The Fed lowers rates by buying assets, i.e. taking bonds out of the market and putting cash into them. Lowering rates means paring or reversing the last three years' balance sheet reductions [1].
Running down the balance sheet faster would require raising rates. You can't lower rates and reduce the balance sheet unless you're doing off balance sheet fuckery.
[1] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
Ahh yeah, the planned economy that we intellectually dress as something else. Is it the real estate sector that should be prioritized this time? Maybe corperate bonds? or the government?
QE is an incredibly new instrument - we are still experimenting and it is not given that it is a success.
The price of a bond, mathematically, moves inversely with its yield. If you want to raise or lower the yield, i.e. rate, you have to move the price. This isn't a policy option, it's literally the definition of a rate (coupon over price).
> QE is an incredibly new instrument
QE means buying assets that are not Treasuries. Most of the Fed's balance sheet is Treasuries, i.e. not QE.
You can't reduce the balance sheet and lower rates. You can pretend. You could sell bonds and then immediately "borrow" them back. Or start up a bunch of swap lines to banks or whatnot, so they run out and buy the bonds for you.
The short answer is that it depends - it is not not QE. it depends on the magnitude. Current operations seem to go deeper into QE than regular OMO.
> The price of a bond, mathematically, moves inversely with its yield.
Yes? But the central bank han many other ways to influence the rate, eg. overnight rate and OMO instead of buying MBS, etc.
As you indicate yourself, having the FED as a market participant will artificially lower the yield on MBS, which is a form of planned economy on the housing market.
> You can't reduce the balance sheet and lower rates.
Why the insane focus on lowering the rate? Keeping rates below 0 in real terms for long terms can arguable have very adverse effects - especially the day the currency is not backed by the largest military in the world (Which, surprise, is not decades into the future anymore).
Regardless, the future will show what happens. We can nothing but speculate.
I honestly don't know what the Fed does or how it does it. I think if you dig deep enough, it's like that Rick & Morty episode where Rick brings down the entire Galactic Bug Empire by changing a "1" to a "0" in their computer system, thereby making their entire currency immediately worthless.
Monetary systems work on trust until they don't. Then there is a world war.
(edited )
Fed funds is a market rate. OMO stands for "open market operations," i.e. buying and selling assets. Guess where assets bought and sold wind up?
> throughout 2022. Fed reduced balance sheet while hiking target rate
Yes. It sold bonds to push the price down and thus, causally, yield up. Yield is another word for rate.
The Fed hikes rates by selling assets. Selling assets shrinks the balance sheet. It lowers rates by buying assets. Buying assets grows the balance sheet. What it can't do, at least not in net effect, is shrink its balance sheet while lowering rates. (The Treasury can do this because the Treasury can create and destroy money more freely.)
What do you mean? Fed has been lowering rates and reducing the balance sheet for the last 12 months: https://fred.stlouisfed.org/graph/?g=1Mcbz
But that's how the incentives lie. The banks get paid (interest) to print (loans).
This is why we bitcoin.
You want to combat inflation by lowering interest rates?
Also you want to "run off" the balance sheet (quantitative tightening) and lower rates at the same time? I.e., do two contradicting at the same time?
The Fed only sets the federal funds rate, they have less control over the rates further along the curve.l and can only influence them by buying or selling assets.
I agree that this market is irrational but everyone knows the popular saying about that. In the meantime, you can probably make some returns by assuming the money printer will keep stocks propped up for a bit longer. This isn't financial advice. This year has shown that the dollar losing value = higher stock prices. Calls it is.
Equities are up more than inflation for almost any investing consumer.
Inflation, growth and defaults.
Trump has already de facto seized, and the Republicans in the Congress ceded, the power of the purse. Do you really think impounding interest payments is beyond the pale of possibility?
A balanced budget is a popular idea in theory, but very few people actually want to see it happen once they find out what their own cost will be. The politicians are going to do whatever it takes to mollify voters and keep their jobs.
When Democrats leave surplus or just lower speed at which debt goes up ... debt is still their fault.
I truly hope so, otherwise the only buyers for US Treasuries will be Social Security.
Defaulting on sovereign US debt would be something that would make me rapidly look for an exit from the United States.
It will happen in phases: 30 year bonds become 100 year bonds, foreign countries get payments, delayed, etc.
Well sure it is, we aim for some inflation on purpose.
If you mean inflation above 2% is here to stay, maybe, but 2% was an arbitrary target anyway. It doesn't make much difference whether it's around 2% or hovering between 2% and 3%.
If you think it's going to go much higher I'd like to hear why.
It is mainly about credibility.
If they want 3% instead of 2%, they should hit the 2% target first, keep it there for a few years, then increase to 3%.
If the target was no change in prices, we wouldn't say inflation is infinity percent off target every month.
It's a wild time.
- I lead with a thesis about health care jobs.
- I immediately discount it as unknowable based on the data.
- It's a novel idea to worry about job concentration in a particular industry in a modern capitalist economy.
- Adding 20-50% taxes on imports is a hare-brained, earth-shattering, idea. I can't think of an analogue in computers, other than legislating computing is only secure moving forward if we use terenary instead of binary.
Mostly as a curiosity, what you've written here is impossible, lol. I think you mean your grade would range from a D to a C+, inclusive. But you have written that your grade would be greater-or-equal to a C+, yet less-than-or-equal to a D, which would be.... impressive :D
edit: Closed intervals are great for communicating this kind of thing in general. You could say your grade is in the interval [D, C+], where the brackets indicate that D and C+ are included in the options. Compare to the open interval, which would indicate that D and C+ are excluded -- ie (D,C+) includes only the entries D+, C-, C.
In germany we grade from 1 (best) to 6 (worst) and I always just mapped these to A (best) to F (worst) in my mind. makes perfect sense to me. :)
Due to this system I have always considered A > B > C, etc.
Some of my children lived under a different regime in elementary school, which common core and non-letter grading assessments. Target, Near Target and Below Target.
A = 1, B = 2 reminds me of cryptography for some reason. That's probably due to reading Neal Stephenson.
If you look at the debt clock, 2 is working. As for 1, it's a long-term project and you're being too impatient. Also, you are subject to the mass media hand-wringing propaganda that states that everything Trump does is automatically terrible because Trump. It's childish and nonsensical to think that way, however. We need people who think outside of the box and it's not like Trump came up with "tariffs" by himself without the input of smart economist thinkers.
The point is, you lack the big picture.
On point #1, if the US ends up in a shooting war with China (because China is expansionist) it would be very bad for us if we are unable to manufacture critical supplies, particularly semiconductors, whose manufacture is concentrated in Taiwan, a brittle and untenable situation for the entire western world.
Be a crybaby and downvote me now, or listen and learn, your choice. I agree with the rest of what you said, btw--the whole article is just bs.
Only if you look at debt clocks based on government numbers. If you look at debt clocks based on independent estimates, you get an increasing deficit in 2025.
1. is obviously not a long term project because of the flip-flopping and arbitrariness. Tariffs change every month so nobody is doing any long term planning.
As for your big picture items, #1 does not seem to be targeted correctly for that goal, and #2 is a really bad way to structure a general revenue tax and instead we should do things like not pass huge tax cuts.
And if you insult me instead of addressing the criticism I gave to your actual arguments then what am I even supposed to learn?
> Concern about the Fed being unable to meet structural issues
Sounds like a problem IFF there are extensive structural issues.
> Concern regarding weak labor demand in healthcare
> Concern regarding weak labor supply due to new immigration policies
Shouldn't these two problems tend to balance out?
Also:
> Falls in labour supply can impact inflation, economic growth, and public finances. They can add to inflationary pressures—as employers compete for scarce employees by raising wages, adding to the cost of producing goods and services.
It should balance out, shouldn't it, because demand for the resources will decrease as the supply of laborers decreases as well?
(I agree about the annoyance, as most HN readers probably do, but the trouble with these complaints is they routinely get upvoted to the top of threads, where they choke out more interesting discussion.)
nine_zeros•5mo ago
franktankbank•5mo ago
nine_zeros•5mo ago
It isn't. But the dog and pony show going on is also not the right answer. Look at the president and the party - be honest - do you really think this group actually cares to fix anything in the country, with dignity and respect for humans?
thfuran•5mo ago
nine_zeros•5mo ago
No but without dignity and respect for humans you get revolts - which moves the market.
jauntywundrkind•5mo ago
franktankbank•5mo ago
nine_zeros•5mo ago
Which one do you want to talk about?
- Cutting healthcare for masses while giving the super wealthy a tax cut?
- Pedophilia and protection of pedophilia while blaming the "others"?
- Abrupt kidnappings of people based on race when 40% of the country is not white?
- Reducing trust in institutions built by Americans over the decades like CDC while gaslighting parents to not vaccinate their kids?
lisbbb•5mo ago
bediger4000•5mo ago
lisbbb•4mo ago
tmountain•4mo ago
bediger4000•4mo ago
ViewTrick1002•5mo ago
Or you can try inflation, which again leads to the bond market telling you that it didn’t help.
franktankbank•5mo ago
JumpCrisscross•5mo ago
Our legal system is a social construct. Money, a social construct. The economy? The economy is a description of a real system. You can't define away energy scarcity or the cost of distributing food.
franktankbank•5mo ago
JumpCrisscross•5mo ago
Are we actually tariffing China? I thought Trump chickened out on that.
franktankbank•5mo ago
BrawnyBadger53•5mo ago
JumpCrisscross•5mo ago
Yup [1]! It’s higher than it was before. But well below other countries’.
[1] https://www.supplychaindive.com/news/us-china-tariff-pause-e...
SpicyUme•5mo ago
The stacking 50% tariffs on aluminum and steel(deal with this one less, it might be lower?), plus adding new harmonized codes to the tariffed list is a pain in the dick. Visiting friends this weekend we were talking about how they could undercut my sales by being in Canada and having substantially lower cost of goods..
tmountain•4mo ago
thinkingtoilet•5mo ago
JumpCrisscross•5mo ago
Their base doesn't care. I doubt it has ever cared. It, like everyone else, wants the money spent on what it wants.
npoc•5mo ago
coliveira•5mo ago
lisbbb•5mo ago