Posted on 02/09/2023 6:07:13 AM PST by Kaiser8408a
It’s just like The Fed to ignore what is going on and do something else.
The one statement that Biden made in his State of the Union Address that was factually accurate was that inflation is coming down. Of course, he then blew it by saying he inherited inflation from Trump which was not true. Headline inflation (CPI YoY) was only 1.4% when Biden was sworn-in as President and rose to 9.1% YoY by June 2021 before finally starting to decline.
But despite the cooling of inflation (and M2 Money growth), The Fed seems hell bent on increasing their target rate, now forecast by Fed Funds Futures to peak in July 2023 at 5.123% before pivoting.
The Fed’s themesong. Drinking with my low-companions, dancing with a woman that’s not my wife, laughing at a joke I’ve heard before, welcome to a night in their life.
(Excerpt) Read more at confoundedinterest.net ...
Psychopaths do that ...
Not sure what the author does not get here. The Fed raises rates to slow inflation. It has done some rate hikes and these have slowed inflation to some degree, but not enough to bring it back down to the level of 1-2% that is historically the norm. More slowing of inflation is needed, hence more rate hikes
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Inflation isn’t “cooling.” Inflationary cycles don’t just pop like the “bubbles” everyone has gotten accustomed to.
Going from 7.9% to 6.9% is still a disaster, not a reason to celebrate.
Current inflation has not been caused by an overheated economy, but by scarcity and devaluation of the dollar. Input costs (fuel,feed, fertilizer) are still rising.
There is no bubble to pop, and we’re still doing exactly what we did to get here. Nothing changes until fundamentals - like collective behavior and leadership - change.
Stagnation is the word in 2023. The fed can only battle so much when congress spends like crazy. A recession will further bring out the siren cry of more spending to help the unemployed. Rising gas prices will help spur the ebb and flow of inflation data.
Interest rates are negative. If the economy is unable to support the payment of a positive, real interest rate to the safest of bonds, it is in an economy that is very unhealthy. A healthy economy is key to a healthy country and society. Interest rates have been negative for those bond holders for the majority of the last 20 years.
“Not sure what the author does not get here.”
He screamed that rates were too low right up until the FED started to raise and now he screams about the FED raising.
Clickbaiter.
Inflation is always caused by an excess supply of money. Often it is an overheated economy that generates this excess via an increase in the multiplier effect, but in this case it was unnecessary government spending to stimulate an economy that already was recovering following the COVID lockdowns. Whatever the cause, though, one way for the Fed to reign in the money supply, and thus control inflation is an increase in interest rates. Increasing rates result in less borrowing and therefore a lower multiplier, and therefore a decrease in the money supply. As you point out, this has happened to some degree, but a decrease in inflation to 6% or so is not sufficient. Hence more rate increases.
Apparently this author is relatively young if he thinks under 6% is a high rate. The interest rates reached well over 10% (and IIRC got up to around 14%) back in the early 80s before the inflation that had been rampant for most off the previous decade was brought under control. 5.8% or so isn’t so high by comparison.
What choice do they have? Soon that 1.7t omnibus bill money will start pouring into the economy. Shouldnt that reignite the ‘cooling’ inflation if they dont continue to raise rates?
The Fed is doing the right thing. <P.
If Biden doesn’t like it, he can ramp up oil production to what it was during the Trump years and cut billions in environment regulation. That would reduce inflation without the need for interest rate hikes.
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