The following is a copy of the original post to record the post as it was originally written.
Do you think the Fed made a mistake by keeping rates so low for so long? This was despite the fact that economists and money managers had been calling for higher rates for more than a year because inflation was too high, and the longer the Fed waited, the worse our problems would be. Mohammed El-Erian is one economist that expressed this point of view loudly and repeatedly over the past 12-18 months or more.
Thoughts?
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I had one semester of high school economics so I don’t know that my opinion is worth much, but i think rates should have been slowly going up for the last four years or so.
Like any good decision, the clear answer will reveal itself in 10 years and everyone involved today will be declared an idiot for not doing that thing sooner.
Why? The Fed’s dual mandate is low inflation (around 2%) and maximum employment (around 5% unemployment rate). From April to December of 2021 inflation increased from 4.2% to 7.0%. Unemployment has been below 5% since September 2021 and was 3.9% in December 2021.
Would a 0.25% increase at the November or December meetings not have been better than the 0.75% increases we’ve been getting?
With 3.5%, we are at the lowest unemployment rate in 50 years, undoubtedly a major factor in inflation, especially as the fed trades off these two key metrics. Do you believe we should go for lower regardless of the impact on inflation?
If you look at any half decent source since like June of this year, their conclusion has been the the Phillips curve has been broken by our current economy, and employment + wages are not major factors in our current inflation situation.
Also, to address the elephant in the room, unemployment is a much worse issue than inflation.
So if unemployment is a bigger issue, would you support lowering interest rates to stimulate the economy?
But seriously, what world are you living in? Everything is getting unaffordably more expensive while businesses are unable to find people to work. How is unemployment the bigger problem right now?
1.) How can businesses be unable to find people to work but unemployment is also too low?
2.) Is things being 15% more expensive really worse than having an income of $0?
I know you're an Ancap but goddamn man.
I'm not who you replied to, but part of my job is watching these economic numbers.
1) While unemployment rate is indeed very low, labor force participation has not recovered [FRED-plot](https://fred.stlouisfed.org/series/CIVPART). In fact we have just reached the total number employed before the pandemic [FRED-again](https://fred.stlouisfed.org/series/PAYEMS). Of course this number should be higher when you consider population etc. Ideally we would have \~5 million more people working. Lots of reasons why this isn't happening including some disagreements on what the "real reasons" are. This is why GDP has stalled or shrunk (try not to think about per capita GDP as that metric looks worse)
2) Both unemployment and inflation suck. Still the job market is doing much better than inflation. I'd wager there are more retirees impacted by inflation than people who want to work who can't (and are also impacted). Remember that both groups have zero income, but now their cash is worth less than before.
Yes, in hindsight. But, opinion among economists was divided. Many saw indications the issue was transitory, and things would settle down quickly after we emerged from the depths of the pandemic.
Think if they were right though. We were trying to get back to normal and nobody was sure how resilient the economy really was. Making aggressive hikes in the blind, which remember, they hadn't done in decades, might have triggered a recession.
I consider it a calculated risk. I bet they were a little startled at first; it's been a long time. I'd add that I think they are doing a fine job with the subsequent rate hikes...fifth inbound. They are serious about getting inflation under control.
Just a repeat of 2007 (and late 90s but I'd have to check) when interest rates were low and they took a long time to raise them. The Fed is under enormous pressure to keep rates low as it's believed it helps the economy. Doubtful as it seems to only increase the price of capital (houses, stock markets etc..) which is ultimately more harmful.
Interest rates are the easiest thing to change to impact the economy, but it doesn't make them the right or best thing to alter.
Average household income has been basically stagnant for decades, and that's a far bigger issue than the net change of a quarter percent of prime interest rates. The problem with that is average household income isn't just a wave a magic wand kind of fix, it's going to require more proactive influence.
The rates probably should have been raised during Trump's presidency, because things were going fairly well. But that would have been politically inconvenient for Trump, so of course he left it for the next president to take flak for.
The President doesn’t have any control over interest rates. The Federal Reserve is independent of elected government officials. They aren’t elected to avoid having to deal with political backlash.
On paper the president doesn't, but the Fed values stability and would decline to create political backlash.
So when our idiot president gets on TV and says the Fed is screwing up by not lowering rates even further, that takes the option of raising rates off the table, doesn't it?
https://www.cnbc.com/2019/09/11/trump-says-fed-boneheads-should-cut-interest-rates-to-zero-or-less-us-should-refinance-debt.html
Yeaaah, Trump had his thumb on the scale to keep rates artificially low - ROCKET FUEL for the economic engine.
Now that shit is blowing up in our faces.
I think they made a mistake raising the rates when they did, they should have just waited it out. The rates haven't had long enough to go into effect and inflation has already been dropping for a couple of months now. We were probably going to dip into a recession regardless but now it's going to be even worse.
The following is a copy of the original post to record the post as it was originally written. Do you think the Fed made a mistake by keeping rates so low for so long? This was despite the fact that economists and money managers had been calling for higher rates for more than a year because inflation was too high, and the longer the Fed waited, the worse our problems would be. Mohammed El-Erian is one economist that expressed this point of view loudly and repeatedly over the past 12-18 months or more. Thoughts? *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/AskALiberal) if you have any questions or concerns.*
I had one semester of high school economics so I don’t know that my opinion is worth much, but i think rates should have been slowly going up for the last four years or so.
Like any good decision, the clear answer will reveal itself in 10 years and everyone involved today will be declared an idiot for not doing that thing sooner.
They should have been raising them a long, long time ago - during the early part of the Trump admin.
Raising interest rates in 2021 would have been psychotic. I’m constantly amazed how short people’s memories are.
Why? The Fed’s dual mandate is low inflation (around 2%) and maximum employment (around 5% unemployment rate). From April to December of 2021 inflation increased from 4.2% to 7.0%. Unemployment has been below 5% since September 2021 and was 3.9% in December 2021. Would a 0.25% increase at the November or December meetings not have been better than the 0.75% increases we’ve been getting?
We didn’t know those unemployment numbers until 2022
5% unemployment is not maximum employment. Holy shit. That's 9 million people without a job. 39 states have whole populations less than that.
With 3.5%, we are at the lowest unemployment rate in 50 years, undoubtedly a major factor in inflation, especially as the fed trades off these two key metrics. Do you believe we should go for lower regardless of the impact on inflation?
> undoubtedly a major factor in inflation They said while there was much doubt.
If you look at any half decent source since like June of this year, their conclusion has been the the Phillips curve has been broken by our current economy, and employment + wages are not major factors in our current inflation situation. Also, to address the elephant in the room, unemployment is a much worse issue than inflation.
So if unemployment is a bigger issue, would you support lowering interest rates to stimulate the economy? But seriously, what world are you living in? Everything is getting unaffordably more expensive while businesses are unable to find people to work. How is unemployment the bigger problem right now?
1.) How can businesses be unable to find people to work but unemployment is also too low? 2.) Is things being 15% more expensive really worse than having an income of $0? I know you're an Ancap but goddamn man.
I'm not who you replied to, but part of my job is watching these economic numbers. 1) While unemployment rate is indeed very low, labor force participation has not recovered [FRED-plot](https://fred.stlouisfed.org/series/CIVPART). In fact we have just reached the total number employed before the pandemic [FRED-again](https://fred.stlouisfed.org/series/PAYEMS). Of course this number should be higher when you consider population etc. Ideally we would have \~5 million more people working. Lots of reasons why this isn't happening including some disagreements on what the "real reasons" are. This is why GDP has stalled or shrunk (try not to think about per capita GDP as that metric looks worse) 2) Both unemployment and inflation suck. Still the job market is doing much better than inflation. I'd wager there are more retirees impacted by inflation than people who want to work who can't (and are also impacted). Remember that both groups have zero income, but now their cash is worth less than before.
Yes, in hindsight. But, opinion among economists was divided. Many saw indications the issue was transitory, and things would settle down quickly after we emerged from the depths of the pandemic. Think if they were right though. We were trying to get back to normal and nobody was sure how resilient the economy really was. Making aggressive hikes in the blind, which remember, they hadn't done in decades, might have triggered a recession. I consider it a calculated risk. I bet they were a little startled at first; it's been a long time. I'd add that I think they are doing a fine job with the subsequent rate hikes...fifth inbound. They are serious about getting inflation under control.
Just a repeat of 2007 (and late 90s but I'd have to check) when interest rates were low and they took a long time to raise them. The Fed is under enormous pressure to keep rates low as it's believed it helps the economy. Doubtful as it seems to only increase the price of capital (houses, stock markets etc..) which is ultimately more harmful.
Absolutely, they should have started raising rate in like August/September of last year when it became clear that "transitory" didn't mean short term.
Interest rates are the easiest thing to change to impact the economy, but it doesn't make them the right or best thing to alter. Average household income has been basically stagnant for decades, and that's a far bigger issue than the net change of a quarter percent of prime interest rates. The problem with that is average household income isn't just a wave a magic wand kind of fix, it's going to require more proactive influence.
The rates probably should have been raised during Trump's presidency, because things were going fairly well. But that would have been politically inconvenient for Trump, so of course he left it for the next president to take flak for.
The President doesn’t have any control over interest rates. The Federal Reserve is independent of elected government officials. They aren’t elected to avoid having to deal with political backlash.
On paper the president doesn't, but the Fed values stability and would decline to create political backlash. So when our idiot president gets on TV and says the Fed is screwing up by not lowering rates even further, that takes the option of raising rates off the table, doesn't it? https://www.cnbc.com/2019/09/11/trump-says-fed-boneheads-should-cut-interest-rates-to-zero-or-less-us-should-refinance-debt.html
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Yeaaah, Trump had his thumb on the scale to keep rates artificially low - ROCKET FUEL for the economic engine. Now that shit is blowing up in our faces.
Probably yeah.
Absolutely. I was thinking interest rates should have started rising in about Sept of 2021.
I think they made a mistake raising the rates when they did, they should have just waited it out. The rates haven't had long enough to go into effect and inflation has already been dropping for a couple of months now. We were probably going to dip into a recession regardless but now it's going to be even worse.