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Fed hikes rates as inflation worries push up bond yields

106 points wslh 1 hour ago 67 comments

bwb 58 minutes ago | parent

Get ready for a fun ride my friends :)

leptons 48 minutes ago | parent

This comment isn't helpful. Please explain for those of us without a degree in economics.

bryanlarsen 43 minutes ago | parent

bwb is likely referring to the likelihood that this will send Trump into a tremendous rage.

science4sail 41 minutes ago | parent

I can't wait to see the next Truth Social post.

TrainedMonkey 41 minutes ago | parent

Higher rates means USG will need to print more money to pay for $40TN debt which will increase inflation which will force higher rates.

darth_avocado 24 minutes ago | parent

The debt is owed by the treasury, fed prints the money. What you’re describing is not how the monetary system works.

almost_usual 11 minutes ago | parent

The Fed purchased Treasury securities during COVID QE. Those securities had low yields and cash reserves were created during those purchases.

Those cash reserves are held by banks which the Fed funds rate pays interest on (what was hiked).

Meanwhile the fixed rate debt from QE remains the same.

kadoban 40 minutes ago | parent

Inflation is high, so interest rates need to go up to try to slow that, but the economy isn't doing amazing already, and higher interest rates won't help that.

Not to mention the US debt is _high_ as hell and bond yields mean that's more expensive.

And the country is run by a broken fool who has no interest or ability to fix any of that.

rayiner 25 minutes ago | parent

> And the country is run by a broken fool who has no interest or ability to fix any of that.

Trump will be gone in three years, but you'll still have an electorate that wants more free stuff while also getting tax cuts. There is zero appetite for fiscal reform in the U.S. The geometric growth rate of U.S. debt has been consistent since 2010 and will remain so when AOC is President: https://usafacts.org/answers/how-much-debt-does-the-us-have/...

nemomarx 8 minutes ago | parent

You really really just need to raise taxes. Just find a way to sell that to the public (focus on the rich or large corporations or whatever outgroup you want basically)

apparent 4 minutes ago | parent

Disagree. We have a spending problem, not a tax revenue problem. No matter how much the govt brings in, it will want to spend an increasing amount more.

pixl97 23 minutes ago | parent

Yay stagflation!

hdgvhicv 20 minutes ago | parent

It’s worse than no ability to fix it — he caused a large part of it for unclear reasons

base698 6 minutes ago | parent

Covid? Half the money printed happened under his watch the first admin. Biden continued the other half. Now we have yet another war to make matters worse. What are you proposing be done to fix it?

Supermancho 3 minutes ago | parent

Technically it was Besset, but Trump gave him the reigns.

almost_usual 16 minutes ago | parent

Long term bond yields are not directly tied to the Fed funds rate.

The problem is the debt purchased by the Fed during QE had extremely low yields (COVID era) the reserves held by banks created by the Fed during QE now cost more to service by the Fed.

gloryjulio 10 minutes ago | parent

There is also insane amount of debt from ai related investment. China's free model is crushing the ai margins while these companies need to pay their debt and obligations. The debt bomb clock is ticking.

The next few years would be fun.

stymaar 7 minutes ago | parent

QE without public debt sterilization is going to appear as the costliest macroeconomic mistake of the early 21st century.

ThunderSizzle 3 minutes ago | parent

The country has been _run_ by fools for 26 years. Congress has had 26 years to do something about the fiscal situation, and we've had four presidents, and the fiscal responsible side of the electorate is never listened to.

Both sides are to blame - neither will fix the problem. Obama could've made that his goal - he was competent, had a lot of political good will, and many people were frustrated at the bailout policy Bush did, but instead it was inflationary printing (quantitative easing), Obamacare and Cash 4 Clunkers (which the used car market still hasn't recovered from).

He was probably the best situated president in terms of timing to fix the debt problem, but instead it was a good time for divisive politics. By the time Obama finished, it became clear neither party actually cared about the fiscally conservative Ron Paul supporting voting block.

dmoose 37 minutes ago | parent

For those of us without a degree in economics the last few years have seemed a bit unhinged from reality so I will not claim any deep insight here. However, it is hard to imagine that an increase in cost of debt will not have some impact and probably in ways not anticipated by many of those with economics degrees.

iamnothere 35 minutes ago | parent

Higher rates means financing/borrowing is more expensive. Mortgage rates will go up, possibly pushing home prices down. This is neutral for buyers because of higher rates, but bad for sellers. Loans (personal or business) will be harder to come by. Layoffs, or at least hiring freezes, are more likely. Companies will move into a defensive rather than an growth mode. Higher unemployment will lead to more desperation, and possibly consumer defaults on loans and mortgages.

Government interest payments, which are already high, will become higher after future bond sales. This will compound future budgetary problems and could eventually lead to cuts in entitlements. If so, expect crime and political instability (already a problem) to rise in the future. This will take a while, though.

Normally rates are increased to lower inflation by reducing the supply of money. Given the multiple concurrent problems with energy (Hormuz, Red Sea/Yanbu, Russia/Ukraine, possibly Libya as problems are starting there, China is buying aggressively) then higher rates may not be enough to stop inflation. This would create a situation where both borrowing is harder and inflation continues to rage. This is very bad and will lead to demand destruction (nobody’s buying anything because it’s too expensive and they can’t finance it anyway). This results in a severe recession at the minimum.

jrflo 21 minutes ago | parent

Home prices are sticky on the way down, 25 basis points won't change much

tossandthrow 20 minutes ago | parent

Neutral for buyers? Absolutely not.

As a buyer you rather want to take out a loan in a high interest rate environment than a low interest rate environment, given that the monthly payment is the same.

1000 usd extra paid towards your mortgage actually makes a difference when the rate is 15% compared to when it is 1.5%

darth_avocado 13 minutes ago | parent

Mortgage rates are not decided by the fed rate as much as they are by the bond yields. There’s a reason why the mortgage rates were above 7% yesterday even when the fed rate has been stable for a while.

This rate hike is aimed to stabilize the bond yields which in turn will lower the mortgage rates.

tedggh 12 minutes ago | parent

“Higher rates means financing/borrowing is more expensive. Mortgage rates will go up,…”

This is highly inaccurate. The 10 year US treasury is a better metric for predicting mortgage rates. We saw this during the past interest rate cuts, interest for loans and mortgages still went up, remember? I do, because I was borrowing at the time. And why was that? Because the 10-year treasury continued going up, and that matters more than short term interest rates. The 10-year treasury is about expectations about the future, so we need to look at how the market responds before screaming mortgage rates will go up, they could actually go down.

theginger 26 minutes ago | parent

The comment could be more about the politics of this not the economics, Donald Trump has made it clear he is very against this sort of rate rise

maerF0x0 22 minutes ago | parent

Last time interest rates went up, Startups and SaaS went down, which many on HN 's livelihood depends.

Edman274 14 minutes ago | parent

Stagflation is when the economy stagnates yet inflation is higher than ideal. Inflation and economic activity are typically correlated, and the conventional wisdom back in the day was that you couldn't have unemployment going up and things costing more, because it was expected that demand going down puts a downward pressure on prices. When people aren't hiring and buying but things cost more and more, life just kind of sucks. The last time this happened was in the 1970s in the aftermath of a few oil embargoes that made oil prices go through the roof and a disastrously expensive failed war in Vietnam, there was gas rationing, it sucked.

You may notice a few key similarities now with oil embargoes, reduced hiring, an extremely expensive war, and rapidly expanding government debt as a result of that war. If you want a qualitative feeling about people's moods in the 70s, you can watch such movies as:

Taxi Driver The Deer Hunter The Warriors Americathon Network

whateveracct 9 minutes ago | parent

why are you responding to a person like it is an LLM?

darth_avocado 22 minutes ago | parent

This is the right move. Inflationary pressures due to high oil prices and tariffs are not going away anytime soon. All the economic numbers point to a need for a rate hike. Not doing so has a much larger effect on the financial system than a 25 bps rate hike. Stagflation is a bigger risk to the economy.

Counterintuitively the rate hike can help lower things like mortgage rates by stabilizing the bond yields.

ThunderSizzle 13 minutes ago | parent

We'll continue through the depression we've started since 2008. (GDP growth should be closer to 3.5%-5%, but we haven't really escaped sub-2% since 2008) - our GDP has been depressed by at least 1-2% growth since that crisis, and I think a large part of it has been the inflationary cycle we started and never stopped.

The wars already put us into too much debt, Obama continued it for 8 years (granted, the deficit slowly went down, but it wasn't fixed). Trump and Biden did a huge disservice to the debt (but neither really cared much about it), and now I fear the path Bush, Obama, Trump, and Biden have laid will not be easily fixed.

bwb 11 minutes ago | parent

Definitely the right move, 100% agree.

I don't think that mortgage rates are going to go down; I think they will go up. Just my opinion.

I also think oil is about to go up even more, maybe for multiple years, which is going to be inflationary on everything we do. But, could be really good for solar growth, electrification, and electric cars.

darth_avocado 7 minutes ago | parent

Re: mortgage rates

https://www.washingtonpost.com/business/2026/09/16/heres-wha...

lenerdenator 35 minutes ago | parent

Should have been this high years ago.

The country - particularly this industry, information technology - got addicted to cheap cash. Worse, people didn't want to pay any of it back in tax, so bond yields are going to go up on the debt that was issued to cover deficit spending.

Should be interesting to see how this impacts the AI hyper-scalers. They were already burning through cash like a furnace and were running out of people to borrow from, thus the IPO hopes.

trhway 23 minutes ago | parent

>Should be interesting to see how this impacts the AI hyper-scalers. They were already burning through cash like a furnace and were running out of people to borrow from

looks very similar to 2007-2008 - high rates plus an wide economy segment with very large debt. Now, the interesting question - did anybody "too large to fail" do (or got exposed in some other ways to) leveraged CDS on the hyperscalers bonds and private debt.

maerF0x0 20 minutes ago | parent

> want to pay any of it back in tax

If they dont pay it back in tax, they pay it back in debasement of their savings and entitlements

SoftTalker 18 minutes ago | parent

Yep, inflation is just another kind of tax, and one that's quite hard to avoid.

ojbyrne 18 minutes ago | parent

"years ago" seems like the wrong criticism. Today's rate is lower than the rates from December 2022-October 2025. That seems like years ago.

jrflo 16 minutes ago | parent

To be honest though cash hasn't been cheap for a while, not really since 2021. We have been in relatively high interest rates for the entire AI boom. Going from 350-375 to 375-400 won't be a huge shock for hyperscalers. Interest rate are still lower than when many made their initial investments in 2023-2025

verelo 34 minutes ago | parent

Edit: Whoever the hell flagged this lol....people were complaining the parent comment wasn't helpful so I took time to write a thoughtful response with citations. You can't win around here.

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The counterintuitive part is that a lower Fed rate doesn't necessarily mean cheaper borrowing for the government. The Fed sets an overnight rate; someone lending for ten years cares about inflation and interest rates over those ten years. Keeping short-term rates low won't necessarily reassure that lender. [1]

It also helps to distinguish the government's debt from a giant credit card. Existing fixed-rate bonds keep their agreed interest payments. Higher borrowing costs feed into the budget as old debt matures and gets refinanced, and as new debt is issued. The pain accumulates rather than arriving all at once. [2]

Nor does a larger interest bill automatically require "printing money." Treasury borrowing and Fed money creation are separate decisions. [3]

The difficult question is how to contain inflation without causing more economic damage than necessary. A large debt load makes that tradeoff more expensive; it doesn't make either option painless.

[1] https://www.federalreserve.gov/monetarypolicy/monetary-polic...

[2] https://www.treasurydirect.gov/marketable-securities/treasur...

[3] https://www.federalreserve.gov/faqs/how-does-the-federal-res...

andy_ppp 20 minutes ago | parent

So, during the Great Depression who ended up doing well? What can be applied to today?

adventured 14 minutes ago | parent

There isn't going to be a great depression.

The US is going to debase itself endlessly through spend-print-spend-print. At some point they may load up enough debt that the economy suffers a gradual heat death, in the style of Japan, wherein too much of your national capital is going to debt maintenance, sitting in a low yield blackhole sucking the dynamism out of your system (instead of going to productive use, business expansion, R&D, et al).

There's absolutely nothing particularly interesting or special about the direction the US is going. It's very, very, very easy to see what's coming and has been for ~20 years (since Bush nearly doubled the size of the Federal Government and blew up our finances with simultaneous tax cuts + massive spending expansion, we've never turned back from the bleed).

Gold has gone up ~10x since the early Bush years precisely because of the USD debasement, that's the reduction in value in the dollar being represented in the ultimate store of value. All of it has been remarkably predictable. I've been chirping about it forever here and there's nothing special about my insight either, this stuff is plain as day national econ 101.

netbioserror 11 minutes ago | parent

The turning point is approaching: Interest rates will gradually overtake all other gov't expenditures. All politics will revolve around shoring up the parasitic drain on the rest of absolutely everything.

conception 13 minutes ago | parent

Own stuff, not paper.

phendrenad2 8 minutes ago | parent

[delayed]

almost_usual 7 minutes ago | parent

The consistent best thing you can do for yourself and family is sleep well and exercise to increase your aerobic efficiency.

deskamess 19 minutes ago | parent

I wonder if Canada (BoC) will follow this. I hope not!

ActionHank 12 minutes ago | parent

They will probably wait it out to December and make a call then, but a small bump is looking more and more likely.

dabinat 18 minutes ago | parent

Prediction: this causes a recession in two years, right after a Democrat wins the White House, who will be blamed for it. The economy will turn around after a few years, just in time for a Republican to win and claim they fixed it.

This is how Republicans have a reputation for being economically savvy despite actual evidence to the contrary, because the general population doesn’t understand that economics runs on a time delay.

phendrenad2 9 minutes ago | parent

[delayed]

vasco 8 minutes ago | parent

Easy fix, have the democrats lose the next election and you break the spell. It's all military industrial complex anyway.

beej71 7 minutes ago | parent

I wish they'd lost in 2020, that's for sure.

jimmar 7 minutes ago | parent

So, you're aligned with President Trump who wants to cut rates, then?

hirako2000 7 minutes ago | parent

I doubt it will take 2 years as other ingredients are already at play.

jameslk 3 minutes ago | parent

Both parties are responsible for the inflation and debt. Fiscal policy is largely driven by congress, not the president

daviding 3 minutes ago | parent

> This is how Republicans have a reputation for being economically savvy

Also you can just reduce taxes (especially corporate ones) AND increase spending, as the deficit suddenly doesn't matter anymore. The important thing is really who's on the girl's soccer team, so there's literally no other party to vote for. Rinse and repeat.

im_down_w_otp 4 minutes ago | parent

It bugs me that the Fed has no mechanism to really deal with supply-shock driven inflation. Prices are shooting up, but not strongly correlated to money supply at the moment. They’re shooting up because there are a dozen or more entirely capricious and totally self-inflicted supply-shocks due to bizzaro tariff “policy”, disastrous military adventurism, and general erosion of the USD the prime vessel for international trade.

The Fed tightening the money supply isn’t going to materially bring prices down, because the money supply isn’t driving the price increases.