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Fed Raises Rates by 75 Basis Points To Clamp Down on Inflation (bloomberg.com) 153

Posted by msmash from the tussle-continues dept.
Federal Reserve officials raised interest rates by 75 basis points for the second straight month, delivering the most aggressive tightening in more than a generation to curb surging inflation -- but risking a sharp blow to the economy. From a report: Policy makers, facing the hottest cost pressures in 40 years, lifted the target for the federal funds rate on Wednesday to a range of 2.25% to 2.5%. That takes the cumulative June-July increase to 150 basis points -- the steepest since the price-fighting era of Paul Volcker in the early 1980s. The Federal Open Market Committee "is strongly committed to returning inflation to its 2% objective," it said in a statement released in Washington, repeating previous language that it's "highly attentive to inflation risks." The FOMC reiterated it "anticipates that ongoing increases in the target range will be appropriate," and that it would adjust policy if risks emerge that could impede attaining its goals.
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Fed Raises Rates by 75 Basis Points To Clamp Down on Inflation More

Fed Raises Rates by 75 Basis Points To Clamp Down on Inflation

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  • Good (Score:5, Insightful)

    by alvinrod ( 889928 ) on Wednesday July 27, 2022 @01:36PM (#62738944)
    As much as people will grumble about it, not hiking rates (and continuing to do so as needed which is likely the case) only makes it worse later.
    • My only hesitation is we are already hearing about signs of cooling off, such as layoffs, and buying fewer/cheaper items at restaurants [cnbc.com]. So, I hope they don't overshoot.

      Of course they are the experts and look at this stuff all day, so...

      • Re: (Score:2, Offtopic)

        by poptix ( 78287 )

        Yeah, from the same government that didn't think to have a strategic supply of.. face masks.

        We're fucked.

        • Re: (Score:2, Insightful)

          by olsmeister ( 1488789 )
          Also the same government that is draining our Strategic Petroleum Reserve because they feel gasoline prices are too high going into the midterms. Truly an emergency, that.

          • Re: (Score:2)

            by edwdig ( 47888 )

            This has been how the Strategic Reserve gets used for decades now, if not longer. I was surprised by it when I first heard about it too, but at this point its pretty clear that this is expected behavior. You'd get a huge backlash if it wasn't used this way.

          • Re: (Score:2, Interesting)

            by TomGreenhaw ( 929233 )
            What Biden has done is actually smart. He is selling petroleum reserve stocks at high prices and will refill at cheaper cost. He's making a bundle for the US.
            • That was kind of my thought as well. Buy low, sell high. Also helps level oil prices.

          • Re: (Score:3, Informative)

            by Anonymous Coward

            "In March 2020, Trump directed the Department of Energy to purchase 77 million barrels of crude oil to completely fill the SPR. Such a purchase, however, required congressional funding. The request was included in an early version COVID-19 relief legislation, but the $3 billion request did not make its way into the final draft of the bill that was passed into law, with Senate Democrats taking credit for its removal."

            "The Trump administration's plan to top off the Strategic Petroleum Reserve ran into a block

          • Re: (Score:2)

            by bn-7bc ( 909819 )
            Yes to the once rhst might loose their majorery in the midterms it is an emergency, the once in power tend to be less popular when fuel prizes are high.

        • Re: (Score:2)

          by NFN_NLN ( 633283 )

          > Yeah, from the same government that didn't think to have a strategic supply of.. face masks.

          Don't forget the citizens that thought they needed a strategic supply of toilet paper during a pandemic.

          We ARE fucked.

          --
          Just because you disagree doesn't mean it's not true.

        • Re: (Score:3)

          by gtall ( 79522 )

          You somehow seem think the government is one giant sticky wad were every piece moves in concert with every other piece. The government you think failed to have a strategic supply of face masks also runs NiH that keeps Joe's Fish Balls and Pharmacological Products from putting out dodgy pills. DoD has nothing to do with face masks except as possibly a buyer.

          If you want to point the blame for no strategic supply of face masks, start at Congress. That is where appropriations get started. They continually ignor

      • Most of these layoffs, are due to inability to be properly staffed. While layoffs seems like a counterintuitive response to this problem. However, it is a case where staffing shortages isn't equally spread out.
        So say for example you are short of people who can do Manufacturing, so your companies output is less, so you will end up laying off people in marketing, or IT. Because you have to scale your company down to match the levels of output you can achieve.

        You could say take those people in Marketing and

      • Are you missing the fact that Yellen [nypost.com] and the Fed Chair Powell [allsides.com] both admitted to getting it wrong? I wouldn't trust these morons with my wallet.

      • Re: (Score:3)

        by ceoyoyo ( 59147 )

        There are two ways to fix inflation: make more stuff, and make people less able to afford stuff. Guess which one a central bank has most control over?

    • Re: (Score:3, Interesting)

      by edi_guy ( 2225738 )

      Agreed. The two prior executive administrations (Dem and Rep) abrogated their responsibilities in this regard and were happy to enjoy the 'fruits' of cheap money for each of their political needs. Congress (again both sides) is even worse and will happily undermine the economy, and therefore the nation with increasing deficit spending, blaming the other side along the way. I understand that the Fed is independent to an extent, but there is an undeniably link between Fed policy and government fiscal pol

      • Re: (Score:3)

        by GlennC ( 96879 )

        And the best part (at least for Congress) is that each side of the Party can blame the other and most people will happily vote them back in.

      • The problem is that reigning in the budget harms a politician's shorter-term career. Handing out "candy" to citizens and corporations gives a politician bragging points; "Look what I brought you!". Most representatives are not around after 10 years such that bigger debt is relatively unlikely to directly affect them. Voters have short-term memories anyhow.

        There needs to be a more direct way to punish politicians. The deficit ceiling was supposed to be a tool for that, but it just creates chaos and shutdowns

        • There needs to be a more direct way to punish politicians. The deficit ceiling was supposed to be a tool for that, but it just creates chaos and shutdowns.

          The only reliable way to do this is by voting them out. If the society keeps electing narcissists and sociopaths and idiots, it's going to get what it votes for.

          To be fair, academics and Very Smart People have been pushing the idea that you can print money without consequence, and Debt Doesn't Matter. They point to Japan and it's worked in Japan for some

        • Speaking from the UK, we have an internal election of a new PM going on, and there is the amusing spectacle of the two hopefuls trying to say they will do better than the previous administration, even though they were part of it. You can't dish out the usual short-term goodies while kicking the can down the road for the other lot to deal with, when YOU are the other lot. You can't blame the Labour party for current economic woes, if they have not been in power for 12 years.

    • Re: (Score:3, Insightful)

      by brickhouse98 ( 4677765 )
      We're already seeing the effects of that considering the rates should've been hiked in 2017 or so and QE lessened to near nothing. We're paying for the party we had then with a hangover now.
    • My hesitation is some of this was caused by lack of travel and medium term supply chain issues. For housing issues, especially in major markets, it was Wall Street money fleeing Commercial REITs because of a shrinking market. That money went to buy trailer parks, apartments, and finally: single-family homes. That pushed housing (rent and home prices) into the stratosphere. Still we've seen housing contracts shrink in proportion.

      They aren't doing much to punish Wall Street speculation or the behavior that
      • Housing cannot be both affordable and a good investment simultaneously. Everybody talks about housing until it's time to build something near their community that would "hurt property-values" like a medium density mixed use development. Oh the traffic, oh the noise, oh it won't pay enough taxes to cover the cost et cetera.

        Here in Florida, we have a policy that every community is *required* to provide for an increased number of housing units in according with predicted population trends. But even that d

        • NIMBY in the US is a given. I live near a small airport, single runway of 5000' mostly prop planes, by choice. That airport has been around since WWII. Can you guess how many neighbors whine about the airport? Keep in mind that there weren't ANY houses within 50+ miles when the airport was built...

          However if you want to see something funny just watch the 60 Minutes where Wall Street money man tells you that Millennials don't want to own a home:

          https://youtu.be/ZEwxYvQVU5g?t... [youtu.be]

          Quite hilarious. Remem

        • Re: (Score:3)

          by EvilSS ( 557649 )

          Housing cannot be both affordable and a good investment simultaneously.

          Sure it can. It was that way from after WWII up until fairly recently. The problem is, well, two fold. One, a lot of people went from seeing a home as a long term investment to seeing them as a get rich quick scheme. Flipping, short term rentals, long term rentals. One of the causes of the 2008 crash was people thinking home prices would rise quickly forever. So instead of buying something they could afford and planned to live in for a long time, they took out cheaper balloon mortgages to allow them to buy

          • Housing being such a good investment from WWII to today is why it is now unaffordable. Had housing prices risen at say half the pace, housing would now be very affordable. Housing can be affordable at the time you buy it and then turn into a good investment but it does so at the cost of future generations being able to purchase.

            • Re: (Score:2)

              by EvilSS ( 557649 )

              Housing being such a good investment from WWII to today is why it is now unaffordable.

              Ah, no. Outside of some crazy niche markets like LA, NYC, and SF, housing was affordable until pretty recently. Home prices increased over time, but it was a slow increase. Even into the 90's and early 2000's home prices were not out of reach for most people. Today however... I live in a small suburb of a larger metro area. Home prices around me inched up over the 30 years I've been here, but always remained reasonable. That is until 2008, then again in 2021. 2008 they surged then crashed, but not quite to

              • I guess it depends on your definition of good investment. If you bought a house at the end of WW2, price increases largely tracked general inflation. So a house neither gained nor lost real value although it gained nominal value. When you factor in mortgage interest and real estate taxes, you really didn't make any profit. Houses are an excellent *store* of wealth. Each month you pay the interest and (escrow for) taxes plus a chunk of the principle so it's a form of forced savings.

                For the past twenty

              • Re: (Score:2)

                by ranton ( 36917 )

                Ah, no. Outside of some crazy niche markets like LA, NYC, and SF, housing was affordable until pretty recently.

                In places where housing was affordable, it wasn't a great investment.

          • Re: (Score:3)

            by ranton ( 36917 )

            The reason housing cannot be affordable and a good investment is that in today's economy a good investment needs to grow must faster than inflation. This is accomplished through innovation. There isn't anything to innovate in housing, unless we want to change how people live in some dramatic way. One example is creating more dense housing, which increases the value of the land when it is zoned for multi-family use. But for the most part housing can never compete with an economy which is growing through scie

        • Re: (Score:2)

          by ceoyoyo ( 59147 )

          Housing can't be a good investment in the long term. It's an unproductive asset, so either it doesn't appreciate, or, if it does, it just gets so expensive nobody can afford it. Option B also has the charming side effect of making everyone, including you, poorer.

      • If we got rid of every CEO bonus, in your world, there would be no inflation?

        • Re: (Score:3, Insightful)

          by Inglix the Mad ( 576601 )
          Did I say that? No. However when you see articles penned it's always how peons getting raises is jacking inflation. So someone at McDonalds starts making US$15/hr and that causes inflation... but CEO get's a US$10M bonus (on top of even more cash pay) and that's not a problem.

          The problem is the hypocrisy. I get that this is impossible for most people weaned on Republican "economics" to understand so I'm going to lay this out pretty blatantly.

          In the early 1970's a married with kids, single income, home

          • Re: (Score:2)

            by tsqr ( 808554 )

            So someone at McDonalds starts making US$15/hr and that causes inflation... but CEO get's a US$10M bonus (on top of even more cash pay) and that's not a problem.

            According to numbers from the Bureau of Labor Statistics for 2019:
            Number of Chief Executives: 200,480 Chief Executives
            Mean annual wage: $213,020

            BLS doesn't provide information on bonuses and stock; it's probably safe to assume those together are about as large as the salaries on average (bonuses and stock awards tend to become much larger than salaries towards the top of the ranking). Anyway, these people make good money, but they aren't the ones pulling in $10 million bonuses.

            Then there are CEOs of Fort

          • Did I say that? No. However when you see articles penned it's always how peons getting raises is jacking inflation. So someone at McDonalds starts making US$15/hr and that causes inflation... but CEO get's a US$10M bonus (on top of even more cash pay) and that's not a problem.

            Wouldn't the problem be a scale one as well as the shopping market they are in?

            When a CEO gets a bonus, that 1 person and they usually buy more expensive (and better) stuff outside the range of the rest of us. If you moved McDonald's 200,000 employees up to $15 (assuming they were at minium wage which they aren't - not even in Texas), that 200,000 employees buying stuff in our price brackets. Then times that by every company out there making minium wage and you can see the effects.

            Like it or not, milliona

          • Re: (Score:2)

            by ranton ( 36917 )

            So someone at McDonalds starts making US$15/hr and that causes inflation... but CEO get's a US$10M bonus (on top of even more cash pay) and that's not a problem. The problem is the hypocrisy.

            Arguably there has been massive inflation on the types of assets purchased by CEOs and other wealthy individuals. The top 10% of households in the US own 80% of US held stock market wealth. The value of the stock market has inflated drastically in recent decades, and this is the type of asset purchased with the majority of a wealthy person's income. If you give a wealthy person an extra $10 million, they aren't going to buy much more housing, food and clothing. And if they do, it will likely only raise the

    • Re: (Score:2)

      by gtall ( 79522 )

      I suppose. But higher interest rates will not cure the global price of oil, that's not something the U.S. over which the U.S. has much control. That includes gas. The U.S. produces mostly the wrong grade of oil for cracking into gasoline. That kind of oil is mainly produced by Venezuela and Russia. V's oil production has been falling due to incompetence. Russia presents its own problems.

      Higher interest rates will not solve the supply chain problems from outside the U.S. to inside the U.S.

      I cannot figure out

    • As much as people will grumble about it, not hiking rates (and continuing to do so as needed which is likely the case) only makes it worse later.

      How do you figure that? This is supply-side inflation, not demand-side. There is plenty of evidence that on the demand (ie. consumer) side people are hurting and do not have disposable income. Look, for example, at the increasing inventories of big-ticket items at Walmart, Target and other big box stores. Look at the now-record monthly figures for car loans: car prices went up because supply was unable to keep up with demand.

      Interest rates are the only lever the central banks have to work with, and I simply

      • That's something our economy has been suffering from for a while now. We lack money on the demand side. On the other hand, this kept our inflation on very low levels. Almost unhealthy low levels, even. We had an overwhelming surplus of goods but the demand for it was drying up because people lacked the means to satisfy it. They had desire, but only desire + means of ackquisition = demand.

        The higher interest rates are not going to do much for or against consumer demand, to be honest. For most people who coul

    • Well, it's a decent FP, but I question your assumptions that they know actually know that much about what they are doing. How can they pretend to reduce all the complexities of managing a gigantic and complicated economy down to a single number? Even more amusing, that magic number must always end with one of four possible values? And with the changes of the magic number limited only to take place on certain dates that are convenient for their committee to vote on?

      If the Fed actually know WTF they are doing

    • Re: (Score:3)

      by thomn8r ( 635504 )

      As much as people will grumble about it, not hiking rates (and continuing to do so as needed which is likely the case) only makes it worse later.

      Hiking interest rates isn't going to do anything to stop the consumer price-gouging free-for-all we've been seeing for the past year.

    • It's a mistake. The same way they were too late to raise rates, they're keeping it going too steeply for too long. The full effects of the last hike haven't even rippled through the economy yet. And we're already seeing things like huge inventory builds and fairly large across-the-board labor force reductions.

      Inflation is solved. The only reason it continues to "look bad" is because they use year-over-year comparisons. All the components that matter are dropping. Housing prices have effectively plate

  • As usual, the Fed is way behind the curve. Rates should have been raised back in 2018. Keeping rates at zero for years is great way to get inflation out of hand, not to mention the repeated and unending taxpayer handouts to all those failing companies such as Intel or J.P. Morgan.

    It is quite clear no one at the Fed, particularly the head honcho, has stepped foot out of their ivory tower to witness first hand the soaring prices for goods we peons have witnessed over the last several years. Had they done s

    • Add the Euro ,UK and Australia for failing to hike interest rates early as well. And they are still pussyfooting with sub 0.75 hikes, because it makes some voters hold a grudge, and translates into lost votes come election time. Turkey decided not to to raise interest rates (thinking it was western bullshirt) and look what results over there - 80-160% inflation. This is the chance that Reserve Banks's rarely get to scorch the hedge fund better's
  • When prices rise, that's a market signal. If only a single product's price starts increasing, that's a signal to the consumers: "only buy this if you really need it, because we don't have enough to go around," and it's also a signal to producers: "make more of this stuff." But when prices rise on all products (inflation) it's a signal to increase broad based output. But we're already at (nearly) full employment, so we can't produce any more. Once we're near full employment, there are only minor things y
    • Our labor pool is not maxed out. US workforce participation rates are low because wages often don't even cover the cost of child care. You can also increase production via automation. Although there are plenty of policy issues, a big driver of US inflation is that Americans are willing to deplete their savings to continue to purchase rather than moderate their lifestyle a bit in the face of inflation.

    • Re: (Score:2, Flamebait)

      by Inglix the Mad ( 576601 )
      Remember that immigrants are "stealin' yer jerbs" when someone complains about not being able to find workers.

      Kind of funny that Republicans are losing their -expletive- about immigrants... until the red state / county farmers start crying for labor. Recently a bipartisan bill to make it legal to keep slaves, er, immigrant farm labor, year-round is winding it's way through the halls of power. This will pass as well. The hoops to jump through for citizenship are high enough that it'll keep the peons in li

    • Full employment?

      Oh, you mean we've reached the level where you can't find people anymore that would not incur a loss by working at the price offered for their workforce? Yeah, that we reached. Then again, would you produce and sell your goods, knowing that every item you sell means a loss to you?

      Probably not.

      Then why do you think the workers are that stupid?

  • But inflation is due from many sources which an overly aggressive monetary policy will only magnify the pain of enduring. Things like unprecedented supply disruptions from multiple angles (pandemic shutdowns, ships blocking the suez, war in ukraines and concomitant blockades). Monetary policy will remove currency supply and slow liquidity. Sure that'll curb demand for those things that can wait, but people can't give up driving (at least not in the US, oh how I wish!) so gasoline/crude oil demand won't decl

    • Re: (Score:3, Interesting)

      by Tailhook ( 98486 )

      But inflation is due from many sources which an overly aggressive monetary policy will only magnify the pain of enduring.

      This. Inflation caused by excessive currency devaluation and debt spending by essentially all major economies because COVID, the destruction of businesses (i.e. competition) via lockdowns because COVID, the stranglehold of docker worker unions on ports, the climate agenda and its deliberate inflation of fossil fuel prices and every other source of self inflicted constraint of supply can't be solved by raising interest rates.

    • Now if, for example, this leads to the conversion of oversized homes into sense-making sized duplexes or triplexes, I'll be the first to send the Fed and congratulations card from hallmark.

      You will find that local policies in the US prevent exactly what you describe hence the housing shortage. You now see this happening unofficially where two families rent a large house together. But then local ordinances and HOAs pass rules to prevent even that.

  • So slow (Score:5, Insightful)

    by nagora ( 177841 ) on Wednesday July 27, 2022 @02:01PM (#62739044)

    When the banks are threatened the Fed slashes interest rates; when ordinary people are threatened they take their time to the point where they're now raising interest rates as the US enters recession. Brilliant work.

    It must be great to have a job where it literally doesn't matter how bad you are at it.

    • Since banks make money through interest (lending), would slashing the rates hurt more than help them?

      • Re: (Score:2)

        by nagora ( 177841 )

        Since banks make money through interest (lending), would slashing the rates hurt more than help them?

        Banks also borrow money, but beyond that a lot of the banks' paper value is in mortgages and if people default then that causes trouble for the banks as they have legally required asset to lending ratios. In 2008, which is the start point for the current "short term emergency measures" like QE and ultra-low interest rates, the rates were dropped in a desperate bid to buoy up the house markets in the US, the UK, and Europe even though Japan had showed that the tactic is very hard to get out of. With asset pr

    • The pandemic did crash the economy and something had to be done to avoid a deeper recession. The tricky part is the pandemic keeps spiking up and down*, making timing of stimuluses and rate changes difficult. Hindsight is a powerful analysis tool, but decision makers obviously don't have that when they have to actually pull the lever (or decide not to).

      You arm-chair "Feds" make it sound so easy. If you are so smart, then use stocks/puts/shorts to make money off your prediction ability. When you are a billio

      • Re: (Score:3)

        by nagora ( 177841 )

        The pandemic did crash the economy and something had to be done to avoid a deeper recession.

        The pandemic is not the starting point of this story. The starting point was the huge asset bubble that burst in 2008 and the frantic efforts to protect private companies from the consequences of their actions by levying taxes on ordinary people. That sprung the trap for the central banks. More than a decade on they were still trying to pretend that they had saved the world. The pandemic arrived long, long after the QE fiasco started and is largely irrelevant in that it didn't somehow destroy some masterful

  • Why does raising the government interest rates lower the inflation?

    If you have money in the bank, inflation lowers the value of that money.

    • Re:Raising interest rates lowers inflation? Why? (Score:4, Informative)

      by EvilSS ( 557649 ) on Wednesday July 27, 2022 @02:13PM (#62739068)

      Why does raising the government interest rates lower the inflation? If you have money in the bank, inflation lowers the value of that money.

      https://www.youtube.com/watch?... [youtube.com]

      • and the corporate media is in on it:
        https://www.youtube.com/watch?... [youtube.com]

        • Re: (Score:2)

          by EvilSS ( 557649 )
          They are in on a 100 years of economics? Might want to loosen the tinfoil hat a bit.

          • You think the expert I linked to in video is a conspiracy nut?

            1. I've actually known some people in the corporate media; they've confirmed the biases one of which is to blindly stick to prior reports rather than revisit "settled" reporting. They parrot too much; especially now with the financial crunch.

            2. Some have to deal with corporate pressure to filter and spin from small things like how email viruses were only reported generically when every expert told them it was only MS Outlook but they simply could

    • The real value of your money is the inflation rate - the interest rate. If interest is high enough, you actually make a profit on your cash in the bank.

    • Re: (Score:2)

      by vux984 ( 928602 )

      If you have money in the bank

      Then you are doing it wrong! :)

      Seriously, if you have money in the bank, even low inflation is devaluing that money; so that's a terrible thing to do with significant amount cash for any length of time.

      Raising the interest rate, raises the cost of debt. Increasing the cost of servicing debt is a major disincentive to taking on that debt so businesses take fewer/smaller loans and slow down their expansion, reducing demand on their suppliers, reducing demand for their own employees and their suppliers own dem

    • Re: (Score:2)

      by ceoyoyo ( 59147 )

      Raising interest rates makes it more expensive (and harder) to borrow money and pay for the loans you already have. Most people have loans so that directly makes them poorer. It also makes businesses spend money more carefully, which means layoffs, which means people are poorer. Poorer people buy less stuff. The law of supply and demand says that if demand falls and supply doesn't, price falls. The gotcha is that if supply falls with demand you're screwed.

    • Let's say that the Euro and the USD had equal purchasing power and EU and US interest rates were equal. Now imagine that the USA raises its interest rates. For a brief time, you could borrow Euros at a low rate, convert them to USD, deposit them in a US bank and make a risk-free return on the difference in rates. This is called arbitrage, and it doesn't last long because the people who trade US dollars for Euros know what's up, and start charging you more for US Dollars until the arbitrage disappears. T

  • Meanwhile, in the next room: While the Fed hiked interest rates to combat inflation, Congress finally passed a version of Biden's multi-billion dollar spending bill. The spending will be funded by the printing presses at the Federal Mint. We are told that this will not affect inflation at all.

  • https://twitter.com/i/status/1... [twitter.com]

    In both cases when you start drinking or printing too much money, the good effects come first. And in both cases there's a temptation to over do it.

    When you stop drinking or stop printing money the bad effects come first and the good the effects come later. That's why it's so hard to persist with the cure.

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