Federal Reserve to increase interest rates by 50 basis points(federalreserve.gov)
federalreserve.gov
Federal Reserve to increase interest rates by 50 basis points
https://www.federalreserve.gov/newsevents/pressreleases/monetary20221214a.htm
193 comments
> The good news is that what the Fed does matters very little.
I cant reconcile this statement with the previous history you've discussed.
I cant reconcile this statement with the previous history you've discussed.
I agree that the text above maybe was not so well put, but also I do think there is a point indeed: the Fed cannot strictly control what will happen. What I currently see everywhere still is that the psychology of buyers hasn’t changed yet. Tesla/ASML/Twilio etc are trading at ridiculous P/E ratios, house prices are still high, some people are earning money on selling their second hand electric car to a third buyer for a higher price and everyone knows that basically everything is too expensive. Once people stop looking in the rear view mirror and expect that some things might actually be cheaper next year, then that should help a lot
I don't think anyone is surprised by this. CPI at 7.1% is better than expectations and trending downwards but it's still way above target. That being said, rates have been near zero for so long, I don't see how they would need to raise rates to any astronomical level. Powell has been pretty clear on where he expects rates to land by end of 2023 and that's in the 5-6% range. So more raises are baked in, but the pace and intensity will continue reacting to CPI unemployment reports. Mind you that GDP is not part of the calculation.
I'm also calling shenanigans across the board on the notion that "Fed will cause a recession" because it's become a pretty meaningless distinction. The definition of a recession is essentially arbitrary but typically tied to GDP which is not part of the Fed's mandate. If you want to talk pragmatism, inflation is hurting consumers while employment is still overheated. GDP contraction may as well be a rainstorm in the middle of the ocean. Looks bad, but really who cares? Inflation is hurting us now. The labor marker has barely released pent up tension let alone started to slacken. Of course they'll keep raising and everyone aside from equity investors will be better off for it.
I'm also calling shenanigans across the board on the notion that "Fed will cause a recession" because it's become a pretty meaningless distinction. The definition of a recession is essentially arbitrary but typically tied to GDP which is not part of the Fed's mandate. If you want to talk pragmatism, inflation is hurting consumers while employment is still overheated. GDP contraction may as well be a rainstorm in the middle of the ocean. Looks bad, but really who cares? Inflation is hurting us now. The labor marker has barely released pent up tension let alone started to slacken. Of course they'll keep raising and everyone aside from equity investors will be better off for it.
> I don't think anyone is surprised by this. CPI at 7.1% is better than expectations and trending downwards but it's still way above target.
If actual monthly CPI inflation had been 0 since July, the 12-month trailing number would still be high because its a 12-month trailing number; OTOH, PCE inflation is not nearly as low, even looking at the monthly numbers (not really high, except in the 12 month trailing, but not low and still noisy), so, given the Fed's preference for PCE, its easy to see why they still see the need for monetary brakes, looking at current, not jusy 12-month trailing, inflation.
If actual monthly CPI inflation had been 0 since July, the 12-month trailing number would still be high because its a 12-month trailing number; OTOH, PCE inflation is not nearly as low, even looking at the monthly numbers (not really high, except in the 12 month trailing, but not low and still noisy), so, given the Fed's preference for PCE, its easy to see why they still see the need for monetary brakes, looking at current, not jusy 12-month trailing, inflation.
> Looks bad, but really who cares?
People who will lose their jobs to the recession will care quite a bit. For most people, it's better to be employed in an inflationary environment, than unemployed and broke in a recession.
People who will lose their jobs to the recession will care quite a bit. For most people, it's better to be employed in an inflationary environment, than unemployed and broke in a recession.
I think you missed my point. The Fed will definitely react unemployment. That's their mandate. I'm specifically saying they won't react to GDP which is what defines a recession. Unemployment hurts. Inflation hurts. GDP is just a number. That's why the Fed has to balance inflation and employment. The current situation is that employment is very, very strong and even a substantial slowdown probably won't raise unemployment to unmanageable levels.
> For those wondering how the Fed can possibly be so aggressive in light of the recent CPI miss
Well, the first thing you’d need to know about that is the Fed doesn’t use CPI, it uses PCE to measure inflation. The two are usually closely correlated, but PCE went significantly higher in the recent spike and hasn’t come back as close to normal as CPI has.
https://www.stlouisfed.org/publications/regional-economist/2...
Well, the first thing you’d need to know about that is the Fed doesn’t use CPI, it uses PCE to measure inflation. The two are usually closely correlated, but PCE went significantly higher in the recent spike and hasn’t come back as close to normal as CPI has.
https://www.stlouisfed.org/publications/regional-economist/2...
I'd argue that the Fed wasn't aggressive. If it were aggressive and did another 75 basis points inflation would stop and the next recession that's looming in Q1 or Q2 next year would have arrived.
It's highly unlikely they go above 6%. This isn't the 70s, we're coming out of a pandemic and the system is still settling from an intense shock, by the end of 2023 we will be in a much better position. There is always a chance of Taiwan invasion or Russia launching a wider war, but those seem under 10% likely currently.
> rates are going much, much higher than you think possible. So buckle up. It's rare to get such a clear signal from the Fed.
Increase in CPI is slowing. Rate hikes are slowing. Energy isn't getting costlier. China is opening up again.
A core component of these metrics is housing. If housing prices fall, what more is there left for the Fed to do?
I'm cautiously optimistic. Though I acknowledge it could get much worse, the signs I'm seeing seem to point to a quick (~1 year) recovery.
Increase in CPI is slowing. Rate hikes are slowing. Energy isn't getting costlier. China is opening up again.
A core component of these metrics is housing. If housing prices fall, what more is there left for the Fed to do?
I'm cautiously optimistic. Though I acknowledge it could get much worse, the signs I'm seeing seem to point to a quick (~1 year) recovery.
I don't really think Powell has the political will to imitate Volcker. The election is close and I see no way Biden's government will accept an economical collapse at the end of the second term. The political resistance will be paramount, and from both sides.
Maybe, just maybe, the outcome is to raise to medium-high, and then cut back to medium but stay there for long term. There will be a recession at the end of rate hiking, but once Russia and China capitulate the economy will boom again and the Federal Reserve then stand a much better position figuring things out.
Maybe, just maybe, the outcome is to raise to medium-high, and then cut back to medium but stay there for long term. There will be a recession at the end of rate hiking, but once Russia and China capitulate the economy will boom again and the Federal Reserve then stand a much better position figuring things out.
> The election is close and I see no way Biden's government will accept an economical collapse
From what I've read, it was very damaging to Jimmy Carter's reelection, so you're probably right about this.
From what I've read, it was very damaging to Jimmy Carter's reelection, so you're probably right about this.
It was, Jimmy knew this, and he still appointed Volcker to do what he had to do to protect the US economy in the long term. Contrast that to our last President that was screaming in caps on Twitter demanding that the Fed cut rates to 0%. https://twitter.com/realDonaldTrump/status/11717356917699297... I don't know how one could be unashamed currently being a part of that party.
> Jimmy knew this, and he still appointed Volcker to do what he had to do to protect the US economy in the long term
Right, this is probably pretty rare amongst politicians- the willingness to sacrifice their career for the greater good (or what they believe is for the greater good).
Right, this is probably pretty rare amongst politicians- the willingness to sacrifice their career for the greater good (or what they believe is for the greater good).
He was even advocating negative rates. And making direct threats to the Fed chair too. That's the playbook Erdogan has used to keep Turkiye's inflation at a healthy 85%.
roflyear(1)
> I see no way Biden's government will accept an economical collapse at the end of the second term.
The Fed doesn't take orders from the President though (and prides itself on that) and most Presidents are very reluctant to be seen as giving orders to the Fed. It is likely that Biden will leave the Fed alone up until an economic collapse appears, at which point it will be too late and the Fed will already be planning on cutting rates.
The Fed doesn't take orders from the President though (and prides itself on that) and most Presidents are very reluctant to be seen as giving orders to the Fed. It is likely that Biden will leave the Fed alone up until an economic collapse appears, at which point it will be too late and the Fed will already be planning on cutting rates.
> The Fed doesn't take orders from the President though (and prides itself on that)
Acting as the currency manipulator for a purported Republic, being unaccountable to the electorate is one of its most repulsive features.
Acting as the currency manipulator for a purported Republic, being unaccountable to the electorate is one of its most repulsive features.
Biden would be in a position to replace Powell in a couple years, though, should he be reelected.
And Biden would be crucified in the business pages if he were seen to be playing politics with the Fed that blatantly.
We're lucky he cares about that. Being unashamed is the new fashion since Trump (or before that even) and the next president may care very little about the business pages...
> I see no way Biden's government will accept an economical collapse at the end of the second term.
The President has little influence on the Fed, by design, and can’t do much fiscal stimulus without Congress, so no matter what Biden’s government wants, its not their choice.
The President has little influence on the Fed, by design, and can’t do much fiscal stimulus without Congress, so no matter what Biden’s government wants, its not their choice.
Has the Federal Reserve always been this powerful and active? Over the past few years, it seems that they have been molding the economy to their will. Are there any detailed retrospectives on this in terms of it being good or not? From my naive perspective, it seems like a lot of meddling, and it isn't clear if such frequent changes are required. If they are required, I suppose that bothers me just as much since it implies a fragile economic system.
This is just the Fed setting interest rates to be in line with the Taylor Rule [1]. As some of your replies have noted, they're aggressive both because of a delayed response to recent inflation as well as a sharp rise in inflation since the COVID lockdowns ended.
Note that the Fed has two mandates: maximum employment and price stability. They raise rates in an attempt to reduce inflation and try to reach price stability. Their tools for maximizing employment tend to be much more indirect.
[1] https://www.atlantafed.org/cqer/research/taylor-rule / Create Your Calculation / Chart / Compare "Alternative 3" and "Actual Fed Funds Rate"
Note that the Fed has two mandates: maximum employment and price stability. They raise rates in an attempt to reduce inflation and try to reach price stability. Their tools for maximizing employment tend to be much more indirect.
[1] https://www.atlantafed.org/cqer/research/taylor-rule / Create Your Calculation / Chart / Compare "Alternative 3" and "Actual Fed Funds Rate"
Phrased more cynically the goals of price stability and maximum employment may be phrased as: Suppress wages and prevent workers from attaining financial independence / retiring at a young age.
> the goals of price stability and maximum employment may be phrased as: Suppress wages and prevent workers from attaining financial independence / retiring at a young age
Economies with runaway wage inflation feature none of this.
Economies with runaway wage inflation feature none of this.
Sure, if you only look at "runaway" inflation and decouple wages from real economic growth. However, the present growth in wages has been backed by increased productivity. The Fed has been open about the fact that it intends to slow productivity itself.
Fed has been open about the fact that it intends to slow productivity itself (pulling sources now...)
Fed has been open about the fact that it intends to slow productivity itself (pulling sources now...)
> Fed has been open about the fact that it intends to slow productivity itself
Source?
More productivity is always good as it promotes growth while fighting inflation (similar number of dollars chasing more goods).
Source?
More productivity is always good as it promotes growth while fighting inflation (similar number of dollars chasing more goods).
These first couple aren't from the Fed directly, but: https://www.washingtonpost.com/business/2022/09/20/fed-inter...
> Higher rates ... are designed to slow the economy by dampening consumer demand.
> The Fed can’t do anything to boost chip manufacturing or build more houses, which would fix the supply side of the equation. So it has to focus on slowing down demand instead. It wants fewer people to buy new cars or put in bids for houses,
https://www.levyinstitute.org/publications/why-does-the-fed-...
https://fortune.com/2022/03/17/fed-slowdown-rates-economy-in...
Interpreting the Fed's own statements take a bit of critical reading since they're both open about it, but also aware that most of the public would have a different view if they heard and understood what was being said. So, their wording remains cautious: https://www.federalreserve.gov/newsevents/speech/cook2022113...
> When firms see rising output per hour, they have room to keep prices low. For consumer goods, this can help lower inflation.
Here the Fed demonstrates a preference that the value produced by increases in productivity shouldn't go to labor, but that their share of value should be reduced to keep prices low (aka a wealth transfer from labor to capital).
Then: https://www.federalreserve.gov/newsevents/speech/waller20221...
> I will begin with some comments on the overall outlook for economic growth and then try to explain how tighter monetary policy this year is intended to dampen demand and put downward pressure on inflation.
Here the Fed refers to wage growth and inflation as interchangeable, but even if you disregard that they state a goal of dampening demand. Perhaps the ends justify the means in terms, but it should be acknowledged that both supply and demand feed productivity. Dampening demand is tantamount to the Fed shutting down factories and keeping employees off of work. The demand for goods and services exists because they are needed inputs into other aspects of the economy. The goal is not to facilitate a productive economy, but to facilitate a stable one even if that means reducing productivity.
> Higher rates ... are designed to slow the economy by dampening consumer demand.
> The Fed can’t do anything to boost chip manufacturing or build more houses, which would fix the supply side of the equation. So it has to focus on slowing down demand instead. It wants fewer people to buy new cars or put in bids for houses,
https://www.levyinstitute.org/publications/why-does-the-fed-...
https://fortune.com/2022/03/17/fed-slowdown-rates-economy-in...
Interpreting the Fed's own statements take a bit of critical reading since they're both open about it, but also aware that most of the public would have a different view if they heard and understood what was being said. So, their wording remains cautious: https://www.federalreserve.gov/newsevents/speech/cook2022113...
> When firms see rising output per hour, they have room to keep prices low. For consumer goods, this can help lower inflation.
Here the Fed demonstrates a preference that the value produced by increases in productivity shouldn't go to labor, but that their share of value should be reduced to keep prices low (aka a wealth transfer from labor to capital).
Then: https://www.federalreserve.gov/newsevents/speech/waller20221...
> I will begin with some comments on the overall outlook for economic growth and then try to explain how tighter monetary policy this year is intended to dampen demand and put downward pressure on inflation.
Here the Fed refers to wage growth and inflation as interchangeable, but even if you disregard that they state a goal of dampening demand. Perhaps the ends justify the means in terms, but it should be acknowledged that both supply and demand feed productivity. Dampening demand is tantamount to the Fed shutting down factories and keeping employees off of work. The demand for goods and services exists because they are needed inputs into other aspects of the economy. The goal is not to facilitate a productive economy, but to facilitate a stable one even if that means reducing productivity.
[deleted]
This is a wildly uninformed take. While some workers may benefit from inflation, price instability is more likely to benefit corporations and hurt consumers even more, hence why the left is meming about record corporate profits. Unemployment is the measure of people who are actively seeking a job, but can't find one. Financially independent people don't count as unemployed.
Wage Growth != Inflation.
Wage Growth = Value / Share++ (i.e. workers obtain a larger share of value generated by their work)
Inflation = Shares++ / Value (i.e. the same value is split into more shares / dollars)
Maximum employment != minimal unemployment. Maximum employment == maximum labor force participation + minimal unemployment.
Maximum employment != minimal unemployment. Maximum employment == maximum labor force participation + minimal unemployment.
Is there any economy that you are aware of that had high wage inflation without inflation in everything else? Wage inflation alone would be great for the average worker, but wage inflation plus equal general inflation is at best a wash, and much worse for retirees who can't take advantage of those rising wages.
The US economy is a great example, just look at the historical real GDP growth. The cost of goods, houses, cars, etc. have all increased over the past 200 years, but few would say that our standard of living has decreased.
The U.S. economy has not had "high" inflation (there were spikes here and there, but over the long run inflation has been quite moderate). That's kind of the whole point of what the Fed is doing, preventing inflation from running away and causing major problems.
> Is there any economy that you are aware of that had high wage inflation without inflation in everything else?
'Inflation' isolated to wages is called wage growth. Every developed country has gone through a period of wage growth.
When you define the qiestion negatively, with 'wage inflation', the answers you get will be negative
'Inflation' isolated to wages is called wage growth. Every developed country has gone through a period of wage growth.
When you define the qiestion negatively, with 'wage inflation', the answers you get will be negative
> the Fed setting interest rates to be in line with the Taylor Rule
No, it is not. The Taylor rule was proposed as a starting point for discussing a model. The coefficients were chosen for consideration and to "capture the spirit of recent research" [1]. Computational advances rendered obsolete the essentially two-factor model.
[1] https://web.stanford.edu/~johntayl/Papers/Discretion.PDF
No, it is not. The Taylor rule was proposed as a starting point for discussing a model. The coefficients were chosen for consideration and to "capture the spirit of recent research" [1]. Computational advances rendered obsolete the essentially two-factor model.
[1] https://web.stanford.edu/~johntayl/Papers/Discretion.PDF
The Fed's dual mandate is to "maintain price stability" and to "ensure maximum stable employment", both of which are only accomplished through explicit manipulation of the economy. They're an enormously powerful entity, and if they're actually accomplishing their goals, do help keep the economy running smoothly (most specifically, IMO, by improving the confidence of people to make long-forecast economic decisions), but when they get it wrong, they have the potential to cause damage at a scale nearly unrivaled by anyone else.
> both of which are only accomplished through explicit manipulation of the economy.
You can't have an unmanipulated economy the same way you cant have food without chemicals - sugars, vitamins, micronutrients, water - they are all chemicals.
The same in the economy - money supply, interest rate, etc. do not 'just appear', they are 'manipuled', whether by banks, FED or someone else. Someone has to issue currency and run the system
You shouldn't be asking wether the system is managed, you should be asking in who's interest it is managed.
You can't have an unmanipulated economy the same way you cant have food without chemicals - sugars, vitamins, micronutrients, water - they are all chemicals.
The same in the economy - money supply, interest rate, etc. do not 'just appear', they are 'manipuled', whether by banks, FED or someone else. Someone has to issue currency and run the system
You shouldn't be asking wether the system is managed, you should be asking in who's interest it is managed.
They are particularly active right now because they took too long to start raising rates to begin with, and are now kind of frantically correcting. Given the circumstances I don't think there's much else they can do; they should have started gently raising rates in the spring or summer of 2021 and then the current intervention might not have needed to be so dramatic, but we can't undo the past.
They tried gently raising rates before that (2018-ish, maybe?) and the market freaked out, so they backed off.
> "Molding the economy to their will"
The thing to remember about central banking is that it's a relatively immature art, not science, and its practitioners are still refining the toolset. As a kid, I think one grows up just assuming they know what they're doing and that it's a pretty solid practice, but not so. You see them molding the economy to their will, but I see a bunch of people with gritted teeth and high blood pressure reactively trying to steer an out-of-control stagecoach whose horses are running at full tilt with their manes on fire down a country road with blind turns, giving it their all to keep it from crashing violently. They apply lessons learned but I think that every major economic event is still largely an experiment, and occasionally they still make the wrong moves leading to a need to apply harsh corrections.
Give it another 100 years and maybe all the permutations will have been seen and the solution sets known, but it's a terribly complex beast, complicated by radically higher global entanglement in the prior 50 years. The question is, is it better than the alternatives. I think if expectations are realistically low, it is better to have some knobs and dials that you can monkey with to try and control speed and direction.
Just my .02 (which is seemingly worth less each day).
The thing to remember about central banking is that it's a relatively immature art, not science, and its practitioners are still refining the toolset. As a kid, I think one grows up just assuming they know what they're doing and that it's a pretty solid practice, but not so. You see them molding the economy to their will, but I see a bunch of people with gritted teeth and high blood pressure reactively trying to steer an out-of-control stagecoach whose horses are running at full tilt with their manes on fire down a country road with blind turns, giving it their all to keep it from crashing violently. They apply lessons learned but I think that every major economic event is still largely an experiment, and occasionally they still make the wrong moves leading to a need to apply harsh corrections.
Give it another 100 years and maybe all the permutations will have been seen and the solution sets known, but it's a terribly complex beast, complicated by radically higher global entanglement in the prior 50 years. The question is, is it better than the alternatives. I think if expectations are realistically low, it is better to have some knobs and dials that you can monkey with to try and control speed and direction.
Just my .02 (which is seemingly worth less each day).
It's an unambiguously nauseating way to control the lives of billions of humans.
We'd be much better off letting banks decide how much they value your deposits, and having a currency that politicians, bureaucrats and bankers can't manipulate.
But alas.
We'd be much better off letting banks decide how much they value your deposits, and having a currency that politicians, bureaucrats and bankers can't manipulate.
But alas.
> having a currency that politicians, bureaucrats and bankers can't manipulate.
Which is what, Gold? Bitcoin? Have you read the history of merchantilism and how Britiah and Dutch economic growth was restricted by supply of silver?
The definition of a Fiat currency is that it can be manipulated by whoever is issuing it
Which is what, Gold? Bitcoin? Have you read the history of merchantilism and how Britiah and Dutch economic growth was restricted by supply of silver?
The definition of a Fiat currency is that it can be manipulated by whoever is issuing it
Probably Bitcoin. Gold would be fine if there weren't governments.
> From my naive perspective, it seems like a lot of meddling, and it isn't clear if such frequent changes are required
The federal reserve has exactly 2 mandates: keep prices stable (which they define as a long term inflation of 2%) and reduce unemployment.
Unemployment is low, inflation has been far beyond 2%, so the goal is obvious.
There’s a technical questions of “how many rate hikes” and “how steep per hike”. But the direction that the federal reserve has been moving is more or less directly implied by their mandate.
> If they are required, I suppose that bothers me just as much since it implies a fragile economic system.
I’m not sure I agree. On what basis does this imply a fragile economic system? The federal reserve has a tool to achieve their goals, and they are using that tool.
The federal reserve has exactly 2 mandates: keep prices stable (which they define as a long term inflation of 2%) and reduce unemployment.
Unemployment is low, inflation has been far beyond 2%, so the goal is obvious.
There’s a technical questions of “how many rate hikes” and “how steep per hike”. But the direction that the federal reserve has been moving is more or less directly implied by their mandate.
> If they are required, I suppose that bothers me just as much since it implies a fragile economic system.
I’m not sure I agree. On what basis does this imply a fragile economic system? The federal reserve has a tool to achieve their goals, and they are using that tool.
> Unemployment is low, inflation has been far beyond 2%, so the goal is obvious.
But isn’t the current inflation because they printed money out of thin air for nearly two years to push markets well beyond all times highs? Their methods feel more akin to filling up a dam’s holes with bubble gum rather than something more foundational. It seems like a lot of rubber banding.
In my experience on the ground, all they’ve done is destabilize investments, prices, and inflation.
But isn’t the current inflation because they printed money out of thin air for nearly two years to push markets well beyond all times highs? Their methods feel more akin to filling up a dam’s holes with bubble gum rather than something more foundational. It seems like a lot of rubber banding.
In my experience on the ground, all they’ve done is destabilize investments, prices, and inflation.
> But isn’t the current inflation because they printed money out of thin air for nearly two years to push markets well beyond all times highs?
Essentially yes (although some amount of that is out of feds scope - see federal stimulus and PPP, decided by the legislative branch).
At the beginning of the pandemic inflation was low (the fear was deflation) and unemployment was at extreme highs.
> It seems like a lot of rubber banding.
You aren’t wrong but the pandemic was a black swan event and society’s response to the pandemic was unprecedented (basically shutting down economic activity, some economic sectors like office real estate fundamentally altered to this day).
I don’t think there was an easy way out and, all things considered, my opinion is the federal reserve (and lawmakers) did a pretty good job of keeping our economy from imploding.
Let’s put it another way: the federal reserve is a control system, and that control system was pushed to the boundaries. Any good control system is going to get some rubber banding to recover from this scenario.
The risk of runaway unemployment/deflation was too great in 2020, the risk of runaway inflation is too great now.
Essentially yes (although some amount of that is out of feds scope - see federal stimulus and PPP, decided by the legislative branch).
At the beginning of the pandemic inflation was low (the fear was deflation) and unemployment was at extreme highs.
> It seems like a lot of rubber banding.
You aren’t wrong but the pandemic was a black swan event and society’s response to the pandemic was unprecedented (basically shutting down economic activity, some economic sectors like office real estate fundamentally altered to this day).
I don’t think there was an easy way out and, all things considered, my opinion is the federal reserve (and lawmakers) did a pretty good job of keeping our economy from imploding.
Let’s put it another way: the federal reserve is a control system, and that control system was pushed to the boundaries. Any good control system is going to get some rubber banding to recover from this scenario.
The risk of runaway unemployment/deflation was too great in 2020, the risk of runaway inflation is too great now.
Yes, here is a chart of their activity in setting the Federal Funds rate since the 1950s (https://fred.stlouisfed.org/series/FEDFUNDS). It is only, in very recent years (from 2008 to 2015), that the rate has stayed unchanged for so long.
Yes, the Fed manages the US economy, and that’s been its job for over a century. Maybe read about Volker and the 1982 recession.
Whether they do a good job or not and what they should do instead is often debated by economists.
And yep, economies aren’t self-managing. Before that there were frequent financial panics.
Whether they do a good job or not and what they should do instead is often debated by economists.
And yep, economies aren’t self-managing. Before that there were frequent financial panics.
They’re a banking cartel that controls the supply of the world’s reserve currency.
Yes they’ve been active and powerful for a long time.
Yes they’ve been active and powerful for a long time.
Paul Volcker's Fed raised rates from 11.2% to 20%, which is widely credited as a major cause of the 1980-1982 recession. https://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_F...
Edit: probably should have clarified I think this was probably worth it (inflation came down and stayed down for a long time, and you can’t postpone a recession forever with dovish policy. My only point is that it was a big intervention).
Edit: probably should have clarified I think this was probably worth it (inflation came down and stayed down for a long time, and you can’t postpone a recession forever with dovish policy. My only point is that it was a big intervention).
Paul Volcker was widely credited for stopping the rampant high inflation of the 70's. Volcker is one of the greatest Fed chairs around.
And of breaking the back of the inflation that we had in the 1970s.
Since 2008, the whole economy of the western world has been reliant on central banks to provide capital for free (or even less than that). The fact they are withdrawing that (or trying to) is what makes them suddenly seem powerful. Once we're back to a more normal (in a century point of view) world, they will manage much less. But right now, they are the ones supplying all the capital for everything...
I would say yes, but perhaps not as visible.
Before the internet arrived and provided anyone to become an 'expert' in anything, it was still their job to manage the monetary system and employment.
I'd say the issue now is that many popular haunts on the internet are designed to incite rage, and the Fed is always going to be unpopular when they have to cool things off in the economy.
Before the internet arrived and provided anyone to become an 'expert' in anything, it was still their job to manage the monetary system and employment.
I'd say the issue now is that many popular haunts on the internet are designed to incite rage, and the Fed is always going to be unpopular when they have to cool things off in the economy.
[deleted]
See Alan Greenspan's entire tenure as Fed Chair.
Most Fed chairs who're around for a recession become a household name, at least for a little while. Which ends up being an awful lot of them since they tend to serve a while. See also: Ben "helicopter" Bernanke; Paul Volcker.
And yeah, it's because they do tend to be similarly active, or at least very much in the public eye, when recessions hit.
And yeah, it's because they do tend to be similarly active, or at least very much in the public eye, when recessions hit.
Has the Federal Reserve always been this powerful and active?
yes, the fed intervened in the crash of 1987 too.
yes, the fed intervened in the crash of 1987 too.
That's part of their mandates.
I completely agree with you. We used to sue companies and individuals for the crime of Market Manipulation. Now the Fed is in the business of Market Manipulation as a Service (MMaaS?).
> From my naive perspective, it seems like a lot of meddling, and it isn't clear if such frequent changes are required.
This is the result of fiat-based currencies and why Bitcoin is a necessity for the survival of Western civilization.
In the words of Max Keiser: "you can't taper a ponzi scheme."
This is the result of fiat-based currencies and why Bitcoin is a necessity for the survival of Western civilization.
In the words of Max Keiser: "you can't taper a ponzi scheme."
The inverted exponential distribution of BTC is far far far more unethical and harmful than anything the fed has ever done with respect to monetary policy.
You mean the 100% democratic halving algorithm which allows anyone to participate in the process of verifying transactions and earning Bitcoin?
100% democratic? Satoshi didn't ask me when he chose the halving algorithm. Do you mean democratic in the sense that the miners get votes according to their hash rate and they could tell the core devs to get bent if enough of them got together?
That's not democracy.
"All landowners get a vote according to the amount of land they own. Work for scraps you peasant."
Unethical nonsense.
That's not democracy.
"All landowners get a vote according to the amount of land they own. Work for scraps you peasant."
Unethical nonsense.
> Unethical nonsense.
You can propose changes to the network at any time via a BIP (Bitcoin Improvement Proposal) [1], so sorry, but you're just wrong. Bitcoin is the most ethical form of money that has ever existed.
> "All landowners get a vote according to the amount of land they own. Work for scraps you peasant."
This is an impressive contortion of reality, but nonetheless completely wrong. Your "voting" ability has nothing to do with participation in mining. Your vote is participation in the network, open ability to submit proposals, run a node to bolster the network, and if you wish, run a mining rig to validate blocks and earn Bitcoin. You can also earn Bitcoin from others directly providing products and services.
[1] https://github.com/bitcoin/bips
You can propose changes to the network at any time via a BIP (Bitcoin Improvement Proposal) [1], so sorry, but you're just wrong. Bitcoin is the most ethical form of money that has ever existed.
> "All landowners get a vote according to the amount of land they own. Work for scraps you peasant."
This is an impressive contortion of reality, but nonetheless completely wrong. Your "voting" ability has nothing to do with participation in mining. Your vote is participation in the network, open ability to submit proposals, run a node to bolster the network, and if you wish, run a mining rig to validate blocks and earn Bitcoin. You can also earn Bitcoin from others directly providing products and services.
[1] https://github.com/bitcoin/bips
But I have no vote in its adoption. "Anybody can propose a change" is not democracy. Not even remotely close. I am frankly horrified that somebody could conclude that this is a just system under which to operate money.
It’s better than democracy. Anyone can influence the direction of the network. The best ideas win (if you want to be pedantic call it a meritocracy). The status quo is a bunch of bankers, behind closed doors, determining your fate. I’m frankly horrified that you think that’s a just system.
You previously used the phrase "100% democratic halving algorithm." If you want to argue that the system is better than democratic control over our financial systems then that's a completely different discussion.
I don't agree that "the best ideas win." I certainly don't agree that the halving system is a "best idea." It massively and almost permanently privileges early adopters, creating a landed gentry of the modern world in a completely unjust. The ideas most valued by a particular set of people (either the core devs or the miners, depending on how you define BTC) are what wins. That's aristocracy.
I don't agree that "the best ideas win." I certainly don't agree that the halving system is a "best idea." It massively and almost permanently privileges early adopters, creating a landed gentry of the modern world in a completely unjust. The ideas most valued by a particular set of people (either the core devs or the miners, depending on how you define BTC) are what wins. That's aristocracy.
Well then I guess you're screwed.
"Screw those other people" is not my idea of a just system.
I'm glad you got rich as shit off BTC. That doesn't make you a good person.
I'm glad you got rich as shit off BTC. That doesn't make you a good person.
It was a joke and I didn't "get rich as shit."
You would do well not to judge people so much; it's unbecoming and makes your entire point of view effortless to dismiss.
You would do well not to judge people so much; it's unbecoming and makes your entire point of view effortless to dismiss.
> allows anyone to participate in the process of verifying transactions and earning Bitcoin?
Homeless people living under a bridge have the same ability to participate and get Bitcoin as SV tech bros running racks of ASIC miners in their three car garages?
Homeless people living under a bridge have the same ability to participate and get Bitcoin as SV tech bros running racks of ASIC miners in their three car garages?
Hypothetically, yes.
Hypothetically they could bevome a british lord through the right of conquest, and then sit in the house of lords.
So by your standards medieval Britania was a democracy too.
So by your standards medieval Britania was a democracy too.
That's funny, but no. I could apply the standard of a homeless person buying a $300K McMansion in the same way and it'd be equally unachievable (of course you know that, but you're not concerned about being correct—you just want to look smart).
And yet you suggest a homeless person can reasonably assert influence on the Blockchain and mine it effectively. I'm generally not considered poor (not trying to flex) but there's practically no way I could mine anything of value or exert any amount of influence on the Blockchain. Much less any other random person out there.
Bitcoin is dominated by extremely wealthy miners. The only way it comes close to profitability mine is to get into big industrial power plans and buy tons of highly specified computing equipment. Only then are you breaking even (eventually, after the years of paying off the capex). But then you'll finally have a tiny billionth of the overall network speed and can make a tiny wave in choosing what transactions to include and push the chain any particular direction. It's practically democracy but you can pay $5 to vote again and can do it however many times you want, meanwhile lots of people pre-purchased votes at $0.50/ea and bought millions already. Sounds like a level playing field to me!
Bitcoin is dominated by extremely wealthy miners. The only way it comes close to profitability mine is to get into big industrial power plans and buy tons of highly specified computing equipment. Only then are you breaking even (eventually, after the years of paying off the capex). But then you'll finally have a tiny billionth of the overall network speed and can make a tiny wave in choosing what transactions to include and push the chain any particular direction. It's practically democracy but you can pay $5 to vote again and can do it however many times you want, meanwhile lots of people pre-purchased votes at $0.50/ea and bought millions already. Sounds like a level playing field to me!
> And yet you suggest a homeless person can reasonably assert influence on the Blockchain and mine it effectively.
I never suggested anything even close to that.
> Bitcoin is dominated by extremely wealthy miners.
No, it recently had a drop in difficulty as the big box miners have had to shut down due to bankruptcy (making it more accessible to more people). That means it's both cheaper to get the equipment you need and easier to earn Bitcoin. What's great is that's by design.
> But then you'll finally have a tiny billionth of the overall network speed and can make a tiny wave in choosing what transactions to include and push the chain any particular direction. It's practically democracy but you can pay $5 to vote again and can do it however many times you want, meanwhile lots of people pre-purchased votes at $0.50/ea and bought millions already. Sounds like a level playing field to me!
This reads like you don't understand how Bitcoin works. I really don't know what you're referring to here. The network operates according to the current consensus around the protocol. If you want to influence the direction of said protocol, you can submit a proposal and if others want to support it, your changes can be implemented as an upgrade. There is zero prerequisite to spend anything to participate in Bitcoin. If you can offer a product or service to someone and are willing to be paid in Bitcoin, you just participated in Bitcoin. Just like every economy, the more you participate, the more opportunity you have.
I never suggested anything even close to that.
> Bitcoin is dominated by extremely wealthy miners.
No, it recently had a drop in difficulty as the big box miners have had to shut down due to bankruptcy (making it more accessible to more people). That means it's both cheaper to get the equipment you need and easier to earn Bitcoin. What's great is that's by design.
> But then you'll finally have a tiny billionth of the overall network speed and can make a tiny wave in choosing what transactions to include and push the chain any particular direction. It's practically democracy but you can pay $5 to vote again and can do it however many times you want, meanwhile lots of people pre-purchased votes at $0.50/ea and bought millions already. Sounds like a level playing field to me!
This reads like you don't understand how Bitcoin works. I really don't know what you're referring to here. The network operates according to the current consensus around the protocol. If you want to influence the direction of said protocol, you can submit a proposal and if others want to support it, your changes can be implemented as an upgrade. There is zero prerequisite to spend anything to participate in Bitcoin. If you can offer a product or service to someone and are willing to be paid in Bitcoin, you just participated in Bitcoin. Just like every economy, the more you participate, the more opportunity you have.
You absolutely did when you said "yes" to the ability of a homeless person to exert as much influence and get bitcoin as a SV tech bro with racks of mining rigs in their garage. Its just a few comments ago.
> No, it recently had a drop in difficulty as the big box miners have had to shut down due to bankruptcy
A few miners shut down. The difficulty barely moved. Its still massively unprofitable for me to mine with any hardware I still own, and many friends of mine with ASICs can't profitably mine either. Leaving...those with extremely cheap energy sources (i.e., not residential rates, i.e., industrial plans, i.e., using lots of power total, i.e....big miners!) or those who have cheap generation sources they've already invested in. How much does a MW of solar panels cost again? How much land does that take up? Sounds easy for someone living under a bridge to put together.
So mining hardware has gotten a lot cheaper huh? Difficulty has dropped a lot? I guess I can mine on my Ryzen 5 2600 CPU then? No? Huh. Maybe my 1070 GPU? No? Huh. Clearly a $2k Macbook Pro M1. Still no? I wonder what a normal used miner goes for these days.
https://www.ebay.com/itm/334660278672 $2,255, 100Th.
https://www.ebay.com/itm/334660278672 $1,680, 100Th.
So easily $1,600-$2,255 for a noisy purpose-built box to mine. What's that gonna cost to operate? ~3kW of power usage, at $0.15/kWh, that's ~$10.80/day, assuming you're not spending any extra on cooling. What's my revenue for that 100Th of mining power these days? ~$6.60/day? Cool, so after spending somewhere around $2k on used mining hardware, I'll be generating -$4.20/day in profits when converting back to USD. Wait, that's a minus symbol... Wait, I'll have some losses from pool fees? Now I've got exchange fees as well?
Well at least I'll have generated some bitcoins. How many did I mine my first day? 0.00036715BTC? Over a year I'll have ~0.134, assuming the difficulty doesn't continue its few year history of continuing to go sky high. We'll say BTC is back to ~$20k, that means for that ~$2k capex investment and $3,942 in power costs (ignoring the fact I had to pay to have space to put the things and might have needed to cool them) I'll have generated ~$2,680.
Yeah, definitely seems like a normal thing average people are gonna be able to participate in. That guy living under the bridge is gonna be able to mine so many bitcoins.
> If you want to influence the direction of said protocol, you can submit a proposal
I can petition the lords for change. They can also just choose to ignore me. Some people wanted larger block sizes. Some wanted faster generation times. We've seen how those changes have turned out over and over. In the end, Bitcoin is what the miners want it to be.
> No, it recently had a drop in difficulty as the big box miners have had to shut down due to bankruptcy
A few miners shut down. The difficulty barely moved. Its still massively unprofitable for me to mine with any hardware I still own, and many friends of mine with ASICs can't profitably mine either. Leaving...those with extremely cheap energy sources (i.e., not residential rates, i.e., industrial plans, i.e., using lots of power total, i.e....big miners!) or those who have cheap generation sources they've already invested in. How much does a MW of solar panels cost again? How much land does that take up? Sounds easy for someone living under a bridge to put together.
So mining hardware has gotten a lot cheaper huh? Difficulty has dropped a lot? I guess I can mine on my Ryzen 5 2600 CPU then? No? Huh. Maybe my 1070 GPU? No? Huh. Clearly a $2k Macbook Pro M1. Still no? I wonder what a normal used miner goes for these days.
https://www.ebay.com/itm/334660278672 $2,255, 100Th.
https://www.ebay.com/itm/334660278672 $1,680, 100Th.
So easily $1,600-$2,255 for a noisy purpose-built box to mine. What's that gonna cost to operate? ~3kW of power usage, at $0.15/kWh, that's ~$10.80/day, assuming you're not spending any extra on cooling. What's my revenue for that 100Th of mining power these days? ~$6.60/day? Cool, so after spending somewhere around $2k on used mining hardware, I'll be generating -$4.20/day in profits when converting back to USD. Wait, that's a minus symbol... Wait, I'll have some losses from pool fees? Now I've got exchange fees as well?
Well at least I'll have generated some bitcoins. How many did I mine my first day? 0.00036715BTC? Over a year I'll have ~0.134, assuming the difficulty doesn't continue its few year history of continuing to go sky high. We'll say BTC is back to ~$20k, that means for that ~$2k capex investment and $3,942 in power costs (ignoring the fact I had to pay to have space to put the things and might have needed to cool them) I'll have generated ~$2,680.
Yeah, definitely seems like a normal thing average people are gonna be able to participate in. That guy living under the bridge is gonna be able to mine so many bitcoins.
> If you want to influence the direction of said protocol, you can submit a proposal
I can petition the lords for change. They can also just choose to ignore me. Some people wanted larger block sizes. Some wanted faster generation times. We've seen how those changes have turned out over and over. In the end, Bitcoin is what the miners want it to be.
> You absolutely did when you said "yes" to the ability of a homeless person to exert as much influence
No, I didn't. You said "have the same ability to participate and get Bitcoin" to which I said yes. You reworded what I said, disingenuously, to force an incredibly weak argument.
> Its still massively unprofitable for me to mine with any hardware I still own, and many friends of mine with ASICs can't profitably mine either.
Ah, there it is. It's not about other people, it's about you. Like I've already stated, if you want to participate in Bitcoin but mining is out of range, go offer services and/or products for Bitcoin and earn it (I've done it happily, and have paid others for their services using it, too). Nobody owes you Bitcoin.
> Yeah, definitely seems like a normal thing average people are gonna be able to participate in.
Do normal people participate in SWIFT? No. That's the level Bitcoin is operating on. But it doesn't exclude them from transacting in the currencies that rely on SWIFT as a network.
> I can petition the lords for change. They can also just choose to ignore me. Some people wanted larger block sizes. Some wanted faster generation times. We've seen how those changes have turned out over and over.
And they likely will with this attitude. And yes, their ideas didn't gain traction so they ended up forking, and lo and behold, it didn't work. Those experiments were failures. The system works.
No, I didn't. You said "have the same ability to participate and get Bitcoin" to which I said yes. You reworded what I said, disingenuously, to force an incredibly weak argument.
> Its still massively unprofitable for me to mine with any hardware I still own, and many friends of mine with ASICs can't profitably mine either.
Ah, there it is. It's not about other people, it's about you. Like I've already stated, if you want to participate in Bitcoin but mining is out of range, go offer services and/or products for Bitcoin and earn it (I've done it happily, and have paid others for their services using it, too). Nobody owes you Bitcoin.
> Yeah, definitely seems like a normal thing average people are gonna be able to participate in.
Do normal people participate in SWIFT? No. That's the level Bitcoin is operating on. But it doesn't exclude them from transacting in the currencies that rely on SWIFT as a network.
> I can petition the lords for change. They can also just choose to ignore me. Some people wanted larger block sizes. Some wanted faster generation times. We've seen how those changes have turned out over and over.
And they likely will with this attitude. And yes, their ideas didn't gain traction so they ended up forking, and lo and behold, it didn't work. Those experiments were failures. The system works.
Can’t tell if this is sarcasm or not. I mean, Max Keiser is quoted so I assume it has to be, but it still doesn’t read like it.
It's not sarcasm at all. It's a 100% correct, accurate, and serious statement.
The Federal Reserve was created to manipulate and control currency. The removal of the gold standard made it so that they could, to their heart's content, produce any amount of money and distribute to anyone they wished, whenever they wanted.
It is, in its entire conception, an absolute ponzi scheme. It is only in favor because that favor is enforced at the barrel of a gun via the tax system and the petrodollar scheme.
The Federal Reserve was created to manipulate and control currency. The removal of the gold standard made it so that they could, to their heart's content, produce any amount of money and distribute to anyone they wished, whenever they wanted.
It is, in its entire conception, an absolute ponzi scheme. It is only in favor because that favor is enforced at the barrel of a gun via the tax system and the petrodollar scheme.
I don't see how it's a ponzi scheme. I understand your other parts but ponzi seems like an inappropriate term
The ponzi scheme attribution is due to the money printing and fractional reserve lending system. They can't pay off previous debts [1], so they print more money to try to inflate the debt away (which only leads to the creation of more debt, keeping the cycle perpetual). If they stop printing money/issuing new debt, the whole pyramid collapses.
[1] https://www.usdebtclock.org/
[1] https://www.usdebtclock.org/
But this isn’t true.
Printing money debases the currency, it doesn’t increase borrowing. Not debasing the currency further is the reason all debt isn’t just printed away.
Bitcoin is entirely a ponzi, which is why I was surprised you cited it as an example of something better.
Printing money debases the currency, it doesn’t increase borrowing. Not debasing the currency further is the reason all debt isn’t just printed away.
Bitcoin is entirely a ponzi, which is why I was surprised you cited it as an example of something better.
> Printing money debases the currency, it doesn’t increase borrowing.
It does both. Where do you think that printed money goes? The business model of banks is to lend out money. They go to the Fed to get more dollars and then lend those dollars out to other people. The more dollars available, the more demand for debt.
> Bitcoin is entirely a ponzi
You'd have to explain why because it's fundamentally not. There's nothing about it that requires coaxing others into it. You either want to use it or you don't.
It does both. Where do you think that printed money goes? The business model of banks is to lend out money. They go to the Fed to get more dollars and then lend those dollars out to other people. The more dollars available, the more demand for debt.
> Bitcoin is entirely a ponzi
You'd have to explain why because it's fundamentally not. There's nothing about it that requires coaxing others into it. You either want to use it or you don't.
[deleted]
I’m going to leave it here and wish you well. I could refute the above, but you’ll disagree, we’ll never see eye-to-eye, and we’d both just be arguing into the wind.
I (sincerely) hope it all works out for you and we’ll find out in time what it turns out to ultimately be.
I (sincerely) hope it all works out for you and we’ll find out in time what it turns out to ultimately be.
> I could refute the above, but you’ll disagree, we’ll never see eye-to-eye, and we’d both just be arguing into the wind.
You're probably not wrong, but this is your dust up. Give me a shot, I'm open to well-reasoned arguments.
You're probably not wrong, but this is your dust up. Give me a shot, I'm open to well-reasoned arguments.
How does bitcoin solve this? Seems like gold should be used instead.
The US government confiscates gold when it wants to.
It also confiscates your freedom, passport and life if it wants to.
If we are fighting US government, I am not seeing the winning strategy here.
If we are fighting US government, I am not seeing the winning strategy here.
I agree. Western governments are doing just fine delegitimizing themselves as positive forces without our help. They'll either become more transparently honest brutal oligarchies, or they will collapse.
I'm good with either direction.
I'm good with either direction.
Your solution to the Fed controlling interest rates is a currency (or currency substitute, perhaps) that lost half its value in the past year or so? You may be sincere, but I don't think your judgment is very sound.
HaroldIs88(1)
Lost half of its value relative to what currency? 1 Bitcoin still equals 1 Bitcoin.
Sure, but that's true of everything. The dollar is still worth one dollar, too. But we still say that the dollar is losing value to inflation, and we experience it every time we try to buy something else with dollars. (Buying dollars with dollars is rather pointless.) And I'm pretty sure you know all that, and the parent post was just an attempt at a deflection.
Bitcoin has lost half its value compared to every other currency in the world. You know, those no-good-easy-to-inflate fiat currencies. Compared to gold, too, if that floats your boat. Compared to a basket of goods, which is how inflation is measured for everything else.
So, yeah. Compared to everything except itself, it's lost half its value in the past year. That doesn't make me feel like "Bitcoin is a necessity for the survival of Western civilization" is a very objective look at the reality of the situation.
Bitcoin has lost half its value compared to every other currency in the world. You know, those no-good-easy-to-inflate fiat currencies. Compared to gold, too, if that floats your boat. Compared to a basket of goods, which is how inflation is measured for everything else.
So, yeah. Compared to everything except itself, it's lost half its value in the past year. That doesn't make me feel like "Bitcoin is a necessity for the survival of Western civilization" is a very objective look at the reality of the situation.
> Sure, but that's true of everything. The dollar is still worth one dollar, too.
It's not. [1]
> But we still say that the dollar is losing value to inflation, and we experience it every time we try to buy something else with dollars. (Buying dollars with dollars is rather pointless.) And I'm pretty sure you know all that, and the parent post was just an attempt at a deflection.
No, the dollar loses value to inflation because the supply of money continues to increase, therefore making an individual dollar less valuable (value of currency is drive by scarcity). The supply of Bitcoin is fixed, and therefore, anti-inflationary.
---
The price in X currency is whatever that market is willing to pay for Bitcoin, but that doesn't change the value of it. It's identical to the stock market. The stock market price of a company is not the book value of a company. Ironically, the money printing is what creates and worsens that disconnect as companies do stock buy backs with printed, un-backed dollars, artificially increasing their stock price.
[1] See "Buying Power of $1 over time, 1800-2022" here: https://www.officialdata.org/us/inflation/1800?amount=1
It's not. [1]
> But we still say that the dollar is losing value to inflation, and we experience it every time we try to buy something else with dollars. (Buying dollars with dollars is rather pointless.) And I'm pretty sure you know all that, and the parent post was just an attempt at a deflection.
No, the dollar loses value to inflation because the supply of money continues to increase, therefore making an individual dollar less valuable (value of currency is drive by scarcity). The supply of Bitcoin is fixed, and therefore, anti-inflationary.
---
The price in X currency is whatever that market is willing to pay for Bitcoin, but that doesn't change the value of it. It's identical to the stock market. The stock market price of a company is not the book value of a company. Ironically, the money printing is what creates and worsens that disconnect as companies do stock buy backs with printed, un-backed dollars, artificially increasing their stock price.
[1] See "Buying Power of $1 over time, 1800-2022" here: https://www.officialdata.org/us/inflation/1800?amount=1
The value of a dollar, as measured in dollars, has not changed. The buying power has. This is exactly the same as Bitcoin, which is why your "1 Bitcoin is still worth 1 Bitcoin" line is meaningless. We don't care about the value of anything as measured by itself. We only care about the value as measured by other things - that is, the purchasing power. Well, the purchasing power of Bitcoin tanked over the last year.
(We don't care about the absolute number of the thing, either, so your "supply of dollars is increasing" argument is also irrelevant. Though I will give you that the increase in the supply of dollars faster than the supply of things for dollars to buy causes inflation.)
(We don't care about the absolute number of the thing, either, so your "supply of dollars is increasing" argument is also irrelevant. Though I will give you that the increase in the supply of dollars faster than the supply of things for dollars to buy causes inflation.)
> We only care about the value as measured by other things - that is, the purchasing power.
You just contradicted yourself, then.
> Well, the purchasing power of Bitcoin tanked over the last year.
It didn't. The purchasing power relative to other currencies did. If your goal is to just use Bitcoin as a way to make more dollars, then sure, you lost something. If your goal (like my own) is to store your wealth in a way that can't be manipulated or confiscated, then you didn't lose any purchasing power.
It's an abstract argument and I understand exactly the point you're making, but ultimately, Bitcoin's inherent value is unchanged (1 Bitcoin = 100,000,000 Satoshi).
You just contradicted yourself, then.
> Well, the purchasing power of Bitcoin tanked over the last year.
It didn't. The purchasing power relative to other currencies did. If your goal is to just use Bitcoin as a way to make more dollars, then sure, you lost something. If your goal (like my own) is to store your wealth in a way that can't be manipulated or confiscated, then you didn't lose any purchasing power.
It's an abstract argument and I understand exactly the point you're making, but ultimately, Bitcoin's inherent value is unchanged (1 Bitcoin = 100,000,000 Satoshi).
Well the big loser in this will be any other country with their own currency as this will only draw more money into US treasuries.
The FED DOT plot shows projected rates of 5.1%( median forecast) so we may be near the end of rate hikes. So expect atleast another 0.25bps to 50bps raise early next year.
Though 2024 and 2025 both show 100bps cuts which is up slightly from the previous report.
interestingly there is both a market sell of and treasury sellof, the former we'd expect, the later has pushed up yields up 5bps, which is material for Treasuries.
Unemployment forecast for End of year employment moved up only slightly from 4.4% to 4.6%.
And the side by side comparison of the FED notes, which seems to be all the rage these days, shows very little change from their prior release which indicates we shouldn't expect any surprises from the FED next meeting, from Renaissance Macro
The FED DOT plot shows projected rates of 5.1%( median forecast) so we may be near the end of rate hikes. So expect atleast another 0.25bps to 50bps raise early next year.
Though 2024 and 2025 both show 100bps cuts which is up slightly from the previous report.
interestingly there is both a market sell of and treasury sellof, the former we'd expect, the later has pushed up yields up 5bps, which is material for Treasuries.
Unemployment forecast for End of year employment moved up only slightly from 4.4% to 4.6%.
And the side by side comparison of the FED notes, which seems to be all the rage these days, shows very little change from their prior release which indicates we shouldn't expect any surprises from the FED next meeting, from Renaissance Macro
Keeping in mind increasing rates isn't the only way the fed can tighten the screw. I am always surprised how little attention is given in non financial newspapers to the movements in the fed balance sheet [1]. Even if rates remain stable, if the Fed keeps draining QE, it will apply a strong downward pressure on markets.
[1] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
[1] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
> how little attention is given in non financial newspapers to the movements in the fed balance sheet
The rate is the nail, the balance sheet the hammer.
Balance sheet movement informs professionals of the trades the Fed is placing to reach its target. For most people, who aren't looking at financial markets but instead the real economy, the rate per se is enough.
The rate is the nail, the balance sheet the hammer.
Balance sheet movement informs professionals of the trades the Fed is placing to reach its target. For most people, who aren't looking at financial markets but instead the real economy, the rate per se is enough.
No it's not. The movements you see in chart I linked have little to do with rates. It is the fed injecting or draining liquidity in/out of the system to push asset prices up and force risky investments, or do the reverse. The fed will likely keep draining its balance sheet after interest rates have stabilised.
> movements you see in chart I linked have little to do with rates
Buying and selling assets is the main way the Fed enforces its monetary policy [1].
> injecting or draining liquidity in/out of the system to push asset prices up and force risky investments, or do the reverse
Buying bonds pushes their price up which lowers rates; selling bonds pushes their price down which raises rates [2].
> fed will likely keep draining its balance sheet after interest rates have stabilised
This is correct [3]. The Fed's balance sheet is roughly double what it is optimally estimated to be [4].
[1] https://www.federalreserve.gov/monetarypolicy/fomc.htm
[2] https://www.investopedia.com/ask/answers/why-interest-rates-...
[3] https://advisors.vanguard.com/insights/article/thefedsplanto...
[4] https://fred.stlouisfed.org/series/WALCL
Buying and selling assets is the main way the Fed enforces its monetary policy [1].
> injecting or draining liquidity in/out of the system to push asset prices up and force risky investments, or do the reverse
Buying bonds pushes their price up which lowers rates; selling bonds pushes their price down which raises rates [2].
> fed will likely keep draining its balance sheet after interest rates have stabilised
This is correct [3]. The Fed's balance sheet is roughly double what it is optimally estimated to be [4].
[1] https://www.federalreserve.gov/monetarypolicy/fomc.htm
[2] https://www.investopedia.com/ask/answers/why-interest-rates-...
[3] https://advisors.vanguard.com/insights/article/thefedsplanto...
[4] https://fred.stlouisfed.org/series/WALCL
> Buying and selling assets is the main way the Fed enforces its monetary policy
> Buying bonds pushes their price up which lowers rates; selling bonds pushes their price down which raises rates
I know. But you seem to think this is the only purpose and only effect. If it was the case the rates would have gone deeply negative while the Fed kept printing QE for 15 years. But they didn't, rates stayed around zero during that time.
[edit] And by the way, the Fed doesn't control rates by buying and selling ABS and treasuries (except for a short time for operation twist). ABS and treasuries are the bulk of the Fed balance sheet. The Fed controls rates by intervening in money markets (short term funding between banks).
> Buying bonds pushes their price up which lowers rates; selling bonds pushes their price down which raises rates
I know. But you seem to think this is the only purpose and only effect. If it was the case the rates would have gone deeply negative while the Fed kept printing QE for 15 years. But they didn't, rates stayed around zero during that time.
[edit] And by the way, the Fed doesn't control rates by buying and selling ABS and treasuries (except for a short time for operation twist). ABS and treasuries are the bulk of the Fed balance sheet. The Fed controls rates by intervening in money markets (short term funding between banks).
> you seem to think this is the only purpose and only effect
Nobody said that. You said the Fed's balance sheet "movements...have little to do with rates." That's false. That's the main reason it buys and sells. That there are also other motivations and effects is not a counterargument.
> rates would have gone deeply negative while the Fed kept printing QE for 15 years
Why? Rates went down and were held down. Selling a dollar of bonds doesn't lock rates to a specific level, it directionally nudges them.
> Fed doesn't control rates by buying and selling ABS and treasuries
Agreed—mortgages are different. Those were bought to pursue market stability, not purely monetary, goals. Treasuries, on the other hand, are absolutely a credit-channel monetary intervention, albeit on the tail [1].
> Fed controls rates by intervening in money markets (short term funding between banks)
Yes, those interventions are it buying and selling securities [2]. If banks have cash from sold assets, they don't need to borrow as much and can more freely lend (and vice versa).
[1] https://www.cfr.org/blog/how-fed-bond-binge-predictably-stok...
[2] https://www.federalreserve.gov/aboutthefed/files/the-fed-exp...
Nobody said that. You said the Fed's balance sheet "movements...have little to do with rates." That's false. That's the main reason it buys and sells. That there are also other motivations and effects is not a counterargument.
> rates would have gone deeply negative while the Fed kept printing QE for 15 years
Why? Rates went down and were held down. Selling a dollar of bonds doesn't lock rates to a specific level, it directionally nudges them.
> Fed doesn't control rates by buying and selling ABS and treasuries
Agreed—mortgages are different. Those were bought to pursue market stability, not purely monetary, goals. Treasuries, on the other hand, are absolutely a credit-channel monetary intervention, albeit on the tail [1].
> Fed controls rates by intervening in money markets (short term funding between banks)
Yes, those interventions are it buying and selling securities [2]. If banks have cash from sold assets, they don't need to borrow as much and can more freely lend (and vice versa).
[1] https://www.cfr.org/blog/how-fed-bond-binge-predictably-stok...
[2] https://www.federalreserve.gov/aboutthefed/files/the-fed-exp...
Fully agree, and to be honest I didn't have that on my quick checklist for FED reporting. Appreciate the response!!
> Well the big loser in this will be any other country with their own currency as this will only draw more money into US treasuries.
Meanwhile the dollar is down to 0.94 euro from 1.04 just 2.5 months ago.
Meanwhile the dollar is down to 0.94 euro from 1.04 just 2.5 months ago.
we may be near the end of rate hikes.
Did you hear Powell’s remarks? The labor market is still overly tight. And, we’re a long way from 2% inflation.
Did you hear Powell’s remarks? The labor market is still overly tight. And, we’re a long way from 2% inflation.
The paradox here for me is...isn't that fine? Having a tight labor market isn't per se bad. I don't buy that higher employment makes all prices higher by such a significant margin that we will see 8% YOY inflation as a result.
As with most thing, there is so much nuance that drives inflation. For instance, global supply chains are still disrupted or slowed across major industries. I think supply has way more to do with this, and "cutting demand" is like putting a band aid on a arterial wound. People are still going to bleed.
It feels like it puts the political & economic power back into business interest hands read more cynically, since the only gains labor has made in the last 2 years is due to said labor market tightening, even though labor is one of multiple factors in increased prices in the same period.
There's no "mix" policy here. I imagine some demand reduction is needed (if things are overheated like housing was in the past, for instance), but there is 0 acknowledgement that supply side issues will just simply continue to exist even when demand is lower because they still can't get raw material fast enough, and nobody is really doing anything about it.
As with most thing, there is so much nuance that drives inflation. For instance, global supply chains are still disrupted or slowed across major industries. I think supply has way more to do with this, and "cutting demand" is like putting a band aid on a arterial wound. People are still going to bleed.
It feels like it puts the political & economic power back into business interest hands read more cynically, since the only gains labor has made in the last 2 years is due to said labor market tightening, even though labor is one of multiple factors in increased prices in the same period.
There's no "mix" policy here. I imagine some demand reduction is needed (if things are overheated like housing was in the past, for instance), but there is 0 acknowledgement that supply side issues will just simply continue to exist even when demand is lower because they still can't get raw material fast enough, and nobody is really doing anything about it.
> a tight labor market isn't per se bad
Everyone agrees on this. But the tight labor market doesn't exist per se. It exists with raging inflation. That turns the labor market's tightness into a policy enhancer for the Fed, since it has more room to maneuver.
Everyone agrees on this. But the tight labor market doesn't exist per se. It exists with raging inflation. That turns the labor market's tightness into a policy enhancer for the Fed, since it has more room to maneuver.
The last four months have had a combined annualized CPI-U of 3%. Not too far from 2%.
[deleted]
So far so good. Inflation is slowing down.
Energy is still very fickle. Locally ive had 30-40 cent price swing both ways over 7-8 days. Diesel is still in the shitter. We simply cant produce more. And all it will take this winter is some good storms and i think energy will crank back up. Nit just energy though (thats where most of the drop has come from) most supply chains are still barely functional. Its just all still a giant mess
Fed can’t print refining capacity or EVs unfortunately. Demand destruction is a blunt force tool.
Tangentially, "Green Banks" are popping up from the inflation reduction act, which will improve the targeting of economic policy in this regard (cheaper money for clean energy, storage, energy efficiency, electric mobility).
https://reasonstobecheerful.world/green-banks-are-turning-cl...
https://www.epa.gov/inflation-reduction-act/greenhouse-gas-r...
Tangentially, "Green Banks" are popping up from the inflation reduction act, which will improve the targeting of economic policy in this regard (cheaper money for clean energy, storage, energy efficiency, electric mobility).
https://reasonstobecheerful.world/green-banks-are-turning-cl...
https://www.epa.gov/inflation-reduction-act/greenhouse-gas-r...
The amount of diesel used for entertainment in the US is shocking considering how vital it is to the economy.
>diesel used for entertainment
As in?
As in?
Presumably non-commercial vehicles and non-commercial boats; the quantity used may be large but as a percentage of commercial, industrial, and heating it's fairly small.
[deleted]
Im guessing large bands on tour with tour busses and trucks for the equipment? Look at how large of a show the recent Rammstein concerts were.
All I can think of is the semi trucks carrying not just entertainment, but all manner of physical products needed by almost every industry.
Maybe Vin?
The Fed generally reacts to core (i.e. without energy and food) inflation. You really can't count on monetary policy to help you with energy costs; buy an EV and/or a heat pump.
Nah, it's been teeter tottering around 6% for the last 12 months. Maybe it'll continue to trend down, but we could've said that in April based on the same belief, and we would've been wrong. Disregarding the last year, we haven't seen our current level of inflation for forty years. We are by no means out of the woods yet.
The balance sheet is trending down, but we're only where we were a year ago, so still up ~5 trillion from pre-covid levels.
The balance sheet is trending down, but we're only where we were a year ago, so still up ~5 trillion from pre-covid levels.
But if you look at the past 3 months, it's sub-3.0% annualized. Overall CPI-U was 0.4%, 0.4%, and 0.1% for the past three months, with some sectors seeing price declines.
When you look at the various lens of CPI over time for this chart [0] it's not completely obvious to me that we're in a long term downward trend for inflation.
We've definitely seen some important dips in inflation the last two months, and I think the fed is correct in not being too aggressive.
At the same time it's really hard to predict the next point in any of those lines. Additionally all of those "lower" inflation values are still above anything (outside of energy) we've seen in 20 years. Not to mention that inflation this November, while lower than this October, is still higher than last November.
0. https://www.bls.gov/charts/consumer-price-index/consumer-pri...
We've definitely seen some important dips in inflation the last two months, and I think the fed is correct in not being too aggressive.
At the same time it's really hard to predict the next point in any of those lines. Additionally all of those "lower" inflation values are still above anything (outside of energy) we've seen in 20 years. Not to mention that inflation this November, while lower than this October, is still higher than last November.
0. https://www.bls.gov/charts/consumer-price-index/consumer-pri...
What do you mean by long term?1 year or 10?
If you watch CNBC most CEOs are saying that the price pressures have been abating over the last quarter or so.
The take away is that we’ve peaked. Getting down to 2% is going to take time and pain.
If you watch CNBC most CEOs are saying that the price pressures have been abating over the last quarter or so.
The take away is that we’ve peaked. Getting down to 2% is going to take time and pain.
Are these cash rich businesses that the CEOs are head of that will benefit from the inflation curbing measures though? Lots of cash on hand while the value of the currency goes up means you can buy overseas material far cheaper than before.
I don't think its going to be "even" on price pressure though. Businesses that routinely borrow money - which are alot actually, and not just in speculative ways - are of course going to be hurt. The most obvious is real estate / mortgage / construction industries . However the restaurant, automotive, and light manufacturing[0] industries (to name a few) are also going to be negatively impacted.
[0]: https://en.wikipedia.org/wiki/Light_industry
I don't think its going to be "even" on price pressure though. Businesses that routinely borrow money - which are alot actually, and not just in speculative ways - are of course going to be hurt. The most obvious is real estate / mortgage / construction industries . However the restaurant, automotive, and light manufacturing[0] industries (to name a few) are also going to be negatively impacted.
[0]: https://en.wikipedia.org/wiki/Light_industry
I don't think we are out of the woods yet. China reopening could put upwards pressure on energy markets that are already supply constrained.
We're going to need a year of price stability before confidence comes back. It probably will not take much to get prices going up again.
How much of confidence is tied to inflation and how much is tied to talk of inflation?
Albeit only to the extent where it could be holding even or even slightly growing, but the noise in the data happened to be high before and lower now. If you look back over other periods of inflation growth, they have periods like this in them; nothing goes straight up or straight down.
I'd be much less likely to say something like this if it was down by 1 or 2% or something.
However, it is also compatible with the Fed slowly getting it under control, and slowly under control is better in a lot of ways that quickly getting it under control.
Basically, the numbers we have now don't mean a lot, except that extreme things aren't happening.
I'd be much less likely to say something like this if it was down by 1 or 2% or something.
However, it is also compatible with the Fed slowly getting it under control, and slowly under control is better in a lot of ways that quickly getting it under control.
Basically, the numbers we have now don't mean a lot, except that extreme things aren't happening.
Remember, we've now inflated 30+% (wholesale goods) since April 2020 and even if it stabilized 100% right now, the results of that inflation are going to haunt the system for a long time.
We also just exited a decade of extraordinarily low inflation. Cumulative inflation over the past decade for the CPI-U "all items, all regions" is 31% since 2012 (228 -> 298). Which is basically 3% annualized, or "normal".
Inflation is an increase in the general price of goods and services in an economy. Ask yourself what is currently driving price increases?
In my estimation it's the Fed's own rate hikes. The price of mortgages is going up. The price of car loans is high. The production of consumer goods relies on leverage and the increased finance expenses are pushing up the price of milk, gas, clothes, etc.
Of course the rate of inflation is slowing, the Fed is slowing their hikes from the previously imposed a .75 raise to the present .5 hike.
In my estimation it's the Fed's own rate hikes. The price of mortgages is going up. The price of car loans is high. The production of consumer goods relies on leverage and the increased finance expenses are pushing up the price of milk, gas, clothes, etc.
Of course the rate of inflation is slowing, the Fed is slowing their hikes from the previously imposed a .75 raise to the present .5 hike.
>> Ask yourself what is currently driving price increases?
It's good to remind people that the reason for inflation up to this point is probably: - The US government spending a huge deficit during covid. - The war in Ukraine causing shortages / high prices for grain but most importantly oil and gas. - Covid lockdowns in China creating shortages.
I understand that inflation sucks, particularly for people where gas or food is a big part of their spending. But I am also amazed at how our economy seems to be enduring a world wide pandemic and major war. There are many times in history when shocks like this caused much worse problems. As an American I am proud of how resilient our institutions are.
But I could be counting my chickens before they hatch.
It's good to remind people that the reason for inflation up to this point is probably: - The US government spending a huge deficit during covid. - The war in Ukraine causing shortages / high prices for grain but most importantly oil and gas. - Covid lockdowns in China creating shortages.
I understand that inflation sucks, particularly for people where gas or food is a big part of their spending. But I am also amazed at how our economy seems to be enduring a world wide pandemic and major war. There are many times in history when shocks like this caused much worse problems. As an American I am proud of how resilient our institutions are.
But I could be counting my chickens before they hatch.
Mortgage rates and interest rates on car loans aren't factored into the CPI.
Hmmm..the yield curve is so inverted. The bond market is behaving as if it's not expecting interest rates or inflation to remain as high 5+ years down the road. 10 year yields crashed like a rock even though < 1-year is being pulled up.
Which is a prediction of... a recession.
Feels like a rate hike doesn't cause as much pain relative to the elation that occurs with a rate cut.
If rates move up to 5+ or 6 percent, and then move back down to 4 or 3, the market will explode up.
Not saying that will happen, it's just interesting.
If rates move up to 5+ or 6 percent, and then move back down to 4 or 3, the market will explode up.
Not saying that will happen, it's just interesting.
> a rate hike doesn't cause as much pain relative to the elation that occurs with a rate cut
Expectations and state dependence [1] are important in linking rate changes to the stock market.
[1] https://www.gla.ac.uk/media/Media_240525_smxx.pdf
Expectations and state dependence [1] are important in linking rate changes to the stock market.
[1] https://www.gla.ac.uk/media/Media_240525_smxx.pdf
It sure hurts me. My student loans are pegged to the federal interest rates. I went from like 4% to as of today nearly 10%
Something to note is that Federal student loans are paused. I've wondered if the government can resume requiring payments without causing a massive recession.
If you’ve been setting aside what you would have paid while the interest was frozen, you could have a decent little pile that should insulate you for a while. I have friends who said the pause is approaching a point where it’s more valuable to them than the cancellation at this point.
I’m not saying that’s definitely the case for you, and I’m guessing you’ve already thought about this, but figured I would throw it out there. Sorry you have to stress about this.
I’m not saying that’s definitely the case for you, and I’m guessing you’ve already thought about this, but figured I would throw it out there. Sorry you have to stress about this.
> I have friends who said the pause is approaching a point where it’s more valuable to them than the cancellation at this point.
How is this possible?
How is this possible?
Anyone who was on a repayment plan that cancelled the loans after a certain period (PSLF: https://studentaid.gov/manage-loans/forgiveness-cancellation... ) has had the clock ticking even as they've paid nothing during that time; each payment "skipped" is money in the bank.
And that doesn't count the people who have paid no interest during the period, the interest amount is gone forever for that time; which could quickly overstep the $10k "forgiveness" that is being talked about.
And that doesn't count the people who have paid no interest during the period, the interest amount is gone forever for that time; which could quickly overstep the $10k "forgiveness" that is being talked about.
Student loan forgiveness is limited to $10k.
Turning off the interest for a few years has no upper bound as to how much it can benefit someone. Someone with large principal amounts can easily see more than $10k of benefit.
Turning off the interest for a few years has no upper bound as to how much it can benefit someone. Someone with large principal amounts can easily see more than $10k of benefit.
The money saved on not having to pay interest is not inconsequential and they’ll never have to pay those months. That’s money that never would’ve helped with the loan.
I guess if it’s simply paused forever instead of forgiven you don’t have to pay tax on the forgiven amount?
If the amount of accrued interest that's been avoided by the pause is greater than 10k, I presume.
I get that, of course, but the only paused/forgivable loans were subsidized, which have known and non-predatory interest rates... so that means they accrued hundreds of thousands in student loan debt... my question remains "how?!"
I always figured the "x00K in student debt" stories were people who took out a lot of non-subsidized loans and let interest accrue for years.
I always figured the "x00K in student debt" stories were people who took out a lot of non-subsidized loans and let interest accrue for years.
Can you get those loans for grad school/dental school cause my girlfriends dental schooling was over 100k a year so easy peasy if so.
Same with my HELOC.
I've watched my Savings Account APY go from 0.4% last year to 3% - before this latest hike. Still pretty bad compared to inflation.
On the other hand, is it just me, or is the Fed really addressing a symptom and not the cause? Sure, inflation will be finally squelched, but the housing market will be on life support because of the absurd rates, coupled with already absurd prices even if the increases have ceased. Fix that, and inflation will come roaring back...?
On the other hand, is it just me, or is the Fed really addressing a symptom and not the cause? Sure, inflation will be finally squelched, but the housing market will be on life support because of the absurd rates, coupled with already absurd prices even if the increases have ceased. Fix that, and inflation will come roaring back...?
> but the housing market will be on life support because of the absurd rates.
The housing market should have been taken out back and shot decades ago. There's no universe in which a dwelling in a proper city[1] can cost a million dollars, while median wages are in the 50-60k range, and low-class wages are 35-40k.
You can't have housing be affordable to normal people and also be a profitable investment. One of these has to give.
[1] Houses in third-tier and fourth-tier cities (medium income closer to 30k) - the kind of places that everyone with means wants to get the hell out of - are going for 300k+.
The housing market should have been taken out back and shot decades ago. There's no universe in which a dwelling in a proper city[1] can cost a million dollars, while median wages are in the 50-60k range, and low-class wages are 35-40k.
You can't have housing be affordable to normal people and also be a profitable investment. One of these has to give.
[1] Houses in third-tier and fourth-tier cities (medium income closer to 30k) - the kind of places that everyone with means wants to get the hell out of - are going for 300k+.
It can exist so long as the middle class still have wealth to plunder, which is the real point of financializing housing. These distortions will be maintained so long as they serve that purpose. With millennials and later generations being largely unable to build wealth the middle class is on its way to being tapped out.
It's going to be painful, it's just expected pain.
Rates will stay up until the reaction to a cut would be non-plussed dismay.
It is all about expectations. THs is why CPI is so important.
Fun trivia: a basis point is 0.01%. So 50 basis point is half a percent (0.50%).
I wouldn’t call that trivia, as it is central to understanding what actually happened :)
Trivia would be: “The basis point is named after Theodorus Basis, the grand-nephew of the first chairman of the Federal Reserve Bank.”
Trivia would be: “The basis point is named after Theodorus Basis, the grand-nephew of the first chairman of the Federal Reserve Bank.”
Another fun trivia: a less frequently used name for 0.01% is a permyriad[1].
[1] https://en.wikipedia.org/wiki/Basis_point#Permyriad
[1] https://en.wikipedia.org/wiki/Basis_point#Permyriad
Well you see now you've made it ambiguous. Basis points are unambiguously absolute points. But if you say half a percent increase you could mean 50 basis points or you could mean the the new value is 1.005x the old value.
How does that relate to their statement:
"the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent."
That looks like a 1/4 percent raise, but then the language is weird to me (_to_ 4-1/4 to 4-1/2 percent", wouldn't one say from 4-1/4 to 4-1/2 percent)
"the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent."
That looks like a 1/4 percent raise, but then the language is weird to me (_to_ 4-1/4 to 4-1/2 percent", wouldn't one say from 4-1/4 to 4-1/2 percent)
The key phrase here is "target range"---it's not an exact number, but a range.
The previous statement[1] was .50% lower on both ends of the range:
> the Committee decided to raise the target range for the federal funds rate to 3-3/4 to 4 percent
[1] https://www.federalreserve.gov/newsevents/pressreleases/mone...
The previous statement[1] was .50% lower on both ends of the range:
> the Committee decided to raise the target range for the federal funds rate to 3-3/4 to 4 percent
[1] https://www.federalreserve.gov/newsevents/pressreleases/mone...
Which Federal Reserve symbol/instrument corresponds to the 4.25 -> 4.5 rate increase in https://fred.stlouisfed.org/release/tables?rid=18&eid=289&od... ? Is it https://fred.stlouisfed.org/series/DCPF1M ?
I don’t think Powell needs to imitate Volcker here. Corporate, Household, and state debt levels are so much higher today than in the late 70’s / early 80’s that economic activity will falter with far less than double digit interest rates, causing inflation to fall quickly.
Lesser men make-believe playing Volcker.
Sure, he can raise interest rates all he wants.
Until the US Treasury implodes, unable to pay interest on their existing debts.
Of course, the Fed can monetize new debt directly to allow the US Treasury to fund government liabilities - not neutralizing the created money from creating more inflation.
You can’t pretend that a sick or dead body is living, until you take it off life-support.
No plan from these play-actors even hints at such a test…
Sure, he can raise interest rates all he wants.
Until the US Treasury implodes, unable to pay interest on their existing debts.
Of course, the Fed can monetize new debt directly to allow the US Treasury to fund government liabilities - not neutralizing the created money from creating more inflation.
You can’t pretend that a sick or dead body is living, until you take it off life-support.
No plan from these play-actors even hints at such a test…
What would you do if you were in their shoes?
Confront reality. Like an adult.
If someone has screwed up so catastrophically that they are confronting destruction, the sane thing isn't to pursue the same course with greater vigor.
I'm a programmer. I'm wrong dozens of times a day, 5-6 days a week, over the last 40 years.
By admitting it, and not making-believe that I'm some all-knowing genie and that "the computer must be wrong", I quickly humble myself, admit that I'm wrong and search for the root cause of the problem.
This will never happen, apparently, at the Federal Reserve, until it is too late for them to avoid massive destruction and death in our society.
If someone has screwed up so catastrophically that they are confronting destruction, the sane thing isn't to pursue the same course with greater vigor.
I'm a programmer. I'm wrong dozens of times a day, 5-6 days a week, over the last 40 years.
By admitting it, and not making-believe that I'm some all-knowing genie and that "the computer must be wrong", I quickly humble myself, admit that I'm wrong and search for the root cause of the problem.
This will never happen, apparently, at the Federal Reserve, until it is too late for them to avoid massive destruction and death in our society.
You understand that the market/economy isn't an unthinking unfeeling computer right? Admitting you were wrong doesn't change the underlying computer. This is a totally different situation. If you admitting there was a bug in your code made the computer less likely to work in the future or self destruct entirely you would likely have different behaviors
Ooooh I like this one. I would raise 25bp here, openly say that I expect a recession in 2023, and release a dot plot that doesn't have ANY rate cuts through 2025
The reasoning is that cyclically we are entering a recession, but there are structural reasons for inflation now, and that the era of hyper low interest rates is over.
Allow an audit.
What do you expect this to accomplish?
Transparency.
Which problem currently faced by Fed, US economy or US gov would this solve?
I don't know. But that's the point - we can only guess, but I'm sure there would be plenty of very interesting things found. You know how a lot of prominent people say that FED is a private entity, right?
https://www.federalreserve.gov/newsevents/speech/powell20220...
It ran a total of 8 or so minutes and mentioned Paul Volcker twice:
https://en.wikipedia.org/wiki/Paul_Volcker
This speech is a masterpiece of clarity and focus. It said: rates are going much, much higher than you think possible. So buckle up. It's rare to get such a clear signal from the Fed.
Volcker was the chair of the Fed during The Great Inflation of the 1970s and early 1980s. He's seen as a legend among those who favor responsible monetary policy because unlike his predecessors, he hiked and hiked and hiked. As the legend goes, he crushed US inflation, which lead the US out of the 70s inflationary quagmire to the prosperity of the 80s and 90s.
Not so widely known is that Volcker didn't just raise, he also cut rates in mid-1980 when CPI started to cool and the US fell into recession. After the rate cuts, inflation ripped higher. And Volcker's Fed responded by jacking rates to 19%. The result is the second recession just one year after the first.
Talk about a whipsaw. Not great for credibility.
Valid or not, the lesson policy makers learned is this: don't give inflation one inch or you'll regret it. The economy is far stronger than it appears and you'll be back raising rates far, far too soon.
This appears to be the play book Powell is drawing from now.
The good news is that what the Fed does matters very little. Through the great inflation, companies continued to borrow despite double-digit interest rates.
For all of 2022, bond markets have been screaming recession by causing multiple yield curve inversions. Inflation is headed lower, but it has nothing to do with the Fed and its irrelevant bank reserve manipulation schemes.
The bad news is that Volcker's rate hike blitz earned the deep respect of markets. Even though the Fed has very little direct control over the US dollar or the business cycle, the vast majority of market participants believe the Fed is in the driver's seat.
This is why backing down isn't an option. That credibility the Fed gained was hard won and no chair wants to risk being known as Arthur Burns.