More technically, a hundredth of a percentage point.
What this means is if you borrow at 0.25% interest rate yesterday, and it becomes 0.5% tomorrow, your cost of borrowing just doubled.
the reason 1.9%, and the reason this is a desperate tightrope, is that the fed has the very real ability to blow up the corporate credit bubble with prime interest.
How much of the current inflation has anything to do with interest rates? You think oil/gas prices will care much about the Fed's action?
And we still have supply chain issue before all geopolitical problems even started: just try asking network vendors what their lead times are for switches and routers.
For consumers, Ford is shipping cars with missing functionality:
* https://arstechnica.com/cars/2022/03/ford-ships-explorers-mi...
Theoretically, the money needs to be paid back eventually. But as long as the Fed interest rate is below inflation, paying back can always be put off by covering the previous debt with new debt.
No, money supply ≠ inflation. E.g., Japan M2:
* https://fred.stlouisfed.org/series/MYAGM2JPM189S
Japan inflation:
* https://fred.stlouisfed.org/series/FPCPITOTLZGJPN
Why do Friedman-esqe Monetarists continue to ignore velocity?
* https://fred.stlouisfed.org/series/M2V
I personally like Cullen Roche's analogy:
> But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy.
* https://www.pragcap.com/three-things-i-think-i-think-i-see-d...
> The Fed interest rate affects the amount of money in circulation because the Fed credit money is simply printed. This printed credit money gets spent and ends up circulating. The lower the interest rate, the easier it is to borrow, the more borrowing gets done, the more money is printed and enters circulation, which leads to inflation.
Things do not work like this. Money gets created through private banks by credit creation, and the only limit on that is the the risk they see in their loans being defaulted on. The Bank of England put out a primer a few years ago:
> The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.
* https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
Roche again from a 2011 paper, "Understanding the Modern Monetary System":
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
Banks create (hopefully) viable loans first, and then look for reserves after—assuming reserve requirements even exist, as many countries removed them decades ago.
Moves like removing reserves completely just move us further over the ledge into the clear ponzi scheme that it is
If any private actor attempted to do what central banks do, they would be rightfully jailed. We should not allow central banks to do things private actors can not do
If they were higher, people would go bankrupt, not have money to drive, use less gas/oil, thus reducing demand, thus reducing price, thus reducing inflation.
It doesn't particularly make sense to call the current rising oil price inflation (that would make "inflation" just a synonym for price increases), but the price of energy going up will cause broad price inflation down the line.
i would believe supply chain issues were major contributors to inflation if wages were not rising. It seems to me a supply chain problem causes price to go up but wages would not. The price increase by the retailer is there to pay for their price increase to the wholesaler, not to increase employee wages.
Yes. Oil/Gas prices are pretty determined by OPEC voting and production of their member countries in conjunction with other macroeconomic issues. OPEC adjusts their production to take into account macroeconomic factors. The Fed rate is one of those issues.
Supply chain issues are being exacerbated by "free money" from the fed...
On the other hand, "basis percentage points" means something absolute, not relative to the existing level.
Pedant out. :)
> 25 bps means 0.25%.
In a sense, that is technically correct: it does refer to .25% -- not of the current value but of the 100% value.
Interest rates are being raised by .25% per year.
It's very useful to know the difference between the two. It's similar to many other things where there are two concepts that people conflate into one word and then spend a long time complaining or creating humor about confusing the results.