That's just one mechanism, but not the primary way in which the Fed controls interest rates.
The Fed is a large provider of short-term loans ("fed funds") to cover interbank exchanges.
It also is the lender of last resort and lends to banks directly ("discount rate").
By changing these rates, the FED can influence the rates the banks charge each other for loans, and down the line to consumers.
> That's just one mechanism, but not the primary way in which the Fed controls interest rates.
Yes.
> The Fed is a large provider of short-term loans ("fed funds") to cover interbank exchanges. > It also is the lender of last resort and lends to banks directly ("discount rate"). > By changing these rates, the FED can influence the rates the banks charge each other for loans, and down the line to consumers.
And for those rates to take effect, the Fed still has to actually make (or receive) those loans at the announced rates. They don't just magically announce a rate, and then everyone charges that spontaneously.
So it's still about moving money in and out of circulation.
(Or at least the Fed needs to be ready to make and receive those loans, and anticipation does a lot of heavy lifting..)
You are correct. Striking how many HN commentors are so often confident and yet wrong...
You are wrong. Striking how many HN commentators are so often confident and yet wrong in their assumption that everything is about the US.
> You are wrong.
Wrong about what? This is about the US Fed, in context of...well you can read the thread.
In context of a thread about Finland? Anyway, it is true that interbank lending is a primary method of controlling interest rates and this is not limited to the US. The commenter who mentioned it above, probably was talking about the Fed specifically maybe just because that's what they are familiar with.
> Central banks work this way
>> Here's a biggish counter-example, setting fiscal policy for 25% of the world's economic output
>>> Right! How could the other poster have possibly missed that?
>>>> There are other central banks. Ignorant Americans...
It's easy to see why many commentators on a US company's forum would make said assumptions.
Theres not much about the forums that makes it Y combinator specific.
Unless youre talking more broadly, in which case this is the internet. Do Tik Tok videos have to assume everyone is Chinese?
“The Fed” is the US Federal Reserve
The Finnish central bank is called the “Bank of Finland”
Yes and the parent was talking about an american companys forums, which I think is logically flawed.
When it comes to the government treasury markets by volume (which back the global financial system), it objectively is.
But that doesn't (directly) impact inflation in other countries.
Was he really that wrong? Isn't a bond just another debt instrument? It's not obvious to me, that there is any fundamental difference between the operations that both comments describe.
While the effects may be similar, they are fundamentally different mechanisms.
Also, this statement is incorrect:
> Simplified: the central bank decide on an interest rate that they want to see. By itself that decision doesn't do anything.
The Fed does in fact set interest rates and that decision directly impacts rates all down the line to mortgages and local loans. Intervening in the bond market is another tool that the Fed can use.
The Fed still has to make (and receive) loans at these rates, for them to have an effect on the market.
I think you're talking past each other.
A central bank doesn't directly set interest rates for your mortgage.
It can set rates at which it will lend to other banks, which in turn influences the rates banks will offer to mortgage borrowers, but this isn't necessarily so, see for example 2008.
Of course there are more contracts directly tied to the central bank rates, but thats just formalising the thing thats supposed to happen anyway.
Yes. Btw, I'm not sure how many contracts are directly tied to whatever rate the central bank announces these days? It used to be more common to tie contracts to eg LIBOR, which is or was a reported interbank lending rate, not a decreed one.