alt Hacker NewsI'm of the belief that the Fed raising rates won't do much at all. There's no reason to believe that raising rates will combat inflation coming from oil prices that fluctuate based on tweets and bombing, and it seems that at this point Coreweave is dealing with high interest rates not from the Fed raising rates, but because the market is waking up and realizing that there's a hell of a lot of hype in datacenters and that risk hasn't been priced accordingly.
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The way I see it it's the other way around, rates need to be raised to adjust to the situation. If the actual yield of treasuries is higher than the rates set by the fed due to AI bonds flooding the market and investors requiring more pay from countries running a 5% deficit While in a boom cycle AND strong economy AND high inflation both with and without energy and food in the accounting then the fed just has to hike to not lose their credibility.
Now, I don't expect them to hike too much beyond what the markets price 1-2yr bonds at, that would, like you say do nothing as a lot of inflation comes from the oil disruption.
Raising rates will have one main effect. Raising prices.
Most of the drivers right now of inflation are in-elastic demand. Raising the cost of borrowing, will not deter that spend.
What it will do, is actually drive up the cost of all business, and worsen employment simultaneously. You can typically see a rise in prices (inflation) following a rate hike. Even when it's needed to combat regular elastic demand side inflation, it takes time to have a positive effect. If the main driver of the inflation is inelastic, or rate insensitive as much of the driving force right now is, hiking rates will actually increase inflation.
The AI boom doesn't care what rate it has to pay, it will pay it, and keep driving things up.
What's needed is a significant policy shift, to make room in the markets again for things society needs financing for (ex. building homes, productive revenue generating businesses)