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1. verelo · 1789587584 · focus · HN ↗

   Edit: Whoever the hell flagged this lol....people were complaining the parent comment wasn't helpful so I took time to write a thoughtful response with citations. You can't win around here.

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   The counterintuitive part is that a lower Fed rate doesn't necessarily mean cheaper borrowing for the government. The Fed sets an overnight rate; someone lending for ten years cares about inflation and interest rates over those ten years. Keeping short-term rates low won't necessarily reassure that lender. [1]

   It also helps to distinguish the government's debt from a giant credit card. Existing fixed-rate bonds keep their agreed interest payments. Higher borrowing costs feed into the budget as old debt matures and gets refinanced, and as new debt is issued. The pain accumulates rather than arriving all at once. [2]

   Nor does a larger interest bill automatically require "printing money." Treasury borrowing and Fed money creation are separate decisions. [3]

   The difficult question is how to contain inflation without causing more economic damage than necessary. A large debt load makes that tradeoff more expensive; it doesn't make either option painless.

   [1] <a href="https:&#x2F;&#x2F;www.federalreserve.gov&#x2F;monetarypolicy&#x2F;monetary-policy-what-are-its-goals-how-does-it-work.htm" rel="nofollow">https:&#x2F;&#x2F;www.federalreserve.gov&#x2F;monetarypolicy&#x2F;monetary-polic...

   [2] <a href="https:&#x2F;&#x2F;www.treasurydirect.gov&#x2F;marketable-securities&#x2F;treasury-bonds&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.treasurydirect.gov&#x2F;marketable-securities&#x2F;treasur...

   [3] <a href="https:&#x2F;&#x2F;www.federalreserve.gov&#x2F;faqs&#x2F;how-does-the-federal-reserve-buying-and-selling-of-securities-relate-to-the-borrowing-decisions-of-the-federal-government.htm" rel="nofollow">https:&#x2F;&#x2F;www.federalreserve.gov&#x2F;faqs&#x2F;how-does-the-federal-res...

   1. evanwolf · 1789589603 · focus · HN ↗

      I thought bumping up the prime rate slowed consumer spending. But the recent price hikes are because supply is hosed (oil, tariffs), not that demand has been bidding up prices. So how is this supposed to help?

      1. carefree-bob · 1789592012 · focus · HN ↗

         It doesn&#x27;t matter whether it is a supply shock or a demand shock, the correct response to inflation is to raise rates, which reduces economic activity and in this situation the reduced activity reduces demand for oil, which is what is needed in an environment in which we have less oil than normal.

         Although it is the third world that is going to take the hit, the wealthy nations will bid up the price of oil to ensure they continue to get it, the poorer nations will be priced out. What is an annoyance in the west -- say needing to delay a major purchase or postpone a vacation or reduce expenses - translates to famine and deindustrialization in the global south.

         Maybe it&#x27;s not such a good idea to be waging war against major resource exporting nations, the US and Europe are now sanctioning about half of the global resource exporting nations, and the only benefit of this is higher prices in our domestic economies and China coming in to sign trade deals for discounted Russian and Iranian oil.

         KSA also needs to lay off the Houthis and lift the embargo, it&#x27;s long past time that they give up trying to control who runs Yemen.

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