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.<p>Not to mention the US debt is _high_ as hell and bond yields mean that's more expensive.<p>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.<p>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).<p>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.<p>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.
Long term bond yields are not directly tied to the Fed funds rate.<p>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.
QE without public debt sterilization is going to appear as the costliest macroeconomic mistake of the early 21st century.
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<p>Technically it was Besset, but Trump gave him the reigns.<p>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 <i>at the same time</i>.
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?
Yay stagflation!
> And the country is run by a broken fool who has no interest or ability to fix any of that.<p>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: <a href="https://usafacts.org/answers/how-much-debt-does-the-us-have/country/united-states/" rel="nofollow">https://usafacts.org/answers/how-much-debt-does-the-us-have/...</a>
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.<p>The next few years would be fun.
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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.<p>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.<p>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 <i>and</i> 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,…”<p>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.<p>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
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.<p>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.<p>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.<p>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.<p>Logically, if borrowing money becomes more expensive, how could borrowing specifically for the purpose of buying houses become cheaper.
Neutral for buyers? Absolutely not.<p>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.<p>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.<p>But a lot of people bought in 2024 expecting that to happen.
This really doesn’t make sense.<p>Higher interest rates mean the monthly payment is higher. You need to pay back the principal + the interest.
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.<p>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:<p>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.
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
Higher rates means USG will need to print more money to pay for $40TN debt which will increase inflation which will force higher rates.