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Comment by afterburner | Hacker News Reader

The piecemeal approach ensures they avoid massive shocks and over-correction. The cure should not be worse than the disease.

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Where was this thinking when it came to applying trillions of dollars in monetary policy? We're supposed to cautious with interest rate hikes, yet free with the money printer. Quite the double standard I'd say.

When you drive a car you don't use the accelerator and the brake in quite the same way ..

Or rather, it ensures they avoid a one-off under-correction. One big rate hike will be forgotten quickly and worked around. Inflation is a beast that needs long-term trends, not one-off actions.

Japan did it on bubble, then...

that happened.

It could have been worse, that's the point. It is also unknown exactly how much of a total raise is needed, hence the iterative approach to ensure no over-correction. The world economy has many moving parts, you can't panic when trying to manipulate it.

It /could/ have been better.

The dot plot indicates they want the funds rate around 3.75% by end of 2023 and over 3% by start of 2023. There is absolutely no reason to do 75 today, 75 next month and 50s the rest of the 2022. That pattern is actually more shocking than just a one and done hike. An analogy would be a bad tasting medicine - I don't know anyone who prefers sipping to just down the hatch.

There is also nothing to say they can't lower the funds rate should conditions warrant, as unlikely as that may be.

Perhaps a reminder to those who are younger - the past 10 years have been an aberration and not the norm when it comes to interest rates. The US and world economies have had long periods of growth with 10 year rates of 6% or higher. The current moves are as much about current inflation as they are cover for a Fed that has been looking for a way to end the mistake of ZIRP without actually saying it was a bad idea.

To avoid reacting too late, maybe the Fed should have a policy of always adjusting funds rate every month, even in a stable economy. Like TCP congestion control, the funds rate would tack up and down around the "optimal" value. This would also reduce the market surprises because people would know the rate will go up or down every month. And with smaller, more frequent changes, people can more easily anticipate which way the rate will tack.

In an ideal world the Fed would not "set" any rates - it would be up to the market. However, the risk is there could be more volatility on the short end without the Fed 'anchor'. A compromise might be to greatly increase the target range from 25bp to funds target rate +/- 200 bp, lower bound 0.00 thus making a bounded floating rate. That might also require a shift in how lenders set rates on very short term debt to some type of period average, ie 3 or 6m average rate.

Not really. Where are the mass layoffs like we had after 2008? Housing prices are still way higher than they were a year ago. This is not what a serious downturn looks like.

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