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. smackeyacky · 1789596316 · focus · HN ↗

            I don’t understand why central banks seem to use such a blunt object like interest rates for every inflation problem. It would make sense to rise if the cause of inflation was accelerated economic activity, not price rises due to supply restrictions. How does hurting mortgage holders even more help with not starting wars? All it can do is have a double dampening effect on the economy as people pull back their discretionary spending.

            Using interest rates for this kind of inflation is guaranteed to cause a recession.

            1. carefree-bob · 1789596736 · focus · HN ↗

               Central banks didn&#x27;t use to do this, in the post-war period up until about 1980, they tried targeting the monetary aggregates like M2.

               Unfortunately they discovered that the size of monetary aggregates was outside the control of central banks, these were demand determined by the public&#x27;s desire for money balances. So all attempts to control the growth of monetary aggregates failed.

               Having an inability to control anything else, the central banks turned to the one thing they could control -- overnight interest interest rates, and from that, bond yields more generally. That is the one tool in their toolbox.

               Do you think other tools exist?

               1. smackeyacky · 1789597730 · focus · HN ↗

                  I don’t think we have a wide enough Overton window when it comes to economic discussions, the neoliberal revolution of the 1970s killed a lot of little levers of economic control in most post social democratic countries. Instead we were promised a new age of free trade and economic liberalism and one single, shiny lever to control the speed of the economy like the governor on a steam train.

                  Yet here we are 50 years later suffering booms and busts just like before. Nobody seems to want to acknowledge the failure of 50 years of industrialisation destruction that in hindsight was the inevitable outcome of open trade and the retreat of governments.

                  To answer the question, yes I think there are other options and trade barriers need to be part of that conversation.

                  1. rich_sasha · 1789613488 · focus · HN ↗

                     It’s not entirely true. There’s plenty more levers on economy and inflation. This is the main one that central banks have.

                     For the elephant in the room, the current inflation woes are caused by oil price increase, which is a direct outcome of deliberate US policy.

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