Was the Fed right to hike rates into an oil shock it can't control?

• A

  Avery11h ago

  The argument that the Fed "can't control oil prices therefore shouldn't hike" proves too much. By that logic you never tighten during ANY supply shock because supply shocks always have an external cause. The whole point of maintaining credibility is that you stop second-round effects — wage-price spirals, embedded inflation expectations — before they start. That's not self-harm, that's literally the job.

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• I

  Iris9h ago

  Someone needs to say the quiet part loud: the Fed hiking into an oil shock is effectively a wealth transfer from debtors to creditors. Working people carry variable-rate debt. Wealthy people hold bonds and savings instruments. A rate hike in this environment is just a regressive tax with better PR.

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• S

  Sam8h ago

  Hot take that isn't actually hot: the real mistake was keeping rates too low for too long after 2020 and now the Fed is paying a credibility bill it ran up itself. This hike is damage control for past dovishness as much as it is a response to oil. That's the context people keep skipping.

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• NT

  Nina T.4h ago

  The Fed is the only adult in the room because Congress turned the room into a bouncy castle. That's it. That's the whole analysis.

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• M

  Morgan10h ago

  I've been a small business owner for 22 years. Survived 2008, survived COVID, barely. Now my line of credit just repriced and my heating bill is up 34% since last spring. The rate hike didn't cause the heating bill, I know that. But it sure didn't help it either. I'm genuinely not sure I make it through winter this time.

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• Q_

  Quinn _x6h ago

  If the Fed doesn't hike and inflation expectations de-anchor, we are looking at pain measured in years. If the Fed hikes and we get a mild recession, we are looking at pain measured in quarters. That math isn't complicated.

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• J

  Jamie9h ago

  The credibility argument only works if people actually believe the Fed can deliver lower inflation. Right now expectations are still anchored — we're not in 1979. So the urgency everyone keeps citing from the Volcker era doesn't apply 1:1 here. If you disagree with that, explain how you square current 5-year breakevens with the idea that expectations are in danger of becoming unmoored.

  54Reply
• L

  Leo5h ago

  I'm a 26-year-old renter saving for a first home purchase and the rate hike is supposed to cool housing prices but it just makes my eventual mortgage unaffordable so I lose on both ends. Who exactly is this cycle working for? Genuine question, not rhetorical.

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• AL

  Alex L.11h ago

  ok but my mortgage just went from 6.1% to 6.9% because of this and oil is still $94 a barrel so explain to me exactly what I personally gained here

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• A

  Alex2h ago

  Nobody ever asks what doing nothing signals. It signals that the Fed will tolerate inflation whenever the source is inconvenient enough to blame on something external. That's an infinitely worse precedent than one painful hike cycle.

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• I

  Iris6h ago

  I'm a retired econ professor and I want to push back on everyone treating this as binary. The Fed can hike AND advocate for supply-side energy policy simultaneously. The failure isn't the hike, it's the absence of any coordinated fiscal or energy policy response. Monetary policy is carrying the whole load because Congress won't do anything, and that's the actual scandal.

  41Reply
• S

  Sam3h ago

  I work in commercial real estate lending and I can tell you the freeze is already real. Transactions that were penciling out six months ago don't pencil now. Refinancings are getting punted. The economy doesn't feel this yet but it will, in about 18 months, which is exactly when no one will connect it to this meeting.

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• RS

  Ravi S.8h ago

  My dad worked at a refinery for 30 years and always said the same thing: politicians and bankers treat oil like it's a lever they can control and then act surprised when it isn't. Nothing changes.

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• F

  Feli6h ago

  the word "mild" is doing a lot of heavy lifting in that sentence

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• Q

  Quinn10h ago

  @the small business owner comment — same situation here with my bakery. The flour costs and the energy costs would be manageable separately. Together plus tighter credit? It's suffocating.

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• AL

  Alex L.7h ago

  ^^^ THIS. The 2021 "transitory" call aged about as well as a carton of milk in August.

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• LL

  Liam L.5h ago

  it's working for people who already own assets outright. as usual.

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• A_

  Avery _x1h ago

  I genuinely changed my mind reading this thread. Came in thinking the hike was pointless. The second-round effects argument and the expectations point actually moved me. Still think the distributional consequences are being brushed aside too easily, but I no longer think it's purely self-harm.

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• L_

  Liam _x9h ago

  mocking people for using precise language in an economics debate is how we end up with imprecise policy. the 5-year breakeven question is legitimate whether or not it's accessible to everyone.

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• OL

  Omar L.3h ago

  The confidently stated stuff here that bugs me most: people saying this hike "does nothing." It does something — it signals commitment, it affects dollar strength, it influences long-term contract pricing. You can argue the costs outweigh the benefits but "does nothing" is just empirically sloppy.

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• M

  Morgan9h ago

  breakevens, great, i'm sure the guy refinancing his car loan is really following the 5-year TIPS spread

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• FL

  Feli L.7h ago

  it was not the right call, multiple economists flagged the risk publicly in real time, this revisionism drives me crazy

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• R

  Ravi3h ago

  lmao okay but adults can also make wrong decisions

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• Y

  Yuki5h ago

  every recession is mild until it's yours

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• D

  Drew4h ago

  that's not entirely fair, fixed-rate mortgage holders are also getting squeezed by general inflation so it's not a clean divide

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• M

  Maya2h ago

  18-month lag is real and chronically underappreciated in these debates. By the time the pain shows up the Fed will have already pivoted and everyone will argue about something else.

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• A

  Avery11h ago

  The Fed blinked in the 70s. We got stagflation for a decade. Hard pass on doing that again.

  12Reply
• Z

  Zara8h ago

  The Fed isn't supposed to be comfortable. That's the whole institutional design. An independent central bank that only tightens when it's politically easy is just a rubber stamp with extra steps.

  11Reply
• N

  Noah2h ago

  the argument is that the lag makes calibration genuinely hard and humility is warranted, not that nothing should be done, read more carefully

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• E

  Elena10h ago

  no its not suffocating stop being dramatic

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• D

  Drew5h ago

  Okay but nobody has explained yet what the counterfactual looks like. What exactly does "don't hike" do to a dollar that's already under pressure from energy import costs? Anyone?

  9Reply
• TK

  Theo K.9h ago

  fair point honestly

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• AK

  Avery K.3h ago

  signal theory only works if market participants believe the signal is credible and sustainable. One 25bp hike after a pause does not exactly scream resolve.

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• A

  Avery10h ago

  telling a small business owner their situation isn't what they say it is from your couch is a special kind of bold move

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• RM

  Ravi M.5h ago

  weaker dollar makes imports more expensive makes inflation worse, i'll take that gap for you

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• PR

  Priya R.8h ago

  this is correct and nobody in this thread will engage with it seriously

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• R_

  Ravi _x2h ago

  so the argument is dont hike because the consequences show up too late to be politically attributable? that seems like a really bad framework for policy

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• Z

  Zara7h ago

  transitory was the right call based on the data available at the time stop doing hindsight bias

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• E2

  Elena 214h ago

  Volcker comparison is lazy. Different shock, different structure, different global context. Stop.

  3Reply

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