Fed plans to raise rates as soon as March to cool inflation
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  Fed plans to raise rates as soon as March to cool inflation
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Author Topic: Fed plans to raise rates as soon as March to cool inflation  (Read 19665 times)
jaichind
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« Reply #25 on: April 25, 2022, 06:04:39 AM »

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.

For me, a recession is a feature and not a bug.  A recession will allow for labor and capital engaged in value-destroying activities to be reallocated to value-creating activities.  Right now we have a situation where you are paying people to borrow money (in after-inflation terms.)  The longer this goes on the greater the economic distortions and worse the long-term economic growth prospects will be.
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It’s so Joever
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« Reply #26 on: April 25, 2022, 04:54:11 PM »

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.

For me, a recession is a feature and not a bug.  A recession will allow for labor and capital engaged in value-destroying activities to be reallocated to value-creating activities.  Right now we have a situation where you are paying people to borrow money (in after-inflation terms.)  The longer this goes on the greater the economic distortions and worse the long-term economic growth prospects will be.
I pretend to be a sociopath sometimes for fun, but dude cmon. 
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President Punxsutawney Phil
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« Reply #27 on: April 25, 2022, 05:21:07 PM »

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.

For me, a recession is a feature and not a bug.  A recession will allow for labor and capital engaged in value-destroying activities to be reallocated to value-creating activities.  Right now we have a situation where you are paying people to borrow money (in after-inflation terms.)  The longer this goes on the greater the economic distortions and worse the long-term economic growth prospects will be.
I pretend to be a sociopath sometimes for fun, but dude cmon. 

The sad (but inevitable) fact is that in the long-term a recession of some kind is inevitable. Dread it, run from it, market distortions (and excessive debt) bring recessions or even depressions all the same. In that way, they are more akin to forest fires than anything else. Recessions are part of the economic cycle. It's better to have several small ones than one big one.

Of course, what is most likely to happen if we have another recession is that the government simply puts boatloads of money in the hands of corporate America - again (not like they didn't already do that during corona). Essentially, that is corporate welfare. And it's funded by us, John Q. Public, whether we will it or not. I'm not necessarily hostile to that, because stability could be quite desirable here, but it's not exactly without downsides either.
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It’s so Joever
Forumlurker161
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« Reply #28 on: April 25, 2022, 05:44:49 PM »

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.

For me, a recession is a feature and not a bug.  A recession will allow for labor and capital engaged in value-destroying activities to be reallocated to value-creating activities.  Right now we have a situation where you are paying people to borrow money (in after-inflation terms.)  The longer this goes on the greater the economic distortions and worse the long-term economic growth prospects will be.
I pretend to be a sociopath sometimes for fun, but dude cmon. 

The sad (but inevitable) fact is that in the long-term a recession of some kind is inevitable. Dread it, run from it, market distortions (and excessive debt) bring recessions or even depressions all the same. In that way, they are more akin to forest fires than anything else. Recessions are part of the economic cycle. It's better to have several small ones than one big one.

Of course, what is most likely to happen if we have another recession is that the government simply puts boatloads of money in the hands of corporate America - again (not like they didn't already do that during corona). Essentially, that is corporate welfare. And it's funded by us, John Q. Public, whether we will it or not. I'm not necessarily hostile to that, because stability could be quite desirable here, but it's not exactly without downsides either.
Yes, but the difference between a normal informed person and Jaichind is that the former doesn’t actively cheer for a recession.
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« Reply #29 on: April 26, 2022, 12:34:17 PM »

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.

For me, a recession is a feature and not a bug.  A recession will allow for labor and capital engaged in value-destroying activities to be reallocated to value-creating activities.  Right now we have a situation where you are paying people to borrow money (in after-inflation terms.)  The longer this goes on the greater the economic distortions and worse the long-term economic growth prospects will be.
I pretend to be a sociopath sometimes for fun, but dude cmon. 

The sad (but inevitable) fact is that in the long-term a recession of some kind is inevitable. Dread it, run from it, market distortions (and excessive debt) bring recessions or even depressions all the same. In that way, they are more akin to forest fires than anything else. Recessions are part of the economic cycle. It's better to have several small ones than one big one.

Of course, what is most likely to happen if we have another recession is that the government simply puts boatloads of money in the hands of corporate America - again (not like they didn't already do that during corona). Essentially, that is corporate welfare. And it's funded by us, John Q. Public, whether we will it or not. I'm not necessarily hostile to that, because stability could be quite desirable here, but it's not exactly without downsides either.
Yes, but the difference between a normal informed person and Jaichind is that the former doesn’t actively cheer for a recession.
I mean, at this point, it is in his interest, as a wealthy man, for this to happen.
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It’s so Joever
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« Reply #30 on: April 26, 2022, 04:37:21 PM »

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.

For me, a recession is a feature and not a bug.  A recession will allow for labor and capital engaged in value-destroying activities to be reallocated to value-creating activities.  Right now we have a situation where you are paying people to borrow money (in after-inflation terms.)  The longer this goes on the greater the economic distortions and worse the long-term economic growth prospects will be.
I pretend to be a sociopath sometimes for fun, but dude cmon.  

The sad (but inevitable) fact is that in the long-term a recession of some kind is inevitable. Dread it, run from it, market distortions (and excessive debt) bring recessions or even depressions all the same. In that way, they are more akin to forest fires than anything else. Recessions are part of the economic cycle. It's better to have several small ones than one big one.

Of course, what is most likely to happen if we have another recession is that the government simply puts boatloads of money in the hands of corporate America - again (not like they didn't already do that during corona). Essentially, that is corporate welfare. And it's funded by us, John Q. Public, whether we will it or not. I'm not necessarily hostile to that, because stability could be quite desirable here, but it's not exactly without downsides either.
Yes, but the difference between a normal informed person and Jaichind is that the former doesn’t actively cheer for a recession.
I mean, at this point, it is in his interest, as a wealthy man, for this to happen.
Maybe but humans have this thing called empathy.
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sg0508
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« Reply #31 on: April 28, 2022, 07:05:49 AM »

Rising interest rates alone are not going to solve the problem. We have a supply shortfall globally, people continue to refuse to work and real estate (both on a renting and owning) front are now unaffordable.
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jaichind
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« Reply #32 on: April 28, 2022, 07:54:17 AM »

USA Q1 QoQ GDP came in at -1.4% versus an expected 1.0%.  Net exports and inventories seem to be the main reason.  This sort of shows that inflation is driven by excess demand which is beyond what the supply side can produce.   The only way out is to raise interest rates to curb excess demand.    Of course, it seems it is already too late. Stagflation is coming soon.
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jaichind
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« Reply #33 on: April 29, 2022, 10:45:49 AM »

Fed rates swap markets now price in a 50/50 chance of a 75 basis points hike in June.  That would be the largest jump in Fed rates since 1994 and it seems very necessary.
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« Reply #34 on: April 29, 2022, 12:48:17 PM »

Fed rates swap markets now price in a 50/50 chance of a 75 basis points hike in June.  That would be the largest jump in Fed rates since 1994 and it seems very necessary.

We can't only rely on interest rates increase even though some are necessary over the long term.
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jaichind
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« Reply #35 on: May 03, 2022, 08:07:52 AM »

IMF's Rogoff Sees Fed Hiking Rates Up to 5% as Things ‘Out of Control’

Finally someone that see things my way. 
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jaichind
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« Reply #36 on: May 03, 2022, 11:43:58 AM »

USA Q1 QoQ GDP came in at -1.4% versus an expected 1.0%.  Net exports and inventories seem to be the main reason.  This sort of shows that inflation is driven by excess demand which is beyond what the supply side can produce.   The only way out is to raise interest rates to curb excess demand.    Of course, it seems it is already too late. Stagflation is coming soon.

The other good option would be investing in expanding the productive capacity of the supply side. We could just have more stuff! (Not that hiking inflation rates in the short term isn't a good idea, of course.)

But that very act of investment will in the short run push up demand for capital goods which will be crowed out by excess demand in the economy already.  The only solution is a large rise in rates which would remove excess liquidity in the system as well as remove economic activity which is clearly subtracting value so the freed-up resources can be deployed in increasing capacity which are going to value adding.
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jaichind
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« Reply #37 on: May 04, 2022, 05:21:13 AM »

Just to get a sense of the excess demand in the USA economy, 2022 expected exports will be around 2.6% higher than 2014 exports but 2022 expected imports will be around 30.6% higher than 2014 imports.  And this is on top of a 2014 economy which already had a significant trade deficit.  The fiscal and monetary policies of the USA which made the assumption that the underlying issue was one of demand being too low to consume the productive capacity of the economy instead created the opposite problem.  In that sense the Obama, Trump, Biden administrations as long with the Fed should all take the blame.  Demand is so high now that it needs greater and greater net imports to fulfill.  The USA being the world reserve currency means that this can be spontaneous  financed world excess savings but on the long run there is no free lunch.
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jaichind
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« Reply #38 on: May 04, 2022, 05:48:31 AM »

JPM CEO Jamie Dimon in an interview with Bloomberg said

a) Federal Reserve should have moved quicker to raise rates 
b)  There is a 33% chance of the Federal Reserve’s actions leading to a soft landing for the U.S. economy and a 33% chance of a mild recession.
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jaichind
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« Reply #39 on: May 04, 2022, 01:49:22 PM »

Fed raises rates 50 bp but rules out 75 bp increase in the future.  Disappointing.  Fed is taking the risk of having to take much more dramatic steps next year.
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Asta
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« Reply #40 on: May 04, 2022, 06:22:30 PM »

The reception in the stock market was positive, probably due to the prospect of abatement in inflation.
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jaichind
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« Reply #41 on: May 04, 2022, 06:27:19 PM »

The reception in the stock market was positive, probably due to the prospect of abatement in inflation.

Market went up because many including me expected a 75 bp move and the Fed communications seems to rule out future 75 bp moves.   Long term Inflation swaps went up as this means high inflation is expected to last longer.
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Cassandra
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« Reply #42 on: May 04, 2022, 08:55:52 PM »

Just to get a sense of the excess demand in the USA economy, 2022 expected exports will be around 2.6% higher than 2014 exports but 2022 expected imports will be around 30.6% higher than 2014 imports.  And this is on top of a 2014 economy which already had a significant trade deficit.  The fiscal and monetary policies of the USA which made the assumption that the underlying issue was one of demand being too low to consume the productive capacity of the economy instead created the opposite problem.  In that sense the Obama, Trump, Biden administrations as long with the Fed should all take the blame.  Demand is so high now that it needs greater and greater net imports to fulfill.  The USA being the world reserve currency means that this can be spontaneous  financed world excess savings but on the long run there is no free lunch.

I'd wager that the jump in expected imports has more to do with firms trying to stockpile resources to hedge against inflation than it does with the fiscal decisions of all past three administrations. Inflationary Mindset has settled in.
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jaichind
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« Reply #43 on: May 05, 2022, 06:38:25 AM »

BOE raises rates by 1% and indicates that

a) Inflation will peak out at over 10% in the UK
b) There will be a recession in the UK in 2023

India's RBI also did a surprise unscheduled 0.4% rate hike and there will be a lot more to come as the inflation surge in India is deemed to become out of control.
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jaichind
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« Reply #44 on: May 05, 2022, 08:10:07 AM »

Former Fed economist Andrew Levin said in an interview with Bloomberg

"Unfortunately, the Fed is still not following the basic principles of sound monetary policy that it has laid out on its own website.

What really matters to the economy is the inflation-adjusted interest rate, which is the rate minus inflation. At this stage getting to a neutral rate, where it is no longer pushing inflation even higher, is the top priority. The monetary policy stance is neutral when the federal funds rate is just a bit higher than the underlying trend of inflation.

Right now the underlying level of inflation is running at about 5% once you take out transitory factors, so the inflation-adjusted interest rate is deeply negative (about -4%). Getting to neutral, as Fed Chairman Jerome Powell said himself Wednesday, is still a long way off. He appeared to take the possibility of a 75-basis-point increase off the table, preferring to stick with smaller hikes in coming months. And that means the Fed could still be adding fuel to the inflationary inferno, even by the end of this year.

And as we talked about in our previous chat, it's very plausible that inflation will be headed higher this year, not downwards. So it's clear the Fed has a long way to go. If it's going to start following the principles of sound monetary policy, then that may well call for a federal funds rate in the range of 5% to 8%."

Which is my point about the Fed rate needing to be above inflation especially when you are trying to control inflation.   
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jaichind
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« Reply #45 on: May 05, 2022, 11:04:45 AM »

Market way down today as it dawned on investors that a slow rise in Fed fund rates means the party goes on longer but also means a much more aggressive rise in rates will most likely take place leading to an even bigger downturn.

At this stage the Fed's choices are

a) significant chance of a medium-sized recession in 2023

OR

b) Even bigger chance of a very large recession in 2024
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« Reply #46 on: May 06, 2022, 01:29:00 AM »

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.

For me, a recession is a feature and not a bug.  A recession will allow for labor and capital engaged in value-destroying activities to be reallocated to value-creating activities.  Right now we have a situation where you are paying people to borrow money (in after-inflation terms.)  The longer this goes on the greater the economic distortions and worse the long-term economic growth prospects will be.
I pretend to be a sociopath sometimes for fun, but dude cmon. 

The sad (but inevitable) fact is that in the long-term a recession of some kind is inevitable. Dread it, run from it, market distortions (and excessive debt) bring recessions or even depressions all the same. In that way, they are more akin to forest fires than anything else. Recessions are part of the economic cycle. It's better to have several small ones than one big one.

Of course, what is most likely to happen if we have another recession is that the government simply puts boatloads of money in the hands of corporate America - again (not like they didn't already do that during corona). Essentially, that is corporate welfare. And it's funded by us, John Q. Public, whether we will it or not. I'm not necessarily hostile to that, because stability could be quite desirable here, but it's not exactly without downsides either.
Yes, but the difference between a normal informed person and Jaichind is that the former doesn’t actively cheer for a recession.
I mean, at this point, it is in his interest, as a wealthy man, for this to happen.
Maybe but humans have this thing called empathy.

To be fair to jaichind (I can't believe I'm saying that), Paul Keating back in the 90s described a downturn in Australia as "the recession we had to have" for the same reasons concerning longer-term reconfiguration of economic priorities. I doubt jaichind's actual reasons for wanting this are as [checks notes] noble as [checks notes again] Paul Keating's, though.
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jaichind
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« Reply #47 on: May 06, 2022, 12:10:50 PM »

Mohamed El-Erian, a closely followed bond-market strategist, says the Federal Reserve has a trust problem with financial markets and the nation over inflation by ruling out a 75 bp rate increase in the future.
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jaichind
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« Reply #48 on: May 07, 2022, 05:27:20 AM »

For the first time since the Summer of 2019 the real 10-year treasury bond yield (yield minus inflation swaps for that same duration) turned positive.  I like to see that go up another 0.5%-0.7% to be in 2018 levels but this does seem to indicate that long-run projections pricing are beginning to move toward normal levels and the medium maturity bond rout is more than halfway done.  It is the short-term rates that are crazy low and there will be a lot more turmoil ahead as the Fed tries to avoid a large crash in the next couple of years.
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luplay
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« Reply #49 on: May 09, 2022, 04:48:21 AM »

Good thread
I have learned a lot.
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