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Just to understand this inflation tale correctly
Posted on 2/24/23 at 5:28 pm
Posted on 2/24/23 at 5:28 pm
- Fed called inflation "transitory for months" then after a year of inaction started raising rates, saying they were not going to stop until they got inflation under control (closer to target 2%).
- Rate hikes were slowly getting inflation to relax, even though it was still sky high it was at least decreasing month over month
- Inflation got to 6.5% and everyone celebrated and the Fed acted like they were going to stop rate hikes soon (egregiously early).
- Inflation immediately surged again.
Feels like they finally can't frick around anymore and have to actually stick with it.
ETA: Forgot they also looked back over the previous three months and revised inflation numbers to show there was no decrease in December, but actually an increase that everyone was celebrating.
- Rate hikes were slowly getting inflation to relax, even though it was still sky high it was at least decreasing month over month
- Inflation got to 6.5% and everyone celebrated and the Fed acted like they were going to stop rate hikes soon (egregiously early).
- Inflation immediately surged again.
Feels like they finally can't frick around anymore and have to actually stick with it.
ETA: Forgot they also looked back over the previous three months and revised inflation numbers to show there was no decrease in December, but actually an increase that everyone was celebrating.
This post was edited on 2/25/23 at 8:17 am
3
Posted on 2/24/23 at 6:13 pm to Thundercles
Buy. Long. Deep. Puts.
Posted on 2/25/23 at 10:38 am to Thundercles
It’s almost like overnight lending rates only effect the financial sector and not consumer goods
Posted on 2/25/23 at 11:06 am to wutangfinancial
quote:
It’s almost like overnight lending rates only effect the financial sector and not consumer goods
It's already taking a toll on housing and, the only reason it hasn't hit autos too hard is the lingering supply issue/pent up demand, which will likely buffer that sector for at least another year or two.
There is a huge housing problem looming, just on a raw supply level. That dam will eventually burst.
Posted on 2/25/23 at 11:26 am to Thundercles
The Fed are the experts.
Should we be giving them a round of applause or pink slips?
Is Powell like the Pope and keeps the gig until he dies or decides to step down?
Should we be giving them a round of applause or pink slips?
Is Powell like the Pope and keeps the gig until he dies or decides to step down?
Posted on 2/25/23 at 11:43 am to Ace Midnight
Wrong. That’s a spurious relationship.
Posted on 2/25/23 at 12:06 pm to wutangfinancial
quote:
Wrong. That’s a spurious relationship.
To be fair, you said "consumer goods" and I immediately went to mortgages, but I'm just going to tell you - higher rates will ultimately affect consumer goods. Consumer debt is already rising and many folks depleted savings during the pandemic. They may be spending now, but eventually these high arse CC rates will tamp that back down.
More broadly, cost of financing larger construction projects will lock some folks out and cause others to pare back or pass on other opportunities, all this while we're in a period of a relative shortage of housing already. It may not be a recipe for disaster in 2023, but that is coming. It can't not come. We're about 15 years into a period where there simply isn't enough housing being built to meet demand.
Posted on 2/25/23 at 2:55 pm to Ace Midnight
Sure I agree with everything you said about housing. The only thing I’d argue is that the Feds policies have minimal effects on mortgage rates compared to long term inflation and growth expectations using long duration Treasuries as the barometer. Both have hardly touched 4%. So default risk is where the marginal increase in rates is coming from. That’s has nothing to do with “monetary” policy. For MBS securities duration risk is lower than their Treasury equivalents because they have negative convexity due to lower prepay speeds as rates rise. They probably have like a 5-10 bps effect on MBS rates by raising FFR. They are completely different markets.
Posted on 2/25/23 at 5:04 pm to Ace Midnight
quote:
There is a huge housing problem looming, just on a raw supply level. That dam will eventually burst.
Are you referencing the still low inventory, but demand is artificially low due to interest rates?
Posted on 2/25/23 at 7:40 pm to themasterpater
It’s not artificially low. It’s more elastic to rates currently because we pulled forward about 3 years of purchase volume and now nobody is going to leave their new houses with rates 2x higher.
Posted on 2/26/23 at 8:07 am to Ace Midnight
quote:
There is a huge housing problem looming, just on a raw supply level. That dam will eventually burst.
Not disagreeing, but I do have some legit questions.
1. Is this a National problem or a regional problem? Many states are losing population, so housing should not be as big of an issue nationwide as much as regionally.
2. Does this take into account a slowing down of population growth?
3. What effect will we see from more people moving to a multigenerational living situation. Many cultures do this and while America has been the opposite, it appears that may be changing.
Posted on 2/26/23 at 8:47 am to Suntiger
quote:
1. Is this a National problem or a regional problem? Many states are losing population, so housing should not be as big of an issue nationwide as much as regionally.
It is a national problem. Obviously high growth states like Florida and Texas have it worse at present, while states losing population, particularly California, are losing residents precisely because of this chronic housing shortage (which causes a predictable premium on housing in those areas).
quote:
2. Does this take into account a slowing down of population growth?
I just don't know to explain to folks that if you're taking in 1 million legal immigrants per year, now 1 to 2 million additional illegal immigrants, on a consistent basis, your population growth isn't going down. We're getting almost baby boom/millenial numbers via immigration (legal and illegal) alone. And that is separate and apart from births to residents.
quote:
3. What effect will we see from more people moving to a multigenerational living situation. Many cultures do this and while America has been the opposite, it appears that may be changing.
Well, neither our housing nor our society is set up for this sort of arrangement, although it will be an unavoidable side effect of this housing shortage. Gen-Xers and older Millenials will likely see (hell, probably have seen in some instances) a growing trend of housing aging parents AND children well into adulthood under a 2/3-generation housing arrangement.
Posted on 2/26/23 at 9:08 am to wutangfinancial
quote:
It’s more elastic to rates currently because we pulled forward about 3 years of purchase volume
I don't understand what you're saying here, not saying you're wrong, I just simply don't know what this means.
quote:
nobody is going to leave their new houses with rates 2x higher.
This is what I mean by artificially low. People that would normally be open to house shopping, will cling to their 3% rates until they have to sell.
Posted on 2/26/23 at 9:55 am to Ace Midnight
We’re turning into Italy basically. Tack on that baby boomers are basically going to price themselves out of jobs, the real economy basically in free fall and destabilized geopolitics this is going to be a fun decade for all involved.
Posted on 2/26/23 at 5:22 pm to themasterpater
Elasticity of demand is a measurement of sensitivity to price/quantity. Perfectly inelastic being a vertical line and perfectly elastic a horizontal line when you graph it.
Posted on 2/26/23 at 8:27 pm to Ace Midnight
quote:can you elaborate on what you mean mean dam will burst?
There is a huge housing problem looming, just on a raw supply level. That dam will eventually burst.
Posted on 2/27/23 at 6:04 am to Nephropidae
quote:
can you elaborate on what you mean mean dam will burst?
Old-fashioned homelessness (not based on largely voluntary addiction or involuntary poorly managed mental health issues or some combination of these two) exploding.
This post was edited on 2/27/23 at 6:05 am
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