Prediction: this causes a recession in two years, right after a Democrat wins the White House, who will be blamed for it. The economy will turn around after a few years, just in time for a Republican to win and claim they fixed it.
This is how Republicans have a reputation for being economically savvy despite actual evidence to the contrary, because the general population doesn’t understand that economics runs on a time delay.
Another possibility is recession in next two years, but its brief enough that recovery starts before 2028 election - republicans take credit and voters believe it - JD Vance gets elected president.
I recall reading something from axios or similar, talking about how a CEO said a "nice light recession right now would be perfect for us" or something to that effect.
And which party controls congress? I'll give you a hint: It's the party that spent decades advocating for irresponsible tax cuts without cutting spending[0].
[0] Yes, I know that the Republicans said that they were going to cut spending to match the tax cuts, but that never ends up happening.
At what point into a presidential term does it become their actual mess? And is there evidence of a time delay? Because by that argument, the mess we are in would been caused by Democrats.
Usually, months to years. The economy is a very big ship and slow to steer.
This particular crisis is quite abrupt, caused by a sharp jump in the price of oil. Most presidents don't really deserve either the credit or fault that they receive on the economy, but in this case there's a very clear and direct connection.
I may be wrong but I think they are referring to the Republican party's position on trans athletes in sports (literally, who is allowed on a girls sports team) being the only thing that matters to some voters.
Its a joke where all Republicans care about is winning the culture wars. Meaning there are boys on the girls sports teams who identify as girls. Its to get the base mad and get them to vote (supposedly).
But not doing this would, in two years, cause (or at least allow) inflation that would cause harm, too. But Trump might get blamed in that case, because inflation would increase for the next two years, and so people would experience the pain during his term.
I basically agree. I don't care for DJT, but I can see how getting his "second term" underway after his first one could have been better. His four years away allowed him to stew and plan and respond.
It bugs me that the Fed has no mechanism to really deal with supply-shock driven inflation. Prices are shooting up, but not strongly correlated to money supply at the moment. They’re shooting up because there are a dozen or more entirely capricious and totally self-inflicted supply-shocks due to bizzaro tariff “policy”, disastrous military adventurism, and general erosion of the USD the prime vessel for international trade.
The Fed tightening the money supply isn’t going to materially bring prices down, because the money supply isn’t driving the price increases.
> the Fed has no mechanism to really deal with supply-shock driven inflation.
Inflation is just a change in the ratio of money to stuff. You can reduce inflation by increasing the stuff or reducing the money, and cause it by doing the opposite. There's no requirement that the solution is applied to "the same factor", either works.
Sure, if you're wanting to assign blame or worried about externalities these things start to matter. But monetary policy is a perfectly fine tool for dealing with inflation, regardless of the cause.
Note: inflation causes prices to rise, but that doesn't mean that all changes in price are caused by inflation.
You’re describing only one flavor of inflation. What the Fed is supposed to care about is price stability, and lots of things influence prices, and not all of them are money supply and/or new money supply correspondent.
We saw this during COVID, the prices of things shot through the roof because of a combination of supply-chain shocks as well as the already well capitalized seizing the opportunity to spend their war chests locking down as much of the available supply as possible, which resulted in consolidation, which resulted in less available supply.
The random trade wars directly cause goods to cost more for absolutely no good reason whatsoever, it’s just a tax masquerading as a price increase, but the Fed deals in stabilizing prices, not taxes. So, it changing the money supply parameters does nothing.
The weakening of the international trade position of the USD writ large also causes prices to go up for no good reason, and nothing about that is going to be resolved by the Fed fiddling with the money supply parameters because it has to do with the stability and reliability of the U.S. as a trustworthy geopolitical operator, which the Fed can do next to nothing about.
The inflation being experienced as price instability/increases is being induced acutely by terrible fiscal & trade policy, but the Fed is acting to try to “fix it” using monetary policy, which won’t work at all. So, what’s the point? Just to look like it’s doing something?
Yeeep, inflation right now is not a monetary phenomenon. There's also general corporate greed and ever-increasing monopolization, helped out by Trump's lax regulatory hand
Interest rates rising aren't going to fix these sources of inflation.
> inflation right now is not a monetary phenomenon
It usually isn't. That doesn't change that raising rates should slow down credit creation a bit. That reduces demand in a supply-constrained economy. It also reduces risk appetites, which helps in a perilous world. (Finally, it gives rate-cutting headroom for when someone levered blows up.)
> It bugs me that the Fed has no mechanism to really deal with supply-shock driven inflation.
I mean, what would that actually look like? The Fed is insulated from democratic accountability, for very good reasons, but flipside of that is that their powers are intentionally limited. If they had the same immunity to public opinion but with the power to address supply shocks, that would quickly veer into tyranny.
It's a careful balancing act and there is no perfect solution. What's supposed to happen is that Congress acts on supply-shock driven inflation, but this current Congress would rather eat a bag of broken glass than actually govern, which the Fed can't really do anything about.
What it would look like, at the barest minimum, would be the Fed rightly and with receipts calling out the fact that they’re a monetary policy function, and that the current inflationary problems aren’t a monetary one, so if the U.S. would like something done about its inflation issues, then it needs to look someplace else besides the Fed to deal with it.
It doesn’t have to do anything to monetary policy when monetary policy isn’t the problem. It can do nothing.
It’s not the Fed’s job to try to fix terrible fiscal & trade policy, but that’s now what it’s basically trying to do. So, it’s become a political function by virtue of the political apparatus offloading the consequences of its idiocy onto the Fed to clean up after it with a set of tools that can’t even do the cleaning.
Unfortunately, during that time is when they screwed around with the gold confiscations. So the best option would have been to illegally hoard gold until they struck the statute down?
Oof. Wasn't private gold ownership illegal until 1975. So, you have to hide it for 40+ years? That investment strategy has some significant downsides...
The US is going to debase itself endlessly through spend-print-spend-print. At some point they may load up enough debt that the economy suffers a gradual heat death, in the style of Japan, wherein too much of your national capital is going to debt maintenance, sitting in a low yield blackhole sucking the dynamism out of your system (instead of going to productive use, business expansion, R&D, et al).
There's absolutely nothing particularly interesting or special about the direction the US is going. It's very, very, very easy to see what's coming and has been for ~20 years (since Bush nearly doubled the size of the Federal Government and blew up our finances with simultaneous tax cuts + massive spending expansion, we've never turned back from the bleed).
Gold has gone up ~10x since the early Bush years precisely because of the USD debasement, that's the reduction in value in the dollar being represented in the ultimate store of value. All of it has been remarkably predictable. I've been chirping about it forever here and there's nothing special about my insight either, this stuff is plain as day national econ 101.
i know what you mean. 2008 and covid taught me to stop underestimating the abilities/nerve of our financial schemers and their political representatives to kick the can down the road. but i am too anxious about it to think straight. what to do?
The turning point is approaching: Interest rates will gradually overtake all other gov't expenditures. All politics will revolve around shoring up the parasitic drain on the rest of absolutely everything.
Oil is going up, possibly for a long time, which will have a big inflationary effect on everything. And it appears the USA government has lost the conflict it started and effectively given control over key oil delivery channels to Iran. Not to mention Saudia facing real issues from rebel groups / Yemen (simplification).
Government debt is high in several key economies, and the bond market is being saturated with AI-related bonds, as well as possibly people finally tired of lending the USA/France/UK money at low rates and demanding higher ones. And with higher interest rates and bonds rolling over it means more and more money going to pay for the debt, rather than core services.
Wild cards lurking in the bushes... AI, AGI, RSI.
And yonder you have a nuclear power floundering; its only source of hard currency is being rightfully degraded, and its leadership delusional.
And the one to watch IMO... Russian wheat export ability: wheat prices are up considerably, and combined with inflation from oil, this is the kind of stuff that creates waves of political change like the Arab Spring.
This is the right move. Inflationary pressures due to high oil prices and tariffs are not going away anytime soon. All the economic numbers point to a need for a rate hike. Not doing so has a much larger effect on the financial system than a 25 bps rate hike. Stagflation is a bigger risk to the economy.
Counterintuitively the rate hike can help lower things like mortgage rates by stabilizing the bond yields.
I don't think that mortgage rates are going to go down; I think they will go up. Just my opinion.
I also think oil is about to go up even more, maybe for multiple years, which is going to be inflationary on everything we do. But, could be really good for solar growth, electrification, and electric cars.
We'll continue through the depression we've started since 2008. (GDP growth should be closer to 3.5%-5%, but we haven't really escaped sub-2% since 2008) - our GDP has been depressed by at least 1-2% growth since that crisis, and I think a large part of it has been the inflationary cycle we started and never stopped.
The wars already put us into too much debt, Obama continued it for 8 years (granted, the deficit slowly went down, but it wasn't fixed). Trump and Biden did a huge disservice to the debt (but neither really cared much about it), and now I fear the path Bush, Obama, Trump, and Biden have laid will not be easily fixed.
I agree with you. We are still paying for 2008, and compounded the problem with Covid stimuli. I sure wish we would just rip the band aid off at this point, but it might already be too late. The global economy is jacked, China needs everyone to be consumers, and that well is running dry, globally.
Inflation is high, so interest rates need to go up to try to slow that, but the economy isn't doing amazing already, and higher interest rates won't help that.
Not to mention the US debt is _high_ as hell and bond yields mean that's more expensive.
And the country is run by a broken fool who has no interest or ability to fix any of that.
The country has been _run_ by fools for 26 years. Congress has had 26 years to do something about the fiscal situation, and we've had four presidents, and the fiscal responsible side of the electorate is never listened to.
Both sides are to blame - neither will fix the problem. Obama could've made that his goal - he was competent, had a lot of political good will, and many people were frustrated at the bailout policy Bush did, but instead it was inflationary printing (quantitative easing), Obamacare and Cash 4 Clunkers (which the used car market still hasn't recovered from).
I never voted for him - I didn't view him as honest, nor did he seem to indicate that he liked America, but was rather just a good talker - but I think he could've been a great president given a less radicalizing agenda.
He was probably the best situated president in terms of timing to fix the debt problem, but instead it was a good time for divisive politics. By the time Obama finished, it became clear neither party actually cared about the fiscally conservative Ron Paul supporting voting block.
I would love to hear what was "radical" or "divisive" about Obama's policy. A significant portion of the country disliking him because of his skin color doesn't make his policies "radical"
Long term bond yields are not directly tied to the Fed funds rate.
The problem is the debt purchased by the Fed during QE had extremely low yields (COVID era) the reserves held by banks created by the Fed during QE now cost more to service by the Fed.
> he caused a large part of it for unclear reasons
Technically it was Besset, but Trump gave him the reigns.
The purpose seems to be to radically debase the dollar and setup a crises that requires an entitlement cut (Social Security) for "the good of the economy" while also expanding military spending at the same time.
Covid? Half the money printed happened under his watch the first admin. Biden continued the other half. Now we have yet another war to make matters worse. What are you proposing be done to fix it?
> And the country is run by a broken fool who has no interest or ability to fix any of that.
Trump will be gone in three years, but you'll still have an electorate that wants more free stuff while also getting tax cuts. There is zero appetite for fiscal reform in the U.S. The geometric growth rate of U.S. debt has been consistent since 2010 and will remain so when AOC is President: https://usafacts.org/answers/how-much-debt-does-the-us-have/...
You really really just need to raise taxes. Just find a way to sell that to the public (focus on the rich or large corporations or whatever outgroup you want basically)
Disagree. We have a spending problem, not a tax revenue problem. No matter how much the govt brings in, it will want to spend an increasing amount more.
There is also insane amount of debt from ai related investment. China's free model is crushing the ai margins while these companies need to pay their debt and obligations. The debt bomb clock is ticking.
Higher rates means financing/borrowing is more expensive. Mortgage rates will go up, possibly pushing home prices down. This is neutral for buyers because of higher rates, but bad for sellers. Loans (personal or business) will be harder to come by. Layoffs, or at least hiring freezes, are more likely. Companies will move into a defensive rather than an growth mode. Higher unemployment will lead to more desperation, and possibly consumer defaults on loans and mortgages.
Government interest payments, which are already high, will become higher after future bond sales. This will compound future budgetary problems and could eventually lead to cuts in entitlements. If so, expect crime and political instability (already a problem) to rise in the future. This will take a while, though.
Normally rates are increased to lower inflation by reducing the supply of money. Given the multiple concurrent problems with energy (Hormuz, Red Sea/Yanbu, Russia/Ukraine, possibly Libya as problems are starting there, China is buying aggressively) then higher rates may not be enough to stop inflation. This would create a situation where both borrowing is harder and inflation continues to rage. This is very bad and will lead to demand destruction (nobody’s buying anything because it’s too expensive and they can’t finance it anyway). This results in a severe recession at the minimum.
“Higher rates means financing/borrowing is more expensive. Mortgage rates will go up,…”
This is highly inaccurate. The 10 year US treasury is a better metric for predicting mortgage rates. We saw this during the past interest rate cuts, interest for loans and mortgages still went up, remember? I do, because I was borrowing at the time. And why was that? Because the 10-year treasury continued going up, and that matters more than short term interest rates. The 10-year treasury is about expectations about the future, so we need to look at how the market responds before screaming mortgage rates will go up, they could actually go down.
I didn’t say it was the best metric, but they trend in the same direction over time.
The 10 year and fed rates are usually correlated. Occasionally rates spike or dip without moving the 10 year, but these events are brief. This could be a short spike, but only time will tell.
Mortgage rates are not decided by the fed rate as much as they are by the bond yields. There’s a reason why the mortgage rates were above 7% yesterday even when the fed rate has been stable for a while.
This rate hike is aimed to stabilize the bond yields which in turn will lower the mortgage rates.
If interest rates go up, bonds get sold (for better yield bearing products), pushing the yields of those bonds higher. And it finds some equilibrium. The fact it isn't immediate has to do with short term vs long term bonds. When they mature and the pace of arbitrage.
I don't see how a rate hike is meant to lower mortgage rate. And just looking at the figures shows it's the opposite effect.
Logically, if borrowing money becomes more expensive, how could borrowing specifically for the purpose of buying houses become cheaper.
As a buyer you rather want to take out a loan in a high interest rate environment than a low interest rate environment, given that the monthly payment is the same.
1000 usd extra paid towards your mortgage actually makes a difference when the rate is 15% compared to when it is 1.5%
There's also "date the rate, marry the price". If you're a buyer and think that rates are going to come down within a couple of years, you can lock in the lower price of your home for property tax purposes and then refinance when rates are lower.
But a lot of people bought in 2024 expecting that to happen.
Only if you expect rates to come down in the future. If the monthly payment is the same, I guess you have a slightly bigger mortgage interest deduction for tax purposes, but you’re still paying the same amount each month.
If you expect rates to come down soon, you can plan to refinance in the future, but that’s a gamble. Rates may not go down, or the value of the house could go down before you refinance, which may make refinancing more expensive depending on how much you owe.
The question is what will rates do in the future. If rates go down you refinance, if they go up even more you hold your rates. Either way so you are fine long term, but it can be 10 years before it pays off.
Note that the US mostly does fixed rate for life of the loan. Many countries only have ARM (adjustable rates), and those exist in the US as well. If you have an ARM that changes things greatly.
He assumed that the payment is the same meaning the principal for the same house went down and so this is neutral. If your payment is the same it doesn't matter what is principal vs interest. In the best cases rates go down in the future and then you refinance and your payment goes way down.
House prices tend to be "sticky", so that assumption is probably wrong. People who own a house often cannot afford to sell for the current value since it won't pay off their loan and leave enough money left over for a replacement house so they avoid moving. Eventually things get bad enough that they "sell short", but that takes a credit hit so you don't want to do that until the loss is large (and in turn you gain more).
Stagflation is when the economy stagnates yet inflation is higher than ideal. Inflation and economic activity are typically correlated, and the conventional wisdom back in the day was that you couldn't have unemployment going up and things costing more, because it was expected that demand going down puts a downward pressure on prices. When people aren't hiring and buying but things cost more and more, life just kind of sucks. The last time this happened was in the 1970s in the aftermath of a few oil embargoes that made oil prices go through the roof and a disastrously expensive failed war in Vietnam, there was gas rationing, it sucked.
You may notice a few key similarities now with oil embargoes, reduced hiring, an extremely expensive war, and rapidly expanding government debt as a result of that war. If you want a qualitative feeling about people's moods in the 70s, you can watch such movies as:
Taxi Driver
The Deer Hunter
The Warriors
Americathon
Network
For those of us without a degree in economics the last few years have seemed a bit unhinged from reality so I will not claim any deep insight here. However, it is hard to imagine that an increase in cost of debt will not have some impact and probably in ways not anticipated by many of those with economics degrees.
The country - particularly this industry, information technology - got addicted to cheap cash. Worse, people didn't want to pay any of it back in tax, so bond yields are going to go up on the debt that was issued to cover deficit spending.
Should be interesting to see how this impacts the AI hyper-scalers. They were already burning through cash like a furnace and were running out of people to borrow from, thus the IPO hopes.
To be honest though cash hasn't been cheap for a while, not really since 2021. We have been in relatively high interest rates for the entire AI boom. Going from 350-375 to 375-400 won't be a huge shock for hyperscalers. Interest rate are still lower than when many made their initial investments in 2023-2025
>Should be interesting to see how this impacts the AI hyper-scalers. They were already burning through cash like a furnace and were running out of people to borrow from
looks very similar to 2007-2008 - high rates plus an wide economy segment with very large debt. Now, the interesting question - did anybody "too large to fail" do (or got exposed in some other ways to) leveraged CDS on the hyperscalers bonds and private debt.
Edit: Whoever the hell flagged this lol....people were complaining the parent comment wasn't helpful so I took time to write a thoughtful response with citations. You can't win around here.
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The counterintuitive part is that a lower Fed rate doesn't necessarily mean cheaper borrowing for the government. The Fed sets an overnight rate; someone lending for ten years cares about inflation and interest rates over those ten years. Keeping short-term rates low won't necessarily reassure that lender. [1]
It also helps to distinguish the government's debt from a giant credit card. Existing fixed-rate bonds keep their agreed interest payments. Higher borrowing costs feed into the budget as old debt matures and gets refinanced, and as new debt is issued. The pain accumulates rather than arriving all at once. [2]
Nor does a larger interest bill automatically require "printing money." Treasury borrowing and Fed money creation are separate decisions. [3]
The difficult question is how to contain inflation without causing more economic damage than necessary. A large debt load makes that tradeoff more expensive; it doesn't make either option painless.
I thought bumping up the prime rate slowed consumer spending. But the recent price hikes are because supply is hosed (oil, tariffs), not that demand has been bidding up prices. So how is this supposed to help?
I mean, if predicting market behaviour was that simple, I'd be very rich by now. This is another unique moment, the beginning of the end of an empire possibly. Some unusual things are going to happen and it'll be tricky to predict reliably.
Best thing we can hope for here is Trump sees an obvious way out of this: return the economy to a predicable machine, reduce spending, tax the ultra wealthy, and ditch tariffs. But I don't think much of that's likely to occur.
We're in unchartered territory in many ways. Good luck.
Prediction: this causes a recession in two years, right after a Democrat wins the White House, who will be blamed for it. The economy will turn around after a few years, just in time for a Republican to win and claim they fixed it.
This is how Republicans have a reputation for being economically savvy despite actual evidence to the contrary, because the general population doesn’t understand that economics runs on a time delay.
It's interesting that this article doesn't have the rate...
(It moved from 3.5% - 3.75% to 3.75% - 4%, the US uses a range, not a fixed number.)
But this one is something that gets results almost immediately. We will see what it does in 2 or 3 months, not years.
Another possibility is recession in next two years, but its brief enough that recovery starts before 2028 election - republicans take credit and voters believe it - JD Vance gets elected president.
I recall reading something from axios or similar, talking about how a CEO said a "nice light recession right now would be perfect for us" or something to that effect.
Both parties are responsible for the inflation and debt. Fiscal policy is largely driven by congress, not the president
And which party controls congress? I'll give you a hint: It's the party that spent decades advocating for irresponsible tax cuts without cutting spending[0].
[0] Yes, I know that the Republicans said that they were going to cut spending to match the tax cuts, but that never ends up happening.
Partly it doesn't happen because you can't really get much done even if you have a majority. You really end up needing a super majority.
The one thing both parties agree on though is running up a massive deficit
The high inflation since Covid and $40 trillion in debt didn’t happen under one party
But just one wins elections promising they will reducing it
Neither party has realistic plans to reduce the debt. It’s been that way for decades. Kicking the can down the road gets more votes
What's the other promising to do with it?
We will enter a recession in less than two years, the R timing on this one isn’t going to work out
At what point into a presidential term does it become their actual mess? And is there evidence of a time delay? Because by that argument, the mess we are in would been caused by Democrats.
Usually, months to years. The economy is a very big ship and slow to steer.
This particular crisis is quite abrupt, caused by a sharp jump in the price of oil. Most presidents don't really deserve either the credit or fault that they receive on the economy, but in this case there's a very clear and direct connection.
All good is due to MyParty, all bad is due to OtherParty.
I doubt it will take 2 years as other ingredients are already at play.
No, this will probably fall apart before Trump is out of office and a Democrat will be expected to clean up his mess again.
Exactly like “biden’s” inflation from the zero interest rate policy.
This exact scenario has happened 4 times in my living memory already.
(deleted, political, no point)
> The important thing is really who's on the girl's soccer team
I've not heard this expression before; can someone explain it to me?
I may be wrong but I think they are referring to the Republican party's position on trans athletes in sports (literally, who is allowed on a girls sports team) being the only thing that matters to some voters.
I think they're referring to the obsession that some people have to trans issues.
Its a joke where all Republicans care about is winning the culture wars. Meaning there are boys on the girls sports teams who identify as girls. Its to get the base mad and get them to vote (supposedly).
So, you're aligned with President Trump who wants to cut rates, then?
I read the comment as: Trump’s policies are all forcing the US into stagflation so hard the fed has to do this, knowing it’ll cause a recession.
Fed actions typically take a few years to be felt, regardless of administration.
I would upvote this 100x if I could. There are decades of evidence of this same thing happening but people be people'ing every 2-4 years :)
But not doing this would, in two years, cause (or at least allow) inflation that would cause harm, too. But Trump might get blamed in that case, because inflation would increase for the next two years, and so people would experience the pain during his term.
Easy fix, have the democrats lose the next election and you break the spell. It's all military industrial complex anyway.
I wish they'd lost in 2020, that's for sure.
Hello similarly named account.
I basically agree. I don't care for DJT, but I can see how getting his "second term" underway after his first one could have been better. His four years away allowed him to stew and plan and respond.
Would have thinned the herd nicely by botching COVID and saved a ton on welfare.
"Global depression imminent, here's what it means for this poor American political party"
It bugs me that the Fed has no mechanism to really deal with supply-shock driven inflation. Prices are shooting up, but not strongly correlated to money supply at the moment. They’re shooting up because there are a dozen or more entirely capricious and totally self-inflicted supply-shocks due to bizzaro tariff “policy”, disastrous military adventurism, and general erosion of the USD the prime vessel for international trade.
The Fed tightening the money supply isn’t going to materially bring prices down, because the money supply isn’t driving the price increases.
> the Fed has no mechanism to really deal with supply-shock driven inflation.
Inflation is just a change in the ratio of money to stuff. You can reduce inflation by increasing the stuff or reducing the money, and cause it by doing the opposite. There's no requirement that the solution is applied to "the same factor", either works.
Sure, if you're wanting to assign blame or worried about externalities these things start to matter. But monetary policy is a perfectly fine tool for dealing with inflation, regardless of the cause.
Note: inflation causes prices to rise, but that doesn't mean that all changes in price are caused by inflation.
You’re describing only one flavor of inflation. What the Fed is supposed to care about is price stability, and lots of things influence prices, and not all of them are money supply and/or new money supply correspondent.
We saw this during COVID, the prices of things shot through the roof because of a combination of supply-chain shocks as well as the already well capitalized seizing the opportunity to spend their war chests locking down as much of the available supply as possible, which resulted in consolidation, which resulted in less available supply.
The random trade wars directly cause goods to cost more for absolutely no good reason whatsoever, it’s just a tax masquerading as a price increase, but the Fed deals in stabilizing prices, not taxes. So, it changing the money supply parameters does nothing.
The weakening of the international trade position of the USD writ large also causes prices to go up for no good reason, and nothing about that is going to be resolved by the Fed fiddling with the money supply parameters because it has to do with the stability and reliability of the U.S. as a trustworthy geopolitical operator, which the Fed can do next to nothing about.
The inflation being experienced as price instability/increases is being induced acutely by terrible fiscal & trade policy, but the Fed is acting to try to “fix it” using monetary policy, which won’t work at all. So, what’s the point? Just to look like it’s doing something?
I thought about this as well. Maybe you have to slow down the entire economy to compensate for the missing supply.
Additionally, immense government spending is offsetting anything the Fed can do, whereas in now-ancient times they tended to cooperate better.
Isn't the goal then demand destruction?
Yeeep, inflation right now is not a monetary phenomenon. There's also general corporate greed and ever-increasing monopolization, helped out by Trump's lax regulatory hand
Interest rates rising aren't going to fix these sources of inflation.
> inflation right now is not a monetary phenomenon
It usually isn't. That doesn't change that raising rates should slow down credit creation a bit. That reduces demand in a supply-constrained economy. It also reduces risk appetites, which helps in a perilous world. (Finally, it gives rate-cutting headroom for when someone levered blows up.)
> It bugs me that the Fed has no mechanism to really deal with supply-shock driven inflation.
I mean, what would that actually look like? The Fed is insulated from democratic accountability, for very good reasons, but flipside of that is that their powers are intentionally limited. If they had the same immunity to public opinion but with the power to address supply shocks, that would quickly veer into tyranny.
It's a careful balancing act and there is no perfect solution. What's supposed to happen is that Congress acts on supply-shock driven inflation, but this current Congress would rather eat a bag of broken glass than actually govern, which the Fed can't really do anything about.
What it would look like, at the barest minimum, would be the Fed rightly and with receipts calling out the fact that they’re a monetary policy function, and that the current inflationary problems aren’t a monetary one, so if the U.S. would like something done about its inflation issues, then it needs to look someplace else besides the Fed to deal with it.
It doesn’t have to do anything to monetary policy when monetary policy isn’t the problem. It can do nothing.
It’s not the Fed’s job to try to fix terrible fiscal & trade policy, but that’s now what it’s basically trying to do. So, it’s become a political function by virtue of the political apparatus offloading the consequences of its idiocy onto the Fed to clean up after it with a set of tools that can’t even do the cleaning.
I too have very strong opinions about central bank policies.
So, during the Great Depression who ended up doing well? What can be applied to today?
The consistent best thing you can do for yourself and family is sleep well and exercise to increase your aerobic efficiency.
yes, i will become the consummate amazon prime one hour delivery guy
Unfortunately, during that time is when they screwed around with the gold confiscations. So the best option would have been to illegally hoard gold until they struck the statute down?
Oof. Wasn't private gold ownership illegal until 1975. So, you have to hide it for 40+ years? That investment strategy has some significant downsides...
Own stuff, not paper.
That's for hyperinflation. In a crash, you actually do want money (if you can find a job).
There isn't going to be a great depression.
The US is going to debase itself endlessly through spend-print-spend-print. At some point they may load up enough debt that the economy suffers a gradual heat death, in the style of Japan, wherein too much of your national capital is going to debt maintenance, sitting in a low yield blackhole sucking the dynamism out of your system (instead of going to productive use, business expansion, R&D, et al).
There's absolutely nothing particularly interesting or special about the direction the US is going. It's very, very, very easy to see what's coming and has been for ~20 years (since Bush nearly doubled the size of the Federal Government and blew up our finances with simultaneous tax cuts + massive spending expansion, we've never turned back from the bleed).
Gold has gone up ~10x since the early Bush years precisely because of the USD debasement, that's the reduction in value in the dollar being represented in the ultimate store of value. All of it has been remarkably predictable. I've been chirping about it forever here and there's nothing special about my insight either, this stuff is plain as day national econ 101.
i know what you mean. 2008 and covid taught me to stop underestimating the abilities/nerve of our financial schemers and their political representatives to kick the can down the road. but i am too anxious about it to think straight. what to do?
The turning point is approaching: Interest rates will gradually overtake all other gov't expenditures. All politics will revolve around shoring up the parasitic drain on the rest of absolutely everything.
Unanimous is a pleasant surprise
I wonder if Canada (BoC) will follow this. I hope not!
They are too concerned with their housing market to raise rates.
They will probably wait it out to December and make a call then, but a small bump is looking more and more likely.
https://en.wikipedia.org/wiki/Stagflation
Get ready for a fun ride my friends :)
Fun ride =
Oil is going up, possibly for a long time, which will have a big inflationary effect on everything. And it appears the USA government has lost the conflict it started and effectively given control over key oil delivery channels to Iran. Not to mention Saudia facing real issues from rebel groups / Yemen (simplification).
Government debt is high in several key economies, and the bond market is being saturated with AI-related bonds, as well as possibly people finally tired of lending the USA/France/UK money at low rates and demanding higher ones. And with higher interest rates and bonds rolling over it means more and more money going to pay for the debt, rather than core services.
Wild cards lurking in the bushes... AI, AGI, RSI.
And yonder you have a nuclear power floundering; its only source of hard currency is being rightfully degraded, and its leadership delusional.
And the one to watch IMO... Russian wheat export ability: wheat prices are up considerably, and combined with inflation from oil, this is the kind of stuff that creates waves of political change like the Arab Spring.
This is the right move. Inflationary pressures due to high oil prices and tariffs are not going away anytime soon. All the economic numbers point to a need for a rate hike. Not doing so has a much larger effect on the financial system than a 25 bps rate hike. Stagflation is a bigger risk to the economy.
Counterintuitively the rate hike can help lower things like mortgage rates by stabilizing the bond yields.
Definitely the right move, 100% agree.
I don't think that mortgage rates are going to go down; I think they will go up. Just my opinion.
I also think oil is about to go up even more, maybe for multiple years, which is going to be inflationary on everything we do. But, could be really good for solar growth, electrification, and electric cars.
Re: mortgage rates
https://www.washingtonpost.com/business/2026/09/16/heres-wha...
Remind me in 6 months :)
I'll be you; they are higher this time.
We'll continue through the depression we've started since 2008. (GDP growth should be closer to 3.5%-5%, but we haven't really escaped sub-2% since 2008) - our GDP has been depressed by at least 1-2% growth since that crisis, and I think a large part of it has been the inflationary cycle we started and never stopped.
The wars already put us into too much debt, Obama continued it for 8 years (granted, the deficit slowly went down, but it wasn't fixed). Trump and Biden did a huge disservice to the debt (but neither really cared much about it), and now I fear the path Bush, Obama, Trump, and Biden have laid will not be easily fixed.
I agree with you. We are still paying for 2008, and compounded the problem with Covid stimuli. I sure wish we would just rip the band aid off at this point, but it might already be too late. The global economy is jacked, China needs everyone to be consumers, and that well is running dry, globally.
Not sure tbh.
It’s a highly non-linear system, many moving parts, people and systems adapt.
It's tough to make predictions, especially about the future!
This comment isn't helpful. Please explain for those of us without a degree in economics.
Inflation is high, so interest rates need to go up to try to slow that, but the economy isn't doing amazing already, and higher interest rates won't help that.
Not to mention the US debt is _high_ as hell and bond yields mean that's more expensive.
And the country is run by a broken fool who has no interest or ability to fix any of that.
The country has been _run_ by fools for 26 years. Congress has had 26 years to do something about the fiscal situation, and we've had four presidents, and the fiscal responsible side of the electorate is never listened to.
Both sides are to blame - neither will fix the problem. Obama could've made that his goal - he was competent, had a lot of political good will, and many people were frustrated at the bailout policy Bush did, but instead it was inflationary printing (quantitative easing), Obamacare and Cash 4 Clunkers (which the used car market still hasn't recovered from).
I never voted for him - I didn't view him as honest, nor did he seem to indicate that he liked America, but was rather just a good talker - but I think he could've been a great president given a less radicalizing agenda.
He was probably the best situated president in terms of timing to fix the debt problem, but instead it was a good time for divisive politics. By the time Obama finished, it became clear neither party actually cared about the fiscally conservative Ron Paul supporting voting block.
I would love to hear what was "radical" or "divisive" about Obama's policy. A significant portion of the country disliking him because of his skin color doesn't make his policies "radical"
Long term bond yields are not directly tied to the Fed funds rate.
The problem is the debt purchased by the Fed during QE had extremely low yields (COVID era) the reserves held by banks created by the Fed during QE now cost more to service by the Fed.
It’s worse than no ability to fix it — he caused a large part of it for unclear reasons
> he caused a large part of it for unclear reasons
Technically it was Besset, but Trump gave him the reigns.
The purpose seems to be to radically debase the dollar and setup a crises that requires an entitlement cut (Social Security) for "the good of the economy" while also expanding military spending at the same time.
Covid? Half the money printed happened under his watch the first admin. Biden continued the other half. Now we have yet another war to make matters worse. What are you proposing be done to fix it?
Well I sure wouldn't have started another war.
QE without public debt sterilization is going to appear as the costliest macroeconomic mistake of the early 21st century.
Yay stagflation!
> And the country is run by a broken fool who has no interest or ability to fix any of that.
Trump will be gone in three years, but you'll still have an electorate that wants more free stuff while also getting tax cuts. There is zero appetite for fiscal reform in the U.S. The geometric growth rate of U.S. debt has been consistent since 2010 and will remain so when AOC is President: https://usafacts.org/answers/how-much-debt-does-the-us-have/...
You really really just need to raise taxes. Just find a way to sell that to the public (focus on the rich or large corporations or whatever outgroup you want basically)
Disagree. We have a spending problem, not a tax revenue problem. No matter how much the govt brings in, it will want to spend an increasing amount more.
Is there anything that can't be solved by bigger government?
There is also insane amount of debt from ai related investment. China's free model is crushing the ai margins while these companies need to pay their debt and obligations. The debt bomb clock is ticking.
The next few years would be fun.
Higher rates means financing/borrowing is more expensive. Mortgage rates will go up, possibly pushing home prices down. This is neutral for buyers because of higher rates, but bad for sellers. Loans (personal or business) will be harder to come by. Layoffs, or at least hiring freezes, are more likely. Companies will move into a defensive rather than an growth mode. Higher unemployment will lead to more desperation, and possibly consumer defaults on loans and mortgages.
Government interest payments, which are already high, will become higher after future bond sales. This will compound future budgetary problems and could eventually lead to cuts in entitlements. If so, expect crime and political instability (already a problem) to rise in the future. This will take a while, though.
Normally rates are increased to lower inflation by reducing the supply of money. Given the multiple concurrent problems with energy (Hormuz, Red Sea/Yanbu, Russia/Ukraine, possibly Libya as problems are starting there, China is buying aggressively) then higher rates may not be enough to stop inflation. This would create a situation where both borrowing is harder and inflation continues to rage. This is very bad and will lead to demand destruction (nobody’s buying anything because it’s too expensive and they can’t finance it anyway). This results in a severe recession at the minimum.
“Higher rates means financing/borrowing is more expensive. Mortgage rates will go up,…”
This is highly inaccurate. The 10 year US treasury is a better metric for predicting mortgage rates. We saw this during the past interest rate cuts, interest for loans and mortgages still went up, remember? I do, because I was borrowing at the time. And why was that? Because the 10-year treasury continued going up, and that matters more than short term interest rates. The 10-year treasury is about expectations about the future, so we need to look at how the market responds before screaming mortgage rates will go up, they could actually go down.
I didn’t say it was the best metric, but they trend in the same direction over time.
The 10 year and fed rates are usually correlated. Occasionally rates spike or dip without moving the 10 year, but these events are brief. This could be a short spike, but only time will tell.
Variable rate (loans) track the Fed rate. Fixed rate (loans) track the long term treasury yields.
Home prices are sticky on the way down, 25 basis points won't change much
Supply is way up and sales are way down, on average: https://wolfstreet.com/2026/09/10/sales-of-existing-single-f...
This could be the catalyst to lower prices if sellers get spooked, especially if gas prices keep going up.
Mortgage rates are not decided by the fed rate as much as they are by the bond yields. There’s a reason why the mortgage rates were above 7% yesterday even when the fed rate has been stable for a while.
This rate hike is aimed to stabilize the bond yields which in turn will lower the mortgage rates.
But bond yields are based on a market.
If interest rates go up, bonds get sold (for better yield bearing products), pushing the yields of those bonds higher. And it finds some equilibrium. The fact it isn't immediate has to do with short term vs long term bonds. When they mature and the pace of arbitrage.
I don't see how a rate hike is meant to lower mortgage rate. And just looking at the figures shows it's the opposite effect.
Logically, if borrowing money becomes more expensive, how could borrowing specifically for the purpose of buying houses become cheaper.
Neutral for buyers? Absolutely not.
As a buyer you rather want to take out a loan in a high interest rate environment than a low interest rate environment, given that the monthly payment is the same.
1000 usd extra paid towards your mortgage actually makes a difference when the rate is 15% compared to when it is 1.5%
There's also "date the rate, marry the price". If you're a buyer and think that rates are going to come down within a couple of years, you can lock in the lower price of your home for property tax purposes and then refinance when rates are lower.
But a lot of people bought in 2024 expecting that to happen.
Only if you expect rates to come down in the future. If the monthly payment is the same, I guess you have a slightly bigger mortgage interest deduction for tax purposes, but you’re still paying the same amount each month.
If you expect rates to come down soon, you can plan to refinance in the future, but that’s a gamble. Rates may not go down, or the value of the house could go down before you refinance, which may make refinancing more expensive depending on how much you owe.
The question is what will rates do in the future. If rates go down you refinance, if they go up even more you hold your rates. Either way so you are fine long term, but it can be 10 years before it pays off.
Note that the US mostly does fixed rate for life of the loan. Many countries only have ARM (adjustable rates), and those exist in the US as well. If you have an ARM that changes things greatly.
This really doesn’t make sense.
Higher interest rates mean the monthly payment is higher. You need to pay back the principal + the interest.
He assumed that the payment is the same meaning the principal for the same house went down and so this is neutral. If your payment is the same it doesn't matter what is principal vs interest. In the best cases rates go down in the future and then you refinance and your payment goes way down.
House prices tend to be "sticky", so that assumption is probably wrong. People who own a house often cannot afford to sell for the current value since it won't pay off their loan and leave enough money left over for a replacement house so they avoid moving. Eventually things get bad enough that they "sell short", but that takes a credit hit so you don't want to do that until the loss is large (and in turn you gain more).
Stagflation is when the economy stagnates yet inflation is higher than ideal. Inflation and economic activity are typically correlated, and the conventional wisdom back in the day was that you couldn't have unemployment going up and things costing more, because it was expected that demand going down puts a downward pressure on prices. When people aren't hiring and buying but things cost more and more, life just kind of sucks. The last time this happened was in the 1970s in the aftermath of a few oil embargoes that made oil prices go through the roof and a disastrously expensive failed war in Vietnam, there was gas rationing, it sucked.
You may notice a few key similarities now with oil embargoes, reduced hiring, an extremely expensive war, and rapidly expanding government debt as a result of that war. If you want a qualitative feeling about people's moods in the 70s, you can watch such movies as:
Taxi Driver The Deer Hunter The Warriors Americathon Network
For those of us without a degree in economics the last few years have seemed a bit unhinged from reality so I will not claim any deep insight here. However, it is hard to imagine that an increase in cost of debt will not have some impact and probably in ways not anticipated by many of those with economics degrees.
Last time interest rates went up, Startups and SaaS went down, which many on HN 's livelihood depends.
why are you responding to a person like it is an LLM?
bwb is likely referring to the likelihood that this will send Trump into a tremendous rage.
I can't wait to see the next Truth Social post.
hah i know, his own man raised rates, he will probably send the military out to get Walsh
The comment could be more about the politics of this not the economics, Donald Trump has made it clear he is very against this sort of rate rise
What Trump says is never clear. It's also not a reliable source for what behavior the administration (or even he) exhibits.
Higher rates means USG will need to print more money to pay for $40TN debt which will increase inflation which will force higher rates.
The debt is owed by the treasury, fed prints the money. What you’re describing is not how the monetary system works.
The Fed purchased Treasury securities during COVID QE. Those securities had low yields and cash reserves were created during those purchases.
Those cash reserves are held by banks which the Fed funds rate pays interest on (what was hiked).
Meanwhile the fixed rate debt from QE remains the same.
Should have been this high years ago.
The country - particularly this industry, information technology - got addicted to cheap cash. Worse, people didn't want to pay any of it back in tax, so bond yields are going to go up on the debt that was issued to cover deficit spending.
Should be interesting to see how this impacts the AI hyper-scalers. They were already burning through cash like a furnace and were running out of people to borrow from, thus the IPO hopes.
> want to pay any of it back in tax
If they dont pay it back in tax, they pay it back in debasement of their savings and entitlements
Yep, inflation is just another kind of tax, and one that's quite hard to avoid.
To be honest though cash hasn't been cheap for a while, not really since 2021. We have been in relatively high interest rates for the entire AI boom. Going from 350-375 to 375-400 won't be a huge shock for hyperscalers. Interest rate are still lower than when many made their initial investments in 2023-2025
Depends on your time frame for "relative to"; rates have been high compared to ZIRP-era, but still moderate to low when compared to historical norms.
"years ago" seems like the wrong criticism. Today's rate is lower than the rates from December 2022-October 2025. That seems like years ago.
>Should be interesting to see how this impacts the AI hyper-scalers. They were already burning through cash like a furnace and were running out of people to borrow from
looks very similar to 2007-2008 - high rates plus an wide economy segment with very large debt. Now, the interesting question - did anybody "too large to fail" do (or got exposed in some other ways to) leveraged CDS on the hyperscalers bonds and private debt.
Edit: Whoever the hell flagged this lol....people were complaining the parent comment wasn't helpful so I took time to write a thoughtful response with citations. You can't win around here.
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The counterintuitive part is that a lower Fed rate doesn't necessarily mean cheaper borrowing for the government. The Fed sets an overnight rate; someone lending for ten years cares about inflation and interest rates over those ten years. Keeping short-term rates low won't necessarily reassure that lender. [1]
It also helps to distinguish the government's debt from a giant credit card. Existing fixed-rate bonds keep their agreed interest payments. Higher borrowing costs feed into the budget as old debt matures and gets refinanced, and as new debt is issued. The pain accumulates rather than arriving all at once. [2]
Nor does a larger interest bill automatically require "printing money." Treasury borrowing and Fed money creation are separate decisions. [3]
The difficult question is how to contain inflation without causing more economic damage than necessary. A large debt load makes that tradeoff more expensive; it doesn't make either option painless.
[1] https://www.federalreserve.gov/monetarypolicy/monetary-polic...
[2] https://www.treasurydirect.gov/marketable-securities/treasur...
[3] https://www.federalreserve.gov/faqs/how-does-the-federal-res...
I thought bumping up the prime rate slowed consumer spending. But the recent price hikes are because supply is hosed (oil, tariffs), not that demand has been bidding up prices. So how is this supposed to help?
I mean, if predicting market behaviour was that simple, I'd be very rich by now. This is another unique moment, the beginning of the end of an empire possibly. Some unusual things are going to happen and it'll be tricky to predict reliably.
Best thing we can hope for here is Trump sees an obvious way out of this: return the economy to a predicable machine, reduce spending, tax the ultra wealthy, and ditch tariffs. But I don't think much of that's likely to occur.
We're in unchartered territory in many ways. Good luck.