TOPEKA, WA - Elderly man considering strongly worded letter to editor about armed intruder ransacking his home "optimistic" about potential for public response. "I think it could really get an important discussion started," he was heard mumbling, under the sound of a glass display case in his living room being smashed. As heavy footsteps approached his bedroom door, he continued, "people need to learn a serious lesson about public responsibility and the rule of law." At time of printing repeated calls to the house, last seen darkened, with an open and only partially hinged door, were unanswered.
> The market appears to be stuck in the trees, and is oblivious to the forest. In this case, the "forest" was bluntly and worryingly mapped out for us by Powell
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.
This was a mind shift for me, inflation applies to stock prices too. The US cannot cut spending enough to prevent the debt death spiral. Inflation and growth are the only options. Everyone wants growth but it's hard to get, nobody wants inflation, but it's easy to get. Inflation is here to stay.
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.
3% is 50% more than 2%, so it's nowhere near being within 1% of the target. I'm not trying to be pedantic, but there is an enormous difference between 1% and 50%.
It has to go higher. It’s the only way out of the debt issue. Economic growth isn’t enough given the continued spending. If the inflation can happen alongside growth it is easier to sell.
> US cannot cut spending enough to prevent the debt death spiral. Inflation and growth are the only options
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.
I'm the past, Congress was able to prevent impoundments. Given the cult like nature of the current majority, the current situation is not "both sides".
It is natural that stocks go up, since the value of the dollar is going down and there is no clear recession. Not only stocks, but precious metals are also making new highs because USD is losing its purchasing power.
I've done quite well this year in the market mainly due to the April dip. Options trading hasn't been too bad either but that's more luck than anything.
Conservative governments in the US have increased spending going back 50 years. Their base still believes them for some reason that they will lower spending.
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.
Fair, maybe redefine is not the right word? Rework the incentive structure. From my point of view there is a lot of effort being expended for negative return for the average citizen. Its going to be interesting to see what happens now that China is out as long as these tariffs hold (stay in law and are actually abided). I hope the end result isn't running back and begging for mercy.
It's 30 percent higher than last year, plus additional tariffs on certain things. We've (temporarily? tune in two months!) backed away from the 150% or whatever number but that increase is still hanging over everything. And doing tariff rate and schedule policy by whim is a terrible idea independent of whether you agree with tariffs as a policy. I'm mixed on them honestly, which doesn't sell myself to any group it seems. But I think they exist as a semiuseful tool that can be hard to gauge and should be used carefully.
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..
This is what I find so useless. There is not just a single number that can define this situation. Defining it in such a way seems to be a solid way to avoid having a real conversation.
> Austerity is probably not the answer. We need to redefine the economy and quick.
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?
DOGE was the hint of austerity and everyone shit themselves and freaked out about all the government layoffs and cost cutting. The same thing is happening in Argentina--the Peronists are on the rise again because nobody has the patience for any shred of a libertarian style of governance to work. Oh, and corruption, but we'll see about that. It would actually piss me off royally if Milei goes down because he couldn't resist having his own hand in the till. A lot is at stake, just the entire future of the human race and all that.
If DOGE were at all intelligent or backed by a law or anything other than Musk's weird drug addled personal preferences, I might agree. But it isn't. DOGE did things irrationally, and did things that potentially impact every citizens' personal security.
Asking myself: are the cuts practical and soundly made, done intelligently? The answer is overwhelmingly: no, absolutely not, absolutely never. Cutting small little beautiful things that make the world better down won't have any net impact, yet picking fights with NOAA and CFPB and other good forces is the main course time after time.
It's somewhat disturbing to see pop economics discourse recently - if I turned this in as a paper in a 200 level+ class at my middling statue university, I'd get D >= X >= C+, where X is my grade. The reason beings:
- 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.
Because I'm.. not young.. all throughout my education we were 'awarded' 4 points for an A, 3 for B and so forth to calculate Grade Point Average (GPA.)
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.
I read the article differently, but it still comes out as a series of non-sequiturs.
> 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 don't think you really know whether the tariffs are going to work or not. It's not hare-brained, as you say because it has two purposes: 1) To attempt to bring manufacturing back home and 2) To raise capital in order to pay down the debt.
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.
I guess I'm a crybaby for disliking your dumb manipulation thing at the end. Oh well.
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.
This is just hermeneutics for Trump. One person is setting the tariffs, and it's pretty clear he can be bribed to reduce them. Any rationale for tariffs goes away at that point.
"Please don't complain about tangential annoyances—e.g. article or website formats, name collisions, or back-button breakage. They're too common to be interesting."
(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.)
yeah its a shame really, I've tried to explain this to our CEO when he wants to use AI slop headers for our blog entries. Just spend 5 cents on a stock photo if you need to.
The Fed is far from helpless. They can combat inflation by speeding up the run off of their egregiously large balance sheet and keep El Jefe happy by lowering interest rates.
> can combat inflation by speeding up the run off of their egregiously large balance sheet and keep El Jefe happy by lowering interest rates
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.
> Fed funds/OMOs and balance sheet are separate tools
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.)
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 planned economy that we intellectually dress as something else
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 don't think you understand bonds. The rates don't float once issued. They discount the price in order to sell at a certain yield at time of issue. After that, the prices float in the market based on current rates, but it's not a very liquid market. I own bonds with like 2.5% coupon and nobody will buy them and the estimated price is just that, an estimate, because nobody will actually buy them. I can hold to maturity and be made whole. I just missed out on buying higher rate bonds for the duration. It's fine.
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.
Fed has to buy treasuries or risk the price bottoming out on them. It has the affect as QE which is inflationary. US can't keep running a trillion+ deficit, thats the cause of inflation.
Just FYI, selling bonds (not notes) back into the market would likely raise rates. Longer duration yields are set by the market (supply and command)
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.
TOPEKA, WA - Elderly man considering strongly worded letter to editor about armed intruder ransacking his home "optimistic" about potential for public response. "I think it could really get an important discussion started," he was heard mumbling, under the sound of a glass display case in his living room being smashed. As heavy footsteps approached his bedroom door, he continued, "people need to learn a serious lesson about public responsibility and the rule of law." At time of printing repeated calls to the house, last seen darkened, with an open and only partially hinged door, were unanswered.
Area woman unsure which part of oncoming freight train to shoot at, carefully considering moving off the tracks to Canada
> The market appears to be stuck in the trees, and is oblivious to the forest. In this case, the "forest" was bluntly and worryingly mapped out for us by Powell
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.
This was a mind shift for me, inflation applies to stock prices too. The US cannot cut spending enough to prevent the debt death spiral. Inflation and growth are the only options. Everyone wants growth but it's hard to get, nobody wants inflation, but it's easy to get. Inflation is here to stay.
> Inflation is here to stay.
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.
This right here. If you don't think they will actually hit the 2% target it means inflation became unanchored.
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 it's within 1% of target that's not "unanchored".
3% is 50% more than 2%, so it's nowhere near being within 1% of the target. I'm not trying to be pedantic, but there is an enormous difference between 1% and 50%.
https://xkcd.com/985/
It was clear what I meant so yeah that's pedantry. Precision down to 1% of 2% of prices is impossible.
If the target was no change in prices, we wouldn't say inflation is infinity percent off target every month.
It has to go higher. It’s the only way out of the debt issue. Economic growth isn’t enough given the continued spending. If the inflation can happen alongside growth it is easier to sell.
Which leads to all new debt being extremely expensive since the structural problem is not fixed.
> US cannot cut spending enough to prevent the debt death spiral. Inflation and growth are the only options
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?
It's not a partisan thing. Congress is too dysfunctional. Both sides oppose a balanced budget.
> Both sides oppose a balanced budget.
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 Republicans blow up budget way more then anyone before, it is both sides.
When Democrats leave surplus or just lower speed at which debt goes up ... debt is still their fault.
This seems a bit too “both sides” for my taste, given Trump being a disaster for America.
I'm the past, Congress was able to prevent impoundments. Given the cult like nature of the current majority, the current situation is not "both sides".
> Do you really think impounding interest payments is beyond the pale of possibility?
It will happen in phases: 30 year bonds become 100 year bonds, foreign countries get payments, delayed, etc.
> Do you really think impounding interest payments is beyond the pale of possibility?
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 is natural that stocks go up, since the value of the dollar is going down and there is no clear recession. Not only stocks, but precious metals are also making new highs because USD is losing its purchasing power.
> natural that stocks go up, since the value of the dollar is going down
Equities are up more than inflation for almost any investing consumer.
yeah, because equities aren't generally included in "inflation". the guy you're responding to is trying to say that they should be
If it makes you feel any better or worse, I was 100% sure of this in 2019. 100%. COVID I thought for sure was going to be the death blow.
I've done quite well this year in the market mainly due to the April dip. Options trading hasn't been too bad either but that's more luck than anything.
Of course, what will the FED do when the fake conservative government didn't really cut spending but only put on a show for fox news?
Conservative governments in the US have increased spending going back 50 years. Their base still believes them for some reason that they will lower spending.
> Their base still believes them for some reason that they will lower spending
Their base doesn't care. I doubt it has ever cared. It, like everyone else, wants the money spent on what it wants.
Show me the incentives (being able to charge interest on money printed out of thin air) and I'll show you the outcome.
Congress never does its real job, which is to look out for the American people. They're always compromised.
Conservatives vote based on conservative reasons, not on economic reasons. Their knowledge of economics is pretty limited, anyway.
Austerity is probably not the answer. We need to redefine the economy and quick.
> We need to redefine the economy
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.
Fair, maybe redefine is not the right word? Rework the incentive structure. From my point of view there is a lot of effort being expended for negative return for the average citizen. Its going to be interesting to see what happens now that China is out as long as these tariffs hold (stay in law and are actually abided). I hope the end result isn't running back and begging for mercy.
> China is out as long as these tariffs hold
Are we actually tariffing China? I thought Trump chickened out on that.
Goddamnit are you serious? You probably know better than I. I swear I heard some stupid high number on NPR yesterday.
The answer is, it depends on the good. It's not a single number, de minimis is gone though.
> Goddamnit are you serious?
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...
It's 30 percent higher than last year, plus additional tariffs on certain things. We've (temporarily? tune in two months!) backed away from the 150% or whatever number but that increase is still hanging over everything. And doing tariff rate and schedule policy by whim is a terrible idea independent of whether you agree with tariffs as a policy. I'm mixed on them honestly, which doesn't sell myself to any group it seems. But I think they exist as a semiuseful tool that can be hard to gauge and should be used carefully.
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..
The bond market forces austerity in the end either way.
Or you can try inflation, which again leads to the bond market telling you that it didn’t help.
This is what I find so useless. There is not just a single number that can define this situation. Defining it in such a way seems to be a solid way to avoid having a real conversation.
> Austerity is probably not the answer. We need to redefine the economy and quick.
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?
I want you to enumerate the dignity and respect issues as you see them. I think a general washing isn't going to be very good conversation.
> I want you to enumerate the dignity and respect issues as you see them. I think a general washing isn't going to be very good conversation.
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?
No, but I also don't think that dignity and respect for humans is what moves the market.
> No, but I also don't think that dignity and respect for humans is what moves the market.
No but without dignity and respect for humans you get revolts - which moves the market.
DOGE was the hint of austerity and everyone shit themselves and freaked out about all the government layoffs and cost cutting. The same thing is happening in Argentina--the Peronists are on the rise again because nobody has the patience for any shred of a libertarian style of governance to work. Oh, and corruption, but we'll see about that. It would actually piss me off royally if Milei goes down because he couldn't resist having his own hand in the till. A lot is at stake, just the entire future of the human race and all that.
If DOGE were at all intelligent or backed by a law or anything other than Musk's weird drug addled personal preferences, I might agree. But it isn't. DOGE did things irrationally, and did things that potentially impact every citizens' personal security.
Asking myself: are the cuts practical and soundly made, done intelligently? The answer is overwhelmingly: no, absolutely not, absolutely never. Cutting small little beautiful things that make the world better down won't have any net impact, yet picking fights with NOAA and CFPB and other good forces is the main course time after time.
It's somewhat disturbing to see pop economics discourse recently - if I turned this in as a paper in a 200 level+ class at my middling statue university, I'd get D >= X >= C+, where X is my grade. The reason beings:
- 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.
> I'd get D >= X >= C+, where X is my grade
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.
So you're fundamentally objecting to the statement D >= C+ then?
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. :)
Oh that's interesting! I guess I was never explicitly told that A>B>C, it just 'feels' right haha. What you're proposing makes sense too though
Because I'm.. not young.. all throughout my education we were 'awarded' 4 points for an A, 3 for B and so forth to calculate Grade Point Average (GPA.)
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.
I read the article differently, but it still comes out as a series of non-sequiturs.
> 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 don't think you really know whether the tariffs are going to work or not. It's not hare-brained, as you say because it has two purposes: 1) To attempt to bring manufacturing back home and 2) To raise capital in order to pay down the debt.
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.
> If you look at the debt clock, 2 is working.
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.
I guess I'm a crybaby for disliking your dumb manipulation thing at the end. Oh well.
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.
This is just hermeneutics for Trump. One person is setting the tariffs, and it's pretty clear he can be bribed to reduce them. Any rationale for tariffs goes away at that point.
Call me whatever but I'm not reading an article with an obvious ai image as the first thing you see.
"Please don't complain about tangential annoyances—e.g. article or website formats, name collisions, or back-button breakage. They're too common to be interesting."
(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.)
https://news.ycombinator.com/newsguidelines.html
polite of them to put that front and center so i can save myself some time
yeah its a shame really, I've tried to explain this to our CEO when he wants to use AI slop headers for our blog entries. Just spend 5 cents on a stock photo if you need to.
The Fed is far from helpless. They can combat inflation by speeding up the run off of their egregiously large balance sheet and keep El Jefe happy by lowering interest rates.
> can combat inflation by speeding up the run off of their egregiously large balance sheet and keep El Jefe happy by lowering interest rates
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...
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
(edited )
> Fed funds/OMOs and balance sheet are separate tools
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.)
I have overcaffeinated and said the wrong thing. What I meant was:
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
> The Fed lowers rates by buying assets ...
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 planned economy that we intellectually dress as something else
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.
> QE means buying assets that are not Treasuries.
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 don't think you understand bonds. The rates don't float once issued. They discount the price in order to sell at a certain yield at time of issue. After that, the prices float in the market based on current rates, but it's not a very liquid market. I own bonds with like 2.5% coupon and nobody will buy them and the estimated price is just that, an estimate, because nobody will actually buy them. I can hold to maturity and be made whole. I just missed out on buying higher rate bonds for the duration. It's fine.
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.
> They can combat inflation by speeding up the run off of their egregiously large balance sheet and keep El Jefe happy by lowering interest rates.
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?
Fed has to buy treasuries or risk the price bottoming out on them. It has the affect as QE which is inflationary. US can't keep running a trillion+ deficit, thats the cause of inflation.
The cause of inflation is printing more money than they destroy.
But that's how the incentives lie. The banks get paid (interest) to print (loans).
This is why we bitcoin.
Just FYI, selling bonds (not notes) back into the market would likely raise rates. Longer duration yields are set by the market (supply and command)
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.