This is how Republicans have a reputation for being economically savvy despite actual evidence to the contrary, because the general population doesn’t understand that economics runs on a time delay.
Honestly it seems your post is heavy on politics but I am not seeing an actual argument anywhere in there.
My canned response to people being upset at various policies or ratios, whether it is inflation, or bond yields, or market movements, is to ask them what they think the correct value should be. Stop complaining about the movement and instead ask them for their target. You think a 4% FedFunds is too high or too low? What do you think the correct value is and why? You think the stock market is too high or too low, what do you think the correct value of the index should be?
Most people, who were just moments ago vociferously complaining about a movement, when asked this question fall silent, because they have no idea what the target should be, and because they have no idea about the target, they really have no business complaining about movement. Instead, they use the movement as a springboard to air their ideological beefs. But if you are going to tie some thesis to a rate hike, you better be able to explain what you think the correct rate should be and why. I'm waiting.
Personally, I think a 4% rate is perfectly fine. 5% may even be warranted, and historically this has not been a high rate, if you assume, say, 2.5% inflation and 2% GDP growth, this is a pretty reasonable place to be.
There is a separate question though - is that state of the world good or bad for people? Is it better or worse today than it was yesterday? What can we do - collectively - to push it in a direction that best serves our collective interests? These are valid questions to ask, and I think each takes us further in the direction of politics.
So what can we collective do with money so I feel most happy. This may be the most important question of all to ask.
I didn’t see anyone claim a single 25 bps hike will cause a recession.
The 30 day FFR futures (/ZQ) curve is pricing in an 80% chance of two more hikes by the March 2027 meeting and a 70% chance of 3 or 4 hikes by Sept 2027’s meeting. So, 50 bps predicted in the next 6 months and 25-50 bps more within one year.
Source is the CME Fedwatch tool: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch...
I think we’ll need to go to 5%+ within the next two years if fuel costs remain elevated.
Basically you have an inflation shock and you want the reaction function to be higher, so if inflation is 1% too high, you want a 1.5% or 2% rate hike. If inflation is 1% too low, you want a 1.5% or 2% rate cut. The reaction function has to be greater than the deviation from target, but this gives you price stability, it doesn't require a recession, although it may cause a recession.
Using interest rates for this kind of inflation is guaranteed to cause a recession.
Unfortunately they discovered that the size of monetary aggregates was outside the control of central banks, these were demand determined by the public's desire for money balances. So all attempts to control the growth of monetary aggregates failed.
Having an inability to control anything else, the central banks turned to the one thing they could control -- overnight interest interest rates, and from that, bond yields more generally. That is the one tool in their toolbox.
Do you think other tools exist?
Yet here we are 50 years later suffering booms and busts just like before. Nobody seems to want to acknowledge the failure of 50 years of industrialisation destruction that in hindsight was the inevitable outcome of open trade and the retreat of governments.
To answer the question, yes I think there are other options and trade barriers need to be part of that conversation.
For the elephant in the room, the current inflation woes are caused by oil price increase, which is a direct outcome of deliberate US policy.
Really the problem is that everyone wants to make lots of money (economic growth) so they can spend more (increase consumption) but without anyone else raising their prices as a result. Unsquareable circle.
Not just Trump, Republicans as a whole. They are not fiscally conservative at all, and their culture wars and religious crusades are going to bankrupt the nation.
They'll sell you up a rope to corporate donors asking for deregulation. And we've seen exactly what happens when there is money to be made at the expense of other people's lives: spoiler alert, people like money more than they care about other people's health.
How does raising rates hurt mortgage holders? They locked in their interest rate when they got the mortgage?
Maybe find a better canned response? US debt has never been higher, and because of this even rates that are below historic highs can cause economic chaos.
We are seeing asset bubbles across the board in this economy, in housing, in equities, auto loans, etc. It turns out that if you make something cheap, people buy more of it, and that includes the government.
Bond prices shooting up is a result of market losing trust in US, or it's ability to not default.
Dollar is famous backed by $700T military. But the world has seen how it failed to secure a strait.
The current US government has broken all kind of promises. I want to highlight two in particular - free trade and immigration.
World economy has benefited for decades on the promises of free trade. The tariffs have eroded the promise and trust.
The government is also openly supporting elements who are hostile to immigrants. Immigrants are the backbone of US economy, has been for over hundred years. Immigrating to the US requires years of preparation, long term planning, and giving up on other luxuries and opportunities. When the government starts breaking promises by changing rules and moving the goalposts overnight, it discourages participation.
You know a nation that does have those things other than the US? Switzerland, which is why a lot of people use swiss Francs, even though Switzerland does not have a huge military. People need to stop reading Graber and others who have no economic training and don't understand global balance of payment accounting. Having a large military does not translate into people wanting your currency, otherwise China, North Korea, and Russia would have well used international currencies, rather than being forced to use the currency of their rivals.
The US dollar is propped up by constant US dollar liquidity related to the fact that you need it to trade significant quantities of oil with the vast majority of producers. That situation was held up by the US' military might. Starting shit with Iran and being unable to finish it means there's no reason for oil producing countries to keep financing american debt on the cheap. What are they going to do? Restrict their own access to crude?
There's more to it, but the USD for gas scheme is a big structural chunk of the financial house of card. You break that and the rest won't hold up very long. And it's not like other structural parts of what makes the USD the global reserve currency aren't getting eroded either. Fed independence stands there glaringly obvious.
The leaked, then, declassified emails about Gaddafi and how his "Gold Dinar" was considered a threat really opens your eyes on why the Corporate States maintains a very big stick to hit anyone they don't like in the world and most especially nations who were foolish enough to disarm, stupidly trusting the Corporate States.
This is Hacker News, we should understand what a PID controller is.
The economy is the "plant". The variable of interest, inflation, is the output of the plant. The government interest rate is the input. As inflation varies around the target FOMC rate, the Fed adjusts the rate. If inflation is over 2%, we should expect rate hikes, regardless of what the current rate is.
This is a fairly simple and very effective system that has worked in most Western countries and the Eurozone since the 90s.
However, note that the "recession" claim is also partly correct: the reason rate hikes work to reduce inflation is that they move the economy growth rate down, in the direction of (but not necessarily into!) recession.
Firstly a rate hike is as much a reaction to circumstances as it is a cause. It follows changes to the financial environment. As much as the current US Administration wanted a rate drop, circumstances dictated the opposite.
Secondly, it might not be isolated. These rates move by small increments, but there are usually several moves in succession, up to 8 times a year. Compare two or three small hikes to two or three small drops and the difference starts to add up. "A 0.25% rate hike" is small, but it indicates a change in direction. The article notes that it is "for the first time since 2023".
The OP that you’re criticizing is simply making a prediction, and he doesn’t work at the fed.
I think that one obvious question that no one asked him, is why not cancel the post FOMC press conference if he opposes forward guidance and won't even explain what data guides his vote when asked about it.
(It moved from 3.5% - 3.75% to 3.75% - 4%, the US uses a range, not a fixed number.)
But this one is something that gets results almost immediately. We will see what it does in 2 or 3 months, not years.
Inflation numbers, companies firing, and the magnitude of fictional numbers on financial markets.
Lots and lots of things are slower to react, but those 3 are quite big and hard to ignore.
Here is data: https://fred.stlouisfed.org/series/JTSLDR
Inflation is a bit higher, but not shockingly so, here is the data:
https://fred.stlouisfed.org/series/CPIAUCSL#
In terms of "fictional numbers on wall street", I don't see any real data there, but if you have access to something then please share.
What means that the US is still paying banks to take loans. They just fixed it so it pays very, very little.
I recall reading something from axios or similar, talking about how a CEO said a "nice light recession right now would be perfect for us" or something to that effect.
[0] Yes, I know that the Republicans said that they were going to cut spending to match the tax cuts, but that never ends up happening.
There's a fair argument to be made that the Democrats could/should have reversed these disastrous fiscal policies when they gained power, but it's important to be wary of Murc's Law while also acknowledging doing so would also burn a lot of political capital Democrats never seem to have much of.
The American electorate is a grade school child constantly evaluating which parent it likes the most. One tells you that you can eat as much candy as you like and play video games all night (neither of which hit you until the following day), while the other occasionally tells you to eat your vegetables, do your homework, and clean your room.
Both parties have run an increasing deficit, with the only outlier being a small amount of time in the late 90s. The deficit is largely caused by social security outlays, medicare/medicaid outlays, and military spending, none of which are going to meaningfully change under either party
Where change in deficit is the final budget deficit - starting budget deficit
So, every Republican president runs an increasing deficit and every Democrat president runs a decreasing deficit.
https://www.macrotrends.net/2496/national-debt-growth-by-yea...
Also, inflation wasn’t temporary
Between his first term and his second term to date (2+ more years to go), Trump is responsible for more that one quarter (29%) of US debt (USD 11.6T / 40T):
* https://time.com/article/2026/08/21/national-debt-trump-bide...
There was a bit of a mitigating circumstance of COVID (for Trump and Biden), which caused the debt to jump for many countries as well (and not just the US), but it's not like Trump et co are helping the math along with all the tax cuts and asking for a US$ >1T military budget.
But I would say a large reason why the US is in the fiscal position it is now in is because of Trump and a GOP Congress. (See also tax cuts under Bush 43 and Reagan; Bush 41 raised them a bit.)
The one thing both parties agree on though is running up a massive deficit
Assuming you're talking about the Senate filibuster, then this can be changed or removed by simple majority vote. It's not in the Constitution, just a rule that the Senate adopted.
Like, personally I think that even sans filibuster, the Senate would move much slower than the House, because of election cycles.
Ultimately the president is enabled or constrained by laws enacted by congress
You might argue it is inflationary.
It is highly unusual to argue that taxation is inflationary since the whole point of inflation is to reduce demand.
On an earlier HN economic story, someone provided data showing that this is entirely the responsibility of Republican administrations. Going back to Eisenhower, the Deficit has only increased under Republican Presidents and only decreased under Democratic ones (with one exception, Johnson was slightly positive in Deficit increase).
Presidents cannot pass fiscal policy. They can only sign or veto new fiscal policies or act on existing policies passed by congress that give them fiscal latitude
I’ve explained this many times in this thread. We’ve reached the heat death of useful discussion so this will be my final comment in this thread
This is very, very unlikely. The US would probably suffer more, given how much AI related expenditure there is. The EZ mostly wouldn't notice, and China is already basically in a depression that it's desperately trying to export its way out of (which seems unlikely without them doing something about all the underwater property debt).
As a result of this many local government pushed money into car/electronics/whatever export industries. This lead to vicious competition, and many of the exporters are tapped out of Chinese markets (vicious competition) so they are attempting to export as much as possible (which is rational).
Looking at things more broadly, one could argue that lots of the reason for the vicious competition is precisely that many Chinese people are still in loads of debt from the property bust (much like Irish/Greek/Spanish people were after their property busts).
The central government is pushing the exporting companies hard, as they don't want to have to inject loads of money into the economy (apart from local support of exporters).
This makes sense from the government perspective as they want to be able to build everything that they need (so the US/EU can't screw them), but it's pretty bad for the chinese people, many of whom are not spending (there's been some deflation over the past 5 years).
So, in many ways the Chinese economy is not in a good state, even lots of the exporters/industrial companies are doing badly, hence why they are focusing on exports.
And because Xi is basically leader for life, the likelihood is that these policies won't change until he dies.
"this" (raising the fed rate by .25%) is not what causes a recession in 2 years, it's what led to "this" (the ill-advised, badly-planned, Iran war) + tariffs + popping AI bubble that will do that.
Fed actions typically take a few years to be felt, regardless of administration.
I've not heard this expression before; can someone explain it to me?
This particular crisis is quite abrupt, caused by a sharp jump in the price of oil. Most presidents don't really deserve either the credit or fault that they receive on the economy, but in this case there's a very clear and direct connection.
Yes, it happens to both sides. People convince themselves their side always makes right decisions, the other side always wrong.
The truth is that the secret sauce is in the pendulum going back and forth. The excesses of one side are soon erased by the other. It is working, as it has for many years.
I basically agree. I don't care for DJT, but I can see how getting his "second term" underway after his first one could have been better. His four years away allowed him to stew and plan and respond.
And it's how Democrats have a reputation for being the "wrongly victimized underdog / misunderstood savior" despite actual evidence to the contrary, because the general population doesn’t understand that economics runs on a time delay.