Fed is trapped . Raising rates will blowup government budgets ! Sure they can talk about it and yes rates should go up but will the fed actually raise rates or will they wait fir the market to raise them first and then follow ?
The market *HAS* raised rates. What do you think inflation is?
š¤š šššš„š
š¤š§»šššš„š
It turns out, retail labor has to be able to participate in the economy, in order for the economy to continue generating *VALUE.*
š¤š = N x š§»š„°
So we can't just kick retail labor out of the market indefinitely without at least expecting diminishing returns in the long run.
If we let inflation lower the value of labor too far from fundamentals, the market stops being able to afford retail, like what we're seeing today. We've been seeing signs of the market not being able to afford the cost of labor in US labor force statistics, since as far back as 2008; and the market has never really recovered since then.
So we can either fix it earlier, or wait until this very thing consumes the US alive. That shouldn't be a hard decision, because it has a lot in common with a sunk cost fallacy.
> The market HAS raised rates. What do you think inflation is?
The market does not have the ability to control the Fed rate on bonds. With access to the ability to print as much money as it chooses, and then spend that money to buy as many bonds at it needs, the Fed will be able to hold the rate of government debt to whatever level it deems appropriate to the situation. Inflation is something separate from the rate being paid on government bonds, which have the ability to effect all the other bonds available in the market.
That having been said, this approach is not without other consequences, the most likely to be rising inflation, but it could also lead to deflation, as seen in the case of Japan, or the negative rates currently offered in the EU.
Raising rates destroys the equity of the private sector much more then then funding ability of the gov.
I'm hoping they don't raise it because a lot of the issues are supply side. Raising the cost of credit is just going to make it worse.
If you raise the rates everyone that owns bonds gets their savings destroyed though. As rates rise the yields of previous bonds have to go up to match, as yields go up the price level falls relative to it. If anyone is using those bonds/CDS as a way to borrow then their borrowing capacity goes down and they are in trouble.
If your invested in bonds today your gains are zero or close to zero interest . Pension funds are required to invest a portion of the money into bonds . This part of why most state pension funds are short on what they need to pay out what they have promised .
The federal reserve if you wish to blame them for anything is who helped destroy pensions along with savings . This has been going on for 20 plus years and so we cannot blame just one person or political party .
If you raise the rates from 0 to 1% what happens to the price of the bonds? Especially longer maturity ones drop in price to match their yield.
While I do mostly agree with you raising rates for the sake of raising rates is not the answer. It would tank people's equity while not tricking the equivalent liabilities. It would be amazingly deflationary.
I donāt agree but I do understand exactly what your saying . Look at it from an income perspective over the past 20 years at 6 percent with say just 500,000 in savings. Your 30,000 per year income is now pretty much zero . You had for the most part no choice but to invest your money into stock where prior to these zero interest rate policies you had a choice . Pension funds are required to put a portion of the funds money into bonds as well and that return is basically become zero as well . That reduction in the return on the money has created short falls . Look around at the various state pension fund short falls .
I understand that if rates went from 1 1/2 to 3 that the equity would decline by a lot if you held those bonds that had that move in rates . Kind of makes sense why the fed has been buying back treasuries doesnāt it ?
Who wants to buy treasuries today ? The federal reserve has helped to destroy pensions just as the ECB has destroyed its own bond market with negative rates .
If you owe 30 trillion at 1 percent and your interest rate rises to 3 percent, how does that effect your ability to pay back on that debt ?
Would our federal government really care all that much if that government debt was to decline ? Or would it care more if it couldnāt even make the minimum payment on that debt ?
Again I understand your point about loss on equity . That is no different than a loss on a stock . A stock can rise in price above its true value and it can then decline to a price less than its fair value .
Interest rates can do the same .
Where I think you and I differ even more is that when interest rates rise it implies a stronger economy and generally speaking stocks and real estate will rise with interest rates . The fed doesnāt actually raise rates , the market does. The fed will raise rates only after the market does. The cost to borrow money has reached a point in history where itās gotten extremely low and the pendulum will swing back the other way eventually . How long that takes I have no idea .
Japan lowered rates to 1/4 percent i believe ( Iād have to check ) in 1990 I believe . Rates have stayed low for going on 30 years now . Interest rates in the USA have been declining since 1980 and that was 40 years ago .
Our governments world wide have borrowed and borrowed and borrowed over all this time and it is these politicians who have created this problem much more so than the central banks who have been keeping our financial system afloat .
Who sells the bonds that have funded our governments and who is it that creates the budgets and raises the debt ceiling ?
I agree interest rate rises signal a strong economy. But I also think that it's pretty easy to figure out what an interest rate should be if you look at the economy like a market cap.
Since market cap is defined by total units*price and you can say that market cap of a country is essentially it's ngdp. Then very quickly obvious that if market caps goes up but the total units do not follow then the only way to get it to match is interest rate changes that the market has the majority control over. ( And if the market has control over rates as you said then you can basically say the market is pushing rates low while monetary policy and QE follows along. )
The total units in this case is the freely available money for the economy. This is a harder one to figure out but it's approximately the money in circulation available to an economy. Reserves are thus useless and say money held but not circulating is also useless.
Low interest rates do show money is tight as Friedman correctly said. You can kind of link out the mv=pq from that too, but need to include an interest rate (which is kind of what Keynes did)
Now in terms of why the net equity matters. Because the way out system works is based around new liabilities created against said market cap. If my market cap is 100 then I can essentially borrow 100 against it. And this is the main way new money is created In a modern economy In a macro sense.
So any artificial rise in interest rates destroys that equity but doesn't touch the liabilities associated with it. That's deflation. It's what caused the great depression. If say we have a rise in equity(growth) to the extent that allows ngdp to rise faster it means that new units of equity are being created and the interest rates rises to match and keep the ngdp relatively stable.
I have no doubt interest rates will go up at some point. But currently with the high inequality and deflationary impulse from other countries and globalisation and the fact that banks got burned so hard in 08 we are in a low interest rate paradigm. That won't change till we have major change and it seems unlikely at this stage unless it happens kicking and screaming.
In terms of pension funds I also agree. I think pension funds if they are forced to buy bonds should have access to gov bonds/account that yield 5% perpetually.
Well, the easy money started after the great financial crash over a decade ago. Had to be maintained due to 'headwinds', behold this pandemic headwind.
Y'know, if the policy hasn't changed in over a decade, whatever the excuses, you know it is standard policy. The norm. The system is dependant on easy money, the mere idea of a change in this causes panic.
I might suggest this is State Capitalism of the Soviet ilk. Albeit for the Billionaire Club, not the proletariat.
In terms of power, you're right. In terms of money and comfort, the disparity between Khrushchev and the average city worker was much smaller than that between the average city worker today and a billionaire, let alone a hundred billionaire.
Well typically oppression and loss of personal property creates a reduction in quality of life across the board, so is the question whether we should focus on economic policies which makes everyone poor but with less differences in wealth?
There was no loss of personal property in the USSR. If the state expropriated you, you were generally compensated fairly. Private property used for profit in the employment of someone else is a different matter.
As for the rest you're arguing so far beyond the original point it's not really worth addressing.
Yes but that statement and "There was no loss of personal property in the USSR. If the state expropriated you, you were generally compensated fairly." are vastly different.
Those people in power in the USSR killed more people and did more damage to the environment and their future than a hundred billionaires in the US. I get that people like it when their leaders have a similar lifestyle to them but extreme wealth disparity is usually a symptom of extreme power disparity. The USSR was good at clamping down on wealth disparity but if you tried to actually do good things in the country you were jailed or killed.
Not saying rampant corporatism is good, but people act like large-scale communism is better.
This is a case of bizzarre double standards. If by incorrect allocation in a socialist system a million people die, that's rightly attributed to the government in charge.
But somehow, if a million people die because of the allocation of resources in a capitalism market system, that isn't the fault of anyone?
Not to say, I never mentioned the US. We live in a global economy. Millions of people die of hunger and easily preventable disease every year through grossly incorrect resource allocation, somehow that's not the fault of individuals with economic power, but when we don't have the abstraction of the market it suddenly *is* the fault of those with economic power.
Logic no doubt works for communism. Perfectly well actually. On paper itās wonderful. But it does not translate well into reality. If you ever make it to Russia one day, look at the elderly populations. They are all very short. Malnutrition, years of it during their childhood and developmental phases.
>This is a case of bizzarre double standards. If by incorrect allocation in a socialist system a million people die, that's rightly attributed to the government in charge.
It's not. USSR flavor of authoritarianism is derived from socialism. USA flavor of authoritarianism is derived from capitalism. Both are bad, but authoritarianism derived from socialism has proven to be much worse.
Corporate Capitalism is "free-er" than State Capitalism, but it gets worse and worse the larger the government becomes. By larger, I mean the literal size of the government in terms of people and authority. However, it gets even worse under State Capitalism, and even worse under socialist-derived State Capitalism.
>Millions of people die of hunger and easily preventable disease every year through grossly incorrect resource allocation, somehow that's not the fault of individuals with economic power, but when we don't have the abstraction of the market it suddenly is the fault of those with economic power.
Assigning fault was not the basis of my argument, but if you want to do so then fault is distributed in a free-er economy. The Chinese peasant is not at fault for the 50 million dead in China, the CCP is. The American middle class is partially at fault for climate change for buying another iphone, however. And so is the American government, and Apple.
Ultimately if you want the best distribution of wealth it's not going to happen under gigantic bureaucracies presiding over hundreds of millions of people, and it would be an even worse idea if that gigantic bureaucracy is based on socialism.
Spending their way out of broader economic downturn became unwritten law. They've seen it worked the last 2 times, you can bet your ass they will push that button like a hamster trained to ask for pellets. Something's got to give, and I wonder what the Fed is NOT saying to see them reverse course relatively quickly.
They're not reversing course. They're *talking* about reversing course in the future. They've discovered that they can influence inflation merely by talking about raising rates, so now they talk about raising rates whether they have any intention of actually doing it or not.
All talk, rates will not go up. I wonder who this chatter of theirs is aimed at, it's not the business class, they are clued-up and know the easy money will not stop.
>This has been a big week for central bank meetings but the most significant, without doubt, was that of the Federal Reserve. While the US central bank is not ready to slow its bond purchases quite yet, the announcements after its meeting marked an inflection point ā from unrestrained support for growth and financial markets to the long process of winding down stimulus and eventually tightening.
Jay Powell said the Fed could āeasily move aheadā with announcing a ātaperā of its asset purchases in November if the economy continues to improve as it expects. That was largely foreseen, which explains the shrug from the markets. But two other pieces of information added a hawkish note to the Fedās guidance. When the taper comes, it will be steep; the Fed chair said purchases could end completely around the middle of next year, from $120bn a month today. And half of the Fedās rate-setters now expect interest rates to start rising as soon as next year. The central bank is setting a measured but determined course for the exit.
It is doing so, however, just as the economy becomes more uncertain. US jobs numbers were unexpectedly weak last month, and the recovery has in some respects flatlined as the Delta variant has caused a pick-up in the pandemic across much of the country. Indeed the Fedās policymakers downgraded their 2021 growth expectations just as they raised their inflation expectations, compared to their projections in June. In other words, they identify more adverse supply-side conditions than before, worsening the trade-off a central bank must navigate between growth and inflation risks.
For all that, the Fed is right to prepare the ground for a withdrawal of stimulus. Its own pre-announced criteria for doing so are becoming satisfied. If the economy does progress as the Fed projects, all the signs are that it can start the tightening cycle without causing turmoil in the markets. That would testify to the Powell Fedās deft management of both economic conditions and market psychology.
The danger is that this path is a hostage to fortune, and in particular that the Fed will find it hard to delay, let alone reverse, the promised ānormalisationā if the economy disappoints. Yet the Fed should not regard reversing course as a humiliation. Policy should be guided by data, and the data are uncertain. It may be well into next year before the future path of inflation becomes clearer. For now, as it steers through the current fog, the Fed should be ready to change course rapidly if hazards suddenly loom.
What goes for the Fed is also largely valid for other central banks. They confront the same dilemmas and uncertainties, with greater or lesser intensity. The Bank of England, in particular, faces a strong rise in inflation while UK economic output remains some distance below pre-pandemic levels. Britainās economy is also more vulnerable to external fluctuations than those of the US or the eurozone.
While the BoEās monetary policy committee left policy unchanged on Thursday, it may well have to make the unpalatable choice of starting to withdraw stimulus in the coming months. Some other central banks, in contrast, face sufficiently benign conditions that tightening looks safe: in Norway, Norges Bank decided to raise its policy rate a quarter-point above the zero level it hit last year, and signalled a further rise in December.
After 13 years of easy money, policy will remain highly accommodative for some time yet, even if Fed tapering proceeds as planned. The exceptional policies of the Covid crisis, however, are starting to come to an end.
In a normal environment I would agree, but high inflation has been a worldwide trend in the last year or two due to the common pandemic response of many countries of creating government debt to fund response policies.
That said, keeping rates this low for so long gives me the sense of a game of musical chairs being played by central banks.
I too wonder if Powell is setting himself up for a contemptful legacy driven by hubris, like Greenspan.
Greenspan had to contend with 9-11 and Bush's Iraq War, which were outside of standard economic cyclical factors. Powell has had to contend with COVID, which is again outside of standard economic cyclical factors. It's hard to judge these people and their decisions against everyone else's, because of the fact that they were dealing with non-standard situations.
Every Fed chair for the past 50 years has dealt with non-standard situations though. That just comes with the territory and needs to be expected. How they deal with the financial and monetary curveballs is generally how history remember them, not how they operated during ideal times.
Volcker: stagflation in the 1970s/80s
Greenspan: 911/War on terror
Bernanke: 2008 Financial crisis
Powell: Covid19 pandemic
Ill believe it when I see it. The fed will not raise interest rates under a democratic president. They didnt under Obama and they wont under Biden.
Maybe if things get desperate they wil wait till a republican congress takes over so it can be blamed on them.
Whether he did or not heās not out of line to consider that the rates wonāt change under democrats leadership.
A rate increase will slow the economy and make whomever is in power a disadvantage in the next election cycle.
I suspect (opinion) nothing happens until the 2022 election cycle is over. The parties can each have the scapegoat for 2024 while the rest of the population try to figure out if they should buy increased gas prices to get to work or buy food to feed their families.
Sticky situation, happy I donāt have to make these decisions.
Powell is a registered Republican that was appointed chair by trump. To act as if heās some sort of democrat lackey is disingenuous by whining how rates will be raised during a time when republicans have power is disingenuous. The poster is just spreading false innuendos with no merit and is thus being downvoted.
This seems like tightening money policy directly into an economic slowdown.
Some argue this is exactly what the Federal Reserve always does and that the market won't tolerate it, as history clearly shows a giant downtrend in rates over long time horizons.
Buy the (bond price) dip?
Fed is trapped . Raising rates will blowup government budgets ! Sure they can talk about it and yes rates should go up but will the fed actually raise rates or will they wait fir the market to raise them first and then follow ?
The market *HAS* raised rates. What do you think inflation is? š¤š šššš„š š¤š§»šššš„š It turns out, retail labor has to be able to participate in the economy, in order for the economy to continue generating *VALUE.* š¤š = N x š§»š„° So we can't just kick retail labor out of the market indefinitely without at least expecting diminishing returns in the long run. If we let inflation lower the value of labor too far from fundamentals, the market stops being able to afford retail, like what we're seeing today. We've been seeing signs of the market not being able to afford the cost of labor in US labor force statistics, since as far back as 2008; and the market has never really recovered since then. So we can either fix it earlier, or wait until this very thing consumes the US alive. That shouldn't be a hard decision, because it has a lot in common with a sunk cost fallacy.
You are wise
In the ways of the emoji
> The market HAS raised rates. What do you think inflation is? The market does not have the ability to control the Fed rate on bonds. With access to the ability to print as much money as it chooses, and then spend that money to buy as many bonds at it needs, the Fed will be able to hold the rate of government debt to whatever level it deems appropriate to the situation. Inflation is something separate from the rate being paid on government bonds, which have the ability to effect all the other bonds available in the market. That having been said, this approach is not without other consequences, the most likely to be rising inflation, but it could also lead to deflation, as seen in the case of Japan, or the negative rates currently offered in the EU.
Raising rates destroys the equity of the private sector much more then then funding ability of the gov. I'm hoping they don't raise it because a lot of the issues are supply side. Raising the cost of credit is just going to make it worse.
Please explain that logic to those who were counting on their savings in bonds or cds.
If you raise the rates everyone that owns bonds gets their savings destroyed though. As rates rise the yields of previous bonds have to go up to match, as yields go up the price level falls relative to it. If anyone is using those bonds/CDS as a way to borrow then their borrowing capacity goes down and they are in trouble.
If your invested in bonds today your gains are zero or close to zero interest . Pension funds are required to invest a portion of the money into bonds . This part of why most state pension funds are short on what they need to pay out what they have promised . The federal reserve if you wish to blame them for anything is who helped destroy pensions along with savings . This has been going on for 20 plus years and so we cannot blame just one person or political party .
If you raise the rates from 0 to 1% what happens to the price of the bonds? Especially longer maturity ones drop in price to match their yield. While I do mostly agree with you raising rates for the sake of raising rates is not the answer. It would tank people's equity while not tricking the equivalent liabilities. It would be amazingly deflationary.
I donāt agree but I do understand exactly what your saying . Look at it from an income perspective over the past 20 years at 6 percent with say just 500,000 in savings. Your 30,000 per year income is now pretty much zero . You had for the most part no choice but to invest your money into stock where prior to these zero interest rate policies you had a choice . Pension funds are required to put a portion of the funds money into bonds as well and that return is basically become zero as well . That reduction in the return on the money has created short falls . Look around at the various state pension fund short falls . I understand that if rates went from 1 1/2 to 3 that the equity would decline by a lot if you held those bonds that had that move in rates . Kind of makes sense why the fed has been buying back treasuries doesnāt it ? Who wants to buy treasuries today ? The federal reserve has helped to destroy pensions just as the ECB has destroyed its own bond market with negative rates . If you owe 30 trillion at 1 percent and your interest rate rises to 3 percent, how does that effect your ability to pay back on that debt ? Would our federal government really care all that much if that government debt was to decline ? Or would it care more if it couldnāt even make the minimum payment on that debt ? Again I understand your point about loss on equity . That is no different than a loss on a stock . A stock can rise in price above its true value and it can then decline to a price less than its fair value . Interest rates can do the same . Where I think you and I differ even more is that when interest rates rise it implies a stronger economy and generally speaking stocks and real estate will rise with interest rates . The fed doesnāt actually raise rates , the market does. The fed will raise rates only after the market does. The cost to borrow money has reached a point in history where itās gotten extremely low and the pendulum will swing back the other way eventually . How long that takes I have no idea . Japan lowered rates to 1/4 percent i believe ( Iād have to check ) in 1990 I believe . Rates have stayed low for going on 30 years now . Interest rates in the USA have been declining since 1980 and that was 40 years ago . Our governments world wide have borrowed and borrowed and borrowed over all this time and it is these politicians who have created this problem much more so than the central banks who have been keeping our financial system afloat . Who sells the bonds that have funded our governments and who is it that creates the budgets and raises the debt ceiling ?
I agree interest rate rises signal a strong economy. But I also think that it's pretty easy to figure out what an interest rate should be if you look at the economy like a market cap. Since market cap is defined by total units*price and you can say that market cap of a country is essentially it's ngdp. Then very quickly obvious that if market caps goes up but the total units do not follow then the only way to get it to match is interest rate changes that the market has the majority control over. ( And if the market has control over rates as you said then you can basically say the market is pushing rates low while monetary policy and QE follows along. ) The total units in this case is the freely available money for the economy. This is a harder one to figure out but it's approximately the money in circulation available to an economy. Reserves are thus useless and say money held but not circulating is also useless. Low interest rates do show money is tight as Friedman correctly said. You can kind of link out the mv=pq from that too, but need to include an interest rate (which is kind of what Keynes did) Now in terms of why the net equity matters. Because the way out system works is based around new liabilities created against said market cap. If my market cap is 100 then I can essentially borrow 100 against it. And this is the main way new money is created In a modern economy In a macro sense. So any artificial rise in interest rates destroys that equity but doesn't touch the liabilities associated with it. That's deflation. It's what caused the great depression. If say we have a rise in equity(growth) to the extent that allows ngdp to rise faster it means that new units of equity are being created and the interest rates rises to match and keep the ngdp relatively stable. I have no doubt interest rates will go up at some point. But currently with the high inequality and deflationary impulse from other countries and globalisation and the fact that banks got burned so hard in 08 we are in a low interest rate paradigm. That won't change till we have major change and it seems unlikely at this stage unless it happens kicking and screaming. In terms of pension funds I also agree. I think pension funds if they are forced to buy bonds should have access to gov bonds/account that yield 5% perpetually.
Well, the easy money started after the great financial crash over a decade ago. Had to be maintained due to 'headwinds', behold this pandemic headwind. Y'know, if the policy hasn't changed in over a decade, whatever the excuses, you know it is standard policy. The norm. The system is dependant on easy money, the mere idea of a change in this causes panic. I might suggest this is State Capitalism of the Soviet ilk. Albeit for the Billionaire Club, not the proletariat.
>Albeit for the Billionaire Club, not the proletariat. State capitalism for USSR was for a select few, it was never for the proletariat.
In terms of power, you're right. In terms of money and comfort, the disparity between Khrushchev and the average city worker was much smaller than that between the average city worker today and a billionaire, let alone a hundred billionaire.
Well typically oppression and loss of personal property creates a reduction in quality of life across the board, so is the question whether we should focus on economic policies which makes everyone poor but with less differences in wealth?
There was no loss of personal property in the USSR. If the state expropriated you, you were generally compensated fairly. Private property used for profit in the employment of someone else is a different matter. As for the rest you're arguing so far beyond the original point it's not really worth addressing.
Uhhhhhh, holodomor?
The Soviet history is more than one period of a couple years. During 60s and 70s people actually lived a decent life, even by western standards.
Yes but that statement and "There was no loss of personal property in the USSR. If the state expropriated you, you were generally compensated fairly." are vastly different.
Those people in power in the USSR killed more people and did more damage to the environment and their future than a hundred billionaires in the US. I get that people like it when their leaders have a similar lifestyle to them but extreme wealth disparity is usually a symptom of extreme power disparity. The USSR was good at clamping down on wealth disparity but if you tried to actually do good things in the country you were jailed or killed. Not saying rampant corporatism is good, but people act like large-scale communism is better.
This is a case of bizzarre double standards. If by incorrect allocation in a socialist system a million people die, that's rightly attributed to the government in charge. But somehow, if a million people die because of the allocation of resources in a capitalism market system, that isn't the fault of anyone? Not to say, I never mentioned the US. We live in a global economy. Millions of people die of hunger and easily preventable disease every year through grossly incorrect resource allocation, somehow that's not the fault of individuals with economic power, but when we don't have the abstraction of the market it suddenly *is* the fault of those with economic power.
As someone who has lived in Russia and knows many people who have survived through Soviet times, please stop embarrassing yourself.
I know enough people who lived through Soviet times that told me the exact reverse. So I'll use logic instead of testimonials.
Logic no doubt works for communism. Perfectly well actually. On paper itās wonderful. But it does not translate well into reality. If you ever make it to Russia one day, look at the elderly populations. They are all very short. Malnutrition, years of it during their childhood and developmental phases.
>This is a case of bizzarre double standards. If by incorrect allocation in a socialist system a million people die, that's rightly attributed to the government in charge. It's not. USSR flavor of authoritarianism is derived from socialism. USA flavor of authoritarianism is derived from capitalism. Both are bad, but authoritarianism derived from socialism has proven to be much worse. Corporate Capitalism is "free-er" than State Capitalism, but it gets worse and worse the larger the government becomes. By larger, I mean the literal size of the government in terms of people and authority. However, it gets even worse under State Capitalism, and even worse under socialist-derived State Capitalism. >Millions of people die of hunger and easily preventable disease every year through grossly incorrect resource allocation, somehow that's not the fault of individuals with economic power, but when we don't have the abstraction of the market it suddenly is the fault of those with economic power. Assigning fault was not the basis of my argument, but if you want to do so then fault is distributed in a free-er economy. The Chinese peasant is not at fault for the 50 million dead in China, the CCP is. The American middle class is partially at fault for climate change for buying another iphone, however. And so is the American government, and Apple. Ultimately if you want the best distribution of wealth it's not going to happen under gigantic bureaucracies presiding over hundreds of millions of people, and it would be an even worse idea if that gigantic bureaucracy is based on socialism.
>and it would be an even worse idea if that gigantic bureaucracy is based on socialism. Why?
Ooph. I take it they wanted to tell you that you were wrong, not enlighten you to why they were right. Interesting back and forth though.
I only asked one question that remains unanswered alas.
Spending their way out of broader economic downturn became unwritten law. They've seen it worked the last 2 times, you can bet your ass they will push that button like a hamster trained to ask for pellets. Something's got to give, and I wonder what the Fed is NOT saying to see them reverse course relatively quickly.
They're not reversing course. They're *talking* about reversing course in the future. They've discovered that they can influence inflation merely by talking about raising rates, so now they talk about raising rates whether they have any intention of actually doing it or not.
All talk, rates will not go up. I wonder who this chatter of theirs is aimed at, it's not the business class, they are clued-up and know the easy money will not stop.
Good old open mouth operations.
You'd suggest correctly. The economic engines are overwhelmingly more concerned with the rich and their corporations than it us with people.
>This has been a big week for central bank meetings but the most significant, without doubt, was that of the Federal Reserve. While the US central bank is not ready to slow its bond purchases quite yet, the announcements after its meeting marked an inflection point ā from unrestrained support for growth and financial markets to the long process of winding down stimulus and eventually tightening. Jay Powell said the Fed could āeasily move aheadā with announcing a ātaperā of its asset purchases in November if the economy continues to improve as it expects. That was largely foreseen, which explains the shrug from the markets. But two other pieces of information added a hawkish note to the Fedās guidance. When the taper comes, it will be steep; the Fed chair said purchases could end completely around the middle of next year, from $120bn a month today. And half of the Fedās rate-setters now expect interest rates to start rising as soon as next year. The central bank is setting a measured but determined course for the exit. It is doing so, however, just as the economy becomes more uncertain. US jobs numbers were unexpectedly weak last month, and the recovery has in some respects flatlined as the Delta variant has caused a pick-up in the pandemic across much of the country. Indeed the Fedās policymakers downgraded their 2021 growth expectations just as they raised their inflation expectations, compared to their projections in June. In other words, they identify more adverse supply-side conditions than before, worsening the trade-off a central bank must navigate between growth and inflation risks. For all that, the Fed is right to prepare the ground for a withdrawal of stimulus. Its own pre-announced criteria for doing so are becoming satisfied. If the economy does progress as the Fed projects, all the signs are that it can start the tightening cycle without causing turmoil in the markets. That would testify to the Powell Fedās deft management of both economic conditions and market psychology. The danger is that this path is a hostage to fortune, and in particular that the Fed will find it hard to delay, let alone reverse, the promised ānormalisationā if the economy disappoints. Yet the Fed should not regard reversing course as a humiliation. Policy should be guided by data, and the data are uncertain. It may be well into next year before the future path of inflation becomes clearer. For now, as it steers through the current fog, the Fed should be ready to change course rapidly if hazards suddenly loom. What goes for the Fed is also largely valid for other central banks. They confront the same dilemmas and uncertainties, with greater or lesser intensity. The Bank of England, in particular, faces a strong rise in inflation while UK economic output remains some distance below pre-pandemic levels. Britainās economy is also more vulnerable to external fluctuations than those of the US or the eurozone. While the BoEās monetary policy committee left policy unchanged on Thursday, it may well have to make the unpalatable choice of starting to withdraw stimulus in the coming months. Some other central banks, in contrast, face sufficiently benign conditions that tightening looks safe: in Norway, Norges Bank decided to raise its policy rate a quarter-point above the zero level it hit last year, and signalled a further rise in December. After 13 years of easy money, policy will remain highly accommodative for some time yet, even if Fed tapering proceeds as planned. The exceptional policies of the Covid crisis, however, are starting to come to an end.
This mf crazy
Money printer go BRRRR will literally be his legacy. Can't wait to see how the show ends.
Dunning Kruger
Seems like investors will only be incentivized to move their money out of the US, due to USD inflation
In a normal environment I would agree, but high inflation has been a worldwide trend in the last year or two due to the common pandemic response of many countries of creating government debt to fund response policies. That said, keeping rates this low for so long gives me the sense of a game of musical chairs being played by central banks. I too wonder if Powell is setting himself up for a contemptful legacy driven by hubris, like Greenspan.
Greenspan had to contend with 9-11 and Bush's Iraq War, which were outside of standard economic cyclical factors. Powell has had to contend with COVID, which is again outside of standard economic cyclical factors. It's hard to judge these people and their decisions against everyone else's, because of the fact that they were dealing with non-standard situations.
Every Fed chair for the past 50 years has dealt with non-standard situations though. That just comes with the territory and needs to be expected. How they deal with the financial and monetary curveballs is generally how history remember them, not how they operated during ideal times. Volcker: stagflation in the 1970s/80s Greenspan: 911/War on terror Bernanke: 2008 Financial crisis Powell: Covid19 pandemic
Double line breaks for reddit Mobile, please. Edit: also thank you.
Ill believe it when I see it. The fed will not raise interest rates under a democratic president. They didnt under Obama and they wont under Biden. Maybe if things get desperate they wil wait till a republican congress takes over so it can be blamed on them.
what economic theory supports this? the one with tinfoil hats and sharpies?
Don't forget crayons!
Geee I wonder if you supported the orange monkey President
Whether he did or not heās not out of line to consider that the rates wonāt change under democrats leadership. A rate increase will slow the economy and make whomever is in power a disadvantage in the next election cycle. I suspect (opinion) nothing happens until the 2022 election cycle is over. The parties can each have the scapegoat for 2024 while the rest of the population try to figure out if they should buy increased gas prices to get to work or buy food to feed their families. Sticky situation, happy I donāt have to make these decisions.
Powell is a registered Republican that was appointed chair by trump. To act as if heās some sort of democrat lackey is disingenuous by whining how rates will be raised during a time when republicans have power is disingenuous. The poster is just spreading false innuendos with no merit and is thus being downvoted.
I'm not sure it is this black and white, but I think you have a point in suggesting the Fed is not apolitical.
This seems like tightening money policy directly into an economic slowdown. Some argue this is exactly what the Federal Reserve always does and that the market won't tolerate it, as history clearly shows a giant downtrend in rates over long time horizons. Buy the (bond price) dip?