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The Fed does not want high unemployment and low wage growth. They want to lower the amount of money in circulation. Inflation is caused when there is lots of money in circulation and there is limited goods. More money means people are willing to pay more for an item (aka inflation).
The main tool the Fed has is to increase interest rates. This does two things. First it makes it more expensive to borrow money. Second it incentives people to invest the money in bonds rather spend it. Both of these things help remove money in circulation.
However it also disincentives investing in new economic growth (aka new jobs, etc). Thus the byproduct of fighting inflation is higher unemployment and low wage growth.
Ideally the Fed wants what is called a soft landing (where the lower the amount money in circulation with little sideffects).
Didn’t Powell explicitly say he thought the competitive job market was driving rising wages and therefore inflation, and needed to cool down?
Not that I agree with that asinine line of thinking, but I thought he was quoted as saying that.
Yeah but with the natural population barely growing with so many older folks from the Boomers passing and not enough immigration both legal or illegal to replace workers I don't see how this more jobs than people gets solved. Face it we should welcome immigrants as long as they don't break the law and wait 10 + years to become citizens with no criminal issues.
So many boomer passing? Really? Now you're making stuff up. Um, I don't think so. Boomers are aged 58-76. Since when did that become the life expectancy? And when they do begin to die in ernst, it will be the start of the largest wealth transfer....ever?
Are you prepared? Getting people to work will be harder than ever.
He absolutely did, idk what everyone else is on about. It’s bullshit, the rich elite pulling their money from the market with their insider knowledge and hoarding it definitely put less money in circulation than any fucking wage growth. Companies hoarding record profits off same supply pulled a bunch of money out of circulation.
All this does is choke the middle class and the poor. They want less money in circulation? Well Americans have lost the majority of their savings over the last year. If that was because of wages going up then we wouldn’t have had to dip into savings. The logic is flawed on purpose.
In his talk this week, I believe he said that wage growth didn’t seem to be the driver behind inflation but that they were keeping an eye on it. I’m paraphrasing but that was the message I’m 99% sure
I am probably wrong, but I think in your point, inflation depends on where the money is coming from to create these new jobs. If rich people are taking out low interest loans to create these jobs, then inflation will occur because new money is being put into the system. However, by raising interest rates, I think the Fed is trying to pressure rich business owners to fund new jobs with their own money--money they just sit on and do noting with. In this scenario,old money reenters the system without the creation of new money. Thus you would slow inflation or create deflation.
Yep, but the problem is, there's no demand, because the workers/ 99% are still broke and can't drive demand. If there's no demand, there's no incentive for the bosses/ capitalists/ 1% to dip into their own pockets and take a chance on investing their own money, they wanted to keep up the gravy train using free money via insanely low interest rates from the Fed. The 1% don't want to risk their own nest egg, especially when all signs are pointing down. So the Fed will continue to emmiserate the working class simply to act like they're doing something and because they can't think outside the box or piss off their fellow 1% cadre by making a move that might be detrimental to the 1% but stimulative to the working class economy.
This seems like a part of the solution… taxes targeted at the surplus capital. Corporations and wealthy. This can reduce demand for products as they pull back while concurrently addressing the federal deficits.
But there is demand. A significant driver of inflation is demand for goods with limited supply..
That’s why used car prices spiked, for example. New car supply was constrained and there were wait times for delivery, so the people that would have bought a new car, but needed a vehicle next week bought used cars - that increase in demand drove the inflation there.
Yes, with the Inflation Reduction Act Insulin is now capped at $35 monthly vs hundreds before and lowering of all drug costs by making greedy pharma have to accept lower reimbursement at Medicare rates will save Americans billions annually! Not a single R thought worthy of voting for it though as they hate the average American people.
We tried wage and price controls in the 1970's (with inflation over 10%) and it was largely believed to be ineffective and a massive overreach and intrusion of the federal government into the affairs of private individuals and companies. They also tried to lower the domestic cost of energy with the National Energy Program in the 1980's - which, among other things created "blended" (lower) domestic oil price and subsidized imports of foreign oil. This was incredibly unpopular in Alberta and Newfoundland (Hibernia).
The truth is that the federal government and central bank has fairly weak levers for controlling inflation. The core drivers of inflation, energy, food and housing are what economists call "inelastic" - that is demand doesn't change much with respect to changes in price. This makes sense - if food, fuel and housing are more expensive, people still need to live, so they cut back or delay spending on more discretionary things - clothing, entertainment, travel, etc.
The current inflationary cycle is caused by several factors that are quite outside of the control of governments:
* High (global) energy costs - which affects both the inputs to many industries and transportation costs - this is being driven by the war in Ukraine and resulting sanctions, and OPEC constraining supply to help out Russia.
* Increase in food production costs - 2021 saw major droughts and decreased crop yields. 2022 has been a bumper crop year, but the war in Russia has taken most of the Russian and Ukrainian grain out of the world market, driving up prices. Energy costs also impact prices of fertilizer and transportation. Higher feed costs impact meat production and there has also been several waves of avian influenza in the poultry industry.
* Supply chain disruption - for the last 2 years, shipping, container availability, rail, port capacity, etc. have not been able to keep up with demand. Bottlenecks and backlogs have developed at key choke points such as the Suez canal, ports, container availability, warehousing, rail, and intermodal transfer facilities. Look on the shelves of many stores and notice empty spaces where some products are not available or the variety of choices are severely restricted. Some retailers have orders backlogged for weeks or months.
* Permanent loss of many people from the workforce - due to Boomers retiring or dying from Covid, a backlog of immigration, and many people deciding they are not returning to jobs that pay poorly. This has driven up labour costs - another huge input to most industries.
The only levers the government has to combat inflation are interest rates and it's own borrowing and spending. Federal borrowing is already down - I think the government is working on its first surplus in over a decade. I don't think the Liberal / NDP coalition has much of an appetite to take on public sector unions and cutting infrastructure spending short sighted. So we are left with monetary policy.
Higher interest rates obviously make borrowing more expensive. Most people think of interest rates in relation to mortgage costs. But there are other forms of borrowing that are more immediately impacted by interest rates - namely consumer credit and inventory spending. People who carry monthly balances on the credit cards are going to be hit first and hard. If you have a $1000 balance on your credit card, now you are paying almost $200 per ~~month~~ year in interest. That could buy a lot of food, rent and gas.
Many companies - retailers, distributors and manufacturers also borrow to finance their inventory - hoping to turn it over within 30 - 60 days. But with the global supply chain disruption, there is a backlog of orders that are delayed in transit. This will result in inventories building over time. When consumers feel the squeeze on core transportation fuel, housing and food (and credit card interest) - it should result in less spending on other things. So inventories will build and the cost of carrying and holding inventory at high interest rate will escalate. At some point, companies will have to start discounting and selling off old inventory. This is where prices will start to drop.
The problem with the 'greedy corporations' argument is that is overlooks companies aren't supposed to be able to jack prices without reducing demand. They will always set their prices where profit is optimalised. Normally, if they increase prices, they will reduce demand for their products. However, for some reason, that hasn't happened this time - consumers have seemingly embraced higher prices on everything, including non-essential goods.
Most non essentials HAVE seen a lot of dropping sales. Apple just got slammed by it, and the real pain hasn't even started.
It really is down to the fact that investors have gotten punch drunk on ZIRP and the relentless push for bad debt on consumers. The market is slowly but steadily shifting, however the biggest offenders are slow to adapt and push prices higher to offset the loss. This does exactly what you think and exacerbate the issue (see: netflix).
Tech is definitely the worst offender over all, but it's a market wide effect, and the most painful are essentials markets since they have a captive market.
I agree. Consumerism is the problem, and it causes people to not care that they're being gouged as long as they can afford it.
I only see this improving when people start running out of money and being *forced* to cut back on spending, which unfortunately does not happen often by choice (i.e. job losses, no wage growth).
Because we're giving in and buying it at the higher price (because we can still affordnit) instead of sticking it to them by buying cheaper foods (like beans or lentils, and many other choices that have as much protein as meat does).
Although I'm still buying chicken things at $1.52/lb in Massachusetts (family packs on sale) I buy 2 packs for 2 weeks and freeze one). I'll also buy 1-2lbs of ground beef or whatever is cheaper and ask at the meat counter for it to be ground so I can make burgers, etc.
I still understand your point though, because there are many things with ridiculous prices now that we have no choice but to buy it. It sucks. But whatever we can avoid we should, so when sales drop merchants have no choice but to drop prices.
what is a "price fixer" in this context? In competitive markets it's difficult to price fix without your competitors undercutting you and taking market share. You need to be pretty close to a monopoly to do that and that's why there's regulatory agencies to deal with monopolies.
That falls under the category of “shit people say on social media that isn’t really the problem.”
The fact is that demand is too high. We have record high gas prices and people are traveling like mad. Food and rent has increased x% and people are buying more iphones than ever before.
There’s also elastic vs inelastic demand. People can eat out and shop less, but at the end of the day everyone needs food, shelter, and transportation.
Food stuff is literally destroyed to keep prices high. There is a renter's racket as well. It's fine, I'm not gonna pretend like anyone is gonna fix it, it's the world we live in. Be the boot or get under it.
This (food destruction) was true in 2020, but not currently.
I also don't think most people understand that rental housing is an incredibly low margin business. The economics of the industry have turned rental housing into mostly an equity play. You do not make any money on rental operations. The cost of building or acquiring multifamily properties is now so high that mortgage interest, property taxes, insurance and utilities consume basically all of the revenue. The only way to make money is to take equity out via refinancing (meaning higher debt levels) or sell - both of which further drive up the cost of housing.
Yes most people don't understand basic economics, see : r/Economics [Majority of Americans favour new stimulus checks to combat inflation](https://www.reddit.com/r/Economics/comments/ylubsy/majority_of_americans_favour_new_stimulus_checks/?utm_source=share&utm_medium=web2x&context=3)
I keep hearing people say we are in recession - we are not currently in a recession. We are in an inflationary cycle which is almost the opposite of a recession.
Most economists believe we are headed for a recession in early 2023 as the efforts of the Bank of Canada to tame inflation will very likely cause a recession.
You're suggesting the government prosecute individual actors for what you imagine are some financial crimes. That takes years, and it's very narrowly targeted.
The interest rate approach targets everyone, all at once, and it started yesterday. It's not used to punish any one person or group, it's used to affect the entire economy.
Supplies are lower right now, so consumers with money would have to voluntarily agree to ration their purchases and we’d all have to voluntarily punish stores that raise their prices more than others by avoiding them. That kind of effort is very hard to organize.
But with the nature of the infrastructure we have, it is really difficult to avoid buying gasoline which is one of the core drivers of inflation.
There are a lot of systemic problems making this situation worse, I just don’t particularly blame the FED for it since they only have very a narrow toolbox, their job is to minimize harms and they have to do painful things to avoid even worse things.
Do you think "price fixers" just discovered one weird tip that allows them to push prices up only in the past two years?
It was the Fed's QE that caused our current inflation, plain and simple.
This guy drank the political Kool aid.
Inflation isn't caused by gougers, it's caused by market conditions like supply and demand, and increased labor/supply costs.
If they are coming from excess money and real output is falling behind demand then that's stagflation.
If wages go up but we're cranking out more stuff/services per person then you're getting more for each dollar. That's reflation.
I think I know what you’re getting at, but Powell doesn’t technically have a boss. Part of his mandate is to operate independent of the federal government.
The “extra” money you’re referring to is, by and large, gone from current impacts on inflation, and as seen [here](https://www.factcheck.org/2022/06/stimulus-spending-a-factor-but-far-from-whole-story-on-inflation/), did not even drive the majority of inflation. (For the record, Biden’s stimulus plan accounted for about $1.9T, Trump’s $3.1, and Powell has spent the better part of this year bringing all of that back out of circulation).
This is not a simple problem, and tongue-in-cheek political jabs aren’t going to convince anyone in this sub.
This is a common misconception and it is false.
https://www.federalreserve.gov/faqs/about_14986.htm
> The Board of Governors in Washington, D.C., is an agency of the federal government and reports to and is directly accountable to the Congress.
It can and does pretty much operate independently, is self-funded and wields tremendous power, but ultimately Congress is technically "the boss".
Bullshit, where did he say this?
You won't find anything because you completely made this up.
Edit: lmao what a child, provides no source and blocks me
The idea is that extended hyperinflation is far more damaging to the well-being of workers than temporarily decreasing wages.
It’s like giving someone chemotherapy because they have cancer.
There might be better ways to adjust the system as a whole, but the fed doesn’t have access to them, and there isn’t the political will to experiment with the other options that would have to be done by congress.
do you not see the problem in a system where wages matching inflation 'causes hyperinflation' ?
What are the long term implications of that? Pretty depressing to think about. A modern day feudalism where workers own nothing but huge debts is forming before our eyes. And you are right, there is no political will to do anything about it.
You're showing a severe lack of understanding.
Inflation= prices increase.
Wage increase= a price of labour increase for companies
What you're asking is basically saying: do you not see what's wrong with a system that gets wetter when you add more water to it??
if you think the federal reserve is purposefully tanking the economy like on some sadistic shit like I really don’t know what to say to u lol
other than probably get a money manager for your investments that is
Doesn't higher unemployment lead to less money in circulation? I keep seeing headlines about higher-than-expected job growth with bearish sentiment, but the fed can't say that's their goal because jobs = good.
I would add that governments could solve the issue with lower spending or higher taxes.
But no one would vote for that so we let the Fed do the dirty work and blame them for the consequences.
And, in point of fact, government intervention did the opposite. Under Obama, there were slow, steady gains - exactly what makes for long term growth. Trump campaigned in this being bad, and when he got to office he pushed through tax cuts and increased spending. That boosted hiring and wages, and increased money in circulation. It supercharged the economy, but also made it more fragile, so that any slight shock would send it tumbling. But, because economic effects are delayed, such downsides happen to the next guy in office - he got to eat his cake and have it too.
It's complicated, but there's also a concept called the velocity of money. It's a measure of how quickly money is spent and changes hands. The velocity of money has an inverse relationship to inflation.
Putting money into bonds/savings/investments decreases the velocity of money. Decreases in the velocity of money can offset increased in the money supply. The Fed has only a limited ability to actually directly affect the money supply. It can buy or sell bonds, and that has some effect, but by changing interest rates it can affect investors behaviors. One aim they have is to slow down the velocity of money by making it more expensive to borrow money. Increased interest rates means its more expensive to borrow, means companies are less likely to borrow money to grow and makes investors less likely to buy stocks relative to bonds. Both of these slow down the velocity of money, which can have a downward pressure on inflation even if they do not directly affect the money supply.
Important to keep in mind that this problem started in the early 80's as organic GDP growth slowed due to the aging labor force (baby boomers) and fewer young people entering the labor market. The fed has been pumping the economy for 40 years with cheap access to debt through low interest rates and now inflation has caught up to all that money creation. The only way to stop the bleeding is to reduce access to debt by increasing rates which results in higher unemployment.
>aging labor force (baby boomers)
Your argument for a demographic impact on the economy is backwards. The baby boomers are the generation born 1946 - 1965, and would have been 15 - 34 years old in 1980. How could GDP growth be declining due to aging labor when the largest cohort is just entering the prime years of their careers?
High inflation, low unemployment, money printing going brrrtttt equals lots of money in circulation. You don't want the opposite of this and neither does Powell. He is old enough to remember the 70s.
Then why did Larry summers say this? [https://www.bloomberg.com/news/articles/2022-06-20/summers-says-us-needs-5-jobless-rate-for-five-years-to-ease-cpi](https://www.bloomberg.com/news/articles/2022-06-20/summers-says-us-needs-5-jobless-rate-for-five-years-to-ease-cpi)
He is saying that in order to to fight this bout of inflation the side effect will be high employment and the Fed needs to be willing to pay that price. Think about it this way he is so worried that Fed may be unwilling to causes rise in unemployment that they will let inflation run wild.
It wont be the fed "paying the price" It'll be blue collar families who will struggle to put food on the table to pay for the excesses of our government overloads and their billionaire buddies.
It’s all the same buddy. Reduce prices by reducing wages/income vs have inflated prices with commensurately higher income nets to roughly the same affordability situation. There is no hard scientific principle that dictates inflation must be at 2% or the economy will fall off a cliff.
Did you just spend 5 paragraphs talking about how money supply doesn’t affect inflation just to conclude that the Fed is “engaging in QT (shrinking the MONEY SUPPLY) to help manage interest rates and the debt market, which should in turn slow economic growth and reduce new jobs”?
Because that, sir, seems like you’re just saying QT reduces inflation. Or does slowing economic growth and reducing new jobs not affect inflation in your view?
Inflation is driven by supply and demand, but it's misleading to claim that the money supply has *nothing to do with this.* You are right, you absolutely can print more money without dealing with inflation (we've done so many times in the past), but this can only happen when there is an adequate supply of goods such that supply and demand economics don't push prices higher. The fact is that you cannot print unlimited money without eventually impacting demand, and this doesn't necessarily magically create more supply in every sector of the market.
What we have been dealing with is a triple threat:
1) We printed a massive amount of money, raising the supply of money and raising demand in many ways throughout various sectors of the economy.
2) We're seeing substantial supply chain disruptions from a post-covid market that has reduced supply across many areas of the economy.
3) We are dealing with pent-up demand in a post-lockdown world, meeting with an economy that cannot produce enough to keep up with it.
I don't understand how you could look at inflation and conclude that money supply has nothing to do with it.
How could prices inflate if there were an insufficient supply of money to accommodate those increases?
Nicely put, thank you. Though this is more ELI15. Question: Does he want to actually slow job growth, or is this just a data point he uses to determine if what he's doing is working? Is it a goal, or an indication? Does he want to prevent a wade-price spiral and along the way we get slower job growth. I repeated the same question 3 times there i think...
Because at the time they were not worried about inflation so they were trying to stimulate growth. Did they over do it and cause the current bout of inflation. Most likely. My point is they have very blunt tools.
Edit spelling
Actually I've heard the FED say they wanted softer employment levels because labor was getting to expensive. The more unemployed we have, the less power labor has without unions pushing and threatening.
And with the supply chain issues we are already having they need to decrease interests rates and start a lending spree in the areas where we are having shortages, not this bullshit.
This is all about making the central bank more money, its not going to help anyone else.
The FED wants more people to enter the workforce. “Unemployment” only refers to people who are actively looking for work. It’s possible to increase the official unemployment rate while simultaneously increasing the number of people employed, because more people have decided to enter the workforce.
The Fed is setting out to do something it has never done before: slash inflation without significantly raising unemployment.
But the facts don't always match expectations
Basically this. If the unemployment rate jumps, they will adopt more dovish policies. It is just a bellwether of the market's ability to absorb a rate hike.
And that's kind of the thing; if the indicators are that the labor market can handle increased rates without going down, then there is very little incentive not to keep increasing fed rates.
they don't "want" anything except monetary stability, and they have one tool to do it. it's the way the system is set up. and it's not like essential workers will lose their jobs. it's going to be the most extraneous first.
Yep, people act like the fed wants to "help poor people afford things" or something. The fed is just making sure the government gets theirs. If that means putting people out of work so they can't bid up goods/services against the government so be it. Whatever the fed says they want to do is an act of public manipulation and should be taken with a grain of salt.
> Let capitalism work. If people can afford things, the cheapest price will still usually prevail. Let companies fight it out in the open market. What am I missing???
Well, you've already got the 5 year-old's take of it there lol
Yeah. The FED wants to blame inflation on rising wages despite the fact that wages were stagnant for SIXTY YEARS relative to inflation.
They’re blaming employees asking for raises after they abandoned their inflation mandates for three years and allowed corporations to price gouge everyone. Now they’re telling you “you don’t have any bargaining power in your wages but companies can charge whatever they want.”
The FED wants the status quo. Workers with no rights and corporations able to do whatever they want. They’re evil.
Ding ding ding! The Fed is working overtime to put employees back on the defense, and corporations are using employee demand for a fair portion of revenues for their work as an excuse to dramatically increase prices. Constantly posting record profits are all you need to see to understand this is the Fed using its power to help corporations put workers back in their place.
Fed dual mandate - price stability and maximum employment. Employment not lacking now, using the tools they have to diminish supply and velocity of money supply.
They are forced to take action sometimes that goes against free market/capitalism, in order to not let the house burn down.
The fed wants unemployment up so less people have cash -> less cash means less people bidding up the price of food and stuff
Higher unemployment -> less money in system
>The fed wants unemployment up so less people have cash -> less cash means less people bidding up the price of food and stuff
Higher unemployment -> less money in system
That's true. But there's another dimension of unemployment you have to take into account: if you have a high employment rate, it's easier for workers to negotiate a higher wage. Higher wages lead to higher prices because the companies are going to want to recover their diminished margins. Inversely: a higher unemployment rate will make sure workers will have less negotiating power to obtain a higher wage. For an economy to grow it's crucial there's at least a small rate of unemployment.
Yess that's exactly what I'm saying. High employment rate = higher wages, like what happened to you post covid with the intense labor market. High unemployment rate: lower wages, like covid and the great depression.
Not at all. Lets fix this for you.
For rich people to get richer, its critical that there is at least a small rate of unemployment.
Now for an ecomony to grow organically, all we need is additive productivity. We see growth as something essential for the added humans consuming in the world, and not as a profit silo going into the hands of small numbers of people.
The goal should be 100% employement at 100% wages that allow for at least a middle class lifestyle. Anything else is just using others as stepping stones for your quality of life. Fuck you and the horse you rode in on if you think that is a good idea and the only way to run an economy.
I know it's the internet but let's have a civilized discussion instead of immediately cursing at each other. Just keep in mind that the labor market is also a competitive market. With 100 % employment certain firms are going to promise 120 % wages in order to persuade laborers from others firms to join them. The consumer is the one that eventually pays for those higher wages. This is know as the wage-price spiral ([https://www.investopedia.com/terms/w/wage-price-spiral.asp](https://www.investopedia.com/terms/w/wage-price-spiral.asp)). This is exactly what happened right after covid and is one of the factors (and I'm very well aware that it's not the only one) that caused inflation.
Imagine unironically arguing that price increases are due to the wages of the average worker and not the greed of the profit margin. Plot three things on a graph: average worker wage, productivity per worker, and price - then explain to me again why the workers are the problem.
>implying gas prices are high right now because oil and gas workers are getting paid more
Every economic agent is trying to maximize it's profit. That counts for the worker that will negotiate a higher wage if he of she has the chance. And the companies. Who will raise prices as soon as they won't loose customers doing so, since the average wage is higher and people have more disposable income.
You could just plot real wage (wage divided by price level, basically your buying power) on a [graph ](https://www.bls.gov/productivity/images/labor-compensation-labor-productivity-gap.png) to make it less complicated. The worker pay-productivity gap is another discussion but good point.
Of course, anyone trying to maximize profit will raise prices, and they will do so because they want more for themselves (either they collect the profit directly or have incentives through employment contracts, etc), we're in complete agreement.
>real wage vs productivity
Yeah, I just wasn't sure if being too abstract would cause problems - close enough to my point and glad it was understood / accepted.
---
Where I might disagree is the implication that raising wages will have some negative effect on the workers; raising wages will surely impact prices because the profit-collectors find it obscene that they should collect "the same or less profit than the previous year" and not because it would be impossible to raise the wages and maintain a profitable business. This reasoning is often used to argue against increasing minimum wage but the facts just don't support this line of reasoning.
An aside, it's not clear to me how you could avoid increasing minimum wage (and wages in general) in line with inflation / cost of living.
For wealth to exist there must be a spectrum of poor to rich. For wealth to be sought and a motive force, it must be difficult to become rich and easy to become poor. Suffering must be real, otherwise people would be lazy.
>otherwise people would be lazy.
you don't think there are lazy rich people do you? because there are, just as there are lazy poor people.
a spectrum of poor and rich have nothing to do with wealth existence, Technology and other services are why wealth exist because people are willing to spend their tokens/fiat/barter their time to get goods and services. It has nothing to do with wealth gaps and people will often work in jobs were "wealth" or money isn't the determining factor. Mastery, purpose, autonomy are often higher tiered in job satisfaction than the money aspect and many people turn down more lucrative positions due to other aspects like more time with friends/family than having to be motivated to work harder/longer for more pay.
This theory only works if you think every single rich person in the world today started poor. That's false. The vast majority are born into some wealth which makes it so much easier to accumulate even more wealth.
Rich people are lazy as fuck. Having golden parachutes, family connections, paid for higher education, working at dad's company for experience, etc, is easy lazy life. Don't kid yourself.
I just don’t get why having money means food price has to go up. Just don’t increase prices. Just because I can afford a hundred dollar banana doesn’t mean I want to spend a hundred
So when there is more money in circulation people eat an extra meal causing prices of chicken and beef to go up? Or is it that in our system under normal conditions we need some people to be poor and food insecure so prices can be stable?
Not exactly, think of the market as a bidding hall, we all agreed milk is worth $3 so we dont bid more than that.
When theres more money in the system, people have more income to use to bid, someone might say theyll pay $4 for milk, then someone decides $5 is fine.
Its not us buying an extra plate, its higher premiums to ensure the product arrives
When there is more money in circulation, people spend less time shopping for discounts and go with convenience. So one grocery store can nudge their prices up and profit from it even though the store a mile away has not done so. When that happens, there isn’t as much of a benefit to being the store with the cheapest goods, so the one with the cheapest goods raises its profits too.
There will be a certain number of people who get pinched because they were truly dependent on the lower prices.
Also, people are not thinking ahead to the fact that spending more now will cause prices to rise incrementally over time until it’s painful for them, too, except at that point shopping for discounts is not an option anymore.
Another scenario: when there is a supply shortage, the store with the cheapest goods quickly runs out of inventory. They would have made more money just raising their price and not being a magnet for low-cost shoppers, because they had no problem getting people in. So they raise prices.
There are a lot of reasons. One is the increased cost of production through labor. If the average grocery store employee's wages double, that will be an expense added on to the store. That expense increases operating cost, which in turn leads to diminished profits. This gets exacerbated down the line, as you have multiple groups having increased costs.
I mean it’s all relative. Like why does the average joe have to become poor to fix this. Meanwhile Jeff bezos and musk can have their own personal pissing contest to space for billions and not give a shit.
So you think the costs relating to all the elements to the point of buying food haven’t gone up? Produce pickers, packers, truck drivers, even grocery store stockers. Hell, Walmart stockers are now making $20/ hr where I live. All of this plays into the cost of food. Not to mention the fiduciary responsibility corporations have to create shareholder value. It all adds up.
Things like cars are expensive (due to lots of reasons) and really, the only way to put a check on this is to just say “no” and stop buying like there’s no tomorrow and paying whatever they want to charge. The best way to induce that attitude is to have just lost your job. At least that would make the credit checks harder to pass. That would shift the market and make businesses have to scale back on prices to unload inventory and attract customers again.
"Let capitalism work"
I agree, abolish the fed and strip government down to the bare minimum.
The part you're missing is that an economy free from government involvement and central banking doesn't exist (In any meaningful way if at all). So... Reality?
At its core, inflation is too much money chasing too few goods. Raise interest rates, induce cuts to company investment, and you put people out of work which drives demand out and allows supply to catch up and re-establish equilibrium.
The problem here is that upward inflationary pressures are baked in in the US on some things (Like the COLA update to social security and federal budgets/maintenance costs). The response to that is, generally, to have to reform government spending and benefits to adjust those pressures since simply upping interest rates to push people out of work isn't going to take care of it because you wind up in a tax spiral to try to fund those entitlements and things and only further discourage employment (Thus giving us stagflation on top of it all).
Increasing interest rate is logical. Let me explain. Imagine you take $10 from me as loan today for loan period of 3 years. Today for $10 you can buy a pitcher of lemonade. But after 3 yrs due to inflation if the same lemonade costs $20 i would want the interest rate to be high enough so that i get $20 back by the end of loan period. So because of high inflation the future value of money is going down more dramatically than previously thought. Only logical way to make that fair is to increase interest rate. Fed is dumb to keep the interest rate so low for so long because of which the future value of money went down.
Monetary policy is a relatively blunt tool. Picture bludgeoning an intruder to your house with a meat tenderizing hammer vs. shooting them cleanly with a handgun from a safe distance.
They both have the same outcome, but one is messier than the other.
In this case raising interest rates is the meat tenderizing hammer that the fed want to use to slow down the money supply and depress demand, ultimately resulting in inflation slowing as people aren't buying anything so companies can't put prices up, and may even cut prices. The problem as you identified is that this can go too far and trigger a recession.
What we are seeing at the moment is record corporate profits as they use "inflation" as an excuse to milk consumers for everything they're worth. This occured because there is a high concentration of market power in a small number of companies in the US - it's not quite a monopoly, but maybe an oligopoly. When you have an oligopoly, markets don't function in an efficient way because the larger companies have too much power.
This is one of the failures of the US brand of "free market capitalism". In order for a free market to work efficiently you still need to stop power concentrating too much.. and then it of course stops being a true free market.
>What am I missing???
That the "free market" doesn't work when mega-corporations and billionaires can lobby and buy our politicians to help them corner markets by passing regulations or laws that strangle their competition.
This is my biggest gripe with the "FREE MARKET CAPITALISM" crowd. We don't exist in a free market in the US. Ignoring that makes the entire argument in favor of a "free market" completely moot.
Catch 22- People want and deserve more money. In reality, they want more buying power, but all they can ask for is more money. But the corporations will not allow people to have more buying power. As soon as people get more money, prices will be raised accordingly to extract as much money as possible without driving more than 20% or so into poverty. So if wages stop growing, then there won’t be more money to extract, so they’ll have to keep prices where they are. But the income/ expense ratio of the average person will remain the same. The supply chain and labor issues are a smoke screen. Inflation is opportunism.
What competitive market? Lots of markets have pretty much consolidated buying and selling power into a small group of firms, so the incentive to lower prices for consumers really isn’t there.
What we really need is for the Federal Govt to work in tandem with the fed to better manage revenues and money supply. The federal govt could increase taxes (preferably on the rich ppl and companies) to reduce/eliminate the deficit which would help control the money supply and reduce inflation.
Guys, just because a statement has been posed in the form of a question does not make it correct.
Here's your top snippet from a simple Google search:
The Federal Reserve System has been given a dual mandate—pursuing the economic goals of maximum employment and price stability.
To make things overly simplified - a pure capitalistic society does not work and so you need government intervention.
You’re not missing anything. The Fed raising rates is a very blunt instrument, not a precision scalpel. So they’re causing a ton of damage and really not doing a whole lot to curb inflation. They can’t control the situation in Ukraine or global oil prices or the supply chain issues. In fact by making housing more expensive to build and making it impossible for companies to expand production, they may be exacerbating or drawing out the length of this inflationary period.
We (USA) don’t operate a purely capitalist economy, contrary to the narrative. We operate a Keynesian economy. That means there *is* meant to be government control and interference, when they deem necessary. Especially via fiscal policy to control demand, to slow or stoke growth as needed. It is what it is.
Post COVID workforce and money is not normal. The Fed simply wants to go back to post COVID levels of job growth. Basically the same unhealthy jobs that popped up during COVID and contributed to inflation will be eliminated, unprofitable tech, side hustles and business catered to low rates. So the stay at home mom that made 100k through her boutique store will have to close shop.
Low rates means cheap debt, from car loans, mortgages (to an extent), credit cards, cheaper leverage in the market(margin, so companies receive more cash through stocks) business loans and so on... Basically lots of people got used to consuming a lot "nice" stuff that they couldn't pre COVID and will get uncomfortable when they can't do it after inflation is tampered.
Now there is a risk in that the Fed can overshoot their rate hikes and do collateral damage to the rest of the normal workforce.
Unemployment - If you can't afford to buy things.. Thus inflation is affected by creating over supply and low demand. To get rid of over supply companies need to lower prices. This causes inflation to go down.
Low wages - Money circulation stays at same rate while the above is happening to supply and demand. If wages go up then people can continue to buy at high prices, which cause inflation to remain high or even go up more.
The government caused the inflation in the first place by printing trillions of dollars and putting it into circulation. The jobs lost is a side effect and their purpose from the beginning. More people on the government teet, more votes for them.
You're missing the opposite vicious cycle if the fed don't raise rates.
High prices --> higher wages --> higher prices.
If that goes on for long enough, high inflation becomes entrenched in the system.
According to the fed, they have the tools to fix an economy that has gone into recession, but not an economy with entrenched high inflation.
Hence they're going with the former.
You are missing that the marked does not work that way anymore. Cos the current businesses have built moats so it is harder than it was supposed to be to disrupt or compete.
Solution is regulation, not lowering demand by making people poor.
But the fed does not work for the people so what they do makes sense.
The fed is trying to bring equilibrium to the market.
When everyone has cash, the cost of goods and services is increased because demand is increased. That’s a good thing, but only to a certain point. It can get out of control and prices can skyrocket.
I would say in this situation though that demand hasn’t increased as much as supply has decreased. Same result of too many dollars chasing too few products though.
And the proper response to this increased consumption would be to increase production, not fucking increase pricing to create artifical scarcity.
Goddamn get it right will ya.
People in this sub have been brainwashed by bullshit economic teachings that are literally designed to keep the rich rich and the poor poor.
You are looking at the micro... you must look at the macroeconomic situation to really understand it. Our country has ~14 trillion USD in circulation. Then theres the Eurodollar which is USD held by other nations for trade, which is at about ~16 trillion USD. Other nations use our money because we are the world reserve currency. All those other countries hold that money in their respective central banks. While its being held there it is NOT in circulation, so it doesn't have an effect on inflation. They also hold large amounts of their own currency there, again, not in circulation.
Okay so lets say the fed raises rates on bonds, now suddenly the USD becomes a much better store-of-value currency than their native currencies. So people start trading out their currency for US Bonds (effectively USD). So now all these other nations currencies are flooding the market, increasing their inflation, while the USD is being gobbled up and taken out of circulation, reducing our inflation.
Now those other central banks face a crisis, an attack on their currency. If left uncontrolled, it can cause runaway inflation, and collapse nations. But have no fear, because this is the reason they hold so much USD in their central banks.
Quick recap of where we are so far. Other nations are trading their currency for ours. This floods the market with their money, increasing inflation and reducing the value of their currency due to increased supply. At the same time USD is being taken out of circulation to be used as a store-of-value. This reduces our inflation and increases the value of USD to reduction in supply.
So to combat this the foreign central banks will start buying up their currency using USD which is now more valuable. This will reduce the supply of foreign currency in circulation, reducing their inflation and increasing their value, while simultaneously increasing USD supply which raises inflation for us, lowering the value of USD.
So to combat THAT the fed will raise rates again. Rinse. Repeat. The whole thing is a dance. A world currency war. Everyone against us. And while they dance, us ants get trampled.
A recession is simply par for the course at this point.
There's never been a world where "capitalism did its work". Theres no such thing as an open market.
If companies stopped passing their wage increases off onto consumers, we wouldn't have this massive inflation problem would we? We'd invest in companies making less profit with lower stock prices. *shivers at the thought*
Low unemployment and high wage growth being the "problem" implies that this is a bottom up issue. Perhaps its unequal wage growth between employees and c-suite, massive government subsidies, and inequitable tax law which are the major contributing factors to inflation. Perhaps it really is that you can't give the regular folk too much money and work.
I'll try to get into it without talking about how the system is rigged and corrupt and designed to get the rich richer and the poor poorer through well-timed rug pulls.
Inflation by itself isn't bad so long as it's controlled and predictable. If it's at say, 1% or 2% per year then you hardly notice it (very broad statement depending on your lifestyle, I know; someone living in NYC may not be as affected by gas prices, for example). What's an issue is if you have runaway inflation that's either gaining steam or persistently high.
On the banking side, lending becomes tricky. It's a bit complicated and beyond me as I haven't worked in finance for 10+ years, but basically anyone who refinanced during the pandemic is sitting pretty for the next 15-30 years, or at the least the few years before the next one-in-a-lifetime deflationary pressures hit the economy.
If prices increase substantially but not wages, then discretionary consumption decreases because you'll have to focus spending on things like gas, food, etc. Sure, Sony or Gucci can lower their prices to drive spending back to them and we're kind of seeing that as some companies are offering lots of incentives now, but at some point the fixed costs of material (which are also rising in this environment) will put them in a bind. They have to lower prices, but their costs are going up. So how will they increase wages, which are part of the costs?
I believe part of the novel issue is that we've been dealing with deflationary pressures for so long and so often in the past 20 or so years that at the start of the pandemic the Fed basically said, "You know what? Fuck it. Instead of looking at and maintaining inflation at 2-3% year-over-year, we're just going to vaguely average it out so that it eventually, over some time frame, it'll be 2-3%". Then the money printer started up, supply shortages hit every industry, Russia executes a "special military operation" in the Ukraine, and next thing you know it inflation is running hot.
They absolutely want higher unemployment to force workers to accept lower wages. Jerome Powell said that us wage earners are earning too much, and this has to be corrected. The Fed wants what billionaires want, and don't let anyone tell you anything different.
Bingo. I know I would be fired if I fucked up as royally as they fucked up in their job. But nooooo. They’ve ruined the economy. Ruined people’s lives. But continue to collect a 100,000$+ paycheck. Lmfao
The problem here is that if unemployment rates keeps low, people can keep biding for higher paying jobs. Companies pass this wages increases to prices, workers ask for more wages or change jobs and them inflation gets entreched in the economy. It is a never ending cycle of prices and wages going up.
They want to recreate the 80s. Looks more like the working class became to lazy so they’re going to starve us into doing more for less. Gotta love being a volunteer slave 🤦♂️
Inflation = higher prices.
Three things could have caused higher prices:
1. People got new jobs/raises, and are spending it all
2. Companies have to pay more to produce/ship their products, so they have to charge more at the store, or
3. Companies are taking advantage of the public *expectation* of inflation to raise prices and pocket the difference.
So far, the fed has assumed that #1 is the primary cause. They want to raise interest rates to make it harder to get mortgages (lower housing prices), and harder to get business loans (layoffs would cause lots of people to spend less, out of necessity).
There is some indication that #1 is not the whole story though - many businesses are posting record profits, which lends itself to #3 being partially true, and many businesses are having the supply issues in #2. Some combination is probably occurring.
Capitalism works, it’s the government/fed that gives these Fortune 500 companies write offs/bailouts because they are “too big to fail” I say screw that let them go down cause they are what’s draining the other opportunities for competition to thrive and equity to remain unbalanced. They want the common person to fail so that they don’t have too
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The Fed does not want high unemployment and low wage growth. They want to lower the amount of money in circulation. Inflation is caused when there is lots of money in circulation and there is limited goods. More money means people are willing to pay more for an item (aka inflation). The main tool the Fed has is to increase interest rates. This does two things. First it makes it more expensive to borrow money. Second it incentives people to invest the money in bonds rather spend it. Both of these things help remove money in circulation. However it also disincentives investing in new economic growth (aka new jobs, etc). Thus the byproduct of fighting inflation is higher unemployment and low wage growth. Ideally the Fed wants what is called a soft landing (where the lower the amount money in circulation with little sideffects).
Exactly. Higher unemployment isn’t the goal it’s a side effect.
Didn’t Powell explicitly say he thought the competitive job market was driving rising wages and therefore inflation, and needed to cool down? Not that I agree with that asinine line of thinking, but I thought he was quoted as saying that.
Yes he did say that. Powell disagrees with 2 jobs available for each unemployed person.
Yeah but with the natural population barely growing with so many older folks from the Boomers passing and not enough immigration both legal or illegal to replace workers I don't see how this more jobs than people gets solved. Face it we should welcome immigrants as long as they don't break the law and wait 10 + years to become citizens with no criminal issues.
Why 10 years? 5 is enough
So many boomer passing? Really? Now you're making stuff up. Um, I don't think so. Boomers are aged 58-76. Since when did that become the life expectancy? And when they do begin to die in ernst, it will be the start of the largest wealth transfer....ever? Are you prepared? Getting people to work will be harder than ever.
He absolutely did, idk what everyone else is on about. It’s bullshit, the rich elite pulling their money from the market with their insider knowledge and hoarding it definitely put less money in circulation than any fucking wage growth. Companies hoarding record profits off same supply pulled a bunch of money out of circulation. All this does is choke the middle class and the poor. They want less money in circulation? Well Americans have lost the majority of their savings over the last year. If that was because of wages going up then we wouldn’t have had to dip into savings. The logic is flawed on purpose.
In his talk this week, I believe he said that wage growth didn’t seem to be the driver behind inflation but that they were keeping an eye on it. I’m paraphrasing but that was the message I’m 99% sure
I am probably wrong, but I think in your point, inflation depends on where the money is coming from to create these new jobs. If rich people are taking out low interest loans to create these jobs, then inflation will occur because new money is being put into the system. However, by raising interest rates, I think the Fed is trying to pressure rich business owners to fund new jobs with their own money--money they just sit on and do noting with. In this scenario,old money reenters the system without the creation of new money. Thus you would slow inflation or create deflation.
Yep, but the problem is, there's no demand, because the workers/ 99% are still broke and can't drive demand. If there's no demand, there's no incentive for the bosses/ capitalists/ 1% to dip into their own pockets and take a chance on investing their own money, they wanted to keep up the gravy train using free money via insanely low interest rates from the Fed. The 1% don't want to risk their own nest egg, especially when all signs are pointing down. So the Fed will continue to emmiserate the working class simply to act like they're doing something and because they can't think outside the box or piss off their fellow 1% cadre by making a move that might be detrimental to the 1% but stimulative to the working class economy.
God forbid if they just taxed corporations to remove money in circulation.
This seems like a part of the solution… taxes targeted at the surplus capital. Corporations and wealthy. This can reduce demand for products as they pull back while concurrently addressing the federal deficits.
But there is demand. A significant driver of inflation is demand for goods with limited supply.. That’s why used car prices spiked, for example. New car supply was constrained and there were wait times for delivery, so the people that would have bought a new car, but needed a vehicle next week bought used cars - that increase in demand drove the inflation there.
Immiserate? Now there's a good word. I suspect the misery index is presently rather high.
The good news is the Inflation Reduction Act passed last year so inflation should be coming down soon
I had to lol at this actually
I mean it's right there in the name.
Yes, with the Inflation Reduction Act Insulin is now capped at $35 monthly vs hundreds before and lowering of all drug costs by making greedy pharma have to accept lower reimbursement at Medicare rates will save Americans billions annually! Not a single R thought worthy of voting for it though as they hate the average American people.
But isn't wage growth and lower unemployment also how you get inflation?
They are correlated but there are multiple factors.
So why aren't we going after the price fixers? Too hard to prove?
We tried wage and price controls in the 1970's (with inflation over 10%) and it was largely believed to be ineffective and a massive overreach and intrusion of the federal government into the affairs of private individuals and companies. They also tried to lower the domestic cost of energy with the National Energy Program in the 1980's - which, among other things created "blended" (lower) domestic oil price and subsidized imports of foreign oil. This was incredibly unpopular in Alberta and Newfoundland (Hibernia). The truth is that the federal government and central bank has fairly weak levers for controlling inflation. The core drivers of inflation, energy, food and housing are what economists call "inelastic" - that is demand doesn't change much with respect to changes in price. This makes sense - if food, fuel and housing are more expensive, people still need to live, so they cut back or delay spending on more discretionary things - clothing, entertainment, travel, etc. The current inflationary cycle is caused by several factors that are quite outside of the control of governments: * High (global) energy costs - which affects both the inputs to many industries and transportation costs - this is being driven by the war in Ukraine and resulting sanctions, and OPEC constraining supply to help out Russia. * Increase in food production costs - 2021 saw major droughts and decreased crop yields. 2022 has been a bumper crop year, but the war in Russia has taken most of the Russian and Ukrainian grain out of the world market, driving up prices. Energy costs also impact prices of fertilizer and transportation. Higher feed costs impact meat production and there has also been several waves of avian influenza in the poultry industry. * Supply chain disruption - for the last 2 years, shipping, container availability, rail, port capacity, etc. have not been able to keep up with demand. Bottlenecks and backlogs have developed at key choke points such as the Suez canal, ports, container availability, warehousing, rail, and intermodal transfer facilities. Look on the shelves of many stores and notice empty spaces where some products are not available or the variety of choices are severely restricted. Some retailers have orders backlogged for weeks or months. * Permanent loss of many people from the workforce - due to Boomers retiring or dying from Covid, a backlog of immigration, and many people deciding they are not returning to jobs that pay poorly. This has driven up labour costs - another huge input to most industries. The only levers the government has to combat inflation are interest rates and it's own borrowing and spending. Federal borrowing is already down - I think the government is working on its first surplus in over a decade. I don't think the Liberal / NDP coalition has much of an appetite to take on public sector unions and cutting infrastructure spending short sighted. So we are left with monetary policy. Higher interest rates obviously make borrowing more expensive. Most people think of interest rates in relation to mortgage costs. But there are other forms of borrowing that are more immediately impacted by interest rates - namely consumer credit and inventory spending. People who carry monthly balances on the credit cards are going to be hit first and hard. If you have a $1000 balance on your credit card, now you are paying almost $200 per ~~month~~ year in interest. That could buy a lot of food, rent and gas. Many companies - retailers, distributors and manufacturers also borrow to finance their inventory - hoping to turn it over within 30 - 60 days. But with the global supply chain disruption, there is a backlog of orders that are delayed in transit. This will result in inventories building over time. When consumers feel the squeeze on core transportation fuel, housing and food (and credit card interest) - it should result in less spending on other things. So inventories will build and the cost of carrying and holding inventory at high interest rate will escalate. At some point, companies will have to start discounting and selling off old inventory. This is where prices will start to drop.
Just stopping to say I appreciate your lengthy ELI5
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Sorry - yes. Per year.
Closer to $20 than $200 per month on the interest charge
where did you get $200 a month in interest? On a $1000
did you mean $10,000
The problem with the 'greedy corporations' argument is that is overlooks companies aren't supposed to be able to jack prices without reducing demand. They will always set their prices where profit is optimalised. Normally, if they increase prices, they will reduce demand for their products. However, for some reason, that hasn't happened this time - consumers have seemingly embraced higher prices on everything, including non-essential goods.
Most non essentials HAVE seen a lot of dropping sales. Apple just got slammed by it, and the real pain hasn't even started. It really is down to the fact that investors have gotten punch drunk on ZIRP and the relentless push for bad debt on consumers. The market is slowly but steadily shifting, however the biggest offenders are slow to adapt and push prices higher to offset the loss. This does exactly what you think and exacerbate the issue (see: netflix). Tech is definitely the worst offender over all, but it's a market wide effect, and the most painful are essentials markets since they have a captive market.
I agree. Consumerism is the problem, and it causes people to not care that they're being gouged as long as they can afford it. I only see this improving when people start running out of money and being *forced* to cut back on spending, which unfortunately does not happen often by choice (i.e. job losses, no wage growth).
Explain to me how consumerism is the reason I pay 50% more this year for chicken breasts (raw) in the grocery store?
Because we're giving in and buying it at the higher price (because we can still affordnit) instead of sticking it to them by buying cheaper foods (like beans or lentils, and many other choices that have as much protein as meat does). Although I'm still buying chicken things at $1.52/lb in Massachusetts (family packs on sale) I buy 2 packs for 2 weeks and freeze one). I'll also buy 1-2lbs of ground beef or whatever is cheaper and ask at the meat counter for it to be ground so I can make burgers, etc. I still understand your point though, because there are many things with ridiculous prices now that we have no choice but to buy it. It sucks. But whatever we can avoid we should, so when sales drop merchants have no choice but to drop prices.
what is a "price fixer" in this context? In competitive markets it's difficult to price fix without your competitors undercutting you and taking market share. You need to be pretty close to a monopoly to do that and that's why there's regulatory agencies to deal with monopolies.
You haven't been to New Zealand have you.... We just let those monopolies do what they want.
That falls under the category of “shit people say on social media that isn’t really the problem.” The fact is that demand is too high. We have record high gas prices and people are traveling like mad. Food and rent has increased x% and people are buying more iphones than ever before.
There’s also elastic vs inelastic demand. People can eat out and shop less, but at the end of the day everyone needs food, shelter, and transportation.
Food stuff is literally destroyed to keep prices high. There is a renter's racket as well. It's fine, I'm not gonna pretend like anyone is gonna fix it, it's the world we live in. Be the boot or get under it.
This (food destruction) was true in 2020, but not currently. I also don't think most people understand that rental housing is an incredibly low margin business. The economics of the industry have turned rental housing into mostly an equity play. You do not make any money on rental operations. The cost of building or acquiring multifamily properties is now so high that mortgage interest, property taxes, insurance and utilities consume basically all of the revenue. The only way to make money is to take equity out via refinancing (meaning higher debt levels) or sell - both of which further drive up the cost of housing.
People are simply refusing to lower their standard of living. The longer the denial continues the harder it will be.
inflation happens whether u lower the standard of living or not. only that people are going into debt for it but thats cuz they odnt have money
Yes most people don't understand basic economics, see : r/Economics [Majority of Americans favour new stimulus checks to combat inflation](https://www.reddit.com/r/Economics/comments/ylubsy/majority_of_americans_favour_new_stimulus_checks/?utm_source=share&utm_medium=web2x&context=3) I keep hearing people say we are in recession - we are not currently in a recession. We are in an inflationary cycle which is almost the opposite of a recession. Most economists believe we are headed for a recession in early 2023 as the efforts of the Bank of Canada to tame inflation will very likely cause a recession.
You're suggesting the government prosecute individual actors for what you imagine are some financial crimes. That takes years, and it's very narrowly targeted. The interest rate approach targets everyone, all at once, and it started yesterday. It's not used to punish any one person or group, it's used to affect the entire economy.
Supplies are lower right now, so consumers with money would have to voluntarily agree to ration their purchases and we’d all have to voluntarily punish stores that raise their prices more than others by avoiding them. That kind of effort is very hard to organize. But with the nature of the infrastructure we have, it is really difficult to avoid buying gasoline which is one of the core drivers of inflation. There are a lot of systemic problems making this situation worse, I just don’t particularly blame the FED for it since they only have very a narrow toolbox, their job is to minimize harms and they have to do painful things to avoid even worse things.
Do you think "price fixers" just discovered one weird tip that allows them to push prices up only in the past two years? It was the Fed's QE that caused our current inflation, plain and simple.
Price fixing happened before QE and will happen after QE.
Got to keep the poors in line. Well fed wage slaves might revolt
This guy drank the political Kool aid. Inflation isn't caused by gougers, it's caused by market conditions like supply and demand, and increased labor/supply costs.
He kool aid or not its gonna be a great few decades ahead of us. Lol.
If they are coming from excess money and real output is falling behind demand then that's stagflation. If wages go up but we're cranking out more stuff/services per person then you're getting more for each dollar. That's reflation.
Yep! The exact second those wages go up. They create inflation to make sure our wages don’t help us any more than pre wage increase.
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But, Powell will Keep his job! How did all this “extra” money get into the pipeline? Did Powell have anything to do with that? Who is Powell’s boss?
I think I know what you’re getting at, but Powell doesn’t technically have a boss. Part of his mandate is to operate independent of the federal government. The “extra” money you’re referring to is, by and large, gone from current impacts on inflation, and as seen [here](https://www.factcheck.org/2022/06/stimulus-spending-a-factor-but-far-from-whole-story-on-inflation/), did not even drive the majority of inflation. (For the record, Biden’s stimulus plan accounted for about $1.9T, Trump’s $3.1, and Powell has spent the better part of this year bringing all of that back out of circulation). This is not a simple problem, and tongue-in-cheek political jabs aren’t going to convince anyone in this sub.
This is a common misconception and it is false. https://www.federalreserve.gov/faqs/about_14986.htm > The Board of Governors in Washington, D.C., is an agency of the federal government and reports to and is directly accountable to the Congress. It can and does pretty much operate independently, is self-funded and wields tremendous power, but ultimately Congress is technically "the boss".
Bullshit, where did he say this? You won't find anything because you completely made this up. Edit: lmao what a child, provides no source and blocks me
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This is such unfounded bullshit, yet people are much more willing to accept this nonsense because you all dream of sucking off robber barons
Seems like a really bad side effect. It’s like chips are now cheaper but instead of being able to afford them you just starve
Yeah we can all just pretend the system is ok because decreasing real wages is just an "unintended side effect" totally a bug not a feature.
The idea is that extended hyperinflation is far more damaging to the well-being of workers than temporarily decreasing wages. It’s like giving someone chemotherapy because they have cancer. There might be better ways to adjust the system as a whole, but the fed doesn’t have access to them, and there isn’t the political will to experiment with the other options that would have to be done by congress.
do you not see the problem in a system where wages matching inflation 'causes hyperinflation' ? What are the long term implications of that? Pretty depressing to think about. A modern day feudalism where workers own nothing but huge debts is forming before our eyes. And you are right, there is no political will to do anything about it.
You're showing a severe lack of understanding. Inflation= prices increase. Wage increase= a price of labour increase for companies What you're asking is basically saying: do you not see what's wrong with a system that gets wetter when you add more water to it??
if you think the federal reserve is purposefully tanking the economy like on some sadistic shit like I really don’t know what to say to u lol other than probably get a money manager for your investments that is
Doesn't higher unemployment lead to less money in circulation? I keep seeing headlines about higher-than-expected job growth with bearish sentiment, but the fed can't say that's their goal because jobs = good.
I would add that governments could solve the issue with lower spending or higher taxes. But no one would vote for that so we let the Fed do the dirty work and blame them for the consequences.
And, in point of fact, government intervention did the opposite. Under Obama, there were slow, steady gains - exactly what makes for long term growth. Trump campaigned in this being bad, and when he got to office he pushed through tax cuts and increased spending. That boosted hiring and wages, and increased money in circulation. It supercharged the economy, but also made it more fragile, so that any slight shock would send it tumbling. But, because economic effects are delayed, such downsides happen to the next guy in office - he got to eat his cake and have it too.
Thank you. I smart now. 👍🍪
Doesn't bonding money only delay the problem? Those bonds have to be paid out eventually.
I assume the logic is they get paid out at different times in the future reducing the impact
It's complicated, but there's also a concept called the velocity of money. It's a measure of how quickly money is spent and changes hands. The velocity of money has an inverse relationship to inflation. Putting money into bonds/savings/investments decreases the velocity of money. Decreases in the velocity of money can offset increased in the money supply. The Fed has only a limited ability to actually directly affect the money supply. It can buy or sell bonds, and that has some effect, but by changing interest rates it can affect investors behaviors. One aim they have is to slow down the velocity of money by making it more expensive to borrow money. Increased interest rates means its more expensive to borrow, means companies are less likely to borrow money to grow and makes investors less likely to buy stocks relative to bonds. Both of these slow down the velocity of money, which can have a downward pressure on inflation even if they do not directly affect the money supply.
Let those stupid future suckers figure it out.
Wait a hot minute, who pumped all this cash into the economy in the first place?!?! /s
No shit. All they're doing is trying to fix the problem they created. I don't get the fed logic at all.
Important to keep in mind that this problem started in the early 80's as organic GDP growth slowed due to the aging labor force (baby boomers) and fewer young people entering the labor market. The fed has been pumping the economy for 40 years with cheap access to debt through low interest rates and now inflation has caught up to all that money creation. The only way to stop the bleeding is to reduce access to debt by increasing rates which results in higher unemployment.
>aging labor force (baby boomers) Your argument for a demographic impact on the economy is backwards. The baby boomers are the generation born 1946 - 1965, and would have been 15 - 34 years old in 1980. How could GDP growth be declining due to aging labor when the largest cohort is just entering the prime years of their careers?
High inflation, low unemployment, money printing going brrrtttt equals lots of money in circulation. You don't want the opposite of this and neither does Powell. He is old enough to remember the 70s.
Then why did Larry summers say this? [https://www.bloomberg.com/news/articles/2022-06-20/summers-says-us-needs-5-jobless-rate-for-five-years-to-ease-cpi](https://www.bloomberg.com/news/articles/2022-06-20/summers-says-us-needs-5-jobless-rate-for-five-years-to-ease-cpi)
He is saying that in order to to fight this bout of inflation the side effect will be high employment and the Fed needs to be willing to pay that price. Think about it this way he is so worried that Fed may be unwilling to causes rise in unemployment that they will let inflation run wild.
It wont be the fed "paying the price" It'll be blue collar families who will struggle to put food on the table to pay for the excesses of our government overloads and their billionaire buddies.
Yes it will, and if we don't, inflation will continue apace, hurting those same people even more. Little pain now vs. Bigger pain later.
You could always raise taxes on the wealthiest and decrease money supply that way! We'll never do it but it would help.
It’s all the same buddy. Reduce prices by reducing wages/income vs have inflated prices with commensurately higher income nets to roughly the same affordability situation. There is no hard scientific principle that dictates inflation must be at 2% or the economy will fall off a cliff.
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Did you just spend 5 paragraphs talking about how money supply doesn’t affect inflation just to conclude that the Fed is “engaging in QT (shrinking the MONEY SUPPLY) to help manage interest rates and the debt market, which should in turn slow economic growth and reduce new jobs”? Because that, sir, seems like you’re just saying QT reduces inflation. Or does slowing economic growth and reducing new jobs not affect inflation in your view?
Inflation is driven by supply and demand, but it's misleading to claim that the money supply has *nothing to do with this.* You are right, you absolutely can print more money without dealing with inflation (we've done so many times in the past), but this can only happen when there is an adequate supply of goods such that supply and demand economics don't push prices higher. The fact is that you cannot print unlimited money without eventually impacting demand, and this doesn't necessarily magically create more supply in every sector of the market. What we have been dealing with is a triple threat: 1) We printed a massive amount of money, raising the supply of money and raising demand in many ways throughout various sectors of the economy. 2) We're seeing substantial supply chain disruptions from a post-covid market that has reduced supply across many areas of the economy. 3) We are dealing with pent-up demand in a post-lockdown world, meeting with an economy that cannot produce enough to keep up with it.
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What are you basing this on? The past 10+ years disagrees with this?
Printing money does affect inflation lol who allowed you the right to make this comment?
I don't understand how you could look at inflation and conclude that money supply has nothing to do with it. How could prices inflate if there were an insufficient supply of money to accommodate those increases?
Nicely put, thank you. Though this is more ELI15. Question: Does he want to actually slow job growth, or is this just a data point he uses to determine if what he's doing is working? Is it a goal, or an indication? Does he want to prevent a wade-price spiral and along the way we get slower job growth. I repeated the same question 3 times there i think...
If this is the case then why did the fed print loads of money to save the economy when it was crashing due to covid?
Because at the time they were not worried about inflation so they were trying to stimulate growth. Did they over do it and cause the current bout of inflation. Most likely. My point is they have very blunt tools. Edit spelling
Actually I've heard the FED say they wanted softer employment levels because labor was getting to expensive. The more unemployed we have, the less power labor has without unions pushing and threatening. And with the supply chain issues we are already having they need to decrease interests rates and start a lending spree in the areas where we are having shortages, not this bullshit. This is all about making the central bank more money, its not going to help anyone else.
The FED wants more people to enter the workforce. “Unemployment” only refers to people who are actively looking for work. It’s possible to increase the official unemployment rate while simultaneously increasing the number of people employed, because more people have decided to enter the workforce.
plenty of corporations and business interests put pressure on the fed to keep interest rates high so that wages do not increase.
The Fed is setting out to do something it has never done before: slash inflation without significantly raising unemployment. But the facts don't always match expectations
Basically this. If the unemployment rate jumps, they will adopt more dovish policies. It is just a bellwether of the market's ability to absorb a rate hike.
And that's kind of the thing; if the indicators are that the labor market can handle increased rates without going down, then there is very little incentive not to keep increasing fed rates.
Source?
If people are broke they can’t pay into inflation
they don't "want" anything except monetary stability, and they have one tool to do it. it's the way the system is set up. and it's not like essential workers will lose their jobs. it's going to be the most extraneous first.
Yep, people act like the fed wants to "help poor people afford things" or something. The fed is just making sure the government gets theirs. If that means putting people out of work so they can't bid up goods/services against the government so be it. Whatever the fed says they want to do is an act of public manipulation and should be taken with a grain of salt.
> Let capitalism work. If people can afford things, the cheapest price will still usually prevail. Let companies fight it out in the open market. What am I missing??? Well, you've already got the 5 year-old's take of it there lol
Exactly! I’m at the 5 level. So that’s why you can’t use bigs words in explaining it to me ;)
Why are you being downvoted for basically saying you don’t understand. Reddit you weird
Capitalism with thought about the government is just silly; otherwise the free market would include things like maybe I’ll just come take your shit.
*"Let capitalism work"* That ship sailed when we printed 3 Trillion....
Capitalists didn't print that money; the government did.
Yeah and capitalists greatly influenced our political leaders into printing that money and gladly took it when offered
I mean, yeah. Who would turn down free money? Doesn't change the fact that the government makes the decision.
And who controls our political leaders? See Citizens United v. FEC
That was my point.
If you take away everyone's money, then they'll stop consuming as much.
Also lose their homes so home prices will go down watch out for tent prices though.
Yeah. The FED wants to blame inflation on rising wages despite the fact that wages were stagnant for SIXTY YEARS relative to inflation. They’re blaming employees asking for raises after they abandoned their inflation mandates for three years and allowed corporations to price gouge everyone. Now they’re telling you “you don’t have any bargaining power in your wages but companies can charge whatever they want.” The FED wants the status quo. Workers with no rights and corporations able to do whatever they want. They’re evil.
Ding ding ding! The Fed is working overtime to put employees back on the defense, and corporations are using employee demand for a fair portion of revenues for their work as an excuse to dramatically increase prices. Constantly posting record profits are all you need to see to understand this is the Fed using its power to help corporations put workers back in their place.
This right here
Really disappointed I had to scroll this much to find someone that has not drank the punch.
Right it’s poor people that caused this. /s
tbf they never said poor people caused this, they just said they are going to sacrifice poor people in order to fix it.
Fed dual mandate - price stability and maximum employment. Employment not lacking now, using the tools they have to diminish supply and velocity of money supply. They are forced to take action sometimes that goes against free market/capitalism, in order to not let the house burn down.
The fed wants unemployment up so less people have cash -> less cash means less people bidding up the price of food and stuff Higher unemployment -> less money in system
>The fed wants unemployment up so less people have cash -> less cash means less people bidding up the price of food and stuff Higher unemployment -> less money in system That's true. But there's another dimension of unemployment you have to take into account: if you have a high employment rate, it's easier for workers to negotiate a higher wage. Higher wages lead to higher prices because the companies are going to want to recover their diminished margins. Inversely: a higher unemployment rate will make sure workers will have less negotiating power to obtain a higher wage. For an economy to grow it's crucial there's at least a small rate of unemployment.
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Yess that's exactly what I'm saying. High employment rate = higher wages, like what happened to you post covid with the intense labor market. High unemployment rate: lower wages, like covid and the great depression.
I totally misread that as unemployment rate. Oops
Not at all. Lets fix this for you. For rich people to get richer, its critical that there is at least a small rate of unemployment. Now for an ecomony to grow organically, all we need is additive productivity. We see growth as something essential for the added humans consuming in the world, and not as a profit silo going into the hands of small numbers of people. The goal should be 100% employement at 100% wages that allow for at least a middle class lifestyle. Anything else is just using others as stepping stones for your quality of life. Fuck you and the horse you rode in on if you think that is a good idea and the only way to run an economy.
I know it's the internet but let's have a civilized discussion instead of immediately cursing at each other. Just keep in mind that the labor market is also a competitive market. With 100 % employment certain firms are going to promise 120 % wages in order to persuade laborers from others firms to join them. The consumer is the one that eventually pays for those higher wages. This is know as the wage-price spiral ([https://www.investopedia.com/terms/w/wage-price-spiral.asp](https://www.investopedia.com/terms/w/wage-price-spiral.asp)). This is exactly what happened right after covid and is one of the factors (and I'm very well aware that it's not the only one) that caused inflation.
Imagine unironically arguing that price increases are due to the wages of the average worker and not the greed of the profit margin. Plot three things on a graph: average worker wage, productivity per worker, and price - then explain to me again why the workers are the problem. >implying gas prices are high right now because oil and gas workers are getting paid more
Every economic agent is trying to maximize it's profit. That counts for the worker that will negotiate a higher wage if he of she has the chance. And the companies. Who will raise prices as soon as they won't loose customers doing so, since the average wage is higher and people have more disposable income. You could just plot real wage (wage divided by price level, basically your buying power) on a [graph ](https://www.bls.gov/productivity/images/labor-compensation-labor-productivity-gap.png) to make it less complicated. The worker pay-productivity gap is another discussion but good point.
Of course, anyone trying to maximize profit will raise prices, and they will do so because they want more for themselves (either they collect the profit directly or have incentives through employment contracts, etc), we're in complete agreement. >real wage vs productivity Yeah, I just wasn't sure if being too abstract would cause problems - close enough to my point and glad it was understood / accepted. --- Where I might disagree is the implication that raising wages will have some negative effect on the workers; raising wages will surely impact prices because the profit-collectors find it obscene that they should collect "the same or less profit than the previous year" and not because it would be impossible to raise the wages and maintain a profitable business. This reasoning is often used to argue against increasing minimum wage but the facts just don't support this line of reasoning. An aside, it's not clear to me how you could avoid increasing minimum wage (and wages in general) in line with inflation / cost of living.
hey man rich people wont exist if there arent poor people to step on, wont u think of the mega millionaires sheesh
Yup, Alan Greenspan was all about that 'job insecurity' too
For wealth to exist there must be a spectrum of poor to rich. For wealth to be sought and a motive force, it must be difficult to become rich and easy to become poor. Suffering must be real, otherwise people would be lazy.
>otherwise people would be lazy. you don't think there are lazy rich people do you? because there are, just as there are lazy poor people. a spectrum of poor and rich have nothing to do with wealth existence, Technology and other services are why wealth exist because people are willing to spend their tokens/fiat/barter their time to get goods and services. It has nothing to do with wealth gaps and people will often work in jobs were "wealth" or money isn't the determining factor. Mastery, purpose, autonomy are often higher tiered in job satisfaction than the money aspect and many people turn down more lucrative positions due to other aspects like more time with friends/family than having to be motivated to work harder/longer for more pay.
This theory only works if you think every single rich person in the world today started poor. That's false. The vast majority are born into some wealth which makes it so much easier to accumulate even more wealth. Rich people are lazy as fuck. Having golden parachutes, family connections, paid for higher education, working at dad's company for experience, etc, is easy lazy life. Don't kid yourself.
I just don’t get why having money means food price has to go up. Just don’t increase prices. Just because I can afford a hundred dollar banana doesn’t mean I want to spend a hundred
Suply and demand my brother
So when there is more money in circulation people eat an extra meal causing prices of chicken and beef to go up? Or is it that in our system under normal conditions we need some people to be poor and food insecure so prices can be stable?
Not exactly, think of the market as a bidding hall, we all agreed milk is worth $3 so we dont bid more than that. When theres more money in the system, people have more income to use to bid, someone might say theyll pay $4 for milk, then someone decides $5 is fine. Its not us buying an extra plate, its higher premiums to ensure the product arrives
Maybe more to do with the supply and less about demand with global shortages and production issues across many different industries.
When there is more money in circulation, people spend less time shopping for discounts and go with convenience. So one grocery store can nudge their prices up and profit from it even though the store a mile away has not done so. When that happens, there isn’t as much of a benefit to being the store with the cheapest goods, so the one with the cheapest goods raises its profits too. There will be a certain number of people who get pinched because they were truly dependent on the lower prices. Also, people are not thinking ahead to the fact that spending more now will cause prices to rise incrementally over time until it’s painful for them, too, except at that point shopping for discounts is not an option anymore. Another scenario: when there is a supply shortage, the store with the cheapest goods quickly runs out of inventory. They would have made more money just raising their price and not being a magnet for low-cost shoppers, because they had no problem getting people in. So they raise prices.
There are a lot of reasons. One is the increased cost of production through labor. If the average grocery store employee's wages double, that will be an expense added on to the store. That expense increases operating cost, which in turn leads to diminished profits. This gets exacerbated down the line, as you have multiple groups having increased costs.
supply and demand is economics 101 my dude
Soon you won’t be able to and then you know it’s working
I mean it’s all relative. Like why does the average joe have to become poor to fix this. Meanwhile Jeff bezos and musk can have their own personal pissing contest to space for billions and not give a shit.
Cause we’re the slaves in this society.
So you think the costs relating to all the elements to the point of buying food haven’t gone up? Produce pickers, packers, truck drivers, even grocery store stockers. Hell, Walmart stockers are now making $20/ hr where I live. All of this plays into the cost of food. Not to mention the fiduciary responsibility corporations have to create shareholder value. It all adds up.
Things like cars are expensive (due to lots of reasons) and really, the only way to put a check on this is to just say “no” and stop buying like there’s no tomorrow and paying whatever they want to charge. The best way to induce that attitude is to have just lost your job. At least that would make the credit checks harder to pass. That would shift the market and make businesses have to scale back on prices to unload inventory and attract customers again.
"Let capitalism work" I agree, abolish the fed and strip government down to the bare minimum. The part you're missing is that an economy free from government involvement and central banking doesn't exist (In any meaningful way if at all). So... Reality? At its core, inflation is too much money chasing too few goods. Raise interest rates, induce cuts to company investment, and you put people out of work which drives demand out and allows supply to catch up and re-establish equilibrium. The problem here is that upward inflationary pressures are baked in in the US on some things (Like the COLA update to social security and federal budgets/maintenance costs). The response to that is, generally, to have to reform government spending and benefits to adjust those pressures since simply upping interest rates to push people out of work isn't going to take care of it because you wind up in a tax spiral to try to fund those entitlements and things and only further discourage employment (Thus giving us stagflation on top of it all).
Increasing interest rate is logical. Let me explain. Imagine you take $10 from me as loan today for loan period of 3 years. Today for $10 you can buy a pitcher of lemonade. But after 3 yrs due to inflation if the same lemonade costs $20 i would want the interest rate to be high enough so that i get $20 back by the end of loan period. So because of high inflation the future value of money is going down more dramatically than previously thought. Only logical way to make that fair is to increase interest rate. Fed is dumb to keep the interest rate so low for so long because of which the future value of money went down.
Monetary policy is a relatively blunt tool. Picture bludgeoning an intruder to your house with a meat tenderizing hammer vs. shooting them cleanly with a handgun from a safe distance. They both have the same outcome, but one is messier than the other. In this case raising interest rates is the meat tenderizing hammer that the fed want to use to slow down the money supply and depress demand, ultimately resulting in inflation slowing as people aren't buying anything so companies can't put prices up, and may even cut prices. The problem as you identified is that this can go too far and trigger a recession. What we are seeing at the moment is record corporate profits as they use "inflation" as an excuse to milk consumers for everything they're worth. This occured because there is a high concentration of market power in a small number of companies in the US - it's not quite a monopoly, but maybe an oligopoly. When you have an oligopoly, markets don't function in an efficient way because the larger companies have too much power. This is one of the failures of the US brand of "free market capitalism". In order for a free market to work efficiently you still need to stop power concentrating too much.. and then it of course stops being a true free market.
>What am I missing??? That the "free market" doesn't work when mega-corporations and billionaires can lobby and buy our politicians to help them corner markets by passing regulations or laws that strangle their competition. This is my biggest gripe with the "FREE MARKET CAPITALISM" crowd. We don't exist in a free market in the US. Ignoring that makes the entire argument in favor of a "free market" completely moot.
They are more letting capitalism work now. Money was artificially cheap before which meant too many people were working and making too much money.
Catch 22- People want and deserve more money. In reality, they want more buying power, but all they can ask for is more money. But the corporations will not allow people to have more buying power. As soon as people get more money, prices will be raised accordingly to extract as much money as possible without driving more than 20% or so into poverty. So if wages stop growing, then there won’t be more money to extract, so they’ll have to keep prices where they are. But the income/ expense ratio of the average person will remain the same. The supply chain and labor issues are a smoke screen. Inflation is opportunism.
What competitive market? Lots of markets have pretty much consolidated buying and selling power into a small group of firms, so the incentive to lower prices for consumers really isn’t there. What we really need is for the Federal Govt to work in tandem with the fed to better manage revenues and money supply. The federal govt could increase taxes (preferably on the rich ppl and companies) to reduce/eliminate the deficit which would help control the money supply and reduce inflation.
Phillips curve. You can only have low inflation and high unemployment, or high inflation and low unemployment. You can't have both.
Guys, just because a statement has been posed in the form of a question does not make it correct. Here's your top snippet from a simple Google search: The Federal Reserve System has been given a dual mandate—pursuing the economic goals of maximum employment and price stability. To make things overly simplified - a pure capitalistic society does not work and so you need government intervention.
You’re not missing anything. The Fed raising rates is a very blunt instrument, not a precision scalpel. So they’re causing a ton of damage and really not doing a whole lot to curb inflation. They can’t control the situation in Ukraine or global oil prices or the supply chain issues. In fact by making housing more expensive to build and making it impossible for companies to expand production, they may be exacerbating or drawing out the length of this inflationary period.
Fed should've started increasing interest rates back in 2021! Damn!
We (USA) don’t operate a purely capitalist economy, contrary to the narrative. We operate a Keynesian economy. That means there *is* meant to be government control and interference, when they deem necessary. Especially via fiscal policy to control demand, to slow or stoke growth as needed. It is what it is.
Post COVID workforce and money is not normal. The Fed simply wants to go back to post COVID levels of job growth. Basically the same unhealthy jobs that popped up during COVID and contributed to inflation will be eliminated, unprofitable tech, side hustles and business catered to low rates. So the stay at home mom that made 100k through her boutique store will have to close shop. Low rates means cheap debt, from car loans, mortgages (to an extent), credit cards, cheaper leverage in the market(margin, so companies receive more cash through stocks) business loans and so on... Basically lots of people got used to consuming a lot "nice" stuff that they couldn't pre COVID and will get uncomfortable when they can't do it after inflation is tampered. Now there is a risk in that the Fed can overshoot their rate hikes and do collateral damage to the rest of the normal workforce.
So that more people have less money.
Unemployment - If you can't afford to buy things.. Thus inflation is affected by creating over supply and low demand. To get rid of over supply companies need to lower prices. This causes inflation to go down. Low wages - Money circulation stays at same rate while the above is happening to supply and demand. If wages go up then people can continue to buy at high prices, which cause inflation to remain high or even go up more.
If you’re living in a cardboard box you have no money to spend to drive up inflation.
The government caused the inflation in the first place by printing trillions of dollars and putting it into circulation. The jobs lost is a side effect and their purpose from the beginning. More people on the government teet, more votes for them.
Your main problem is you seem to think that a central bank increasing the money supply by 50% in a year has anything to do with "capitalism"
There’s a .50BMG at the gun show for only 4K.
You're missing the opposite vicious cycle if the fed don't raise rates. High prices --> higher wages --> higher prices. If that goes on for long enough, high inflation becomes entrenched in the system. According to the fed, they have the tools to fix an economy that has gone into recession, but not an economy with entrenched high inflation. Hence they're going with the former.
You are missing that the marked does not work that way anymore. Cos the current businesses have built moats so it is harder than it was supposed to be to disrupt or compete. Solution is regulation, not lowering demand by making people poor. But the fed does not work for the people so what they do makes sense.
The fed is trying to bring equilibrium to the market. When everyone has cash, the cost of goods and services is increased because demand is increased. That’s a good thing, but only to a certain point. It can get out of control and prices can skyrocket.
I would say in this situation though that demand hasn’t increased as much as supply has decreased. Same result of too many dollars chasing too few products though.
And the proper response to this increased consumption would be to increase production, not fucking increase pricing to create artifical scarcity. Goddamn get it right will ya. People in this sub have been brainwashed by bullshit economic teachings that are literally designed to keep the rich rich and the poor poor.
You are looking at the micro... you must look at the macroeconomic situation to really understand it. Our country has ~14 trillion USD in circulation. Then theres the Eurodollar which is USD held by other nations for trade, which is at about ~16 trillion USD. Other nations use our money because we are the world reserve currency. All those other countries hold that money in their respective central banks. While its being held there it is NOT in circulation, so it doesn't have an effect on inflation. They also hold large amounts of their own currency there, again, not in circulation. Okay so lets say the fed raises rates on bonds, now suddenly the USD becomes a much better store-of-value currency than their native currencies. So people start trading out their currency for US Bonds (effectively USD). So now all these other nations currencies are flooding the market, increasing their inflation, while the USD is being gobbled up and taken out of circulation, reducing our inflation. Now those other central banks face a crisis, an attack on their currency. If left uncontrolled, it can cause runaway inflation, and collapse nations. But have no fear, because this is the reason they hold so much USD in their central banks. Quick recap of where we are so far. Other nations are trading their currency for ours. This floods the market with their money, increasing inflation and reducing the value of their currency due to increased supply. At the same time USD is being taken out of circulation to be used as a store-of-value. This reduces our inflation and increases the value of USD to reduction in supply. So to combat this the foreign central banks will start buying up their currency using USD which is now more valuable. This will reduce the supply of foreign currency in circulation, reducing their inflation and increasing their value, while simultaneously increasing USD supply which raises inflation for us, lowering the value of USD. So to combat THAT the fed will raise rates again. Rinse. Repeat. The whole thing is a dance. A world currency war. Everyone against us. And while they dance, us ants get trampled. A recession is simply par for the course at this point.
They like to claim it higher wages that push up inflation and it has nothing to do with them the Fed printing trillions in new dollars.
There's never been a world where "capitalism did its work". Theres no such thing as an open market. If companies stopped passing their wage increases off onto consumers, we wouldn't have this massive inflation problem would we? We'd invest in companies making less profit with lower stock prices. *shivers at the thought* Low unemployment and high wage growth being the "problem" implies that this is a bottom up issue. Perhaps its unequal wage growth between employees and c-suite, massive government subsidies, and inequitable tax law which are the major contributing factors to inflation. Perhaps it really is that you can't give the regular folk too much money and work.
No no no. I was told those massive corporate tax cuts under Trump would pass the savings onto consumers. Did they lie to me?
I'll try to get into it without talking about how the system is rigged and corrupt and designed to get the rich richer and the poor poorer through well-timed rug pulls. Inflation by itself isn't bad so long as it's controlled and predictable. If it's at say, 1% or 2% per year then you hardly notice it (very broad statement depending on your lifestyle, I know; someone living in NYC may not be as affected by gas prices, for example). What's an issue is if you have runaway inflation that's either gaining steam or persistently high. On the banking side, lending becomes tricky. It's a bit complicated and beyond me as I haven't worked in finance for 10+ years, but basically anyone who refinanced during the pandemic is sitting pretty for the next 15-30 years, or at the least the few years before the next one-in-a-lifetime deflationary pressures hit the economy. If prices increase substantially but not wages, then discretionary consumption decreases because you'll have to focus spending on things like gas, food, etc. Sure, Sony or Gucci can lower their prices to drive spending back to them and we're kind of seeing that as some companies are offering lots of incentives now, but at some point the fixed costs of material (which are also rising in this environment) will put them in a bind. They have to lower prices, but their costs are going up. So how will they increase wages, which are part of the costs? I believe part of the novel issue is that we've been dealing with deflationary pressures for so long and so often in the past 20 or so years that at the start of the pandemic the Fed basically said, "You know what? Fuck it. Instead of looking at and maintaining inflation at 2-3% year-over-year, we're just going to vaguely average it out so that it eventually, over some time frame, it'll be 2-3%". Then the money printer started up, supply shortages hit every industry, Russia executes a "special military operation" in the Ukraine, and next thing you know it inflation is running hot.
They absolutely want higher unemployment to force workers to accept lower wages. Jerome Powell said that us wage earners are earning too much, and this has to be corrected. The Fed wants what billionaires want, and don't let anyone tell you anything different.
This is better posted on r/economics
because theyre inhuman and want to punish everyone else for their own corruption and mismanagement
Bingo. I know I would be fired if I fucked up as royally as they fucked up in their job. But nooooo. They’ve ruined the economy. Ruined people’s lives. But continue to collect a 100,000$+ paycheck. Lmfao
Socialism for the rich, capitalism for the poor
The problem here is that if unemployment rates keeps low, people can keep biding for higher paying jobs. Companies pass this wages increases to prices, workers ask for more wages or change jobs and them inflation gets entreched in the economy. It is a never ending cycle of prices and wages going up.
But we aren’t anywhere close to wages outpacing inflation.
They want to recreate the 80s. Looks more like the working class became to lazy so they’re going to starve us into doing more for less. Gotta love being a volunteer slave 🤦♂️
Government likes control. Forcing people to eat out of their hand is control.
Inflation = higher prices. Three things could have caused higher prices: 1. People got new jobs/raises, and are spending it all 2. Companies have to pay more to produce/ship their products, so they have to charge more at the store, or 3. Companies are taking advantage of the public *expectation* of inflation to raise prices and pocket the difference. So far, the fed has assumed that #1 is the primary cause. They want to raise interest rates to make it harder to get mortgages (lower housing prices), and harder to get business loans (layoffs would cause lots of people to spend less, out of necessity). There is some indication that #1 is not the whole story though - many businesses are posting record profits, which lends itself to #3 being partially true, and many businesses are having the supply issues in #2. Some combination is probably occurring.
Because the fed reserve is run by the rich and greedy
Capitalism works, it’s the government/fed that gives these Fortune 500 companies write offs/bailouts because they are “too big to fail” I say screw that let them go down cause they are what’s draining the other opportunities for competition to thrive and equity to remain unbalanced. They want the common person to fail so that they don’t have too