Skip to comments.Additional Rate Hikes Needed to Defeat Inflation, Fed's Bowman Warns
Posted on 10/03/2023 8:09:39 AM PDT by CFW
Interest rates will likely need to be higher to eliminate inflation from the U.S. economy, says Federal Reserve Gov. Michelle Bowman.
Speaking at a business conference in Alberta, Canada, on Oct. 2, the central bank official argued that policymakers would need to pull the trigger on additional rate hikes to tackle price pressures, particularly as the recent spike in energy prices threatens the institution's gains over the past year. "Inflation continues to be too high, and I expect it will likely be appropriate for the Committee to raise rates further and hold them at a restrictive level for some time to return inflation to our 2 percent goal in a timely way," Ms. Bowman said.
Economists pay close attention to the producer price index (PPI) because it typically serves as a reliable pre-indicator of inflationary pressures since it measures the cost of producing consumer goods. Last month, export prices jumped 1.3 percent, and import prices swelled 0.5 percent.
(Excerpt) Read more at theepochtimes.com ...
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Also relevant from today's economic news:
The IBD/TIPP Economic Optimism Index plummeted to 36.3 in October 2023, compared to September's 43.2 and well below market forecasts of 41.6. It was the 26th consecutive month in which the reading stayed in pessimistic territory, hitting its lowest point since August 2011, amid growing concerns about the effects of a prolonged period of elevated interest rates on the US economy. The six-month economic outlook index cratered 9.6 points to 28.7, a record low since the survey began in early 2001; and the personal finances subindex slid 6 points to 46.8, returning to pessimistic territory. Meanwhile, the IBD/TIPP Financial-Related Stress Index jumped 2.4 points to 70.5, the highest level since December 2008, when the country was mired in a recession. At the same time, the gauge of support for federal economic policies plunged 5.1 points to a still-dismal 33.5, a nine-year low. source: Technometrica Market Intelligence/The Investor's Business Daily
Don’t fight the Fed.
All the super levered companies (there are tons) and people (hundreds of millions) are F’d.
I agree with this idea, go baby go. The faster you raise the sooner you can lower.
“They can’t believe the era of free money is over for the foreseeable future.”
Inflation continues to erode what little disposable income consumers have left and higher interest rates are making it harder to keep buying on credit.
Cheap money, cheap oil and cheap labor are all over for now.
I heard on Bloomberg this morning that Jamie Dimon is saying to expect 7% or higher rates soon.
The government debt will continue to skyrocket at even faster rates
All the companies that make frivolous products and trinkets are also F’d. No one is going to have money to waste on things like that like they did in the past.
You can have nearly zero interest rates, or you can have unrestricted government deficit spending, but you can’t have both.
“The government debt will continue to skyrocket at even faster rates”
And the government will continue its reckless spending despite the rising debt.
The problem is that everytime the Fed starts to get inflation under control, Kommisar Biden and the Uniparty unleash $BILLIONS more in wasteful spending and giveaways - like an arsonist allowed to continue to throw gasoline on a fire that the Fire department is trying to extinguish.
Rate hikes will protect the inner circle of Federal Reserve banks for a while. That will also destroy the outer circle of local and regional banks as well as all investment houses with long bonds in their portfolios. Wrecks the housing market too.
Basically, the economy crashes. That still does not stop inflation. The government just keeps printing money and handing it out to their favored groups at the expense of everybody else. Does anybody remember "stagflation" of the 70's. We are doing that again.
Congressmen will continue to get richer as long as the grift holds up.
Like $70K F-150’s
Ford no longer makes cars and trucks aren’t selling.
Flat wages, inflation, all time CC debt high, near lows in savings, and a huge real estate bubble.
Nothing that a world war can’t fix.
Yup—we could be looking at a decade or more of stagflation—where the only way to win is to be a kleptocrat with .gov officials on your payroll.
The economy is looking about as good as Billy Napier right now.
“That will also destroy the outer circle of local and regional banks as well as all investment houses with long bonds in their portfolios.”
Good point, but the Fed will probably has a rescue plan for them. I’m of the mind that the Fed will do whatever it needs to do to prop things up.
Not saying I agree with that, just noting that the Fed will not hesitate to rescue whatever needs to be rescued these days. Regardless of the long term consequences.
Before Volcker took office as Fed chair on August 6, 1979, the Fed had tried small increases in interest rates in hopes of taming prices, to little avail. Volcker, as vice chair, was among the hawks on the Federal Open Market Committee pushing for major action. When his chair, William Miller, was appointed treasury secretary by Jimmy Carter as part of a Cabinet shake-up, Carter named Volcker as Miller’s successor.
After a couple of modest increases in the first month of his tenure, he called a surprise meeting on October 6, 1979, and set the Fed on a new, dramatically tighter course of monetary policy. The Fed would allow a much wider band on interest rates, effectively allowing them to go higher than before, and announced it would recalibrate policy regularly in response to changes in the money supply. If the money supply was growing too quickly, the Fed would crack down harder.
That month, the Fed’s interest rate was set at 13.7 percent; by April, it had spiked a full 4 points to 17.6 percent. It would near 20 percent at times in 1981. Higher interest rates generally reduce inflation by reducing spending, which in turn slows the economy and can lead to mass unemployment. When the Fed raises interest rates, rates on everything from credit card debt to mortgages to business loans go up. When it’s more expensive to take out a business loan, businesses contract and hire less; when mortgages are pricier, people buy fewer homes; when credit card rates are higher, people spend and charge less. The result is less spending, and thus less inflation, but also slower growth.
The approach took two tries to get its intended effect. Volcker’s tightening slowed economic activity enough that by January 1980, the US was in recession. But Fed interest rates actually began falling sharply after April, which limited the effectiveness of the Fed’s anti-inflation efforts. The Fed tightened again after that and sparked another recession in July 1981. This one was far worse than the first; while unemployment peaked at 7.8 percent during the 1980 recession, it would peak at 10.8 percent in December 1982 in the middle of the 16-month second Volcker recession. That’s a higher level than at the peak of the Great Recession in 2009. Over the course of the 1980s, this policy regime would become known as the “Volcker shock.”
When Volcker left office in August 1987, inflation was down to 3.4 percent from its peak of 9.8 percent in 1981, after the first Volcker recession failed to drive prices down. Persistent low inflation has been the norm ever since; the US has never had inflation above 5 percent since September 1983 — until 2022.
Rate hikes do not “defeat” inflation. It only slows the rate of inflation by sacrificing the economy.
To truly defeat inflation, you must have the currency tied to a specific commodity or group of commodities (like gold, silver, land, etc.) called a standard. Further Congress then needs to LIMIT the amount of currency in circulation in relation to the standard.
Lastly, Congress has to stop borrowing money and limit spending to only that amount collected in taxes. To acheive this, I recommend the following sliding scale of votes required to pass a budget.
A budget that spends less (total spend) than the prior year is passed with a simple majority.
A budget that spends less (total spend) than the prior year plus the rate of inflation, is passed with a 55% vote.
A budget that exceeds last year plus the rate of inflation, requires a 60% majority.
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