate question, I'm not very economically literate.
|
| We went through wars in the past without crazy inflation,
| gulf war, Iraq, Afghanistan. Is it because of all the Ukraine
| aid we're sending? If so, why is this different than other
| conflicts?
|
| How does disease cause inflation?
| stu2010 wrote:
| Disease, disaster, war all cause significant inflation
| because they harm or destroy both things and productivity
| in the real world without destroying money.
|
| If factories shut down and supply chains are disrupted and
| we only make half as many cars this year, how much would
| people be willing to pay for those cars? Much more.
| pers0n wrote:
| The mere $2000 stimulus checks are nothing.
|
| It was the billions in PPP loans that lots of people used
| fraudulently, including our own politicians. On top of that, it
| was decided they didnt need to be paid back, so people go to
| keep all the fancy cars, electronics and real estate they
| bought with it.
| epakai wrote:
| It's a combination of things. Tax cuts juicing an already hot
| economy, economic stimulus attempting to minimize the effect of
| a temporary pandemic, former executive fighting against
| interest rate increases. However this is a very US centric
| view.
|
| It's also important to remember inflation is a global
| phenomenon. US policy might have outsized effect, but it is
| certainly not the whole story. Global gas prices hit decade-
| long highs last year, after massive lows during the pandemic.
| We had to somewhat jumpstart the global economy, and recover
| from slowdowns during that time as well.
| leemelone wrote:
| I'm floored that people are willing to keep accumulating debt at
| these rates. I have a feeling it can't go on much longer...
| ojbyrne wrote:
| From https://en.wikipedia.org/wiki/Early_1980s_recession:
|
| "The federal funds rate, which was about 11% in 1979, rose to
| 20% by June 1981. The prime interest rate, an important
| economic measure, eventually reached 21.5% in June 1982"
| sudobash1 wrote:
| These aren't the exact rates that ordinary folks will be
| borrowing at. See credit cards for instance (way higher), or
| mortgages (a little higher).
|
| Counterintuitively, it is possible for mortgage rates to go
| down even when the Feds are raising their rates. The interest
| rates for us normies are dictated in large part to how
| confident the financial sector feels. If the Fed's raising of
| the interest rate makes the financial sector feel that
| inflation is under control, then mortgage rates may go down.
| WaxProlix wrote:
| For things like mortgages, they're still historically low(ish).
| See the graph on this page for instance
|
| https://www.bankrate.com/mortgages/historical-mortgage-rates...
|
| so folks have been taking on debt at current rates, and
| substantially higher ones, for some time.
| S201 wrote:
| True, but home prices are also much higher than in the past
| partly thanks to that long period of low interest rates.
| Taking on these huge loans with corresponding (comparatively)
| high rates is a different ballgame than it was in the past.
| mholt wrote:
| Home prices in the '80s were ~$60,000; equivalent homes now
| are about 10x that [0]. With inflation bouncing around 2-6%
| on average [1], and only modest wage increases over decades
| [2], that makes the median home today _way_ less affordable
| even with these relatively low interest rates.
|
| [0]: https://fred.stlouisfed.org/series/MSPUS
|
| [1]: https://tradingeconomics.com/united-states/inflation-cpi
|
| [2]: https://fred.stlouisfed.org/series/CES0500000003
| chriscappuccio wrote:
| Half of the federal govt's $31 trillion debt comes due in the
| next two years. It will be refinanced at much higher rates...Or
| we'll see Yield Curve Control from the federal reserve. Take
| your pick.
| dragontamer wrote:
| Press Conference: https://www.youtube.com/watch?v=Wy0_JtAMjps
|
| I haven't watched it yet, but Powell's speech is traditionally
| the more important thing with FOMC meetings, because the speech
| gives more insight into what the FOMC was worried about / not
| worried about / etc. etc.
|
| The +25 BPS was long predicted. All eyes are on September, and
| the only hint at what happens in September is what Powell said
| today (and the questions the press asked him).
| candiddevmike wrote:
| Doesn't seem like the Fed has any other moves that won't tank the
| economy (https://fortune.com/2023/07/10/jerome-powell-federal-
| reserve...). They really need Congress to step in and help soak
| up the excess.
| arcticbull wrote:
| They don't have any other moves, period, they've really only
| got a hammer.
|
| That said your article is about the balance sheet, not the
| funds rate. The balance sheet will sort itself out over time.
| They can just let their long-duration assets mature and roll
| off.
| jjoonathan wrote:
| No, the balance sheet will not sort itself out over time.
| Every time the fed starts making progress markets tank and
| rich people flex their influence to get their assets pumped
| back up.
|
| How much do you want to bet that it goes under, say, $1T by
| 2030?
| arcticbull wrote:
| That's not the argument I am making, I'm saying if you
| leave the balance sheet alone it will shrink. We don't need
| anyone to step in and sop anything up. I'm not opining on -
| nor do I really care - about future growth of the balance
| sheet.
|
| Generally speaking increases in the size of the balance
| sheet represent flows into the economy of money. Static
| balance sheets, or ones that roll off over time, have
| little to no impact.
| jjoonathan wrote:
| It's a bit weird that you seem so focused on a
| hypothetical future that isn't going to happen (balance
| sheet rolls off) but don't care about the perpetually
| rising balance sheet that is actually happening and will
| almost certainly continue to happen. Why is your
| hypothetical parallel universe more interesting than this
| universe?
|
| We've set up a system to pump trillions into rich
| peoples' pockets every time they pull the lever and they
| are going to keep pulling that lever.
| arcticbull wrote:
| Whose pockets does new money go into and by what
| mechanism?
| jjoonathan wrote:
| Asset owners, in proportion to how many assets they own,
| because the fed buys the assets.
| arcticbull wrote:
| They're not exactly out there buying the S&P 500.
|
| > These assets include: holdings of Treasury, agency, and
| mortgage-backed securities; discount window lending;
| lending to other institutions; assets of limited
| liability companies (LLCs) that have been consolidated
| onto the Federal Reserve's balance sheet, and foreign
| currency holdings associated with reciprocal currency
| arrangements with other central banks (foreign central
| bank liquidity swaps). [1]
|
| They're buying bonds that mature at some point in the
| future.
|
| Or rather they were, because they stopped a while ago.
|
| [1] https://www.federalreserve.gov/monetarypolicy/bst_fed
| sbalanc...
| seatac76 wrote:
| I think they are banking of student loan payments resuming as
| one lane to absorb liquidity.
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(page generated 2023-07-26 23:02 UTC)