As expected, the Fed raises federal funds rate by 50 bps, first increase of more than 25 bps since the bursting of the dot com bubble (May 2000).
OT: Fed rate hike
- Thread starter Quincy A. Wagstaff
- Start date
A recession is on the way, by the end of 2022 IMO and others.
The Fed waited too long to raise interest rates, there was pressure from Biden and his team not to do so.
https://www.cnbc.com/2022/05/04/heres-what-the-feds-half-point-rate-hike-means-for-your-money.html
The Fed waited too long to raise interest rates, there was pressure from Biden and his team not to do so.
https://www.cnbc.com/2022/05/04/heres-what-the-feds-half-point-rate-hike-means-for-your-money.html
The way the inflation was brought on, the old way of bringing it down may not work. Unfortunately it might take a long hard recession to bring it down. First thing first is the Government has to stop printing money and flooding it into the economy.
....except that the dollar is high right now. It is in no way devalued, so the money printing theory of inflation continues to not explain reality.
They'll raise rates until inflation comes down on its own, then claim success. Yes, it will probably cause an unnecessary recession.
Raising rates won’t help supply shortages. As long as China stays lockdown and Europe #CancelCulture Russian energy, it could be a bumpy ride.
Inflation is high because way too much money chasing too little goods. When you give 5000.00 plus in money to 89% of Americans, the supply side will not keep up with the demand. The 5000 is the low end. All that printing of money and giving it to Americans caused the inflation along with several other things. It's not about how weak the or strong the dollar in this case. That's why this inflation is different.
yea agree - supply is an issue but i think the main supply constraint is cheap energy. diesel, nat gas, and lng are all mooning. and this is before the full international flight schedule kicks in. jet and diesel come form the same cut of the barrel. better fill your buried school buses with fuel boys because this summer is going to be brutal. i'm thinking of buying goats to cut more yard only problem is the mexicans are scooping them on the cheap at the stock yard with rising beef prices.
It seems like a .5% increase in the target federal funds rate when we have NGDP growing at >11% is pretty dovish?
The economy is like great poon. But it's about to be unavailable for awhile due to a yeast infection.
It'll bounce back, and you'll blow your wad fast again soon.
It'll bounce back, and you'll blow your wad fast again soon.
https://www.frbsf.org/economic-rese...-us-inflation-higher-than-in-other-countries/
View attachment 24390
Please share your data. According to this paper by economists at the Federal Reserve Board of San Francisco, more than half of inflation is caused by exactly that.
View attachment 24390
Please share your data. According to this paper by economists at the Federal Reserve Board of San Francisco, more than half of inflation is caused by exactly that.
If that's the only increase they make, then yes.
Eta: FYI, gdp growth cratered last quarter. Inventory bounce.
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1, I've previously shared the data that shows that non-supply-constrained goods have not inflated. that goods that have inflated, are following a trend rather started before the pandemic, a trend of supply not keeping up with demand. That shows its not about the money supply, its about the supply of goods.
2, your link says itself that it's conclusions are highly suspect. The green represents the uncertainty, and other studies have found far less of a link.
3, correlation vs causation. A recovered economy may/will show more inflation than a cratering economy. This is not quite the same thing as your argument. If I take a covid pill at the start of symptoms, feel better quicker and go out and get laid instead of staying in, this doesn't mean covid pills get you laid. If Trump/Biden had waved a magic wand to recover the economy, without money giveaways, we'd still be seeing the same inflation, because the same long run trends and same supply chain issues would be there. That doesn't mean magic wands or money giveaways cause inflation, the trends that were already there do. Money giveaways helped the economy, a booming economy led to inflation due to underlying supply issues that would have been masked by a recession/depression.
4, for the period in the study, as we've discussed and agreed on before, inflation was almost all energy, cars, and beef, all of which are easily shown as being caused by historic supply shortages. And the paper didnt even mention it, at least that I saw from a quick read.
From any economic basic course I've ever had, demand and supply work together. If demand wasn't so high with lots of people out there with free money that never came from producing anything, then supply constraints would not be having nearly the impact on inflation that it is having. Would seem to me logically that it is a combination of both issues.
I think there's a chance it will be? If GDP is shrinking at an annualized rate of 1%, and inflation cools down to 6%, that's a 5% NGDP growth. If you assume that in flush times we can have 3% real growth and 2% inflation, 5% seems like a very manageable NGDP growth. Of course, that's mixing up CPI and GDP inflation, so those numbers are probably a little off. I know the FED claims they are targeting inflation, not NGDP, but since their target is "flexible", which implies that inflation will run over 2% at times, it seems like that gives them a reasonable basis to let inflation run a little hotter. Of course, they may just look at the unemployment numbers and keep raising interest rates until inflation comes down or unemployment spikes.
ETA: THere's also the politics of it even though they are supposed to be apolitical. Inflation is a problem for more or less everybody. Pain from unemployment/recessions are problems with costs that are concentrated on a small percentage of the population compared to inflation.
I think if you're using NGDP in that way, then you should be using headline inflation, not core. And headline inflation, I think, will come way down below 6, maybe to zero, if gas comes down to normal. If that happens, and you still have good real wage growth, and they still raise rates?
It's not just the politics of it, it's also that they are biased towards protecting the interests of the obscenely wealthy, and the banks. It was a massive shift to get them to look past a 2% target, but if not for that bias to the rich and banks, we'd have long had a 4% target and much better GDP growth.
Problem is it's just not that much demand. Demand from population growth dwarfs any small demand from stimulus checks. Besides, the checks are long gone, and we still have the same problems. Kinda obvious what the issue is at this point.
Historically, the check on price increases is a multitude of sellers that are viciously competing with one another. And we don't have that anymore.
We haven't enforced anti-trust laws in years (30?) and there are big segments of markets controlled by few producers, such as beef. There is no free market finding of price in these markets and we are paying what the few dictate. We need to enforce anti-trust laws and restore the market pricing. And please throw in a 21st century Glass Stegall Act for lagniappe.
Exactly. We don't have a printing problem, we have a gigantic supply issue. Sure the printing money doesn't help, but the alternative was much worse if no action would have been taken in 2020 and early 2021. The money is out there, and until it is spent and all these ESSER and Arppa projects are complete, the entire construction industry is 17ed.
It's hard to tell a story where that much money is helicoptered in as production isn't increased (and probably is decreased) that doesn't cause inflation. And I would argue you are seeing a lot of asset inflation also. Our economic productivity cratered and the stock market stayed level. You saw speculative runups in crypto and meme stocks. Housing certainly is a supply issue, but people are bidding it up more because they have more money in their pockets.
But yes, supply constraints are contributing, as is 'excess' savings just from a lot of high population areas having most of their discretionary spending shut off for a while. And you have a lot of relatively high income people that have not had to make student loan payments for two years, and that's a lot of extra liquidity in the economy. It looks like the fed probably just dropped the ball. They let inflation get high when companies were begging for workers. They clearly had room to put downward pressure on inflation earlier and didn't. Now if they manage to get inflation under control without triggering a recession, then they will be vindicated. Not sure what odds I'd put on that.
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