> A 0.25% rate hike is going to cause a recession? How, exactly, would that happen?

I didn’t see anyone claim a single 25 bps hike will cause a recession.

The 30 day FFR futures (/ZQ) curve is pricing in an 80% chance of two more hikes by the March 2027 meeting and a 70% chance of 3 or 4 hikes by Sept 2027’s meeting. So, 50 bps predicted in the next 6 months and 25-50 bps more within one year.

Source is the CME Fedwatch tool: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch...

I think we’ll need to go to 5%+ within the next two years if fuel costs remain elevated.

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smackeyacky 5 hours ago | parent | next [-]

I don’t understand why central banks seem to use such a blunt object like interest rates for every inflation problem. It would make sense to rise if the cause of inflation was accelerated economic activity, not price rises due to supply restrictions. How does hurting mortgage holders even more help with not starting wars? All it can do is have a double dampening effect on the economy as people pull back their discretionary spending.

Using interest rates for this kind of inflation is guaranteed to cause a recession.

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carefree-bob 5 hours ago | parent | next [-]

Central banks didn't use to do this, in the post-war period up until about 1980, they tried targeting the monetary aggregates like M2.

Unfortunately they discovered that the size of monetary aggregates was outside the control of central banks, these were demand determined by the public's desire for money balances. So all attempts to control the growth of monetary aggregates failed.

Having an inability to control anything else, the central banks turned to the one thing they could control -- overnight interest interest rates, and from that, bond yields more generally. That is the one tool in their toolbox.

Do you think other tools exist?

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smackeyacky 5 hours ago | parent [-]

I don’t think we have a wide enough Overton window when it comes to economic discussions, the neoliberal revolution of the 1970s killed a lot of little levers of economic control in most post social democratic countries. Instead we were promised a new age of free trade and economic liberalism and one single, shiny lever to control the speed of the economy like the governor on a steam train.

Yet here we are 50 years later suffering booms and busts just like before. Nobody seems to want to acknowledge the failure of 50 years of industrialisation destruction that in hindsight was the inevitable outcome of open trade and the retreat of governments.

To answer the question, yes I think there are other options and trade barriers need to be part of that conversation.

	▲	rich_sasha 11 minutes ago \| parent [-]
		It’s not entirely true. There’s plenty more levers on economy and inflation. This is the main one that central banks have. For the elephant in the room, the current inflation woes are caused by oil price increase, which is a direct outcome of deliberate US policy.

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what 4 hours ago | parent | prev [-]

> hurting mortgage holders

How does raising rates hurt mortgage holders? They locked in their interest rate when they got the mortgage?

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metajack 4 hours ago | parent [-]

Not all mortgages are fixed rate.

	▲	carefree-bob 4 hours ago \| parent [-]
		95% of mortgages are fixed rate in the US. And even that number is too low, most of the ARMs are taken out by businesses, not households.

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carefree-bob 5 hours ago | parent | prev [-]

Yes, I think 5% will eventually happen, but I don't think we'll get there before the mid-terms, the Fed moves slowly.

Basically you have an inflation shock and you want the reaction function to be higher, so if inflation is 1% too high, you want a 1.5% or 2% rate hike. If inflation is 1% too low, you want a 1.5% or 2% rate cut. The reaction function has to be greater than the deviation from target, but this gives you price stability, it doesn't require a recession, although it may cause a recession.