Fed plans to raise rates as soon as March to cool inflation

[FT-02 Senator A.F.E. 🇵🇸🤝🇺🇸🤝🇺🇦]

I feel it's kinda funny that I watched Powell deliver his address during my Con. Ed. class. My only advice to Powell is you've got to pump it up! 

WASHINGTON (AP) — The Federal Reserve signaled Wednesday that it plans to begin raising its benchmark interest rate as soon as March, a key step in reversing its pandemic-era low-rate policies that have fueled hiring and growth but also escalated inflation.

With high inflation squeezing consumers and businesses and unemployment falling steadily, the Fed also said it would phase out its monthly bond purchases, which have been intended to lower longer-term rates, in March.

The central bank’s actions are sure to make a wide range of borrowing — from mortgages and credit cards to auto loans and corporate credit — costlier over time. Those higher borrowing costs, in turn, could slow consumer spending and hiring. The gravest risk is that the Fed’s abandonment of low rates could trigger another recession.

In a statement issued after its latest policy meeting, the Fed it “expects it will soon be appropriate” to raise rates.

Though the statement didn’t specifically mention March, half the Fed’s policymakers have expressed a willingness to raise rates by then, including some members who have long favored low rates to support hiring.

By raising rates, the Fed will be betting that it can slow inflation without weakening the economy too much. Speaking at a news conference, Chair Jerome Powell expressed his view, as he has before, that controlling inflation is itself vital to a strong job market.

“The best thing we can do to support continued labor market gains,” Powell said, “is to promote a long expansion, and that will require price stability.”

“I think there’s quite a bit of room,” he added, “to raise interest rates without threatening the labor market. This is by so many measures an historically tight labor market.”

https://apnews.com/article/federal-reserve-interest-rates-inflation-1dd9283e46162b3c0d29a2c55a2934d1

[RI]

Long overdue.

[jaichind]

YoY Inflation for Jan 2022 came in at 7.5% vs expected 7.3%, highest since 1982.  Money markets are betting on one percentage point of Federal Reserve rate hikes by July.  The equity and bond markets pricing will factor this in as part of today's trading activity.

Also, there are some signs that medical and medical insurance costs that were growing fairly slowly in 2021 after a 2020 surge are moving upward again at a faster pace.

[Benjamin Frank]

https://twitter.com/LHSummers/status/1490424193611141121?s=20&t=3aUUOK2R51J5...

MMT (Chartalism) is the flip side of the notion that 'tax cuts pay for themselves.'

[jaichind]

PPI yoy up 9.7% vs an estimate of 9.1%.  Upstream price pressure remain high. 

[PSOL]

I am concerned that the rate hikes, if heading at or over 2%, would lead us into another recession. Projected economic growth, especially done by households or private investment is much too low to get us out of this slump. Inflation is indeed much too high, but I’m worried of putting this already weak economy on a path of lesser economic growth. I think it would be best to wait a few months into the summer and introduce a small rate hike then or when inflation hits 10%, whichever one comes first.

[jaichind]

Grain prices like wheat and soybeans are surging almost 2% today on supply concerns to 9 year highs.

[It’s so Joever]

Grain prices like wheat and soybeans are surging almost 2% today on supply concerns to 9 year highs.

Thanks Putin.

[jaichind]

Grain prices like wheat and soybeans are surging almost 2% today on supply concerns to 9 year highs.

Thanks Putin.

Actually this is mostly about South America.  Recent Oil prices surge you can point to the current crisis in Russia-Ukraine but on the short run Russia is making a killing off falling RUB and rising energy prices.

[PSOL]

Ok, with the recent events a rate hike may be necessary, but it should be handled very delicately.

[FT-02 Senator A.F.E. 🇵🇸🤝🇺🇸🤝🇺🇦]

HERE IT COMES

https://www.usatoday.com/story/money/2022/03/16/interest-rates-increase-fed/7052888001/

[PSOL]

Six rate hikes seem excessive, especially since there first was a .25% increase. If anything, six is only appropriate if done over a two year period to get to 2%.

[It’s so Joever]

About f**king time.

[sting in the rafters]

A hike in rates should slightly impact on Q1/Q2 earnings in higher d/e ratio industries, though not current assets as most major players obvi have the cashflow to manage the costs of commercial paper. The key is ensuring this loss is only felt in retained earnings, not passed along as corporate profits continue to outpace inflation. On the other hand, most firms are already running lean as-is, which in turn means increases in commercial loan/mortgage rates could curtail PP&E investment. Skilled labor would become even more valuable as the premium on PP&E and devoting resources to training gives them stronger bargaining positions. 

[jaichind]

Federal Reserve Bank of St. Louis President James Bullard said the central bank needs to move quickly to raise interest rates to around 3.5% this year with multiple half-point hikes and that it shouldn’t rule out rate increases of 75 basis points.

This is still too conservative.  Interest rates needs to be at or above inflation.  I would raise rates to at least 6% 

[PSOL]

With this yield curve situation, causing another recession because of inflationary mess instead of getting the Democratic governors and municipal leaders to raise the wages instead would be a better course of action. Or at least not do the raise.

Given the Democrats don’t seem to have a will to repeat the exemptions and stimulus provided in 2020, this stupid talk of destroying our economy and leaving millions without a job and without means of continuing payments to remain in their homes. People will be pushed to the brink and we will see worse chances of Democratic victory and continued existence of liberal democracy if we govern like fiscal conservatives during a recession and slow down the train prematurely.

[PSOL]

People will be pushed to the brink and we will see worse chances of Democratic victory and continued existence of liberal democracy if we govern like fiscal conservatives during a recession and slow down the train prematurely.

What recession? It ended a while ago. The flipside of Keynesianism is that you *shouldn't* conduct economic stimulus when you aren't in a recession. Very important to go back and forth!

I was referring hypothetically in 2023/4.

I think we should at least ride the boom a bit longer at high speed instead of slowing down now; the present situation and all.

[Person Man]

Federal Reserve Bank of St. Louis President James Bullard said the central bank needs to move quickly to raise interest rates to around 3.5% this year with multiple half-point hikes and that it shouldn’t rule out rate increases of 75 basis points.

This is still too conservative.  Interest rates needs to be at or above inflation.  I would raise rates to at least 6% 

Is this some arbitrary rule or is there evidence for this?

[jaichind]

Federal Reserve Bank of St. Louis President James Bullard said the central bank needs to move quickly to raise interest rates to around 3.5% this year with multiple half-point hikes and that it shouldn’t rule out rate increases of 75 basis points.

This is still too conservative.  Interest rates needs to be at or above inflation.  I would raise rates to at least 6% 

Is this some arbitrary rule or is there evidence for this?

Mostly about the time value of money.  When one party borrows money from another what is taking place is one party is deferring consumption in favor of someone that needs to consume resources earlier.  The rate of interest is compensation for such deferring of consumption.  It is illogical to set such an interest rate below the rate of inflation since in real terms you are asking the lender to pay the borrower to borrow money.   Historically the fed rate has always been above the rate of inflation with rare exceptions during recessions.  Even then the real int4erest rate being negative only lasts a year or so before reverting to being positive. 

Since 2008 this has been broken and it was only in 2018-2019 that the real interest rate become slightly positive again.  Even with base effects, one can argue that inflation is running at a 5%-6% at least so interest rates should be set there if not higher if the Fed is going to get inflation under control.  Unforintelly the Fed is still living in a post-2008 world and not realizing that you cannot just live in a permeinate emergency world without very problematic side effects.

[Person Man]

Federal Reserve Bank of St. Louis President James Bullard said the central bank needs to move quickly to raise interest rates to around 3.5% this year with multiple half-point hikes and that it shouldn’t rule out rate increases of 75 basis points.

This is still too conservative.  Interest rates needs to be at or above inflation.  I would raise rates to at least 6% 

Is this some arbitrary rule or is there evidence for this?

Mostly about the time value of money.  When one party borrows money from another what is taking place is one party is deferring consumption in favor of someone that needs to consume resources earlier.  The rate of interest is compensation for such deferring of consumption.  It is illogical to set such an interest rate below the rate of inflation since in real terms you are asking the lender to pay the borrower to borrow money.   Historically the fed rate has always been above the rate of inflation with rare exceptions during recessions.  Even then the real int4erest rate being negative only lasts a year or so before reverting to being positive. 

Since 2008 this has been broken and it was only in 2018-2019 that the real interest rate become slightly positive again.  Even with base effects, one can argue that inflation is running at a 5%-6% at least so interest rates should be set there if not higher if the Fed is going to get inflation under control.  Unforintelly the Fed is still living in a post-2008 world and not realizing that you cannot just live in a permeinate emergency world without very problematic side effects.

So your objective would be to essentially shrink the money supply by making the government lend to banks at the same rate that money depreciates?

[FT-02 Senator A.F.E. 🇵🇸🤝🇺🇸🤝🇺🇦]

WASHINGTON (AP) — The Federal Reserve must move faster than it has in the past to rein in high inflation, Chair Jerome Powell said Thursday, signaling that sharp interest rate increases are likely in the coming months, beginning at the Fed’s next policy meeting in May.

In a panel discussion held by the International Monetary Fund during its spring meetings, Powell also suggested that “there’s something in the idea of front-loading” aggressive rate hikes as the Fed grapples with inflation that has reached a four-decade high.

“So that does point in the direction of (a half-point rate increase) being on the table” for the Fed’s policy meeting May 3-4, Powell said. Typically in the past, the Fed has raised its benchmark short-term rate by more modest quarter-point increments.

https://apnews.com/article/business-europe-prices-inflation-jerome-powell-7b42a2aa03b6b0b0f39f709d0c3c3624?traffic_source=Connatix

[S019]

I support raising rates, but going too quickly might not be the answer here, we got the shocking news a few weeks ago that Deutsche Bank was predicting a recession around 2023, and it seems several economists are also reaching that conclusion.

[jaichind]

According to interest-rate swaps the market expects half-point hike -- unheard of since 2000 -- in May, June, July and September to take the upper bound of the federal funds rate’s target range to 2.50%.

Too conservative in my view.   

[jaichind]

It seems in interest rate markets there are now more bets on  multiple 75-basis-point rate this year.  That is not the consensus but it is good to see this is the way the Fed might move.  Moving rates to 2.5% by the end of the year is a complete joke.  Much more aggressive action is needed the massively reduce the liquidity in the market.

[S019]

It seems in interest rate markets there are now more bets on  multiple 75-basis-point rate this year.  That is not the consensus but it is good to see this is the way the Fed might move.  Moving rates to 2.5% by the end of the year is a complete joke.  Much more aggressive action is needed the massively reduce the liquidity in the market.

More aggressive action would lead to a recession, many economists are worried that even as far as the Fed will go could  lead to recession. Rates need to go up yes, but it needs to be done gradually so that economic growth does not slow too much, all at once.