Re:Why doesn't the Fed just hike 200bp all at once?
by MuffinFlavored on Tuesday July 26, 2022 @07:47PM
(#32245450)
Why couldn’t they have signaled (in the name of predicability) all at once a 200bps hike? Like a 30 or 60 or 90 day warning?
Re:Why doesn't the Fed just hike 200bp all at once?
by soganess on Tuesday July 26, 2022 @08:45PM
(#32245767)
I'm interested in knowing this as well!
Maybe because, from the purview of the some parts of the market, saying you are going to raise it is the same as raising it?
I'll be the first to admit that I'm not knowledgeable in these matters, but from the naive perspective, If I was considering market movement I would package in the higher interest rate into my decisions.
As an example, if I was a bank manager that knew the interest rate were going up, I would preemptively advertise higher rates on my loans.
Re:Why doesn't the Fed just hike 200bp all at once?
by SilverBirch on Wednesday July 27, 2022 @05:46AM
(#32248542)
Let's say I give you a 90 day warning of a 200bps rise. You price that into your economic activity, you decrease your forward investment and deleverage, this causes a recession (as expected). 89 days later the economy is looking much slower than it was when I made the announcement and inflation is dropping. What do I do now? I told you I was going to raise rates, but conditions clearly now make that the wrong thing to do. But if I don't do it then the next time I guide you about future rates you're going to ignore me.
Why is this important? Because by being predictable, you can allow markets to price in your actions ahead of time and get a sense for whether your planned path is having the intended effect. It's a way of hacking the feedback loop.