How the Fed Steers Interest Rates to Guide the Entire Economy | WSJ
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- เผยแพร่เมื่อ 9 พ.ค. 2024
- The Federal Reserve's main tool for managing the economy is to change the federal funds rate, which can affect not only borrowing costs for consumers but also shape broader decisions by companies like how many people to hire. WSJ explains how the Fed manipulates this one rate to guide the entire economy. Illustration: Jacob Reynolds
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The Federal Reserve has executed a 180 degree turn toward restrictive monetary policy. What will this mean for the economy and stock market? I want to diversify my stock portfolio of $400K because it keeps declining. How can I profit from this bull run?
The new policy, while currently challenging to the stock market overall, could prove beneficial to Financial stocks. If you're not who understands strategies to invest in this volatile market, seek a Financial advisor to guide you
It's unfortunate most people don't have such information. I don't really blame people who panic. Lack of information can be a big hurdle. I've been making more than $30k passively by just investing through an advisor, and I don't have to do much work. Doesn't matter if the economy is misbehaving; great wealth managers will always make returns.
in times like these, it's crucial to be cautious and not rush into the market , Who is this your FA , my portfolio needs urgent attention , been a lot of loss.
*Heather Ann Christensen* is the licensed coach I use. Just research the name. You'd find necessary details to work with a correspondence to set up an appointment.
I appreciate it. After searching her name online and reviewing her credentials, I'm quite impressed. I've contacted her as I could use all the help I can get. A call has been scheduled.
Thanks so much. Really well explained and easy to understand with helpful graphics embedded in this video!
Raise interest rates to 2% to fight a 10% inflation.
Bring 1 beer to a superbowl party.
Got it.
And then bring it down to 0.05% 5 years after the 30th covid wave 🤣
Real inflation is closer to 16-17%. Ain't no way the Fed can raise interest rates that high. Thus America is screwed
They don’t need to raise rates above inflation
It just needs to be enough to cool the economy
The 10% inflation rate is temporary anyways, it’s caused mostly by supply side inflation.
@@harsh_adukia 😥😣💰⚠️
Man this is one of the well explained videos on interest rate👏🏾👏🏾👏🏾
So well explained
The stock market will go down further and goodluck on the fed pausing rate hikes w/ all the hawkishness that has failed to keep up with inflation
The market has been a turmoil since covid, the brief relief rallied for only a year and now the devastating effects of pumping trillions into the economy is here and will be for a while.
Fixed income and treasuries may work for you while you try to figure out the next entry point for stocks
It is always good to have a balanced fin-plan. I work with a professional planner and fixed-income strategist in NY. the fixed income portion of your portfolio won’t simply serve as a buffer to the volatility of the equity portion of your portfolio, but will provide legitimate income.
@simone_maya Who are you working with please?
LOREN LENA WALKER, advanced lady in 60s or 70s and professional, reserach if you care for supervision.
Wsj makes a video explaining this concept every year, and in each video it gets more clear
Actually dumber
There are smaller youtubers out there who explain it much better. WSJ explains it like how a school would explain it. Kind of vague
@@Yeet-yx9tw // And wrong
@@Yeet-yx9tw what more do you want? This is all there is to it.
@@Yeet-yx9tw . This is all amateurs like you need to know unless you're an economist in which case you should have paid attention in college.
This is one of the best explanation I’ve ever listen to!
Interest on reserve balances (IORB) serves as a floor for the fed funds rate (FFR). The discount rate is the effective ceiling for the FFR. At least that’s my understanding.
By my lights, IORB are a subsidy to the banking system as they reduce the Fed’s remittances to the Treasury. Fed remittances to the Treasury are expected to go to $0 as it raises rates, which increases the quantity of IORB paid out. The Fed will cover such ‘losses’ and the issuing of new required liabilities through the creation of a ‘deferred asset.’
I thought I was the only person caught this error. Wrong about the basics in this video, 😂.
Short and concise video. Good overall explanation.
great topic
Very well explained....thank you
correct me if I'm wrong .isn't the floor should be determined by IORB (Interest On Reserve Balances)
such useful video
Great video!
Is the IORB same as the Fed Discount Rate?
Excelente información
Great video! This is why I follow WSJ on TH-cam.
Great explanation! thanks!
Its literally a repeat of the 70s. Govt spent a bunch of money with the great society program, then the oil embargo. Interest rates would shoot up to around 17% and above. Screwed a lot of people over. But it sure did solve the problem. Brought inflation right back down to stability.
i personally would see higher then that, as I would account the inflation/Real Export, and the structure of the economy, as the econmy turns to finance it capitalized on the current market, there fore the volume of inflation is or the ability to fight inflation with real GDP is much lower then the 70's ( laymens term, you have a huge credit card and a much lower paycheck).
Remove interest rates problem solved
Inflation has been steadily increasing ever since the fed was created, even if the rate decreases it won't stop inflating. That's what happens when interest on debt generates money out of thin air while the money printer goes brrrrrrrrr.
@@chinavirus841 then inflation would be out of control
@@bustavonnutz thats why I'm wondering why people are so pumped to get the inflation rate to 2%. Why isn't the goal 0%? They reason they claim is price of goods might go down. Thsts a good thing lol
Now we have not enough houses in the market. Does that mean house demand stays same or higher? Supply chains have not affected like this before
So does the Jpowell cash printer meme apply here?
You should’ve talked about M2 money supply increases year over year. That’s the gas. FFR is the break
yeah and what most people dont realize is that inflation hurts the poorest the most. Those living pay check to pay check, welfare, pensions, and government aid.
@@starsn7974 you kidding right ?
where does the Fed discount rate factor into all this?
This video seems wrong. The IORB sets a floor on the Fed Funds rate, not a ceiling. Or did I miss something?
no, i noticed that too. they got it wrong
The video is wrong: no institution will give saving interest rate higher than lending interest rate. Chase won’t issue a loan with 3% and take deposits for 4%. FRB can’t do that either. Reserve interest is FRB’s saving rate, and reversed repo is its lending rate
Very good video. I used it to teach my 14 year old son. Thanks
👍🏻
#1:22
What did he say? Is to make sure that the layer market is strong?
what's that?
Labour market
Where do Feds get the money to pay interest on the bank deposits?
2:01 Is that repo rate?
Wall street shouldn’t be buying single family homes. Let consumers have access to lower interest rates for mortgages on single family homes since real estate values have increased dramatically and will take a while to go down due to supply crunch
Wall st will buy and sell anything
90% knew about subprime mortgages but still traded it anyway
I agree 100%!!! I've been saying this for years but morons with no clue how capitalism work don't get that WS drives up the cost of the living of Americans by betting against us!!! The only winners in this economy are the top 1%.
Why didn't the Fed increase the discount rate in step with the Fed funds rate?
I’m still having trouble understanding why banks are swapping treasuries for cash. Why do they need to do it on a nightly basis and what are the implications?
Commercial banks may require cash in the short-term for a couple of reasons -- need to meet reserve requirements (how much money they're mandated to hold in vaults, etc.), there's a depositor who's asking for his/her large sum of money back, it's time for a loan to be paid back by the commercial bank, etc.
So this creates the need for short-term cash (remember, most of bank's capital isn't in the form of cash -- they invest it, trade it, loan it to other people, and so on). And that's when commercial banks borrow from one another (we call the rate at which this is done the "overnight rate"), or if that doesn't work, then commercial banks borrow from the Fed (we call the rate at which this is done the "federal funds rate").
So basically, the Fed sets the federal funds rate, and that influences the overnight lending rate (the video goes into this).
Think of it like JPM needing $1,000,000 right now. If they want to borrow from the Fed, they have to pay back $100,000 worth of interest. Bank of America happens to have an extra $1,000,000. So they go to JPM and offer to loan it out such that only 1,000 needs to be paid back. Obviously, JPM will loan from BOA instead of the Fed.
(arbitrary example, numbers are for illustration only).
If you'd like to read more about this stuff, do consider checking out nanithemoney.substack.com
Cheers! Hope this sheds some clarity on the topic.
Please pick up the phone, write, e-mail, go visit all of your state representatives. Let your wishes be known. Make the politicians work. Collapse of the US economy is just a matter of time.
Crisis,,¡...... Lux and Thank you Sirs
Nice video.
COLLAPSE OF THE US Economy is coming. BLM Biden's laptop matters. The Taliban and Cartel are infiltrating the country through the southern border. THIS IS just diversions. focus AmericA. Look at US diesel fuel levels. Our fuels is being sent off shores.🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩
What does "short-term money" means?
steering all money and guide to wsj
It’s more like 20-30% they ain’t fooling no one
Nice
01:23 the layer market gonna be so strong!
isn´t it backwards? the interest on reserve balaces serves as the lower limit for lenders and the overnight reverse purchases serves as the upper limit for borrowers
The video got it wrong. Otherwise, If reverse repo is lower interest rate than reverse interest, I will borrow from fed with lower rate and deposit right back as reserve to earn higher rate. This won’t happen
Patiently waiting for rate cuts
The burdens of high inflation fall heaviest on those who are least able to bear them." The solution which is higher interest rates , reduced demand , higher unemployment will also fall heaviest on those who are least able to bear them. what moves can we make to generate more income because I can’t afford to see my savings of about $320k turn to dust
Precisely! Our main focus at the moment should be strategies to manipulate our current situation, many people are making millions from this down market, but information like this doesn't make the news.
My father once told me not to put all of my apples in one basket. Find a fiduciary-counselor to help you invst for the long haul and reduce your monthly expenses.
@@Shultz4334 Totally true, The financial market is definitely the most awkward teenager with the wildest mood swings. I started in 2020 and that same year I made gains of over $758,000, and all I was doing was basically following the guidance of a Fiduciary-counselor (Katherine Duffy Burke), she does all the hard work and I just copy.
@@CristianHulbert WOW!!!. I will be retiring early and i want to expanded my $380k reserve. Please who helped you and how can I count with Katherine?
@@RachelBrinkmeier Lookup her fullname using your webbrowser
Nonooo… Supply chain is the main issue here! High container price leads to high selling cost. Employees demand high salary, causing the company to further increase the selling price to offset the high cost.
I have a question, Why does bank lend to other banks when the IOER is higher than federal funds rate ? It is safe and risk free? Then why lend?
Because the video got it wrong. The IORB is the lower bound, and reversed repo set the higher bound.
@@huachengli1786, in fact upper bound is Discount Rate. and, both IORB and ON RRP are lower bound. As some non-bank financial institutions are not eligible to access IORB, ON RRP is the effective lower bound.
Sept 11th 2023. I still cannot find a parking space at Costco.
Are banks REQUIRED to abide by the Federal Funds Rate set by the Fed? If the Fed sets the FFR at 5%, can a bank still charge 3% interest rates if they want, or are there laws and/or incentives that force the banks to abide by the rates set by the FED?
From what I can gather, the fed loans to the banks at 5%, so presumably the banks could loan to smaller businesses at 4%, but they would be losing money. I don't think there are any laws about this, other than the organic laws of the market
Isn't part of the inflation due to trade war? Tariff? Hello?
The lower limit should be Interest on Reserve Balances, while the upper limit should be Overnight Reverse Repo. Isn’t it?
yeah is that a mistake?
There's nothing federal about the FED and the 'reserves' were
depleted a long time ago. It's all a game of musical chairs. 😬
Nope
I'm studying the federal funds market in my economics class and we studied that the lower limit indeed should be the interest on excess reserves, but the upper limit should be the discount rate. So, yes I believe it's a mistake, but the change you suggested isn't exactly correct either.
Too little too late as usual, by the bureaucracy in Washington
as hard as the fed has grappled with inflation, no one can assure if there's no fallout to come, leading to dire situation as in it bubble era and subprime crisis.
Reactionary strategies won’t deter the coming depression. Famine, Pestilence, Supply, Pandemic and War are too much to overcome.
When does this take into effect?
Manipulating interest rates to stimulate demand is only good as long as there are no supply disruptions. If I have literally 4 new cars on my lot, I can charge “whatever” I want, they are still going to sell no matter the interest rate. Also, I’m forced to sell at much higher prices because I don’t have the volume to remain operational at lower prices. In other words, we are screwed if we don’t fix our supply chain ASAP.
Designing a society where we don't have to own a car to do daily tasks is a better long term solution
@@WhatIsThis-zq4hk it's an fictional examble you dufos
@@WhatIsThis-zq4hk who wants to use public transport no thanks
@@hospitalsgivingpatientsdan8894 American public transport sucks. Try going 200 mph while sipping tea on a cozy Japanese bullet train then you will realize what you’re missing. Or you could just see a comparison of a typical Netherlands commute vs a North American commute in public transit.th-cam.com/video/SDXB0CY2tSQ/w-d-xo.html
@@WhatIsThis-zq4hk that’s about the answer l was expecting enough said !
Problem is the only can hit the brake with the left foot
Why all of a sudden is a supply chain an issue? Wasn't 3 years ago. I can tell by jobs report the economy has slowed.
I think the Fed should begin rapid balance sheet reduction first, before raising any Fed interest rates.
The current inflation is due to the Ukraine war, Covid-19 disruption, and deglobalization, which cannot be solved via interest rates.
Raising the interest rates will only let ordinary people suffer more, especially with the increase in the mortgage/rent payment.
For ordinary people, the effect of double the mortgage/rent payment is much higher than double the energy & food bill. People can go through the unavoidable increase in their energy & food bills, but why should the Fed add a much heavier layer of higher mortgage/rent to them quickly before they can go through the higher bills first?
The rapid expansion Fed balance sheet via the QE program is unhealthy, and it mainly helps the people in the financial world, while the interest rate affects the living cost of every ordinary people.
I think the Fed should start the rapid balance sheet reduction first, while raising the interest rates only after the reduction is finished and give some time to the ordinary people to let them have enough income to pay for their monthly bills.
Couldn't agree more, there aren't enough people with this view
But why aren’t they doing that?
@@andrewkerrill5076 Because their goal isn't to protect ordinary people
You aren't giving Brandon enough credit for canceling hundreds of thousands of jobs & causing gas prices to soar after he cancelled Keystone X, leases on over half of all federal land in the US, & barred exploration for oil in ANWR off Alaska + Chaco Valley. We're being punished by sanctions HE imposed & then proceeded to do absolutely nothing to alleviate them. The Ukraine war would've had *zero* effect on America & the economy if it weren't for him.
They need 2 quit giving every other country millions of dollars. Where I work anymore every 1 speaks minimal English.
Wouldn't a rate hike raise un-employment then? And with title 74 and the boarder... uhhhh
Who put this together? Whoever you are, you did a great job!
Telling the fed to control inflation but only giving them the power to raise interest rates is like telling someone to fight mold in your house but only giving them a grenade
Raising interest rates will not do anything about the chip shortage, or the zoning laws that reduce housing supply, or corporations abusing their market power, or climate change driven failed harvests, or a supply chain weakened by deregulation or the monopolization of certain sectors. In other words raising interest wony do much about inflation, and will actually make it worse in the case of housing
That is not what the Fed funds rate is for.
As the video says, this is something out of the Fed's control. It's true that the Fed funds rate can influence the broader economy, but your discussion of zoning laws and regulating corporations falls into the realm of politics rather than monetary policy.
@@ethanl868 we just have to be willing to print money for investments that have deflationary effects
I had to watch like an hr worth a videos before I got to this one. This is by far the easiest one to understand. Wish it was longer 😕
We're so far behind, it's too late for the next generation to have any hope of getting ahead financially.
This was well planned. This is no coincidence. It’s amazing how most people don’t see past surface of their true intention. Too many people were catching up financially with internet and so on and they don’t want that. Mudslide effect created.
unless they inherit property/other wealth
They need to all save now and stop wasting their money on coffee, electronics and online purchases. They are spending way more than any past generation. They can do it but it takes sacrifice and saving. That's what our grandparents and parents did. Now we have people in high schools with car payments and $1k phones in their pockets. Need to change the mindset if we're going to save us.
Is anyone else here for professor muro’s class ??
This isn't going to do much. Prices are increasing due to supply issues (Covid bottle necks, production decreases, the war in Ukraine, etc). Unless these are addressed, inflation and the recession we're falling into will continue.
No inflation was created during covid when they expanded the money supply by 1/3. The supply issues were an aftermath of shutdowns, people not working and free money.
perhaps the fed should have the power to print money for deflationary investments.
There's nothing federal about the FED and the 'reserves' were
depleted a long time ago. It's all a game of musical chairs. 😬
The million dollar question: how much brings a 0,25 percentage point fed funds rate increase the iInflation down?
No more than 0%
All this incompetence is not a flaw
Not one mention of increasing the monetary supply. TLDR - your money becomes worthless. House prices did not change...your money became more worthless.
The video wasn't about money supply which is an entirely different and more complex topic.
3:24 Jesus!
Raise interest rates to slow down economy; lower interest rates to boost economy.
They r not understanding certain things.
The products like food and gas have consistent demand and r not directly linked to economy.
The supply is very low in those sectors and they won’t lower their prices because they know that the demand will always be high.
Even if the economy crashes ,food is essential and even the basic food products have only gone up in prices even if the economy crashed.
Fed cannot control supply in those essential sectors neither can they reduce demand in essential sectors.
Food prices only going up will destroy demand for non essential goods and that’s going to destroy the economy
The Federal Reserve should immediately match the Federal Reserve interest rate to the inflation rate. That would swiftly bring down inflation and interest rates. Sure, it would be disruptive over the near term, but, that's what is needed.
"Inflation results when supply and demand are out of whack".... Not exactly... Inflation is caused by government borrowing/spending.
🧙♂️
It's all good and well saying raising rates will decrease demand but 'buying a house' is a poor example. That's because it's not a choice more of a want, raising rates wont deter people from wanting to buy a house rather restrict the amount they can borrow, cooling the housing market. My take is that the federal reserve are rightly reluctant to raise rates so sharply in fear of triggering a recession but by doing so will always be behind the curve when it comes to cooling inflation. A stagnant economy with a persistent high levels of inflation is what we'll get from this... Stagflation is already here people.
Just Using Hit & Trial method.... Will Hurt Economy & public Bankruptcies only....
Raise interest rates Jar jar jar
We're in a deleveraging. Let's hope they do a good job
Lol they said a quarter to half... and they raised it 3/4 of percent lol
I don't think the economy seen anything like this yet.
We can relate to generational trims from the past to predict our future Stimulate from history.
Studies have proven over and over again of an increase of volume and homes, volume Growth and businesses.
Economic development make more public wealth by schooling people who too.
The lateral by having student loans debt that convert convert to public wealth. The topic of issues in America never ends crimes at all times high. Guns aren being sold more than little. Nevertheless a college course class may put a hold on buying power all so give back by A increase job for the law enforcement.
There's a bubble bath going on in the economy.
If the FED cannot stimulate the banks to to give money to like minded business owner's, small business to produce more massive wealth to keep positively bounce back without it be in a drain.
This bubble bath, Then how are we gonna bring the country back along. Reform Working class. Is it just a headache?
Hoho nga
Banks are buying houses for cash and renting them. Outbidding middle class Americans driving up prices and lowering supply. How will interest rates affect banks buying cash..
That’s because the housing market isn’t regulated. In Scandinavia and parts of Europe the housing market is regulated and protected from the kinds of speculation that exists in America. But any type of intervention of that sort is seen as cOmMunIsM. So good luck with your free market.
Yeah that worked real good in late 70’s-81. Interest rates and inflation both went to record levels. Milton Friedman told us the solution.
Yes, it did work you clown.
“The use of quantity of money as a target has not been a success. I'm not sure that I would as of today push it as hard as I once did.” - Milton Friedman
Obviously these people don't live in the real world. The average American household is not doing well. People are living off of borrowed money. A lot of people have already exhausted their supplies and Have even used their savings. People have cashed in. And cashed out. The labor market is already slowing because Even though the demand is there the supply isn't. And even after Corporations and banks start closing down and the money flow stops flowing Debt Is it still going to be present. The economy is not going to bounce back. And as long as the people in charge keep enacting public enacting policies that are self destructive to our economy it's not going to ever get better. It's not gonna get better until we get a better Government administration.
I think something like this is what spiked the french revolution. but the western government have used tactics to feminize men ever since the dollar was removed off of the gold standard. maybe to prevent revolution once it all came to light
What does it have to do with residential housing,, people who already have mortgages. Why do you have to punish them, make interest rates based on income brackets. You draining middle low income class, those who sit on cash will move their wealth on high interest savings.
Play stupid games, win stupid prizes.
Soo are we going to pretend that putting a pause on major manufacturing companies during the start of the pandemic, stopping 2 big pipelines that cause fuel to increase , on top of canceling leases with other pipelines, and lastly handing out millions of dollars during the pandemic, had nothing to do with any of this ???
Usa economy 파이증대 ok
Its a great explanation of how feds work for banks but they are all forgetting the human aspect part of this equation. People wont stop working or buying things. Living in the USA has trained all of us to work two or three jobs so we can buy the things we need and the things we want. Feds should note this time its different and raising the federal funds rate is not enough.
hammer screwdriver got it.
Federal USD Dollars and Coins is what we use in US and needed to be enforced. The Cryptocurrencies example Bitcoins and there is others that need to have some respect for USD and it's coins its so fad in demand. But, not a USD Dollars and Coins so don't let it over turn our or mimick our USD Dollars and Coins because the currency are a different count and
government and population is not able to afford much with pricing if the currency have confusions. Let set the record straight on the laws of the USD and Coins and who use it USD and Coins vs Cryptocurrencies.
STOP PRINTING DOLLARS
The Book of Ezekiel classifies the charging of interest among the worst sins, denouncing it as an abomination and portraying usurers as shedding blood
What chapters?
you mean, how do they sink the economy into the ground. that would be a fitting title. hey powell, thanks for making basic food unaffordable. would be nice to see the fed's salaries cut exponentially...you know because of inflation.
In other words raising interest rates is like putting a choker leash on a over anxious pet to keep him from dragging you while taking a walk ..
Knew I could count on you . You were made to bring happiness into our world 🌎 thanks for the valuable help you ☝️☝️did to me
Scam
Ekonomi kalau tidak jalan dibalik saja kayak gratis bayar di belakang diganti di depan.
👍ℹ️
Dude has scary eyes like the Theranos con woman
Strange system money is create on paper and made up interest rates are charged to borrow made up money.