And there it is. Fed raises rate 0.75%

[VFK57]

Here is another prediction on results of last rate increase (and the rate is only 1.5%-1.75% vs inflation of 8.6%)
https://www.yahoo.com/finance/news/stock-markets-nightmare-scenario-50-123000342.html

 

[HI Bill]

… the big price increases are due to massive supply chain disruptions first from Covid and then some from geopolitical disruptions.

Scarcity of things will cause prices to rise, but raising interest rates does not improve the scarcity problem. It’s going to take a while to sort out the global supply issues, and the Fed can’t help with that. I guess they can try to reduce demand.

We’re still not down to where we started 2020…

Without the stimulus and assistance, we’d already be in a depression. I estimate that something like 50%+ of the small restaurants went out of business, including Honolulu’s top two fine dining restaurants. With supply disruptions and shortages, I’ve been watching building materials like plywood, paint and electrical products inflate radically over the past 18 months. Part of this was increased demand by folks who couldn’t travel or eat out (lots of home improvement projects and grills sold). Undoubtedly, stimulus, staying at home, and extra free $ for employed folks helped fuel inflation. In Hawaii , the big box hardware store isles are currently filled with products that don’t belong in those isles due to delayed shipments, and they have no place else to store the inventory. The shipping container problem put my favorite furniture store out of business, despite them selling all the furniture they could get. Electronics parts sourcing has increased prices and added to back order issues.

 

[almost there]

The problem with this is while the Fed mandate is inflation and employment, it’s raison d'etre is banking stability. When banks primary business was lending and payments, the stock market didn’t matter as much. Now, however, banks aren’t just intermediaries, they also invest and finance investors. Stock market volatility threatens banks liquidity and solvency, so the Fed has to monitor and, when necessary, act.

So the free market has changed then?
Not only banks, but many pensions now rely on an average 7% return.
As they moved more into stocks over the past decade. For a higher return to keep thigs going.

I do hope you are wrong, and interest rates are not based on high flying stocks.
But rather the actual economy.

 

[MichaelB]

So the free market has changed then?

./.

I do hope you are wrong, and interest rates are not based on high flying stocks.

Please reread my post. I wrote nothing about markets being free or not, and I certainly didn’t state or even hint that interest rates or monetary policy is based on high flying stocks.

 

[aja8888]

I don't understand why people spend so much time treating Fed statements as some message from the Delphic Oracle. It doesn't matter what they say, it matters what they do, and they will do what they feel they need to do at the point they do it. Stop trying to front run them and you'll be much happier.

One of the FED's most effective tools is Jawboning. They do this to get a reaction from the masses and financial markets. So it matters what they say ahead of actually doing anything.

 

[pb4uski]

The problem with this is while the Fed mandate is inflation and employment, it’s raison d'etre is banking stability. When banks primary business was lending and payments, the stock market didn’t matter as much. Now, however, banks aren’t just intermediaries, they also invest and finance investors. Stock market volatility threatens banks liquidity and solvency, so the Fed has to monitor and, when necessary, act.

I understand, but the better answer is to go back and have the banks limit themselves to lending and payments to reduce this risk. They could have a holding company at the top as the publicly traded registrant with the regulated bank as one subsidiary and the investing activities walled off in other subidiaries.

That is sort of what happened with AIG... while it's unregulated derivatives arm went off the rails writing credit default swaps the regulated insurers were doing fine and were AIG's ultimate salvation in that many of the insurance operations were sold and the proceeds from those sales were used to pay off the bail out loans made to the company by the U.S. government.

 

[luckydude]

One of the FED's most effective tools is Jawboning. They do this to get a reaction from the masses and financial markets. So it matters what they say ahead of actually doing anything.

They did jawbone the masses by declaring that inflation was transitory last fall. Enough people bought into it that the market hit ATH before finally cratering this year. Nice job by the Fed to get more people into the market and inflate the bubble.

 

[almost there]

All this takes me back to Greenspan and his "Irrational exuberance"
IMO: The fed needs to stay out of the stock market. Period.

 

[PERSonalTime]

CNBC reported it was 1994 when the last time there was a 75 bp increase. I wish they'd do another 75 in July, the only way this mess is going to get resolved is to stop inflation. Just rip the band aid off and get it over with. Maybe another 75 in September?

+1

 

[almost there]

"Originally Posted by Graybeard View Post
CNBC reported it was 1994 when the last time there was a 75 bp increase. I wish they'd do another 75 in July, the only way this mess is going to get resolved is to stop inflation. Just rip the band aid off and get it over with. Maybe another 75 in September?"

It is also interesting when they raised rates 94/95 from 3% to 6% inflation was under 3%. While the .75% is the same now. Everything else going on is apples to bananas.

As we started near zero% interest with 8% inflation. I cant think of a time in history that compares to our current situation. Cant find anything even close historically to what is going on today.

 

[almost there]

The 12 year disconnect many seem to have missed. Somehow?

 

[VFK57]

I think that the Treasury cannot print any more money and purchase the Government bonds as it was done for the past two decades. The higher interest rates would lead to higher budget deficit in order to pay much higher interest for that Debt.

 

[aja8888]

The 12 year disconnect many seem to have missed. Somehow?

No, the FED did this on purpose to inflate assets for the rich!

 

[NW-Bound]

... In Hawaii , the big box hardware store isles are currently filled with products that don’t belong in those isles due to delayed shipments, and they have no place else to store the inventory...

The shipments came in late, and now nobody wants these products?

 

[Koolau]

In Hawaii , the big box hardware store isles are currently filled with products that don’t belong in those isles due to delayed shipments, and they have no place else to store the inventory.

It seemed I lived at Home Depot, Lowes and City Mill for 2 years during two remodels. I recall lots of stuff in the aisles even then. It's probably worse now, but, fortunately, I've not needed to go there very often. Last time we went to HD was to buy some tile wax. That was several months ago. Even then, there were boxes in the aisles. YMMV

 

[Koolau]

No, the FED did this on purpose to inflate assets for the rich!

Wait, I thought WE were the rich!

 

[aja8888]

Wait, I thought WE were the rich!

The real rich want you to think like that!