Federal Reserve to increase interest rates by 75 basis points for the third time
federalreserve.gov
federalreserve.gov
The bubble can clearly be seen by the disassociation of valuations from the underlying value, which for many new companies is nothing.
Most of these unicorns simply can't turn a profit with their current cost structures. And even if they do, the profits will be so small that the valuations will simply not be justifiable.
If you look at discounted future cashflow, a startup as an investment opportunity is much more influenced by the interest rate than an established company because a larger % of the value is coming from money farther in the future.
Basically 20% of net present value of Microsoft comes from the money it'll make next year and 5% from the money it'll generate 5 yrs from now.
But a startup is the opposite where 0% of the value of the startup comes from the profit it'll make next year, and 20% from the profit it'll make in 5.
And when interest rates change it reduces the present value of the profits in 5 years by far more than it reduces the profits next year. Reducing the value of the startup relative to Microsoft, reducing the startups ability to get funded more than Microsofts.
So for 99% of startups (who don't raise venture capital anyway) there is no difference. But for Microsoft there is a huge difference, which is why the big tech companies are doing layoffs. Whereas we're not seeing many Indiehackers posts about people working out of their parents' basements who are laying themselves off.
The moment the economy tightens up, suddenly the venture funds have less money.
I'm not sure what's causal in it all, but from the outside it certainly looks like that's what happens.
It's not that they have less money, it's just that when 1yr treasuries are paying over 4%, the returns in risk-adjusted investments need to either return a lot more or die.
This is happening to me right now with my parents not being able to help as much with my kids' college tuition.
The hope is that everyone is going to march in line and not go out asking for raises due to inflation; so that we end up with "hyper-inflation" before the supply chain system stabilizes, maybe the Russo-Ukraine conflict sees some light, and the U.S. Treasury can decide they can't sustain this any longer.
Thus, we are praying for all these pieces to kinda fall into place, so we don't end up with hyper-inflation, recession and interest rates going down all at the same time.
P.S. You can follow the target to actual rates here https://www.newyorkfed.org/markets/desk-operations/reverse-r...
Click All to see the difference in scale we are talking about to the past. 2 Trillions are parked to the Fed by banks, accumulating the new high interest, waiting for a signal to be re-enter.
Only the parts involving housing, education, transportation, employment, and investments.
1) Federal loans do not have limits on amount.
2) Loans are non-discharged (you can't shed them in bankruptcy).
3) There is no intensive for schools to charge less. (schools likely should have skin in the game if borrowers end up shedding debt through time expiration or bankruptcy).
4) Loans or the amount of the loans are not weighted at all by the future prospects of the person.
I have other issues with college today. They weren't originally set up for getting people trained for work, but many people now look at them as a form of trade school. But many of the majors available aren't actually job training in any fashion. Most people would be better served by trade schools or apprenticeship, but the US hasn't figured out how to do this well yet. This is more of a cultural problem, that I hope employers can figure out. Coding bootcamps seem to be an answer for the software industry, but we need to push more people that way, rather than college.
Most people would be better served by trade schools or apprenticeship, but the US hasn't figured out how to do this well yet.
This may apply to college dropouts, but college still pays way more than trades, and also trades work req. a lot of training and time and you have to join a guild.
Coding bootcamps seem to be an answer for the software industry
Except that bootcamp grads tend to be woefully deficient in skills and also have a hard time finding jobs, also bootcamps can be very expensive and inflate their success metrics. I am not saying that college is the answer, but it's not bootcamps.
This is false.
> Loans are non-discharged (you can't shed them in bankruptcy).
They’re also not collaterized. As a taxpayer, I’d be very much against a non-collaterized loan that anyone can get without much care for credit risk, that’s dischargeable in bankruptcy. In private sector, dischargeable debt with no collateral, like credit card debt, has 20%+ rates for people with low credit scores.
> 3) There is no intensive for schools to charge less. (schools likely should have skin in the game if borrowers end up shedding debt through time expiration or bankruptcy).
If debt is held by federal government, the students defaulting will not be much of an incentive to the school.
> Loans or the amount of the loans are not weighted at all by the future prospects of the person
Indeed. The most recent loan forgiveness plan is basically mechanical engineers subsidizing drama majors.
Employers including technology companies used to provide training and apprenticeships but purposely shifted their job training costs on to job seekers and the education system. You are in effect looking to those that are largely responsible for the current situation to provide the solution.
AFAIU, both historically and today, most apprenticeships are managed by unions through programs funded (in part) by union-contracting companies. This benefited companies as they didn't have to maintain apprentice programs themselves; and it benefited unions and especially apprentices as apprenticeships weren't tied to any specific company, providing some (albeit limited) employment mobility from the outset.
As unions have receded, so to have these programs, or at least the visibility of these programs.
Not a monetary expert here, but do we? Japan has been at zero/near zero since the mid 90s.
I only know the major bullet points though, and I haven't found this terribly easy to parse myself. I'm also quite confident that stagnation in the US would manifest differently (not that it must but that it would) so this is really just overall curiosity.
[0]https://www.oecdbetterlifeindex.org/countries/japan/ [1]https://www.oecdbetterlifeindex.org/countries/united-states/
That's a pretty ungenerous response when I was asking in good faith to understand, even expressing my own ignorance. I only know people that hold dual citizenship, and their experience of Japan certainly isn't some big step down from the US.
However, the world isn't equal, nor is the wealth equally distributed. If all of the rich, developed world was to slow down and become stagnant like Japan, where will the demand for goods and commodities made by the developing world come from?
Huge western demand helped lift hundreds of millions in China and India out of poverty, for instance.
Stagnant growth might be good for an individual country, but it can doom developing countries to similar stagnancy.
Estimating the neutral interest rate, i.e. "the real (net of inflation) interest rate that supports the economy at full employment/maximum output while keeping inflation constant" [1], is closer to art than science. It's almost certainly not a simple historical average, particularly not in a dynamic economy.
The Fed does not need to skew the market for money by conducting QE or QT, or manipulating short term rates.
I'm not a "no-Fed"-type of guy. The Fed is great at a lot of things. Their research arm is top-notch. They regulate and oversee banks. They are the bank of the commercial banks; in particular they are a lender of last resort for them. Also they can be a lender of last resort for US dollars for other central banks, and for the World Bank and the IMF. They can monitor and interdict financial crime. There are lots of things to do.
Stimulating the economy should not be their business.
Basically, ridiculous startups and ridiculous corporate projects get funding when they shouldn't.
Fractional reserve banking (which, by definition, the Fed is) creates money. If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money.
> If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money
Money is created and destroyed all the time.
But under your argument, then the Fed doesn’t technically create money either. It lends money like any other bank. Now this money is created out of thin air, but in theory it’s eventually repaid.
Only the Fed can create money out of nowhere. They can create endless dollars and owe nothing, diluting the currency permanently. Inflation and other metrics keep them in check. The common sense is actually right, not the overly technical explanation of lending that somehow concludes that the Fed isn't special.
> in theory it’s eventually repaid
It doesn't have to be, and it hasn't been. M2 has generally just gone up.
While you are right about fractional reserve creating money, this example is a common misconception. When you deposit $1000, the bank assumes a reserve of $1000 and lends out $9000. This, is assuming the bank has enough reserves on hand. And reserves for the bank is either central bank money (given by fed) or treasury bonds (bought from your $1000 deposit) or MBS (bought from your deposit).
The bank might turn around and borrow from the Fed and use the deposits as reserves, but that has more to do with rates markets and nothing to do with FRB.
Why resource-constrained? It's money, not something with utility. In any expanding economy, you generally get more buying power spending later rather than now, regardless of changes in money supply. Only if the currency is being diluted too much, you have to park your savings in something scarce instead, like land or low-risk stocks. It's not all that different from just using a fixed supply of currency (I'm not counting lending as creating money; it's not the same thing).
You're both right? I suspect that means there must be a third option.
Edit: @Analemma That's just the extreme end of the scale. 30yr fixed mortgage rates were above 10% during all the 1980s[♤]. I'd like to see a return to that.
[1]: https://advisor.visualcapitalist.com/wp-content/uploads/2020...
We are at the moment in time when we can make the most out of “thin air”. It makes no sense that the rate is effectively zero.
Rates are a shitty stimulative tool. Here's Bernanke in 2012:
https://www.theatlantic.com/business/archive/2012/12/ben-ber...
Low rates help people with money borrow more cheaply, accrue more wealth, and kick bankruptcy cans down the road indefinitely. It also royally screws over your average saver and pension fund who's forced to take on more and more risk for any sort of meaningful return.
It's not just fiscal stimulus but "how" the stimulus was applied.
It's not like the government isn't spending enough. It is spending. Until recently, all the spending went on tax credits and military.
What we need is fiscal stimulus in industries of the future. Only the current administration gets it and made it happen with the recent bill to support new energy transition.
We need more fiscal stimulus in cheap production of pills, medical practitioners, hospitals, daycare services and housing. Literally just give incentives to produce more units of these.
Of course, if this mattered, people would have already installed window blinds, which are cheap and easy. External eyebrows and eaves also work. "Smart" glass is an expensive solution, it's been around for 25 years, and nobody wants it.
"Among the Inflation Reduction Act's little-noticed yet potentially game-changing provisions: a big incentive for "smart glass," which can make buildings significantly more energy efficient."
Unless there's a downside that I'm not aware of, that seems like a reasonable thing to do?
I've seen smart glass demoed at a home show 25 years ago. I thought it was way cool, until they quoted the price. It's no surprise it hasn't gotten any traction since. Oh, it also consumed electric power when in dark mode, as much as a light bulb. It's not a passive system.
Window blinds, louvers, eyebrows, shades, etc., all work fine and are cheap.
BTW, when I lived in Phoenix in the 1970s, people would tape aluminum foil or newspapers on the windows to cut the heat intake. The newspapers would block most of the solar heat, but would let the light through.
Here in Seattle I made some reflective panels I can just stick on the windows when we have a heat wave. Plenty of light still gets in.
Technological progress is the secret to price reduction. No government interaction required or even wanted, it's usually much more likely to create problems...
That's generally true, but there are exceptions. Solar panels are very cheap now because of decades of government subsidies. Battery electric vehicles are still more expensive than their regular counterparts, but certainly one day they'll be cheaper (they have many more fewer moving parts). But would they have caught on without government subsidies?
Same amazing price reductions with li-ion batteries which are used in every mobile device. EVs? Who knows - but since the government is subsidizing gas prices, that market is already corrupted beyond salvation.
Governmental subsidies managed to skew demand and create market aberrations like the rainy Germany covered in solar panels while their nuclear sector was being closed.
Your industries of the future won't operate well if the basics aren't kept up.
The federal government is an extremely poor resource allocator. It knows nothing about local and personal wants and needs. In my view, funding should be dolled out to individuals and maybe local governments. That way money flows from the bottom up, not top down.
The money flow is an extremely important factor: when money flows to individuals, each individual gains "votes" to allocate resources. Those votes informs how and where the economy grows at a granular level. The federal government cannot do this with any level of precision or efficiency.
If higher levels of government need money to do things, they should tax for--this includes some portion of the transfer payments. I know it sounds redundant for the government to tax money they've handed out, but I think governments need to feel the pain of working to get the money in the first place.
I'm also convinced you would dramatically reduce the amount of fraud and favoritism that occurs since decision making will end up being decentralized.
Here's a "hot take" example. The federal government funding child care is a dumb idea.
1) Not everyone needs child care.
2) Not everyone needs child care in the way the federal government wants to provide it.
3) An entire bureaucratic apparatus needs to be developed to define what child care is, what constitutes valid child care, who can provide child care, blah, blah, blah. This will be expensive to manage and will metasticize in its own way over time.
So why not just give people money to people who have young children to do whatever they want to do with it?
Maybe you add some provisions to prevent people from making babies to cash in checks, but I'm assuming writ large I can trust my fellow citizen to make better decisions about their child care than whatever "governmental apparatus" we want to create to do that for them.
Well intentioned thoughts like these are a good default for the government running in cruise control - when there is no financial volatility. A stimulus is only required during a recession. In each recession, we have only allowed the Fed to print more money, which hasn't turned out well. Instead of printing this money and raising asset prices, during each recession, fiscal policy should help increase the supply of things direly in need. If a recession is causing food shortages, we don't want printed money to increase demand for food. We would do much better by literally subsidizing X units of food for the next 1 year.
In both cases you give money to food producers and in turn they increase production. The only difference is in your case the price signal is entirely lost.
For example, say we decide to subsidize corn. In theory, the government is taking money out of your pocket and giving it to the corn farmer who in turn gives corn to you a lower cost. So you're still effectively paying more for the same damn thing, the government just did it for you! Over time a massive bureaucracy and incentive structure will grow around corn farming and special interest groups will fight to the death to make sure corn subsidies never go away. Oh, wait, that's actually the world we live in.
Now imagine I give you cash for food--not specifically corn--you get to decide which food you spend it on. Say everyone can't get enough of corn. Sure, you're right, everyone will pay more for corn the difference is though we also see the price go up instead of the government hiding it. This price signal is very important. Once the price of corn gets too high for you, you will switch to some other food, and in turn different areas of the economy will be stimulated.
Food subsidies are exactly how you get big agriculture. Certain players know how to play the government game better and take advantage of it.
If I give everyone money, sure prices go up, but everyone has gained voting power against existing institutional players, and in my opinion, that is exactly how you get competition and growth.
Subsidizing production by incentivizing number of units is different from just creating demand and waiting for producers to match up.
By incentivizing number of units of production, say x% incentive for per 1000 bushels of corn AFTER 10k bushels, you are literally incentivizing production of food and suppressing prices. You are asking farmers to use as much land as possible to produce corn. This is assuming that there is a shortage of corn in the market. In this way, the market is flooded with cheap corn and prevents recession caused by corn. The benefit of this approach is that something useful actually got produced besides money.
By only creating demand, production is not guaranteed to ramp up. Many farmers will be happy to take more dollars for the same amount of corn, causing inflation, thus causing fed to raise rates, thus causing recession. The disadvantage of this is that nothing got produced except money.
This fiscal support should be timeboxed (say 1-year during a recession) to prvent the big ag monopolies you are talking about.
We don't even need to think in hypotheticals. Today, the biggest cause of inflation (and thus fed rate hikes and thus recession) is housing. There is some merit to raising rates and flattening demand. But the biggest solution would be to flood the market with supply of housing. Just incentivize builders to build 2 million units within a year with fiscal policy and bam, inflation is gone.
> Just incentivize builders to build 2 million units within a year with fiscal policy and bam, inflation is gone.
Why fiscal policy and not zoning laws or something? Why would giving money to developers lead to zero inflation?
The fiscal policy is meant to be a one-time, short term boost to the exact items that is causing CPI to go higher. The fiscal policy is meant to be timeboxed. A zoning law is a much more long term thing.
A problem has been kicked down the road for years, it was always going to blow up in our faces.
IMO, Powell wanted to keep raising rates in 2018, but was hamstrung by Mnuchin and Trump who wanted to keep rates low and the dollar weak. The mini market panic at the time did not help. The COVID meltdown is why we went back to zero. Now he has the perfect excuse to return back things to a normal economic mode.
If you want persistently higher long interest rates then you want persistently higher inflation expectations.
However, you can get "trapped" as I did if you bought near a high point, and then interest rates and prices dropped, and since I was now "underwater" I couldn't refinance, even though I was perfectly capable and did continue to pay on the original loan. Eventually the property appraised high enough to refinance again.
That's not the case for refinances after Jan 1, 2013.
There is no particular reason to believe rates will go down again. They might, they might not. Historically todays rates are around the normal low.
That said, if you have rent control locked in, the choice is likely easy.
This is very location-dependent. In some cities it is true, it some it isn't, in some it depends on the segment of the market.
People keep hoping or expecting this, yet prices keep going up. As long as wages for top earners keep rising, so will demand in expensive areas. Also, real estate did well in the 90s despite high interest rates, too.
So yes, I expect this rate hike to cause a big dump in house prices. In a few months or so I'll be right or wrong.
But it's also possible that it's priced in. It's been expected for the past 6 months the fed would raise rates a lot.
If you're on a fixed-rate 3% mortgage that loan is looking extremely valuable vs. the best rate you can get right now.
We won't see 2008 again but prices will be coming back down to earth from their pandemic rocket ride.
https://www.nar.realtor/blogs/economists-outlook/existing-ho...
Prices have plateau'd or gone down
https://www.statista.com/statistics/205937/us-mortgage-origi...
Which means people with 2% mortgage rates aren't going to be likely to sell their houses and buy another one at 7%. Which puts upward pressure on house prices due to fewer houses on the market. You have both demand and supply effects.
In the past in the US, nominal house prices haven't gone down during periods of rising interest rates. Maybe it will be different this time, maybe it won't.
https://news.ycombinator.com/item?id=32929454
and earlier this year announced that it plans to continue withdrawing liquidity from the financial system at the rate of $90B/month for the foreseeable future. The innocuous term for these withdrawals is "quantitative tightening."
There are no historical precedents for quantitative tightening of this magnitude.
It's the first time any central bank has tried it at this scale in a modern monetary regime.
A trillion here and trillion there, and pretty soon we'll be talking about real money.
The optimal Fed balance sheet is estimated to be around $4tn [1].
A Fed with a ballooning balance sheet distorts financial markets. A Fed with no assets must do weird stuff to fight inflation, which distorts financial markets. (In a non-reserve case, a central bank with no reserves goes bust.)
[1] https://advisors.vanguard.com/insights/article/thefedsplanto...
Inflation has multiple causes. Fixed-money economies experienced inflation and deflation throughout antiquity.
You're really jumping straight from proposing a zero-reserve central bank to theorizing the source of inflation?
It varies pretty widely. I don't think there is good macroeconomic theory for its correct value, or even if there is a correct value.
https://tradingeconomics.com/country-list/central-bank-asset...
Which also seems like a correct line of thinking to me. In younger developing countries, more money is created by individuals/businesses via credit. Central banks don't need a large balance sheet to encourage more lending, banks already have a high demand for loans and have very high interest rates for credit.
In older/developed countries, less money is created by individuals/businesses via credit. So central banks are forced to increase the size of their balance sheet which allows banks to offer more money for lending by reducing the interest rates because without low interest rates, there will be no credit growth.
It might not be enough for you personally, but let’s not pretend that money printing only goes in one direction.
Note: as a base expectation, you want to be printing a small amount of money unless circumstances dictate otherwise. In a growing economy, if the growth in the money supply doesn’t keep up with growth, you’ll eventually see deflation. This is explained by the following identity (where the velocity of money is typically observed to be fairly constant):
[Price] * [output] = [velocity of money] * [money supply]
Like, it's in proportion to the last big thing we did, albeit in the other direction. I'd argue that's pretty close to precedent.
Japan has been at it for a long time: https://research.stlouisfed.org/publications/economic-synops...
But AFAIK there's no historical precedent for persistently going in the other direction at such an insane scale.
$90B/month isn't even making much of a dent in the balance sheet.
CPI numbers, as reported, are very misleading. Nominally, it looks like its slowing down or plateauing (from 9% to 8.5%), but that's because the headlines always report the YoY number. The base effect is going to skew this towards a "inflation slowing down" narrative anyway.
The MoM figures are far more relevant and they're not looking good at all, especially since its now moving towards the sticky kind of inflation (services, rent).
But again I realized that I actually do not understand the source of inflation and how much contribution each source has. We all know that the war, Covid and monetary policy are three sources but are there other structural sources? What about the trade quarrel between US and China? How much does it hurt for each industry?
I should read some papers and talk to people in different industries to get some ideas.
> According to the Congressional Budget Office's (CBO) latest baseline, the federal government will spend $400 billion on interest payments on the national debt this fiscal year (FY). That's equivalent to just over 8 percent of all federal revenue collections and roughly $3,055 per household ... Interest costs and the national debt could be even higher if interest rates continue their upward trajectory and outperform CBO's latest economic forecast. Each one percentage point increase in interest rates would increase FY 2022 interest spending by $38 billion at today's debt levels.
As the interest rate increases, those payments increase also - this is money that is spent and doesn't "get us anything more" - it's just maintaining the current debt load. The site linked is obviously arguing for "spend less money" but the math checks out, and if the debt never goes down interest rates can have a major effect. (Now sure, some/most of this debt is paid to the government itself.)
A sharp increase in bond interest payments set off the Greek crisis.
Here is a simple example with made up (but not completely off base) figures. Assume US government has debt amounting to 100% GDP. Assume also that it collects taxes amounting to 20% of GDP. If rates are 2%, then interest payments are 2% of GDP, which is 10% of the budget. Now, if bond rates go to, say, 6% (current mortgage rates), then interest payments are 6% of GDP, which is now actually 30% of the budget.
Basically, at high debt-to-GDP ratio, small changes in the interest rates cause huge swings in how much budget is spent on interest payments. This money has to come from somewhere, and more debt is only a short term answer.
The Treasury pays interest on government debt. The Fed does not. Raising rates causes the Fed no harm other than (a) risking recession and (b) creating accounting losses idiots politicise. (The same way the Fed's accounting gains as it lowered rates are a useful fiction.)
When the Fed raises rates, it increases the rate the U.S. pays on new debt. Over time the U.S. government's interest outlay would thus rise. But we're nowhere near that being an issue. To the degree it would be an issue, it would manifest as inflation. The specter rates are being raised to fight.
There is C: politics. It is believed that the Fed is directly responsible for Carter losing to Reagan. (though it isn't clear how the election would have gone otherwise, it wouldn't have been the landslide it was) The Fed also reports to congressional hearings.
The point being, they can try to kill it first time, or maybe they have to raise even higher later on which would be even worse for the problem you're talking about.
Also, they're on record as being fully aware of this.
For better or worse, the man and his circumstances has proven himself to be apolitical.
I think this is the source of the problem:
https://www.bls.gov/charts/employment-situation/civilian-lab...
Demand is coming from 100% of the population, but supply comes only from those who are working. Thanks to Covid, the supply of workers is less, but also there is a long term trend (maybe compensated for by productivity gains..)
It's interesting to compare it with this one:
https://www.bls.gov/charts/employment-situation/employment-p...
This one shows the percent of people working of employment age. This doesn't look so bad, but the people not of employment age also create demand.
IMHO, the only price that really matters is the cost of labor (no matter what they say). IMHO, because the value of money is defined by average annual salary (the real value is work, not money).
It also manifested in higher savings balances etc.
The main reason this happened was the Fed didn't trust the administration to deploy appropriate fiscal stimulus as in the past trying to rely on US politicians has been a poor choice. Unfortunately we ended up with both monetary policy and fiscal policy deployed at full ball. If we had seen a weaker or more targeted monetary policy that aimed to just unfreeze credit markets and have fiscal policies step up to handle depressed employment/industry shutdowns the fallout would have been significantly decreased.
For instance China did cut rates and reduce the reserve requirement ratio (US also did this, it was essentially zero until start of 2022) they didn't get anywhere near that "essentially zero" rate that the US did. This means their domestic inflation remained manageable, most of their inflation is attributable to imported sources like energy and commodities. They instead pursued more targeted policies aimed at addressing specific industries and socioeconomic groups affected.
So yeah, it still is a combination of things but monetary policy in the US had an outsized impact on inflation globally compared to circumstantial factors IMO.
That is the bridge too far for the Fed so they're cracking down like Volker. They didn't care about housing prices, rents, college tuition, the commodities inflation in 2010-2014, etc. Normal jobs like working in a restaurant are seeing wage inflation now and that can't be tolerated.
* Higher cost of borrowing is putting pressure on growth companies that relied on cheap capital
* Economic downturn makes it harder to do business and lowers stock prices, which makes up a big part of any 400K SWE package
* Tech companies can allow RSU grants to expire rather than implementing formal paycuts. Whereas companies in other sectors might lay off 5% of the workforce before giving everyone a 5% paycut, we may see a different trend in tech.
That being said I've never seen a company that allows it in their company policy. Every company I've seen forbids it to eliminate the appearance of unethical behavior.
Other roles have more direct analogues in other industries that keep compensation stickier. Eg, corporate finance/strategy/legal/etc can just transition industries pretty cleanly, with similar comp. They get paid less in the good times, true, but if the downturn is concentrated in tech, other companies would still be happy to have them.
The problem with cash is the ONLY way you are getting that 3% yield is if:
1. you stay in cash for a whole year , 2. and the fed does not lower rates again
This is why bond ETFs have so much lag and are not as good. They still have old bonds on their book which pay worse, so you are getting maybe a 2% yield instead of 3%. You are better off just buying bonds from the treasury and getting the full amount.
Consequently the ETF will be cheaper by exactly the right amount to keep the income/coupon component of its return in line with buying an equivalent basket of US treasury bonds directly.
I don't follow, inflation is way higher than 3-4% all over the globe. How are bonds looking good? Do you mean going for bonds as a safe option that will lose less than cash?
Anyone know why?
Wouldn't that be a baseline value of a society? It makes me think that the price increases that are happening is simply a return to norms after we had like 50yrs of productivity increases w/o increasing wages -- meaning prices were actually suppressed.
A strong labor market drives up wages. When not matched by GDP growth, those wages increase costs, which cause workers to demand higher wages to keep up with those costs, and so on.
The cycle needs to be broken even if there is short term pain for workers.
https://www.businessinsider.com/personal-finance/quantitativ...
Yes, about $8.8tn [1]. The Fed is running them off at about $60n a month [2]. (The Fed's optimal balance sheet is estimated to be around $4tn [3].)
The elephant in the room is the Fed's mortgages [4][5]. Those will have to start being sold soon, since rising rates mean mortgagers aren't refinancing and thus a run-off strategy doesn't reduce holdings.
[1] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
[2] https://www.federalreserve.gov/newsevents/pressreleases/mone...
[3] https://advisors.vanguard.com/insights/article/thefedsplanto...
[4] https://www.ft.com/content/1a2e829e-de82-4083-abcb-ceeb46a45...
How is this entry about to leave the front page at 105 points and 154 comments and the CNBC one at 36 p 14 c rising? This is ridiculous. I'm not accusing of malice, but something needs fixing.
Yes
> Like if a company wants to buy 30-50 houses to rent out, do they borrow at a similar rate? [... to regular mortgage borrowers]
Typically no
What it will do is rise i interest payments on the US sovereign debt very significantly.
The US has two options, as far as I can tell.
1. Slash govt. spending (entitlements and defense) and rise taxes on the laptop class (that's us folks!)
2. Accept structural inflation and high interest rates.
The Dollar dominance is coming to an end, we weaponized it too much, so option 3, exporting inflation is out.
Politically 2 is easier, but in the long run disastrous.
The dollar's supremacy isn't going anywhere.
Option (3) is already in effect indirectly, due to inflation being world-wide, and Europe being hit much harder due to the conflict.
Like every past pandemic this one is going to hit the economy like a sledgehammer... We failed, once again.
I can predict that next time around the Fed is going to trigger a full 100 percentage rate increase thus triggering a much deeper recession thus more layoffs and job losses as a result. It's by design really since even the Fed wants to get wages down and shift power back to the employer.
Buckle up.