Fed hikes rates as inflation worries push up bond yields

bwb

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.

lenerdenator

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.

verelo

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. --- 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...

legitster

https://en.wikipedia.org/wiki/Stagflation

andy_ppp

So, during the Great Depression who ended up doing well? What can be applied to today?

deskamess

I wonder if Canada (BoC) will follow this. I hope not!

dabinat

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.

im_down_w_otp

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.

Sol-

I too have very strong opinions about central bank policies.

Aboutplants

Unanimous is a pleasant surprise