I don't think they're claiming it's a cunning plan, he/she are just asking if there's a good reason they hadn't thought of why you wouldn't do it. When I stopped and thought about it I couldn't think of a good reason why not, and it appears there aren't any forthcoming. Of course actual rates on things like mortgages move while the Fed Funds rate stays constant. That doesn't seem like a reason not to make more frequent smaller adjustments to the Fed Funds rate?
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Why doesn't the fed adjust rates more often, but in smaller increments?
- Thread starter CyJackX
- Start date
Like I said, I'm unversed in this information. It wasn't a cunning plan so much as curiosity.
There's so much hype about a .25 point move, and either way it shocks the markets.
So why not make the moves more constant and smaller? I'm just looking at it as a way to increase rates without it also being a shock on the market.
Even if a .05 target is too granular, multiple grains over time add up, right? .05 5 times over a year would be functionally the same as .25 all at once, but it would have been eased into without all this purposeful speech-making and telegraphing.
There's so much hype about a .25 point move, and either way it shocks the markets.
So why not make the moves more constant and smaller? I'm just looking at it as a way to increase rates without it also being a shock on the market.
Even if a .05 target is too granular, multiple grains over time add up, right? .05 5 times over a year would be functionally the same as .25 all at once, but it would have been eased into without all this purposeful speech-making and telegraphing.
I wasn't using "cunning plan" in a disparaging manner. As I mentioned, it has been discussed. Moreover, as you can see from the international experience it has been happening (mostly for technical reasons, to be fair).
Conceptually, there's a reason why discretionary decisions about the short rate are "lumpy", as opposed to mkt rates that may move gradually and exhibit volatility. The reasons are partly practical/common sense and partly conceptual. Specifically, what's the point of convening large meetings and hold protracted debates on something that makes a minimal difference to the economy? What's the point of acting if your actions are expected to have very little impact? That said, there IS a valid logical argument that the increments could be made smaller in the current environment.
Conceptually, there's a reason why discretionary decisions about the short rate are "lumpy", as opposed to mkt rates that may move gradually and exhibit volatility. The reasons are partly practical/common sense and partly conceptual. Specifically, what's the point of convening large meetings and hold protracted debates on something that makes a minimal difference to the economy? What's the point of acting if your actions are expected to have very little impact? That said, there IS a valid logical argument that the increments could be made smaller in the current environment.
i DON'T BELIEVE THE FED IS DOING A GOOD THING. I am not pro market manipulation.. sure the first QE maybe.. but hey past that this is just addiction at its worstThey;re doing it too slow.
how can you say that rake manipulation has very minimal difference to the economy? that sounds crazy ... interest rates are the aggregate of everyone's time preference's ... i'm not sure what you meantI wasn't using "cunning plan" in a disparaging manner. As I mentioned, it has been discussed. Moreover, as you can see from the international experience it has been happening (mostly for technical reasons, to be fair).
Conceptually, there's a reason why discretionary decisions about the short rate are "lumpy", as opposed to mkt rates that may move gradually and exhibit volatility. The reasons are partly practical/common sense and partly conceptual. Specifically, what's the point of convening large meetings and hold protracted debates on something that makes a minimal difference to the economy? What's the point of acting if your actions are expected to have very little impact? That said, there IS a valid logical argument that the increments could be made smaller in the current environment.
My point was that if the Fed were to decide to move rates in steps which are too small, I would struggle to understand its reasoning.how can you say that rake manipulation has very minimal difference to the economy? that sounds crazy ... interest rates are the aggregate of everyone's time preference's ... i'm not sure what you meant
i understand... i fail to understand why they think the are still doing no hard after like 8 or 9 years of dilutionMy point was that if the Fed were to decide to move rates in steps which are too small, I would struggle to understand its reasoning.
I am not sure what you mean by "dilution"... What are they diluting?i understand... i fail to understand why they think the are still doing no hard after like 8 or 9 years of dilution
A hypothetical question then... If the Fed were to raise rates to 5% tomorrow and cause asset deflation, but also, say, 5% extra unemployment (using the U-6 measure), would you say it's the right thing to do?anyone who isn't riding the asset inflation wave...