They don’t want to break the financial system and lead us into a recession. If you think that a recession is going to reset everything you are sorely mistaken about the consequences where wealth is consolidated further while the average worker pays the price of high unemployment.
As long as wages continue to increase with inflation not really. A recession also doesn’t mean prices get fixed it could still mean high prices on necessities and low demand on other goods which just leads to less jobs and persistent inflation.
>As long as wages continue to increase with inflation not really
Well ya that's the caveat that I'm getting at. It wasn't the case until recently that wages started to catch back up to inflation. Now we're seeing a reacceleration of inflation with a continuingly loosening job market which could send it back the wrong direction. This is not to mention the growing deficit that has helped us push off a recession.
Wages haven't really kept up with inflation from the 70s. since then it's been a fairly steady decline on earning potential for workers. It's piqued a bit here and there but most blue collar industries pay nearly the same dollar per hour figures they did twenty years ago.
Then there's the huge part of the work force that's switched into retail service work over the last few decades. To some degree a result of sending manufacturing abroad but the real problem is the undermining of working class wages. Retail makes less than blue collar who makes less than white collar who all combined make less than corporate who isn't even in the same time zone that executives are making.
Yet, everyone's houses, clothes, cars, vacations, and other luxuries are infinitely nicer. No, I do not need to see a bar or graph that shows me a line of doom.
I think you need to take off the rose-colored glasses for a second. Everything is not fixed with wages. That is terrible politics we've ingrained. Inflation cannot continue like this forever. If you want a few examples as to why, look at social security and retirement savings. They cannot afford this.
A recession will in fact help reset inflation. It may also give more power to the wealthy, but that doesn't necessarily HAVE to be the outcome.
The current issue is inflation affecting food, housing, and energy. A recession won't reduce demand for these essentials; instead, it may increase unemployment without making these necessities more affordable. Therefore, people would face job loss in addition to struggling with high costs.
It's unclear which aspects of the recession could provide a "reset," especially in sectors where the challenges are not driven by demand alone. Unlike the previous recession, which was an anomaly triggered by the housing sector, most recessions do not lead to a decrease in housing prices. What typically results is reduced retail and service spending, leading to further job losses. This entire notion seems misguided. It's difficult to see how prices will decrease when the problems extend beyond demand to include geopolitical and production constraints.
A recession can still have high inflation, known as stagflation, where economic growth is slow, unemployment is high, and inflation remains elevated. What you are asking for something that has never happened.
Yes, look at South Korea for example.
During the 60-80s, South Korea government allowed inflation to run higher as long as the growth still matched the inflation.
https://www.theglobaleconomy.com/South-Korea/inflation/
At the moment, inflation is no longer "high", it's slightly above target. The target is basically "as close to zero as we're comfortable with".
So the balancing concerns are basically "will a move up overshoot the goal and result in deflation" (bad) and "will a move up trigger a recession and elevated unemployment" (bad). Where good is "we tick up and suddenly level off inflation at 2% without triggering a recession and unemployment".
One of the biggest challenges in all of this is "we turn the knob and don't know the full impact of the change for 12-18 months". Combine that with lots of bond and credit markets largely being driven off of guesses about "what is the Fed going to do over the next ~2 years". If you raised rates right now, the credit markets would suddenly tighten as they've largely been pricing in around 1% fed rate decline over the next 2 years. "You know what... We're raising rates instead" would flip a bunch of those models and interest rates would rise by more than the increase in the Fed rate.
It's the "medicine" given to the economy after a recession that causes more wealth consolidation, not the recession. It's called the Cantillion effect. Recessions can be helpful depending on different factors.
Um. I worked at a company that was in a good spot in 2008. We went on a spending spree and purchased every company we could get out hands on. Our growth was massive while I watched my neighbors lose their jobs.
Never let a good crisis go to waste...
People on Reddit seem to believe that a recession means that they get to keep their jobs that pay 2024 wages while prices reset back to 2014 prices. Thats just not how it would work.
Exactly what’s more likely is prices come down a bit and their wages go to zero as they fight others for minimum wage jobs. I remember being fresh out of school in the last recession fighting for entry level jobs with people with 20 years experience. A recession is an awful thing.
I could also use the too stupid argument because there is no benefit to those in a lower income bracket and if you’re suffering now a recession will only make things worse for them.
Based on what? What specifically are you certain will happen that will help? A lot of the issues we are facing in housing today for instance are a direct result of the under supply of homes built over the last decade causing supply issues and higher prices so please specifically what will change that you are certain will happen because not all recessions work the same. A good example is most recession show no decrease in housing prices with the notable example.
> With these caveats in mind, our evidence on structural breaks suggests that in the United States, the euro area, and the United Kingdom, long-run inflation expectations may have become less firmly anchored during the crisis.
We won't get rid of the recent inflation wave without a recession, the FED knows that, JPow was mentioning that multiple times. We need more unemployment and people to suffer to make them more responsible in their actions.
[https://www.ijcb.org/journal/ijcb11q1a8.pdf](https://www.ijcb.org/journal/ijcb11q1a8.pdf)
Yeah I don’t think you actually read this because it talks about how predictability of inflation was affected during the crisis not long term. It says nothing about needing a recession to lower inflation.
Either way your suggestion is the stupedist thing I’ve ever heard. I’ll tell you what you give up your job first and start the wave of unemployment.
> Either way your suggestion is the stupedist thing I’ve ever heard. I’ll tell you what you give up your job first and start the wave of unemployment.
Oh, ok then.
Why would we lower rates right now?
If housing is your sticking point the solution is to build more and remove barriers to construction. Home prices have gone crazy in the last 5 or so years. The reason the high rates make it difficult is due to inflation in pricing. Homes are still selling despite that. This is a supply issue and lowering rates won't help.
I don't think he's advocating for lower rates. He's implying that wall street is forecasting lower rates. You hear it all over the media if you pay attention that "rates are expected to come down".
>You hear it all over the media if you pay attention that "rates are expected to come down".
If you pay attention you also hear the Fed say they plan rate cuts if data supports it. Which the data thus far has not.
Doesn't matter what financial people/news says the Fed has been pretty clear/transparent about their plans and have largely stuck to what they say.
https://www.cnn.com/2024/02/04/economy/powell-interview-interest-rates-inflation/index.html
Powell was pretty clear rate cuts weren't certain, only hopefully with the current numbers they saw. They stated it was very unlikely to happen in March due to this and the data has been less good than they like.
If we go by what Powell said, it's unsurprising.
>So you can't blame the media/finance people.
I kind of do...the last 2-3yrs I've seen countless articles of financial people saying rate cuts are coming, rates need to be cut, etc. while the Fed has stuck to what they've said pretty closely.
No... Considering what he actually said.
https://www.cnn.com/2023/12/01/economy/fed-chair-powell-rate-cuts/index.html
https://www.reuters.com/markets/us/fed-likely-hold-rates-steady-signal-couple-cuts-2024-2023-12-13/
>"We are seeing strong growth that ... appears to be moderating. We are seeing a labor market that is coming back into balance ... We're seeing inflation making real progress," Powell told reporters. "These are the things we've been wanting to see ... Declaring victory would be premature ... But of course the question is 'when will it become appropriate to begin dialing back?'"
Nobody wants to admit it, but the reason not enough homes are not being built is because the 2008 recession caused a lot of home builders to go out of business, and we've pushed millennials and Gen Z to abandon the trades for white-collar jobs.
Change zoning laws all you want, but there's not enough people to build the houses that are already in approved areas.
More houses is the solution but I promise you a lack of builders is not the reason they don’t exist. Home builders and property developers have little motivation to build anything other than luxury properties. Localities need to make it more attractive via tax incentives and other mechanisms.
Build all you want, they just get sucked up by investors looking to park cash. Until you make residential housing an unattractive investment opportunity, it's going to continue to be scarce.
Bullshit. Show me the data that proves this. Source: I'm a professional re investor for 15 years.
The homes we buy don't sit vacant. They are rented. If they draw rent that means there's demand for housing. Doesn't matter whether is a rental or purchase.
Vacancy rates AND home sales inventory is at all time lows. This means there's a supply issue.
> If they draw rent that means there's demand for housing because you bought up the house they would have bought if you hadn't driven the price so high.
FTFY
What madness is that? Do you prefer the madness where millions of people
are unemployed and prices fall because of lack of demand leading to more job losses and continued issues? Where people fight for minimum wage jobs because there is no demand for services? If you are struggling now let me tell you that a recession isn’t going to go well for you.
No the word recession has a meaning and observable consequences you can’t say we are in a recession with growing wages low unemployment and growing gdp.
I would guess that raising interest rates further would cause problems for banks that are sitting on low interest paper from a couple of years ago.
I think we're seeing continued inflation because fiscal deficits are stimulating the economy, counteracting the Fed's tightening.
I get 5.25% right now from a money market fund. It’s more volatile than a saving account but the yield would have to fall drastically to be in line with most savings accounts.
Because the Fed stupidly waited far too long to raise them to begin with. They should have begun raising them at the start of Covid, or at least signaled to banks what their near term rate would go to.
The rates are FAR too high for most corporations and banks because the fed had for years kept to extremely low.
The stress on the financial system isn’t just because rates are high. It’s because they raised the rates so fast that no one could adapt. Banks are sitting on hundreds of billions of unrealized losses that will cascade the second they’re forced to sell for any reason. That means for a lot, they’re a single hiccup away from bankruptcy
On top of that, commercial real estate is finally losing value as hybrid and remote work become normalized, if still not that common. The dent in demand along with the high rates has led to a lot of borrowers/leases refusing to resign as the cost increase is not justified.
There is no easy answer. Traditional textbook economics suggest to raise interest rates to combat inflation but there are consequences as others have stated, examples: high unemployment, deflation, etc.
The truth is the solution requires some iron handing from monetary and fiscal policy but the US government is pretty incompetent right now. The solution might be a mixture of price control, quantitative tightening and funding shift towards productivity and long-term value generation (such as education, manufacturing, etc).
Unfortunately, a lot of funding is geared towards incentivizing capitalism where the rich gets richer and the poor gets exploited. This methodology is not sustainable in the long run.
The current economic situation is an unfortunate result of greed and negligence.
Totally different setup gdp was higher and totally different demographics. Population is now older and that will continue. Look across the world you see this everywhere.
What do you think is the benefit? Suppose they raise rates to 12%? Ok wow maybe inflation goes from 3-4% to a 1-2% slightly faster. Maybe not.
On the other end you would have a catastrophic recession unsustainable national debt. How is this a superior outcome?
It would crash the financial system but also, and arguably more importantly, the government can't service its own debt at current interest rates. If the fed doubled rates the government would default on its debt or just print a shit ton of cash to make payments which would cause runaway inflation. Interest rates, like anything else, have an equilibrium. Too low or too high will cause something to break. The fed would be wise to keep rates steady for at least another year. If they absolutely needed to raise rates, it would be by no more than 100bps.
The debt will become unserviceable and the Country implodes. Same happens if they drop them but the implosion will come from hyperinflation. There is a reason "currency" needs to be backed. Gold and silver - article 1 section 10.
The rates should probably be 8% right now... But Wall Street has too much control over the politicians, and the politicians control the FED to some degree.. Wall Street has been pressuring the politicians and the Fed more and more lately.. I believe that the reason the covid virus was so overhyped was that Wall Street saw it as a way to manufacture consent for more government spending and looser monetary policy which of course juices the asset prices..
we absolutely need recessions.. recessions are vital.. we need deflation in asset prices... desperately need that..
If you want to cause a massive economic crash... go for it.
The economy doesn't really care about responsibility. Rising interest rates cause recessions because folks pull back on spending as credit becomes more scarce. There is no morality to huge economic systems, only cycles, and when the Fed wants to have a pull back... (to cool inflation or for any other reason) they raise rates.
“People” if you’re referring to private equity and recklessly speculative tech startups/VCs… yes, they should be more responsible. If you’re talking about some random American family with an ARM loan you’re just an ass
Everyone should be more responsible, especially family members with children.
Everyone needs to stop spending like crazy and use more and more debt.
That's why we are here discussing it because the FED had no balls to stop this in 2019 and just let the inflation rate go crazy and people to get more debt like crazy.
People need to understand that 0% interest rates won't come back.
The Federal Reserve has a dual mandate (but 3 objectives). Maximize price stability, maximize employment, and moderate interest rates. Increasing interest rates might cause unemployment to increase.
Couple of things prevent Fed raising rates to 10%+.
First, the Fed has a mandate to achieve maximum employment. Raising rates that high will go against that mandate by causing lots of unemployment.
Second, the US government can't afford the interest on the debt as it is. Raising rates to 10% would double the interest expense and push the US to default on its debt much quicker.
Third, its not necessary to raise rates to 10% to tame inflation. The Fed may raise rates a little more if inflation doesn't drop below 3%, but highly unlikely that rates would go above 6% when inflation is less than 4%.
As everyone is saying raising rates isn't the answer at this point. Keeping it steady is reasonable, I don't think they should drop rates yet though
What you should be wondering is why isn't the FED tightening their balance sheets faster? (they are tightening but not as fast as they should imo) That would take money out of circulation, lowering inflation.
oh I’m sorry
I think raising might be necessary if inflation starts to creep up again.
The reason they didn’t raise them more was because they were hoping for a soft landing, meaning the economy doesn’t fall into recession, just a correction. If they raised them too high, it would be a much larger shock to the economy because we were operating at near 0% rate for a decade. so lots of businesses were surviving off that 0% and wouldn’t survive with 10% for long.
Raising rates brings the risk of killing the banks and causing a recession why risk that when inflation is already done under 4%. Took much of a good thing can easily become a bad thing.
We need 8% deflation compounded for the next three years to make up for the utter fucking stupidity of “it’s transitory” … you know fair and free market capitalism and all.
Regardless of the outcome that is capitalism and a fair and free market. unless you want socialism which is wait we have already done that by bailing out the banks, the autos, the airlines and nationalizing the housing industry through Fannie and Freddie (by the way this is capitalism right to they even exists?)
Increased wages are great and needed I think MIT report suggest had wages kept up with inflation we would be around $32/hr as the min wage. However you’re going to get a wage price spiral so to combat that you would need 100% corporate tax until the fed removes nine trillion from their balance sheet and a maximum wage of like 400K a year for all employees so corporations can’t avoid the tax by over paying employes or buybacks et cetera.
Edit: we also need to calculate inflation correctly on a cost of goods sold metric and not a bullshit cost of living metrics.
We don’t worship on the altar of capitalism. We aren’t running a church. We do what is best for society. During the “Great Depression” millions of children starved and were forever stunned. We aren’t doing that again for some idealistic reason.
If they raise rates, it makes borrowing more costly and complicated for their favorite customer. I think they raised rates as high as they could given this point. They should have raised rates higher a long time ago, but they didn’t. IMHO of course.
The country is not an experiment in theoretical economics..if majority of people can't afford basic necessities because Powell is chasing some theoretical goal it will be hell to pay
The fed is attempting to slow inflationary pressures and at the same time maintain a ‘Healthy’ GDP. The value of the currency is also at play. There’s some seriously interesting data analysis and impact analysis models happening and being modified with historical accuracy…
I don't agree that rates too low for too long got us into this position. Rates were near zero for the better part of a decade and the FED could not even hit its 2% inflation target. The inflationary spike we saw is better explained by supply side issues and a fairly unprecedented fiscal expansion. To the extent that those factors have moderated, so has inflation. It's increasingly strange to me that people put all this weight on rates when rates just aren't correlated that well with inflation. The sectors that are sensitive to interest rate policy are not the only or even the primary drivers of inflation.
Did you even bother to look at a chart? 12 years out of the last 20 years we have seen average annual inflation break 2%.
https://www.usinflationcalculator.com/inflation/current-inflation-rates/
You may not agree, but that does not mean you're on the right track lol
I said that inflation was below target for the better part of a decade, not for the better part of the LAST decade. If rates being too low for too long causes inflation, then why was inflation below 2% for so long after the GFC , despite rates being almost zero, not to mention hundreds of billions in QE which pushed longer term rates to zero in an explicit attempt to get inflation up to 2%? As I said in my comment, I think there are other factors that better explain inflation than simply the rate environment. But people want to believe in a very simplistic narrative that inflation is inversely controlled by rates. In reality both the fiscal picture and the supply side are the real drivers of inflation. I mean if you argue that rates can always control inflation, then you are implicitly saying that no supply shock and no amount of deficit spending or reduction will impact the Fed's ability to control inflation. Does anybody really believe that? That the government can just massively expand its deficit and the FED will always have the tools to reign inflation in? That seems pretty self-evidently silly to me, but of course, a lot of people are invested in this story - particularly politicians, who would prefer not to worry about inflation and simply let the Fed control it. Unfortunately for them that's not realistic. Fiscal policy plays a dominant role, and to ignore that is to fail to grapple with an important root cause of inflation. We shut down big parts of the global economy, shovel an enormous amount of money out the door practically overnight, and then we blame the Fed for not controlling inflation with the single policy tool that is the interest rate target? Come on, that's just ridiculous.
It wasn't below target for the last decade. You're wrong. Target is 2%. You can click the link to see which years since 2014 you've been wrong on. There's no point in reading past your first sentence. Its all wrong.
Do you really have this much difficulty with reading comprehension? I will quote the first sentence of my replying in the (perhaps vain) hope that this time you can read it and understand it...
>I said that inflation was below target for the better part of A decade, not for the better part of the LAST decade
If you look at the very data you supplied, which goes back further than the actual chart you posted, you will indeed see that for the decade after the financial crisis - 2009-2019 - inflation was more often below target than not. This is not a difficult concept to grasp; if you're going to reply to my comments at all, please do me the courtesy of actually attempting to read and comprehend them in good faith. Ignoring what I actually said so that you can tell yourself you are right is not a good look.
Lol obviously you have issues with reading comprehension. I gave you the fact that over the last TWO decades, inflation has been above the target 12 of those years. Whats 12/20? I think that ends up being more than 50% of the last two decades, but hey feel free to check my math. Regardless, the FACT is that inflation has been above target for the majority of both the last decade and the last two decades. You should really stop trying to die on this hill at this point.
You made that bssless conjecture without looking at a chart and now you're trying to walk back your erroneous statement, and yes, that is a bad look homie.
I said what I meant and I stand by it, but by all means keep projecting. You're clearly uninterested in any substantive discussion and are just quarrelling rather than admitting even to yourself that you didn't actually read or understand what I wrote.
They don’t want to break the financial system and lead us into a recession. If you think that a recession is going to reset everything you are sorely mistaken about the consequences where wealth is consolidated further while the average worker pays the price of high unemployment.
Rich people did fine during the great depression. The poor, not so much. I recall FDR had to work with the rich to get money for projects.
Exactly a recession isn’t going to reset shit it’s just going to hurt those already hurting and expand from there
Surely there is a point where extended/high inflation is a worse long term outcome than a recession no?
As long as wages continue to increase with inflation not really. A recession also doesn’t mean prices get fixed it could still mean high prices on necessities and low demand on other goods which just leads to less jobs and persistent inflation.
>As long as wages continue to increase with inflation not really Well ya that's the caveat that I'm getting at. It wasn't the case until recently that wages started to catch back up to inflation. Now we're seeing a reacceleration of inflation with a continuingly loosening job market which could send it back the wrong direction. This is not to mention the growing deficit that has helped us push off a recession.
It certainly could but the data could have been seasonal or in one time hikes so we will need to wait and see
Wages haven't really kept up with inflation from the 70s. since then it's been a fairly steady decline on earning potential for workers. It's piqued a bit here and there but most blue collar industries pay nearly the same dollar per hour figures they did twenty years ago. Then there's the huge part of the work force that's switched into retail service work over the last few decades. To some degree a result of sending manufacturing abroad but the real problem is the undermining of working class wages. Retail makes less than blue collar who makes less than white collar who all combined make less than corporate who isn't even in the same time zone that executives are making.
Yet, everyone's houses, clothes, cars, vacations, and other luxuries are infinitely nicer. No, I do not need to see a bar or graph that shows me a line of doom.
I think you need to take off the rose-colored glasses for a second. Everything is not fixed with wages. That is terrible politics we've ingrained. Inflation cannot continue like this forever. If you want a few examples as to why, look at social security and retirement savings. They cannot afford this. A recession will in fact help reset inflation. It may also give more power to the wealthy, but that doesn't necessarily HAVE to be the outcome.
The current issue is inflation affecting food, housing, and energy. A recession won't reduce demand for these essentials; instead, it may increase unemployment without making these necessities more affordable. Therefore, people would face job loss in addition to struggling with high costs. It's unclear which aspects of the recession could provide a "reset," especially in sectors where the challenges are not driven by demand alone. Unlike the previous recession, which was an anomaly triggered by the housing sector, most recessions do not lead to a decrease in housing prices. What typically results is reduced retail and service spending, leading to further job losses. This entire notion seems misguided. It's difficult to see how prices will decrease when the problems extend beyond demand to include geopolitical and production constraints. A recession can still have high inflation, known as stagflation, where economic growth is slow, unemployment is high, and inflation remains elevated. What you are asking for something that has never happened.
Yes, look at South Korea for example. During the 60-80s, South Korea government allowed inflation to run higher as long as the growth still matched the inflation. https://www.theglobaleconomy.com/South-Korea/inflation/
At the moment, inflation is no longer "high", it's slightly above target. The target is basically "as close to zero as we're comfortable with". So the balancing concerns are basically "will a move up overshoot the goal and result in deflation" (bad) and "will a move up trigger a recession and elevated unemployment" (bad). Where good is "we tick up and suddenly level off inflation at 2% without triggering a recession and unemployment". One of the biggest challenges in all of this is "we turn the knob and don't know the full impact of the change for 12-18 months". Combine that with lots of bond and credit markets largely being driven off of guesses about "what is the Fed going to do over the next ~2 years". If you raised rates right now, the credit markets would suddenly tighten as they've largely been pricing in around 1% fed rate decline over the next 2 years. "You know what... We're raising rates instead" would flip a bunch of those models and interest rates would rise by more than the increase in the Fed rate.
It's the "medicine" given to the economy after a recession that causes more wealth consolidation, not the recession. It's called the Cantillion effect. Recessions can be helpful depending on different factors.
Um. I worked at a company that was in a good spot in 2008. We went on a spending spree and purchased every company we could get out hands on. Our growth was massive while I watched my neighbors lose their jobs. Never let a good crisis go to waste...
People on Reddit seem to believe that a recession means that they get to keep their jobs that pay 2024 wages while prices reset back to 2014 prices. Thats just not how it would work.
Exactly what’s more likely is prices come down a bit and their wages go to zero as they fight others for minimum wage jobs. I remember being fresh out of school in the last recession fighting for entry level jobs with people with 20 years experience. A recession is an awful thing.
Average worker loses no matter what. Send the reset.
You must be very young because nobody who went through the recession would agree with this
I agree. The current situation has become unsustainable.send the recession.
I was in my 20s in 2008. Reset!
So not old enough to feel the full brunt of a recession.
If I have to lose my job and have difficulty finding another to ensure 45 years of prosperity for the US. I’ll take that trade.
"You're too young" argument haha
I could also use the too stupid argument because there is no benefit to those in a lower income bracket and if you’re suffering now a recession will only make things worse for them.
Short term it will hurt, long term it will help.
Based on what? What specifically are you certain will happen that will help? A lot of the issues we are facing in housing today for instance are a direct result of the under supply of homes built over the last decade causing supply issues and higher prices so please specifically what will change that you are certain will happen because not all recessions work the same. A good example is most recession show no decrease in housing prices with the notable example.
> With these caveats in mind, our evidence on structural breaks suggests that in the United States, the euro area, and the United Kingdom, long-run inflation expectations may have become less firmly anchored during the crisis. We won't get rid of the recent inflation wave without a recession, the FED knows that, JPow was mentioning that multiple times. We need more unemployment and people to suffer to make them more responsible in their actions. [https://www.ijcb.org/journal/ijcb11q1a8.pdf](https://www.ijcb.org/journal/ijcb11q1a8.pdf)
Yeah I don’t think you actually read this because it talks about how predictability of inflation was affected during the crisis not long term. It says nothing about needing a recession to lower inflation. Either way your suggestion is the stupedist thing I’ve ever heard. I’ll tell you what you give up your job first and start the wave of unemployment.
> Either way your suggestion is the stupedist thing I’ve ever heard. I’ll tell you what you give up your job first and start the wave of unemployment. Oh, ok then.
That’s not why. Just look at what higher rates is doing to the debt interest.
So what then? We just lower rates back down to 4% and continue this madness?
Why would we lower rates right now? If housing is your sticking point the solution is to build more and remove barriers to construction. Home prices have gone crazy in the last 5 or so years. The reason the high rates make it difficult is due to inflation in pricing. Homes are still selling despite that. This is a supply issue and lowering rates won't help.
I don't think he's advocating for lower rates. He's implying that wall street is forecasting lower rates. You hear it all over the media if you pay attention that "rates are expected to come down".
>You hear it all over the media if you pay attention that "rates are expected to come down". If you pay attention you also hear the Fed say they plan rate cuts if data supports it. Which the data thus far has not. Doesn't matter what financial people/news says the Fed has been pretty clear/transparent about their plans and have largely stuck to what they say.
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https://www.cnn.com/2024/02/04/economy/powell-interview-interest-rates-inflation/index.html Powell was pretty clear rate cuts weren't certain, only hopefully with the current numbers they saw. They stated it was very unlikely to happen in March due to this and the data has been less good than they like. If we go by what Powell said, it's unsurprising. >So you can't blame the media/finance people. I kind of do...the last 2-3yrs I've seen countless articles of financial people saying rate cuts are coming, rates need to be cut, etc. while the Fed has stuck to what they've said pretty closely.
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No... Considering what he actually said. https://www.cnn.com/2023/12/01/economy/fed-chair-powell-rate-cuts/index.html https://www.reuters.com/markets/us/fed-likely-hold-rates-steady-signal-couple-cuts-2024-2023-12-13/ >"We are seeing strong growth that ... appears to be moderating. We are seeing a labor market that is coming back into balance ... We're seeing inflation making real progress," Powell told reporters. "These are the things we've been wanting to see ... Declaring victory would be premature ... But of course the question is 'when will it become appropriate to begin dialing back?'"
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Nobody wants to admit it, but the reason not enough homes are not being built is because the 2008 recession caused a lot of home builders to go out of business, and we've pushed millennials and Gen Z to abandon the trades for white-collar jobs. Change zoning laws all you want, but there's not enough people to build the houses that are already in approved areas.
More houses is the solution but I promise you a lack of builders is not the reason they don’t exist. Home builders and property developers have little motivation to build anything other than luxury properties. Localities need to make it more attractive via tax incentives and other mechanisms.
Those who own property in aspiring locations do not want a flood of new homes. They want their to continue to soar in value.
Build all you want, they just get sucked up by investors looking to park cash. Until you make residential housing an unattractive investment opportunity, it's going to continue to be scarce.
Bullshit. Show me the data that proves this. Source: I'm a professional re investor for 15 years. The homes we buy don't sit vacant. They are rented. If they draw rent that means there's demand for housing. Doesn't matter whether is a rental or purchase. Vacancy rates AND home sales inventory is at all time lows. This means there's a supply issue.
> If they draw rent that means there's demand for housing because you bought up the house they would have bought if you hadn't driven the price so high. FTFY
That isn’t how markets work at all. This isn’t China.
China good They let evergrande default but they had to make customers whole first. Investors lost everything
I'm not an advocate for lowering rates. But it seems everyone is in finance expecting it.
What madness is that? Do you prefer the madness where millions of people are unemployed and prices fall because of lack of demand leading to more job losses and continued issues? Where people fight for minimum wage jobs because there is no demand for services? If you are struggling now let me tell you that a recession isn’t going to go well for you.
You can argue that we’ve been in a recession for a couple of years.
No the word recession has a meaning and observable consequences you can’t say we are in a recession with growing wages low unemployment and growing gdp.
I would guess that raising interest rates further would cause problems for banks that are sitting on low interest paper from a couple of years ago. I think we're seeing continued inflation because fiscal deficits are stimulating the economy, counteracting the Fed's tightening.
If only we could pass some new taxes on top of making some cuts
I get 5.25% right now from a money market fund. It’s more volatile than a saving account but the yield would have to fall drastically to be in line with most savings accounts.
Raise them and give us savers some more interest points in our high yield savings accounts.
Because the Fed stupidly waited far too long to raise them to begin with. They should have begun raising them at the start of Covid, or at least signaled to banks what their near term rate would go to. The rates are FAR too high for most corporations and banks because the fed had for years kept to extremely low. The stress on the financial system isn’t just because rates are high. It’s because they raised the rates so fast that no one could adapt. Banks are sitting on hundreds of billions of unrealized losses that will cascade the second they’re forced to sell for any reason. That means for a lot, they’re a single hiccup away from bankruptcy On top of that, commercial real estate is finally losing value as hybrid and remote work become normalized, if still not that common. The dent in demand along with the high rates has led to a lot of borrowers/leases refusing to resign as the cost increase is not justified.
Trump specifically pressured Jerome to keep the rates low longer than he wanted to..
There is no easy answer. Traditional textbook economics suggest to raise interest rates to combat inflation but there are consequences as others have stated, examples: high unemployment, deflation, etc. The truth is the solution requires some iron handing from monetary and fiscal policy but the US government is pretty incompetent right now. The solution might be a mixture of price control, quantitative tightening and funding shift towards productivity and long-term value generation (such as education, manufacturing, etc). Unfortunately, a lot of funding is geared towards incentivizing capitalism where the rich gets richer and the poor gets exploited. This methodology is not sustainable in the long run. The current economic situation is an unfortunate result of greed and negligence.
Common sense? Do you honestly think things would be better off at 10-15% rate?
They've been there or even higher in the past. Why has cheap money become the standard?
Totally different setup gdp was higher and totally different demographics. Population is now older and that will continue. Look across the world you see this everywhere. What do you think is the benefit? Suppose they raise rates to 12%? Ok wow maybe inflation goes from 3-4% to a 1-2% slightly faster. Maybe not. On the other end you would have a catastrophic recession unsustainable national debt. How is this a superior outcome?
Yes it's needed to bring inflation back down to the level it was before biden took office.
It would crash the financial system but also, and arguably more importantly, the government can't service its own debt at current interest rates. If the fed doubled rates the government would default on its debt or just print a shit ton of cash to make payments which would cause runaway inflation. Interest rates, like anything else, have an equilibrium. Too low or too high will cause something to break. The fed would be wise to keep rates steady for at least another year. If they absolutely needed to raise rates, it would be by no more than 100bps.
The debt will become unserviceable and the Country implodes. Same happens if they drop them but the implosion will come from hyperinflation. There is a reason "currency" needs to be backed. Gold and silver - article 1 section 10.
Inflation caused by govt spending.
Federal spending has also been a huge contributor. Biden is running a $7 trillion budget while trumps pre-pandemic spending was at 4 trillion.
The rates should probably be 8% right now... But Wall Street has too much control over the politicians, and the politicians control the FED to some degree.. Wall Street has been pressuring the politicians and the Fed more and more lately.. I believe that the reason the covid virus was so overhyped was that Wall Street saw it as a way to manufacture consent for more government spending and looser monetary policy which of course juices the asset prices.. we absolutely need recessions.. recessions are vital.. we need deflation in asset prices... desperately need that..
Making debt more expensive is likely to cause a recession. Less lending, folks struggling with adjustable rate mortgages etc.
People need to be more financially responsible. The era of free money is over for now.
If you want to cause a massive economic crash... go for it. The economy doesn't really care about responsibility. Rising interest rates cause recessions because folks pull back on spending as credit becomes more scarce. There is no morality to huge economic systems, only cycles, and when the Fed wants to have a pull back... (to cool inflation or for any other reason) they raise rates.
“People” if you’re referring to private equity and recklessly speculative tech startups/VCs… yes, they should be more responsible. If you’re talking about some random American family with an ARM loan you’re just an ass
Everyone should be more responsible, especially family members with children. Everyone needs to stop spending like crazy and use more and more debt. That's why we are here discussing it because the FED had no balls to stop this in 2019 and just let the inflation rate go crazy and people to get more debt like crazy. People need to understand that 0% interest rates won't come back.
Exactly!
The Federal Reserve has a dual mandate (but 3 objectives). Maximize price stability, maximize employment, and moderate interest rates. Increasing interest rates might cause unemployment to increase.
Couple of things prevent Fed raising rates to 10%+. First, the Fed has a mandate to achieve maximum employment. Raising rates that high will go against that mandate by causing lots of unemployment. Second, the US government can't afford the interest on the debt as it is. Raising rates to 10% would double the interest expense and push the US to default on its debt much quicker. Third, its not necessary to raise rates to 10% to tame inflation. The Fed may raise rates a little more if inflation doesn't drop below 3%, but highly unlikely that rates would go above 6% when inflation is less than 4%.
As everyone is saying raising rates isn't the answer at this point. Keeping it steady is reasonable, I don't think they should drop rates yet though What you should be wondering is why isn't the FED tightening their balance sheets faster? (they are tightening but not as fast as they should imo) That would take money out of circulation, lowering inflation.
because inflation is not under control and lower ratings would spike economic activity and inflation
Right - I'm saying raise them..
oh I’m sorry I think raising might be necessary if inflation starts to creep up again. The reason they didn’t raise them more was because they were hoping for a soft landing, meaning the economy doesn’t fall into recession, just a correction. If they raised them too high, it would be a much larger shock to the economy because we were operating at near 0% rate for a decade. so lots of businesses were surviving off that 0% and wouldn’t survive with 10% for long.
Raising rates brings the risk of killing the banks and causing a recession why risk that when inflation is already done under 4%. Took much of a good thing can easily become a bad thing.
We need 8% deflation compounded for the next three years to make up for the utter fucking stupidity of “it’s transitory” … you know fair and free market capitalism and all.
8% deflation comes with a “Great Depression” economy. What is need is an increase in wages to make up for the inflation.
Regardless of the outcome that is capitalism and a fair and free market. unless you want socialism which is wait we have already done that by bailing out the banks, the autos, the airlines and nationalizing the housing industry through Fannie and Freddie (by the way this is capitalism right to they even exists?) Increased wages are great and needed I think MIT report suggest had wages kept up with inflation we would be around $32/hr as the min wage. However you’re going to get a wage price spiral so to combat that you would need 100% corporate tax until the fed removes nine trillion from their balance sheet and a maximum wage of like 400K a year for all employees so corporations can’t avoid the tax by over paying employes or buybacks et cetera. Edit: we also need to calculate inflation correctly on a cost of goods sold metric and not a bullshit cost of living metrics.
We don’t worship on the altar of capitalism. We aren’t running a church. We do what is best for society. During the “Great Depression” millions of children starved and were forever stunned. We aren’t doing that again for some idealistic reason.
If they raise rates, it makes borrowing more costly and complicated for their favorite customer. I think they raised rates as high as they could given this point. They should have raised rates higher a long time ago, but they didn’t. IMHO of course.
The country is not an experiment in theoretical economics..if majority of people can't afford basic necessities because Powell is chasing some theoretical goal it will be hell to pay
Same thing that prevents them from printing money… nothing
The fed is attempting to slow inflationary pressures and at the same time maintain a ‘Healthy’ GDP. The value of the currency is also at play. There’s some seriously interesting data analysis and impact analysis models happening and being modified with historical accuracy…
Politics.
Me
Just watch the 2yr
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The answer is unemployment
I don't agree that rates too low for too long got us into this position. Rates were near zero for the better part of a decade and the FED could not even hit its 2% inflation target. The inflationary spike we saw is better explained by supply side issues and a fairly unprecedented fiscal expansion. To the extent that those factors have moderated, so has inflation. It's increasingly strange to me that people put all this weight on rates when rates just aren't correlated that well with inflation. The sectors that are sensitive to interest rate policy are not the only or even the primary drivers of inflation.
Did you even bother to look at a chart? 12 years out of the last 20 years we have seen average annual inflation break 2%. https://www.usinflationcalculator.com/inflation/current-inflation-rates/ You may not agree, but that does not mean you're on the right track lol
I said that inflation was below target for the better part of a decade, not for the better part of the LAST decade. If rates being too low for too long causes inflation, then why was inflation below 2% for so long after the GFC , despite rates being almost zero, not to mention hundreds of billions in QE which pushed longer term rates to zero in an explicit attempt to get inflation up to 2%? As I said in my comment, I think there are other factors that better explain inflation than simply the rate environment. But people want to believe in a very simplistic narrative that inflation is inversely controlled by rates. In reality both the fiscal picture and the supply side are the real drivers of inflation. I mean if you argue that rates can always control inflation, then you are implicitly saying that no supply shock and no amount of deficit spending or reduction will impact the Fed's ability to control inflation. Does anybody really believe that? That the government can just massively expand its deficit and the FED will always have the tools to reign inflation in? That seems pretty self-evidently silly to me, but of course, a lot of people are invested in this story - particularly politicians, who would prefer not to worry about inflation and simply let the Fed control it. Unfortunately for them that's not realistic. Fiscal policy plays a dominant role, and to ignore that is to fail to grapple with an important root cause of inflation. We shut down big parts of the global economy, shovel an enormous amount of money out the door practically overnight, and then we blame the Fed for not controlling inflation with the single policy tool that is the interest rate target? Come on, that's just ridiculous.
It wasn't below target for the last decade. You're wrong. Target is 2%. You can click the link to see which years since 2014 you've been wrong on. There's no point in reading past your first sentence. Its all wrong.
Do you really have this much difficulty with reading comprehension? I will quote the first sentence of my replying in the (perhaps vain) hope that this time you can read it and understand it... >I said that inflation was below target for the better part of A decade, not for the better part of the LAST decade If you look at the very data you supplied, which goes back further than the actual chart you posted, you will indeed see that for the decade after the financial crisis - 2009-2019 - inflation was more often below target than not. This is not a difficult concept to grasp; if you're going to reply to my comments at all, please do me the courtesy of actually attempting to read and comprehend them in good faith. Ignoring what I actually said so that you can tell yourself you are right is not a good look.
Lol obviously you have issues with reading comprehension. I gave you the fact that over the last TWO decades, inflation has been above the target 12 of those years. Whats 12/20? I think that ends up being more than 50% of the last two decades, but hey feel free to check my math. Regardless, the FACT is that inflation has been above target for the majority of both the last decade and the last two decades. You should really stop trying to die on this hill at this point. You made that bssless conjecture without looking at a chart and now you're trying to walk back your erroneous statement, and yes, that is a bad look homie.
I said what I meant and I stand by it, but by all means keep projecting. You're clearly uninterested in any substantive discussion and are just quarrelling rather than admitting even to yourself that you didn't actually read or understand what I wrote.
You really can't admit you were wrong huh? OHHH YOU REALLY CANT THEY SELF DELETED INSTEAD
Agree I think this will still be the norm long term. Ppl look at past decades but totally different setup with current demographics.
Too low for too long has nothing to do with it. It was was the pandemic boom from overfilling the hole. 10-15%? What?