9 ms·

Fed increases target rate to 3.75-4.00%

40 points by lpage 4y ago

seydor 4y ago
Money for your parents but not for you. Replace the Fed with an AI. They have a well defined objective function
dragontamer 4y ago
Not much to say here since this was foretold / expected. All eyes on the 2:30pm press conference, where people will hope to divine the future from Powell's statements. I'm going to bet ~40 minutes of "Inflation isn't at 2% yet and we're committed to reducing inflation to that level". I think what people really want to know is, where do these rate-increases end? In Sept. 22nd meeting, Powell thought 4.5% was roughly where things would end. Is the target rate higher now? Inflation is still strong, job numbers are also strong. Are we looking at additional hikes to 5% as we enter May 2023 or so??
- bern4444 4y ago
  The answer from the meeting was effectively, "we don't know". People continue to underestimate the final rate and duration we'll end up at. The market shot up initially on a 3 line statement in the released notes that was interpreted as beginning of the end of rate hikes. Then the press conference started and the market shot right back down as Powell said we don't know how high and how long rates will go for. I'm banking on another 75 bps raise in December and then another in January and then maybe a slow down to one or two 50 bps raises and then maybe a 25 bps finale. I'm starting to love the yields on bonds. 3 month T Bill at 4+% is sweet. Hoping to continue collecting this sweet sweet guaranteed returns that I can ladder into.
  - dragontamer 4y ago
    > The market shot up initially on a 3 line statement in the released notes that was interpreted as beginning of the end of rate hikes. I'm not sure about that. My coworkers are arguing that a bunch of people are buying put options, effectively shorting the stock market, in the days prior to these FOMC meetings. At 2pm, the meeting notes come out, and we see that the expected .75% rate happened. Since that was "expected", all the put options are now sold. That causes the stock market to jump up (since the effective-short positions are liquidated). Its just a hedge, just in case the numbers come in and the Fed chooses like 1% hike or higher instead of the expected .75%.
    - bern4444 4y ago
      I don’t think “A bunch of people” could affect the entire market like that even with derivatives unless it’s including substantial institutional investors. Maybe a single stock but not the entire market. I see this as, everyone bought on the news that the fed would begin tampering down rate hikes in the near future. Powell spoke and said we remain committed to getting inflation down and will continue to do what is necessary. All the buying switched to selling and the market plopped.
      - dragontamer 4y ago
        > I see this as, everyone bought on the news that the fed would begin tampering down rate hikes in the near future. But this pattern has occurred over and over again in the last 4 rate hikes. You are suggesting that people haven't learned their lesson yet, which seems absurd to me. This is the 4th consecutive rate hike, with the numbers (0.75 increase) exactly the amount everyone expected. It seems more likely that the people "buying at 2pm" today were covering hedged bets (such as selling off their put options, bought to protect against the volatility today). The fundamental question is whether or not you want to believe that these buyers (and sellers) knew what they were doing. I think its more likely (than not) that they knew what they were doing, and favor the stories that have that mindset.
        bern4444 4y ago
        > But this pattern has occurred over and over again in the last 4 rate hikes. You are suggesting that people haven't learned their lesson yet Yes. > which seems absurd to me Yes. It seems absurd to me as well. :). Markets aren’t quite as rational as everyone likes to believe I think they “knew what they were doing” when they heard something they thought meant this would soon be ending and then knew what they were doing when Powell spoke and wiped that idea out of existence. We are witnessing the end of over a decade of cheap if not free money. This has all taken place in ~6 months. 14 years of expectations and beliefs will take some undoing before markets accept the new reality.
incomingpain 4y ago
Not a huge increase. Inflation is under control in the sense it's not rising, but they need to still pull a ton of money out of the economy; or let it ride. Powell's speech doesn't matter at all until we see the results of midterms.
- nightski 4y ago
  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.
  - factsarelolz 4y ago
    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.
    - systemvoltage 4y ago
      There is also a Diesel shortage that's going to have some impact on next quarters GDP: https://oilprice.com/Energy/Energy-General/The-US-Diesel-Shortage-Is-Worsening.html https://oilprice.com/Energy/Energy-General/The-US-Diesel-Sho...
    - saxonww 4y ago
      > 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_EP00_SAS_NUS_MBBL&f=M https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M...
apropos_g 4y ago
"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.)
- guyzero 4y ago
  By reducing demand. I guess.
  - bwb 4y ago
    This is it. You trigger a pull back in the economy, if you get lucky you don't trigger a recession. But, if you need to trigger a recession you do it rather than out of control inflation.
  - apropos_g 4y ago
    How exactly do rising interest rates reduce demand for food? How does it reduce demand for gas? This is what I mean.
    - guyzero 4y ago
      Per other commenters less money in the economy reduces aggregate demand. Per previous inflationary periods where interest rates were raised basically by putting people out of work.
- foobarian 4y ago
  It won't reduce the prices. It will merely reduce the rate of increase of those prices.
  - avmich 4y ago
    If done enough, it may reduce prices; we may not want that though.
  - apropos_g 4y ago
    Well, I don't see a common sense explanation as to why the rate of increase should decrease either. We could also say, "Eventually, the rate of increase will go down anyway, in the absence of any action from the fed."
nurettin 4y ago
You should see the insane jumps in spdr futures right now.
- lordswork 4y ago
  Well, that didn't last long.
Raydovsky 4y ago
I dont get it. Prices are rising because fossil fuels are more expensive. How do interest rate hikes fix that?
- deleted 4y ago
  [deleted]
- deleted 4y ago
  [deleted]
- glofish 4y ago
  prices are rising because we want to use the same amount of fuel as before use less and the prices will be falling
- HPsquared 4y ago
  Flip the causality: fossil fuel (and everything else) prices are increasing because of an increased money supply. Raising the interest rate indirectly lowers the money supply. https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
- othmanaba1990 4y ago
agildehaus 4y ago
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.
- gedy 4y ago
  I don't understand this fear. I was in same boat over 10 years ago, when the household bubble popped, so did prices (over a few years period). Then my downpayment was like 30-40% of the home costs. There are always people who want or need to sell, even if people who bought high hold on to their homes.
- monkmartinez 4y ago
  A few months from now will be the best time to buy. You can renegotiate the terms of the loan, but you can never renegotiate the price you pay!!!!
  - adventured 4y ago
    The damage in the housing market will play out over several years. A few months from now will still be far too early into the damage. Wait longer. The hit to the housing market will run on a longer delay than that from the Fed's hikes, historically it always does.
- glofish 4y ago
  that is the exact purpose of the action, reduce demand it does suck being on the receiving end - I do sympathise - and I am simply making an observation
- datalopers 4y ago
  Home prices will fall materially once people are forced to sell. That won't happen until broad layoffs occur.
- c0nsumer 4y ago
  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.
r00fus 4y ago
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 that kind of inflation because his goal is to crash the economy for his buddies on Wall Street - they have lobbyists at the Fed too. [4] [0] https://www.theguardian.com/commentisfree/2022/sep/25/inflation-price-controls-robert-reich https://www.theguardian.com/commentisfree/2022/sep/25/inflat... [1] https://newrepublic.com/article/166752/opec-cartel-gas-prices https://newrepublic.com/article/166752/opec-cartel-gas-price... [2] https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent https://www.propublica.org/article/yieldstar-rent-increase-r... [3] https://wjno.iheart.com/featured/brian-mudd/content/2022-02-15-qa-is-blackrock-to-blame-for-high-home-prices-rent-rates-in-florida/#:~:text=The%20answer%20is%2020%25.,crisis%20within%20the%20Great%20Recession https://wjno.iheart.com/featured/brian-mudd/content/2022-02-.... [4] https://theintercept.com/2022/10/26/federal-reserve-bank-lobby/ https://theintercept.com/2022/10/26/federal-reserve-bank-lob...
- hornd 4y ago
  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.
  - r00fus 4y ago
    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.
    - WillPostForFood 4y ago
      >banks want to crash the economy so their wealthy clients can get in at the bottom This is like the left wing version of q anon craziness. Banks don't want the economy to crash - they are big losers when it crashes.

40 points by lpage 4y ago

Money for your parents but not for you. Replace the Fed with an AI. They have a well defined objective function

Not much to say here since this was foretold / expected. All eyes on the 2:30pm press conference, where people will hope to divine the future from Powell's statements. I'm going to bet ~40 minutes of "Inflation isn't at 2% yet and we're committed to reducing inflation to that level". I think what people really want to know is, where do these rate-increases end? In Sept. 22nd meeting, Powell thought 4.5% was roughly where things would end. Is the target rate higher now? Inflation is still strong, job numbers are also strong. Are we looking at additional hikes to 5% as we enter May 2023 or so??

bern4444 4y ago
The answer from the meeting was effectively, "we don't know". People continue to underestimate the final rate and duration we'll end up at. The market shot up initially on a 3 line statement in the released notes that was interpreted as beginning of the end of rate hikes. Then the press conference started and the market shot right back down as Powell said we don't know how high and how long rates will go for. I'm banking on another 75 bps raise in December and then another in January and then maybe a slow down to one or two 50 bps raises and then maybe a 25 bps finale. I'm starting to love the yields on bonds. 3 month T Bill at 4+% is sweet. Hoping to continue collecting this sweet sweet guaranteed returns that I can ladder into.
- dragontamer 4y ago
  > The market shot up initially on a 3 line statement in the released notes that was interpreted as beginning of the end of rate hikes. I'm not sure about that. My coworkers are arguing that a bunch of people are buying put options, effectively shorting the stock market, in the days prior to these FOMC meetings. At 2pm, the meeting notes come out, and we see that the expected .75% rate happened. Since that was "expected", all the put options are now sold. That causes the stock market to jump up (since the effective-short positions are liquidated). Its just a hedge, just in case the numbers come in and the Fed chooses like 1% hike or higher instead of the expected .75%.
  - bern4444 4y ago
    I don’t think “A bunch of people” could affect the entire market like that even with derivatives unless it’s including substantial institutional investors. Maybe a single stock but not the entire market. I see this as, everyone bought on the news that the fed would begin tampering down rate hikes in the near future. Powell spoke and said we remain committed to getting inflation down and will continue to do what is necessary. All the buying switched to selling and the market plopped.
    - dragontamer 4y ago
      > I see this as, everyone bought on the news that the fed would begin tampering down rate hikes in the near future. But this pattern has occurred over and over again in the last 4 rate hikes. You are suggesting that people haven't learned their lesson yet, which seems absurd to me. This is the 4th consecutive rate hike, with the numbers (0.75 increase) exactly the amount everyone expected. It seems more likely that the people "buying at 2pm" today were covering hedged bets (such as selling off their put options, bought to protect against the volatility today). The fundamental question is whether or not you want to believe that these buyers (and sellers) knew what they were doing. I think its more likely (than not) that they knew what they were doing, and favor the stories that have that mindset.
      - bern4444 4y ago
        > But this pattern has occurred over and over again in the last 4 rate hikes. You are suggesting that people haven't learned their lesson yet Yes. > which seems absurd to me Yes. It seems absurd to me as well. :). Markets aren’t quite as rational as everyone likes to believe I think they “knew what they were doing” when they heard something they thought meant this would soon be ending and then knew what they were doing when Powell spoke and wiped that idea out of existence. We are witnessing the end of over a decade of cheap if not free money. This has all taken place in ~6 months. 14 years of expectations and beliefs will take some undoing before markets accept the new reality.

incomingpain 4y ago

Not a huge increase. Inflation is under control in the sense it's not rising, but they need to still pull a ton of money out of the economy; or let it ride. Powell's speech doesn't matter at all until we see the results of midterms.

nightski 4y ago
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.
- factsarelolz 4y ago
  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.
  - systemvoltage 4y ago
    There is also a Diesel shortage that's going to have some impact on next quarters GDP: https://oilprice.com/Energy/Energy-General/The-US-Diesel-Shortage-Is-Worsening.html https://oilprice.com/Energy/Energy-General/The-US-Diesel-Sho...
  - saxonww 4y ago
    > 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_EP00_SAS_NUS_MBBL&f=M https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M...

apropos_g 4y ago

"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.)

guyzero 4y ago
By reducing demand. I guess.
- bwb 4y ago
  This is it. You trigger a pull back in the economy, if you get lucky you don't trigger a recession. But, if you need to trigger a recession you do it rather than out of control inflation.
- apropos_g 4y ago
  How exactly do rising interest rates reduce demand for food? How does it reduce demand for gas? This is what I mean.
  - guyzero 4y ago
    Per other commenters less money in the economy reduces aggregate demand. Per previous inflationary periods where interest rates were raised basically by putting people out of work.
foobarian 4y ago
It won't reduce the prices. It will merely reduce the rate of increase of those prices.
- avmich 4y ago
  If done enough, it may reduce prices; we may not want that though.
- apropos_g 4y ago
  Well, I don't see a common sense explanation as to why the rate of increase should decrease either. We could also say, "Eventually, the rate of increase will go down anyway, in the absence of any action from the fed."

nurettin 4y ago

You should see the insane jumps in spdr futures right now.

lordswork 4y ago
Well, that didn't last long.

Raydovsky 4y ago

I dont get it. Prices are rising because fossil fuels are more expensive. How do interest rate hikes fix that?

deleted 4y ago
[deleted]
deleted 4y ago
[deleted]
glofish 4y ago
prices are rising because we want to use the same amount of fuel as before use less and the prices will be falling
HPsquared 4y ago
Flip the causality: fossil fuel (and everything else) prices are increasing because of an increased money supply. Raising the interest rate indirectly lowers the money supply. https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
othmanaba1990 4y ago

agildehaus 4y ago

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.

gedy 4y ago
I don't understand this fear. I was in same boat over 10 years ago, when the household bubble popped, so did prices (over a few years period). Then my downpayment was like 30-40% of the home costs. There are always people who want or need to sell, even if people who bought high hold on to their homes.
monkmartinez 4y ago
A few months from now will be the best time to buy. You can renegotiate the terms of the loan, but you can never renegotiate the price you pay!!!!
- adventured 4y ago
  The damage in the housing market will play out over several years. A few months from now will still be far too early into the damage. Wait longer. The hit to the housing market will run on a longer delay than that from the Fed's hikes, historically it always does.
glofish 4y ago
that is the exact purpose of the action, reduce demand it does suck being on the receiving end - I do sympathise - and I am simply making an observation
datalopers 4y ago
Home prices will fall materially once people are forced to sell. That won't happen until broad layoffs occur.
c0nsumer 4y ago
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.

r00fus 4y ago

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 that kind of inflation because his goal is to crash the economy for his buddies on Wall Street - they have lobbyists at the Fed too. [4] [0] https://www.theguardian.com/commentisfree/2022/sep/25/inflation-price-controls-robert-reich https://www.theguardian.com/commentisfree/2022/sep/25/inflat... [1] https://newrepublic.com/article/166752/opec-cartel-gas-prices https://newrepublic.com/article/166752/opec-cartel-gas-price... [2] https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent https://www.propublica.org/article/yieldstar-rent-increase-r... [3] https://wjno.iheart.com/featured/brian-mudd/content/2022-02-15-qa-is-blackrock-to-blame-for-high-home-prices-rent-rates-in-florida/#:~:text=The%20answer%20is%2020%25.,crisis%20within%20the%20Great%20Recession https://wjno.iheart.com/featured/brian-mudd/content/2022-02-.... [4] https://theintercept.com/2022/10/26/federal-reserve-bank-lobby/ https://theintercept.com/2022/10/26/federal-reserve-bank-lob...

hornd 4y ago
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.
- r00fus 4y ago
  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.
  - WillPostForFood 4y ago
    >banks want to crash the economy so their wealthy clients can get in at the bottom This is like the left wing version of q anon craziness. Banks don't want the economy to crash - they are big losers when it crashes.