Thread

Fed hikes rates as inflation worries push up bond yields

184 points · 250 comments · wslh

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://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html" rel="nofollow">https://www.cmegroup.com/markets/interest-rates/cme-fedwatch...
    I think we’ll need to go to 5%+ within the next two years if fuel costs remain elevated.
    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.
    carefree-bob · 1789596736 · focus · HN ↗
    Central banks didn'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'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?
    pjc50 · 1789638271 · focus · HN ↗
    Bob is correct here. The other tool people keep forgetting about is fiscal policy; government deficit spending is inflationary, and the US is currently running a very large deficit and was floating even more inflationary ideas like directly bribing voters to vote Republican in the midterms.
    Really the problem is that everyone wants to make lots of money (economic growth) so they can spend more (increase consumption) but without anyone else raising their prices as a result. Unsquareable circle.
    fireflash38 · 1789644395 · focus · HN ↗
    He's right about interest rates. But he's missing the point behind the debate: whose policy choices got us to where we are today where this is necessary? Republicans.
    Not just Trump, Republicans as a whole. They are not fiscally conservative at all, and their culture wars and religious crusades are going to bankrupt the nation.
    They'll sell you up a rope to corporate donors asking for deregulation. And we've seen exactly what happens when there is money to be made at the expense of other people's lives: spoiler alert, people like money more than they care about other people's health.

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