Fed Cuts Rates by a Half Percentage Point
federalreserve.gov
federalreserve.gov
This would be the first dissent by a governor in the FOMC since 2005.
Yes, but for context- not the first dissent broadly, as there are 5 non-governors on the FOMC.
>In June 2022, Kansas City Fed President Esther George cast what until Wednesday had been the most recent dissent. She had argued for a smaller rate hike, but her colleagues opted for a 75-basis-point increase to battle accelerating inflation. https://www.reuters.com/markets/rates-bonds/fed-bowmans-diss...
Personally I think the 3% long-term expectation is ridiculous, and we'll either see high (10%+) rates as inflation spirals out of control, or low (0%) rates as we get another depression, and likely oscillation between the two of them. You can't use monetary policy to fix a demographic problem. But the projection for 3+ years out has held constant at 2.5-3% since at least 2018, even as the reality went from 2.5% to 0% to 5% during that time period. Just like all the projections for inflation always converge on 2% even if they're wrong.
Source?
One is the Fed dot plots that the Fed puts out with each FOMC statement. These are a poll of Fed governors about what they think interest rates will be like at various points in the future. The midpoint of the current spread is about 3%. You can Google for past FOMC statements and look up historical data, but it's stayed at around 3% since at least 2018, with a slight dip to maybe 2.5% in 2020/2021:
https://finance.yahoo.com/news/fed-dot-plot-suggests-central...
The other is the rates on 3Y Treasury Bonds, which measure what bond traders consensus expectation for the average interest rate over that 3Y period will be. To go out further (and minimize the impact of short-term fluctuations), you could also go out to 5Y. Currently, both are trading at 3.5%, which indicates that the market expects that the Fed will equilibrate at about 3.5%.
The increasing debt represents a wealth transfer to asset holders. If you can exchange your dollars for things like houses, before those dollars are devalued, then you win. This is regressive.
This is not an argument for fewer social programs. It is an argument for more taxes.
We need to cut spending to match taxes, then start deciding what’s important and what people want to pay for with increased taxes
Giving people everything for “free” to win the next election is very bad policy for the country
Lowering the rate also determines how much it costs to sustain the debt spending. So my comment was related in an economic sense.
I also prefer to have sustainable Government institutions and social programs which increasing debt will eventually threaten.
Maybe the system can sustain $50 trillion with $2 trillion added every month. We will find out eventually with the current path.
It already costs more to service existing debt than even defense spending.
The fed rate is also the rate that the national debt interest is paid on
Will this encourage further and increased debt spending ?
When will spending get cut to stop the bleeding?
America has a spending problem.
When a bank gets less return on excess reserves, it will want to make more loans. For regulatory reasons they have to hold some treasury bonds as collateral which again puts upward pressure on treasury prices. Rising bond prices pushes down treasury bond yields. Low yields on treasury bonds makes it easier for the government to borrow and rack up even more debt.
Generally, more liquidity to bid up assets, including treasury bonds (which are still attractive while yields are relatively high), will push down yields everywhere.
Interest rates affect the amount of interest owed. After decades of low interest, the past five years of interest rate hikes have dramatically increased government debt.
Lower rates won't lower the amount already owed, but would help slow the rate of increase of the debt burden moving forward.