I haven't watched it yet, but Powell's speech is traditionally the more important thing with FOMC meetings, because the speech gives more insight into what the FOMC was worried about / not worried about / etc. etc.
The +25 BPS was long predicted. All eyes are on September, and the only hint at what happens in September is what Powell said today (and the questions the press asked him).
They don't have any other moves, period, they've really only got a hammer.
That said your article is about the balance sheet, not the funds rate. The balance sheet will sort itself out over time. They can just let their long-duration assets mature and roll off.
No, the balance sheet will not sort itself out over time. Every time the fed starts making progress markets tank and rich people flex their influence to get their assets pumped back up.
How much do you want to bet that it goes under, say, $1T by 2030?
That's not the argument I am making, I'm saying if you leave the balance sheet alone it will shrink. We don't need anyone to step in and sop anything up. I'm not opining on - nor do I really care - about future growth of the balance sheet.
Generally speaking increases in the size of the balance sheet represent flows into the economy of money. Static balance sheets, or ones that roll off over time, have little to no impact.
It's a bit weird that you seem so focused on a hypothetical future that isn't going to happen (balance sheet rolls off) but don't care about the perpetually rising balance sheet that is actually happening and will almost certainly continue to happen. Why is your hypothetical parallel universe more interesting than this universe?
We've set up a system to pump trillions into rich peoples' pockets every time they pull the lever and they are going to keep pulling that lever.
They're not exactly out there buying the S&P 500. They overwhelmingly own treasuries and mortgage-backed securities. They basically buy bonds (which are future money) and replace them with cash (present money). They're basically just transforming duration.
Those debt obligations however remain. That future money still has to be paid in to cancel out the debt, whether that comes from home borrowers or from the Treasury.
This allows the institutions who held them to then make loans to individuals.
You know that rich people don't just own stocks, right?
While the talking heads were clutching their pearls, wringing their wrists, and wagging their fingers over $400B in stimulus checks, ten times that amount was being printed into the real estate market, distributed in rough proportion to real estate holdings. Rich people paying themselves for being rich. "Just" isn't how I'd describe it. Not in magnitude, not in morals.
> Those debt obligations however remain. That future money still has to be paid in to cancel out the debt, whether that comes from home borrowers or from the Treasury
Why? Why do you keep engaging with the hypothetical universe that we do not inhabit where they don't pull the lever again, even though they got away with printing trillions into their pockets the last two times?
Those debt obligations are getting paid back like the father of a deadbeat son is getting paid back: he'll roll the loans so that he can tell his golf buddies that he has been paid back, sure, but he isn't going to be paid back and he doesn't really expect to be paid back.
My point is duration transformation doesn't create new money, it moves future money into the present. This may increase the money supply immediately, but it drops over time back to where it would have been.
Money isn't "printed" in the real estate market, valuations are notional.
> Those debt obligations are getting paid back like the father of a deadbeat son is getting paid back: he'll roll the loans so that he can tell his golf buddies that he has been paid back, sure, but he isn't going to be paid back and he doesn't really expect to be paid back.
> How much do you want to bet that [Federal Reserve Total Assets] goes under, say, $1T by 2030?
In your universe, the aggregate debt comes due, markets tank, and rich people take the L like grown ups.
In my universe, the aggregate debt comes due, markets tank, rich people persuade politicians to pull the lever again, they do, the fed goes and buys their assets, markets go back up, and the fed balance sheet increases. The fed's long-term increasing balance sheet represents a long-term net cash flow right into rich peoples' pockets.
Again, if you are confident in your view of the universe, I'm asking you to put your money where your mouth is.
Home prices in the '80s were ~$60,000; equivalent homes now are about 10x that [0]. With inflation bouncing around 2-6% on average [1], and only modest wage increases over decades [2], that makes the median home today way less affordable even with these relatively low interest rates.
All 4 of my children, in various stages of degreedness, have told me they have no hope of ever owning a home of their own like they were able to grow up in.
True, but home prices are also much higher than in the past partly thanks to that long period of low interest rates. Taking on these huge loans with corresponding (comparatively) high rates is a different ballgame than it was in the past.
Half of the federal govt's $31 trillion debt comes due in the next two years. It will be refinanced at much higher rates...Or we'll see Yield Curve Control from the federal reserve. Take your pick.
These aren't the exact rates that ordinary folks will be borrowing at. See credit cards for instance (way higher), or mortgages (a little higher).
Counterintuitively, it is possible for mortgage rates to go down even when the Feds are raising their rates. The interest rates for us normies are dictated in large part to how confident the financial sector feels. If the Fed's raising of the interest rate makes the financial sector feel that inflation is under control, then mortgage rates may go down.
"The federal funds rate, which was about 11% in 1979, rose to 20% by June 1981. The prime interest rate, an important economic measure, eventually reached 21.5% in June 1982"
It doesn't really matter what rates were in the early 80s.
We're adjusted to the ZIRP rates from 2008-2021. Unprofitable business ventures that were kicking the can down the road rolling over cheap short term borrowing should go broke as their borrowing rates adjust higher. And sectors like commercial real estate are getting squeezed by remote work and online shopping, raising their borrowing rates should accelerate their failure.
Bps is also specifically a flat change rather than relative to the previous value.
E.g. If without bps if you have an interest rate of 2% and somebody states that it has increased by 10%, it's unclear whether they meant a result of 2.2% or 12%.
It's a term of art in finance; people who work with it daily don't think twice before using it. Computer science has a whole book full of these; comes with the subject.
Presumably the target audience of federalreserve.gov does. I also know the terms, just from talking to a loan officer while shopping for a mortgage. So calling obscure may be a bit unfair.
Also, bits per second is very familiar to many of us in the HN audience, but that is just because of our particular technical background. It is the same in other technical areas (such as finance).
The Fed could do a better job wrt to expanding that target audience.
I've always found it slightly silly that getting the rates and prices needed to judge the performance of the Fed, Treasury, and so on effectively requires use of a Bloomberg terminal (there are structural reasons why this is the case but the fed wields a big stick).
Even worse in the UK - DMO supposedly not competent in general but I have no first-hand experience.
The original article doesn't even use bps. It just says "In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent"
The title could have just said "Fed raises rate from 5.25 to 5.50". That'd contained a lot more information.
So it’s a tech forum because of the name? Can you count the number of non tech posts on the front page? Also, there is indeed high concentration of tech and science people, which love to scrutinize posts for inaccurate use of terminology or units. Yet you want to lower the standard when it comes to finance news?
It's a combination of things. Tax cuts juicing an already hot economy, economic stimulus attempting to minimize the effect of a temporary pandemic, former executive fighting against interest rate increases. However this is a very US centric view.
It's also important to remember inflation is a global phenomenon. US policy might have outsized effect, but it is certainly not the whole story. Global gas prices hit decade-long highs last year, after massive lows during the pandemic. We had to somewhat jumpstart the global economy, and recover from slowdowns during that time as well.
It was the billions in PPP loans that lots of people used fraudulently, including our own politicians. On top of that, it was decided they didnt need to be paid back, so people go to keep all the fancy cars, electronics and real estate they bought with it.
Legitimate question, I’m not very economically literate.
We went through wars in the past without crazy inflation, gulf war, Iraq, Afghanistan. Is it because of all the Ukraine aid we’re sending? If so, why is this different than other conflicts?
Disease, disaster, war all cause significant inflation because they harm or destroy both things and productivity in the real world without destroying money.
If factories shut down and supply chains are disrupted and we only make half as many cars this year, how much would people be willing to pay for those cars? Much more.
Relief checks are a drop in the ocean compared to the pure, unadulterated fraud that was the PPP program and how much of that was forgiven.
I personally know companies that got 5-10 million dollars by lying about how many they employed. Any whistleblower programs out there with a reward for reporting them?
I haven't watched it yet, but Powell's speech is traditionally the more important thing with FOMC meetings, because the speech gives more insight into what the FOMC was worried about / not worried about / etc. etc.
The +25 BPS was long predicted. All eyes are on September, and the only hint at what happens in September is what Powell said today (and the questions the press asked him).