Thread

Fed hikes rates as inflation worries push up bond yields

184 points · 250 comments · wslh

bwb · 1789586180 · focus · HN ↗
Get ready for a fun ride my friends :)
Fun ride =
Oil is going up, possibly for a long time, which will have a big inflationary effect on everything. And it appears the USA government has lost the conflict it started and effectively given control over key oil delivery channels to Iran. Not to mention Saudia facing real issues from rebel groups / Yemen (simplification).
Government debt is high in several key economies, and the bond market is being saturated with AI-related bonds, as well as possibly people finally tired of lending the USA/France/UK money at low rates and demanding higher ones. And with higher interest rates and bonds rolling over it means more and more money going to pay for the debt, rather than core services.
Wild cards lurking in the bushes... AI, AGI, RSI.
And yonder you have a nuclear power floundering; its only source of hard currency is being rightfully degraded, and its leadership delusional.
And the one to watch IMO... Russian wheat export ability: wheat prices are up considerably, and combined with inflation from oil, this is the kind of stuff that creates waves of political change like the Arab Spring.
1. leptons · 1789586770 · focus · HN ↗
  This comment isn't helpful. Please explain for those of us without a degree in economics.
  1. iamnothere · 1789587523 · focus · HN ↗
    Higher rates means financing/borrowing is more expensive. Mortgage rates will go up, possibly pushing home prices down. This is neutral for buyers because of higher rates, but bad for sellers. Loans (personal or business) will be harder to come by. Layoffs, or at least hiring freezes, are more likely. Companies will move into a defensive rather than an growth mode. Higher unemployment will lead to more desperation, and possibly consumer defaults on loans and mortgages.
    Government interest payments, which are already high, will become higher after future bond sales. This will compound future budgetary problems and could eventually lead to cuts in entitlements. If so, expect crime and political instability (already a problem) to rise in the future. This will take a while, though.
    Normally rates are increased to lower inflation by reducing the supply of money. Given the multiple concurrent problems with energy (Hormuz, Red Sea/Yanbu, Russia/Ukraine, possibly Libya as problems are starting there, China is buying aggressively) then higher rates may not be enough to stop inflation. This would create a situation where both borrowing is harder and inflation continues to rage. This is very bad and will lead to demand destruction (nobody’s buying anything because it’s too expensive and they can’t finance it anyway). This results in a severe recession at the minimum.
    Edit: wow, I really set off a discussion with this. See replies below for clarification on mortgage rates, which is the least important part anyways. Also, I should note that a lot of the above is a worst case scenario, if energy isn’t solved soon and especially if bonds don’t respond to the hike, leading to further hikes.
    jrflo · 1789588384 · focus · HN ↗
    Home prices are sticky on the way down, 25 basis points won't change much
    iamnothere · 1789590665 · focus · HN ↗
    Supply is way up and sales are way down, on average: <a href="https://wolfstreet.com/2026/09/10/sales-of-existing-single-family-homes-sag-further-supply-spikes-to-decade-high-condo-sales-drop-to-data-low-supply-spikes-to-14-year-high/" rel="nofollow">https://wolfstreet.com/2026/09/10/sales-of-existing-single-f...
    This could be the catalyst to lower prices if sellers get spooked, especially if gas prices keep going up.
    jrflo · 1789592572 · focus · HN ↗
    Your graph shows that home sales have been at a constant rate for the last 3 years. They are way down from 2020-2021, when covid plus low interest rates caused a home buying frenzy, but this is not new. We've been in this regime for the last 4ish years, 25 basis points is not going to change anything. In fact, interest rates are lower now than they were a year ago.
    That's not to say that rising rates aren't a sign of bad things, the definitely are, it's just not going to make much of an impact with this magnitude of change.
    <a href="https://fred.stlouisfed.org/series/fedfunds" rel="nofollow">https://fred.stlouisfed.org/series/fedfunds
    iamnothere · 1789603049 · focus · HN ↗
    Sales have remained low (at GFC levels) while inventory has continued to climb. In other words supply is up and demand is flat. Doesn’t look good to me, but I’m not a professional market analyst.
    It all depends on how long buyers (in aggregate) are willing to hold out, or if they are simply unable to buy at these prices. And nobody really knows that.

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