Re:Fed raises rates by another 75 bps to fight inflation
by state_less on Wednesday September 21, 2022 @05:12PM
(#32931601)
> Whether the Fed actually has the technical tools to do this is another question. Most of what it does is mass psychology - trying to convince the markets of its resolve one way or another.
Who else can buy up trillions of t-bills and mortgages at a moments notice? When they do this, it drops rates. The Fed offered up historically cheap money to borrowers to keep the economy rolling during the pandemic and housing crisis.
> But to the US Treasury, they're just a mechanism to fund the deficit.
The deficit doesn't get funded as well when the Fed is not buying. It's not merely a technicality. Someone else will have to fill the hole left behind by the Fed leaving the market, and that usually means higher rates to draw in money from elsewhere to feed the t-bill and mortgage market.
Who else can buy up trillions of t-bills and mortgages at a moments notice? When they do this, it drops rates. The Fed offered up historically cheap money to borrowers to keep the economy rolling during the pandemic and housing crisis.
> But to the US Treasury, they're just a mechanism to fund the deficit.
The deficit doesn't get funded as well when the Fed is not buying. It's not merely a technicality. Someone else will have to fill the hole left behind by the Fed leaving the market, and that usually means higher rates to draw in money from elsewhere to feed the t-bill and mortgage market.