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Reply to "I genuinely don't understand these rate hikes"
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[quote=Anonymous][quote=Anonymous]Can somebody explain to me why the Fed is raising rates? Inflation right now is due to supply chain and energy (geopolitical) issues, not cheap money -- raising rates won't make my groceries or gas cheaper. The housing demand is still there. The job market is strong. What is the thinking here?[/quote] It's both. As the PP pointed out, a lot of liquidity was introduced into the system that needs to be sucked out. Hence the rate hikes. This will not necessarily eliminate supply-based inflation but will likely tame it a bit. The Fed funds rate is now 2.25% (pre pandemic it was 2%). Another 1.5% (a couple more 75bp hikes) takes it up to 3.75%. Not bad at all. Wouldn't it be awesome if rates are at 3.75 or even 4.5% but employment and wage growth continue as they are now? [/quote]
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