> I am not convinced it will dent anything other than home and car prices.
It will. All corporations will see their debt servicing cost go up. A lot. They'll start the layoffs. How many posts on HN are about layoffs at this and that well-known tech company?
Once people fear for their job, they'll start being more cautious with their spending. Less demand means prices will go down.
At least that's how the Fed thinks. They are trying to destroy demand. They know they can't increase supply (obviously), so they are going after the demand. If 3.75% is not enough (spoiler alert, it won't be enough), they'll go to 4.5%. And then to 5%. If it's still not enough (spoiler alert, ... it won't be enough), they'll go higher.
You may not be convinced, and it looks like a lot of people are unconvinced, but the Fed means business. All the members of the Fed know history, and know that in the '70s the Fed lacked the backbone to keep the rates high enough long enough to beat the inflation. They were trying to have both low inflation and some semblance of growth. They got neither. Stagflation for a whole decade.
People who forget history repeat it. Powell will not let history repeat on his watch.
Powell does whatever the popular narrative tells him to and he’s been that way since he took office. The idea that he’s fundamentally a hawk at his core is totally absurd. If that were the case he’d have enacted tougher policies a year earlier when many economists were saying he should and that there was absolutely no reason for the fed to be buying tens of billions in mortgages during a housing shortage with record low unemployment.
Now because he’s lost credibility and everyone thinks he’s a joke he’s acting tough. But in reality he is totally reliant on cpi data. As soon as that comes in (nobody knows when many have been eager to call a top for several months and continually getting burned) the narrative will shift for the fed to slow down or cause a major recession and believe me they will. The sad reality is that this fed is not made of rigorous economists who have some read that nobody else does. They have absolutely no idea what they’re doing or what their policies will or won’t do down the road. So the best they can do is try and preserve market order by giving the appearance of having control and keeping stability.
It’s like dominoes- cpi data moves rates which move the stock market. It’s all one trade.
Great points but imagine how much their eyes will pop once the budgets or spending reports come out and congress finds out how much they’re spending on interest payments on their debt.
I’ll do the math for you: 4%/yr of 31T means they’ll be paying 1.24T in interest expenses per year. Of the 4.9T in tax revenue, 1.24T of it or 25% of it is burned on interest payments on the national debt.[1]
It will. All corporations will see their debt servicing cost go up. A lot. They'll start the layoffs. How many posts on HN are about layoffs at this and that well-known tech company?
Once people fear for their job, they'll start being more cautious with their spending. Less demand means prices will go down.
At least that's how the Fed thinks. They are trying to destroy demand. They know they can't increase supply (obviously), so they are going after the demand. If 3.75% is not enough (spoiler alert, it won't be enough), they'll go to 4.5%. And then to 5%. If it's still not enough (spoiler alert, ... it won't be enough), they'll go higher.
You may not be convinced, and it looks like a lot of people are unconvinced, but the Fed means business. All the members of the Fed know history, and know that in the '70s the Fed lacked the backbone to keep the rates high enough long enough to beat the inflation. They were trying to have both low inflation and some semblance of growth. They got neither. Stagflation for a whole decade.
People who forget history repeat it. Powell will not let history repeat on his watch.