Thread

1. dabinat · 1789588567 · focus · HN ↗

   Prediction: this causes a recession in two years, right after a Democrat wins the White House, who will be blamed for it. The economy will turn around after a few years, just in time for a Republican to win and claim they fixed it.

   This is how Republicans have a reputation for being economically savvy despite actual evidence to the contrary, because the general population doesn’t understand that economics runs on a time delay.

   1. carefree-bob · 1789594347 · focus · HN ↗

      A 0.25% rate hike is going to cause a recession? How, exactly, would that happen?

      Honestly it seems your post is heavy on politics but I am not seeing an actual argument anywhere in there.

      My canned response to people being upset at various policies or ratios, whether it is inflation, or bond yields, or market movements, is to ask them what they think the correct value should be. Stop complaining about the movement and instead ask them for their target. You think a 4% FedFunds is too high or too low? What do you think the correct value is and why? You think the stock market is too high or too low, what do you think the correct value of the index should be?

      Most people, who were just moments ago vociferously complaining about a movement, when asked this question fall silent, because they have no idea what the target should be, and because they have no idea about the target, they really have no business complaining about movement. Instead, they use the movement as a springboard to air their ideological beefs. But if you are going to tie some thesis to a rate hike, you better be able to explain what you think the correct rate should be and why. I'm waiting.

      Personally, I think a 4% rate is perfectly fine. 5% may even be warranted, and historically this has not been a high rate, if you assume, say, 2.5% inflation and 2% GDP growth, this is a pretty reasonable place to be.

      1. quickthrowman · 1789594793 · focus · HN ↗

         > A 0.25% rate hike is going to cause a recession? How, exactly, would that happen?

         I didn’t see anyone claim a single 25 bps hike will cause a recession.

         The 30 day FFR futures (/ZQ) curve is pricing in an 80% chance of two more hikes by the March 2027 meeting and a 70% chance of 3 or 4 hikes by Sept 2027’s meeting. So, 50 bps predicted in the next 6 months and 25-50 bps more within one year.

         Source is the CME Fedwatch tool: <a href="https:&#x2F;&#x2F;www.cmegroup.com&#x2F;markets&#x2F;interest-rates&#x2F;cme-fedwatch-tool.html" rel="nofollow">https:&#x2F;&#x2F;www.cmegroup.com&#x2F;markets&#x2F;interest-rates&#x2F;cme-fedwatch...

         I think we’ll need to go to 5%+ within the next two years if fuel costs remain elevated.

         1. carefree-bob · 1789596238 · focus · HN ↗

            Yes, I think 5% will eventually happen, but I don&#x27;t think we&#x27;ll get there before the mid-terms, the Fed moves slowly.

            Basically you have an inflation shock and you want the reaction function to be higher, so if inflation is 1% too high, you want a 1.5% or 2% rate hike. If inflation is 1% too low, you want a 1.5% or 2% rate cut. The reaction function has to be greater than the deviation from target, but this gives you price stability, it doesn&#x27;t require a recession, although it may cause a recession.

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