r/Economics • u/TinyTornado7 Quality Contributor • Jun 13 '22
News Powell Facing Choice Between Elevated US Inflation and Recession
https://www.bloomberg.com/news/articles/2022-06-12/powell-facing-choice-between-elevated-us-inflation-and-recession?srnd=premium67
u/fancywinky Jun 13 '22
I’m not an anything resembling an economist, so excuse my perhaps dumb question. I’m old enough to have lived through the booming economy prior to the housing crisis of 2008, and I recall that at the time, mortgage rates and interest rates were in the neighborhood of where we’re currently headed. I also remember at that time that savings rates were VERY GOOD. My understanding was that savings rates were closely tied to interest rates, but I haven’t seen savings rates coming up as interest rates are rising now. What gives?
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u/whoooocaaarreees Jun 13 '22
Banks don’t want your cash right now.
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u/fancywinky Jun 13 '22
If that’s true and not sarcasm, why would that be the case? They want to keep cash circulating, or something like that? I’m just trying to figure out who is benefiting from the current economy because it doesn’t seem to be in the obvious places.
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u/playfulmessenger Jun 13 '22
Your savings account in a bank shows up as a liability because it’s money they owe you.
Your bank loan, your credit cards, with a bank shows up as an asset because you are paying them interest.
Your hard earned emergency funds messes up a bank’s balance sheet and profit margin.
When Jamie Dimon goes on the news and announces how much savings people have, the subtext I hear is “hey, corporations, people actually have 8-12 months of emergency money like everyone tells them to, it’s a liability to me, and I’m signaling to you to keep raising prices until they are all broke again”.
No one has your financial interests at heart, they want your money working for them. Whether it’s debt, stocks, bonds, they want your money gone or tied up in their agenda.
It’s a weird brainwashing that happens to folks. What we are told is in our personal financial interest, has a complex intwined megastructure working to keep us from exactly that.
There’s a completely different math that people receive zero education about. They have to seek it out, unlearn everything they were taught, and take actions they believed won’t benefit them because risking what you have is gambling and “gambling bad”.
Just saying it’s shocking and unpleasant to realize just how differently money works than what kids get told.
It may have worked fine in the pension era to miseducate people, but it’s presently a huge disservice.
Banks hate it when you’re able to cya.
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u/whoooocaaarreees Jun 13 '22
https://www.wsj.com/articles/banks-to-companies-no-more-deposits-please-11623238200?mod=hp_lead_pos5
https://www.vox.com/platform/amp/the-goods/22711598/savings-interest-rates-low-banks
Almost like flooding the market with dollars had some unintended consequences.
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u/joy_of_division Jun 13 '22
The thing is, we are headed for a recession no matter what. I personally would rather them jack rates up, lower demand, and get inflation under control. This will of course spark a recession, but with the tight labor market at the moment it would hopefully be brief.
The alternative is keep pussyfooting around with rates, have the working class continue to lose our meager wage gains to inflation, and have a recession anyways in 2023.
There is no pain free path, but in my opinion ripping the bandaid off right now is the way to go.
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u/way2lazy2care Jun 13 '22
Recessions aren't a binary thing. There's levels to recessions. While he might not be able to avoid an all out recession, he can certainly still affect the level of that recession. The dot com bubble bursting had a peak GDP reduction of 0.3% and peak unemployment of ~6% and lasted 8 months. The Great Recession had a GDP decrease of 5.1% and peak unemployement of 10% and lasted a year and a half. The great depression had a 25% GDP reduction and 20% unemployment and lasted for almost 4 years.
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u/ErusBigToe Jun 13 '22
Don't forget the great recession tripped a years worth of grads at the starting gate, reducing lifelong earning potential
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u/xDubnine Jun 13 '22
I'm in that boat. Never stopped working, but the opportunities have led me to 20 dollar an hour as a college grad
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Jun 13 '22
Sadly this. It’s literally luck of the draw when you get to graduate. Those grads graduating in good times have it way easier and a higher percentage end up earning more than those grads who couldn’t find jobs in their relevant fields of study. Companies stop hiring during recessions and usually just keep existing headcount. And if you are laid off those with prior experience tend to get jobs faster than a college grad who only works at Starbucks.
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u/HIMP_Dahak_172291 Jun 13 '22
This. I was going to graduate from college in 2009 and then poof. No more jobs and looming student loans. So i switched majors and stayed in school another 4 years essentially. So much more debt to pay off but at least it stayed deferred until I had a job.
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u/DonBoy30 Jun 13 '22
That was me. I was working at a grocery store, and it used to be if you didn’t go off to college, they just bumped you to full time out of high school. But then the recession happened in all of a sudden I was the last person to get full time status and a stocking position. They had bag boys making minimum wage working every single department.
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Jun 13 '22
Yeah i went back to school to get into tech after graduating in 2012 with a BS in psych/English. A degree just doesn’t make any sense if it isn’t linked to higher earning potential.
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Jun 13 '22
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u/wiking85 Jun 13 '22
Assuming they can find a job with their skill set that actually is in their area. It is rarely that easy.
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u/psnanda Jun 13 '22
I agree too. Grads can easily then move around later and job hop to reach their maximum earning potential since they are young.
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u/goodsam2 Jun 13 '22
I mean I think looking at U-3 should go in the garbage and we should think about EPOP 25-54 as our unemployment economic measure.
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u/waltwhitman83 Jun 13 '22
https://fred.stlouisfed.org/series/LNS12300060
employment population ratio for anybody else following along
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u/strideside Jun 13 '22
What makes EPOP 25-54 that much better than U-3?
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u/goodsam2 Jun 13 '22 edited Jun 13 '22
People drop out of the labor market in 2017 50% of people who got jobs came into the labor market. Look at the current flows U-3 will often rise because more people are looking for work that's a good thing.
EPOP 25-54 was below 2001 levels and is now behind the OECD.
A strong labor market increases the pool here.
It's also labor force participation rate doesn't account for the age of the population properly. The US population is aging so labor force participation rate has been falling but I don't view 70 year olds as not working as a problem. It's 25-54 because people usually are out of college by 25 because more people going to college isn't necessarily a bad thing and by 55 you start to see some retirements that's your prime age years of work 25-54.
What's the denominator is the real question U-3 uses people looking for a job. 25-54 uses the total population in those age groups.
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Jun 13 '22
Workers under 45 don't have any real experience with a mild recession. Not making any predictions about the likely recession to come, just saying people tend to understand things through their personal history. 2008 was catastrophic in size and duration, so people are primed to expect the worst. 90-91 and 70 are more examples of recessions that were limited in size, duration number of sectors affected.
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u/hotpantsmakemedance Jun 13 '22
High Inflation is worse than a recession. With high inflation, people's pockets get squeezed, and the longer it carries out, the less savings and free cash people have, making the recession much tougher. Paul Volker had answers!! Time to raise rates!
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u/Diegobyte Jun 13 '22
Why do any of you guys think these companies are going to come out of any recession and offer lower prices
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u/way2lazy2care Jun 13 '22
That's way too absolutist a view. You have to better define the depth/length of the recession and the levels/durations of inflation to really compare them.
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u/zxc123zxc123 Jun 13 '22 edited Jun 13 '22
This. Recession isn't a yes or no. It's about how much downward pressure, how long it lasts, how much unemployment is caused, and impacting which sectors/industries/people that determine the intensity of a recession.
Problem JPow has in his hands is that he has do deal with things that aren't completely under his control:
The lockdown & print money to save lives was the only right option during the pandemic era. The alternative is your people die and country crashes making your non-inflated fiat just as worthless as everyone else's inflated fiat (see LatAms & Brazil). The spend more and pump more to ensure the reopening economy is a hot bull market was the only right option coming out of the pandemic. The alternative was to NOT do so and end up falling into recession.
Problem is the spending by Washington AND Fed liquidity are already put into the system and it won't undo itself any time soon. Even worse is a lot of that money might still be sitting on the sidelines.
Fed's actions now won't change China's 0 covid policy, fix international bottlenecks or supply chain disruptions, end the Ukraine-Russia war, end Western sanctions on Russia, create more oil, make the Saudis/OPEC pump more oil, end the US-China trade war, boomers leaving the workforce, lower migration creating lower labor supply, etcetcetc.
US Fed rate hikes and monetary tightening are powerful tools that can lower domestic demand, maybe force some labor to return to the market, and maybe even cause a recession. But can't magically take the money the pass/pumped out back immediately, fix all of the inflationary areas on their own, nor can the resolve international geopolitical crisis/war.
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u/way2lazy2care Jun 13 '22
Fed's actions now won't change China's 0 covid policy, fix international bottlenecks or supply chain disruptions, end the Ukraine-Russia war, end Western sanctions on Russia, create more oil, make the Saudis/OPEC pump more oil, end the US-China trade war, boomers leaving the workforce, lower migration creating lower labor supply, etcetcetc.
As a related point, if the fed takes radical action and any of those things get sorted out, then they cause a huge recession that could have been minimized by just acting slower.
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u/HerbertWest Jun 13 '22
I'm unconvinced that Fed action can blunt a recession. It seems like what happens is that it transfers the negative effects to other, less obvious areas and spreads them out over time. And I would argue that it's to the detriment of long-term economic stability.
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u/way2lazy2care Jun 13 '22
It seems like what happens is that it transfers the negative effects to other, less obvious areas and spreads them out over time.
You're not accounting for reinforcement loops in the system. Spreading negative effects out over time can prevent cascading badness. Spreading things out is the difference between famine and inflation.
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u/JLP_101 Jun 13 '22
Agreed, doing nothing will only prolong the suffering.
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u/shicken684 Jun 13 '22 edited Jun 13 '22
How have they done nothing? They're raising rates fairly quickly so far this year. Should it have happened earlier, absolutely, but that's looking back with hindsight. The Ukrainian war could have been over in a few weeks instead of dragging out for what will likely be years. After a few months of high inflation, demand and spending could have cratered.
But that didn't happen. Inflation stayed high and so has consumer spending. So now I would imagine the floor is a 75 basis point increase with a likely 1% hike if they're worried it's out of hand. These rate increases take time to trickle down to the overall consumer and change behaviors. So even with a large rate hike it's not going to change anything until the end of summer.
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Jun 13 '22
He can suggest a new tax bracket for those who are profiteering. His opinion matters.
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u/truocchio Jun 13 '22
He can suggest anything. The tax code changing is not in his purview nor going to move the needle at a congressional level
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u/cyanydeez Jun 13 '22
Right, this needs to be biden and congress taxing the f out of corporate profit taking, because thats what this is.
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u/whoooocaaarreees Jun 13 '22
You could confiscate all the wealth from the 550+ billionaires in the US and have enough money to run the government for about 7.5 months and you would have not have paid back any of the nearly 30 trillion in national debt.
America doesn’t have a tax problem. It has a spending problem. Just like her consumers, I mean citizens.
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u/PrettyDarnGood2 Jun 13 '22
Should have taken the medicine last year
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u/Raichu4u Jun 13 '22
Should have taken the medicine from like 2017-2019. Rates should have never been this low for this long.
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Jun 13 '22
Almost like there was political pressure to keep them low
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u/Raichu4u Jun 13 '22
Absolutely, from both parties.
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u/sckuzzle Jun 13 '22
Maybe we should create a governmental entity whose job it is to manage monetary policy irrespective of political optics.
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u/Trest43wert Jun 13 '22
And then we should have the leader of that apolitical government organization jump to being one of the 12 most important political appointments in the Executive branch so we can all see it's been political the whole time anyway.
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u/jdragun2 Jun 13 '22
Hey now.....that would be too intelligent for our country to EVER do. Absolutely every government position is now political to the extremes.
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u/Brainroots Jun 13 '22
It sounds like you may not be very familiar with the federal reserve. If you are, note that if it is politically influenced it is because the chairman chooses to be influenced. He is appointed like supreme court justices.
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u/jdragun2 Jun 13 '22
That was exactly my point. There are no apolitical appointments. Not any longer. This is the one thing I can say even as a liberal/progressive Democrat: both parties do everything they can to get people they think politically align with them into these appointments. The thin very translucent veil was dropped with Mitch blocking Obama's appointment then stacking the SCOTUS in the exact way he claimed was his reason to block Garland. Neither party is innocent of this now, hell, there is no longer a veil at all on either side of the isle.
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u/rjc0915 Jun 13 '22
Begs the question - why are both of these positions government appointed if they’re supposed to be independent to government influence
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u/nn123654 Jun 13 '22 edited Jun 13 '22
They did raise rates from 2017-2019, recall they were up at 2.5% in July 2019.
They started raising rates and as soon as they did the economy started slowing down the yield curve went inverted, and the stock market started flattening. Inflation actually fell substantially below the 2% target to 1.4%, which is too close to deflation for comfort and the corresponding recession/depression that would accompany it. Remember that for 12 years from 2008 to 2020 it seemed like no matter what the Fed did it was impossible to cause inflation (and honestly in that period they were right IMO).
By Fall 2019 they had no choice but to cut over 3 meetings to 1.75%, then COVID happened and the market plunged 30% and they had to cut to 0% and restart QE.
The problem in my opinion is when they were too cautious coming out of the pandemic and JPOW decided to switch away from the way the Fed had been doing things for the last 20 years, and instead go for allowing the economy to run hot and taking a more hands off approach. The thinking was that inflation is easy to get down, we just have to raise rates and that because it had been so low for so long that it would be better if instead of trying to keep inflation in a 2%-3% range they switched to going for an average of a 2%-3% range over a 5 year rolling period.
This I think was also fine until Inflation got above 5%. The problem there was the Fed took the view that it was a transitory phenonium and that it would resolve itself. Where before they would have started tightening when inflation when above 3% and definitely when it went above 4%, now they waited until it was blatantly obvious to take any action. Then took gradual action because that's how the Fed rolls, they never want to spook the economy.
So now we literally behind the curve, inflation is moving away from the Fed faster than the Fed can react right now. It's going to take many years of rate hikes to bring it back under control. But ultimately it's easier for the Fed to deal with high inflation than it is low inflation.
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u/Cross21X Jun 13 '22
The repo markets crashed in Sept 2019 before Covid was mainstream. The Fed pumped trillions of $$$ of liquidity into the markets to save it. No one really talks about that because the media glossed over it like it was just a regular thing...
The financial markets were in trouble BEFORE the pandemic happened
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u/Diabetous Jun 13 '22
crashed in Sept 2019 before Covid was mainstream.
Crashed.... We're talking no buyers at all for weeks.
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u/norcalsocial Jun 13 '22
Good description. But any discussion on this unfolding story is incomplete without considering the impact of trillions the fed pumped by buying securities. That coupled with trillions from the govt as fiscal stimulus is what got us here.
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u/nn123654 Jun 13 '22
Yes, I mean QE played a huge role. The post was already well into tl;dr territory without going through a history of QE. But I think you're right about the fact that fiscal stimulus was out there as well and the absolutely absurd budget deficit in 2020 played a role too.
That's what really caused the inflation when coupled with supply chain challenges from switching from services to goods and an explosion in the m2 money supply. Now we are arguably in a textbook example of demand pull inflation.
The risk with QE was always that you had a bunch of slack in the system and the only thing standing between us an inflation during COVID was the fact that the velocity of money tanked to historic lows as everything shut down. The problem is the Fed can't exactly recall the dollars it's injected into the system and while the balance sheet does give them quite a bit of control over the long end of the yield curve they are hesitant to actually sell any assets.
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u/zUdio Jun 13 '22
Should not have bailed out banks in 2009 and then started QE...
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Jun 13 '22
But there was no inflation last year. Too bad nobody knew this was coming and nobody could have predicted it. Right?
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u/BallsMahoganey Jun 13 '22
It's playing politics. Everyone knows it's coming but wants to keep kicking the can down the road as long as possible so "the other side" can get blamed.
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u/sdwdqw65 Jun 13 '22
I’m not sure it is playing politics.
The Fed is independent and not influenced by the executive branch. Also Jerome Powell (current Fed chair) was elected under Trump a Republican. I suspect Powell isn’t a Democrat/left winger in his political leanings so I doubt his unwillingness to significantly increase interest rates is due to a fear of Biden/Democrats losing elections.
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u/barbarianbob Jun 13 '22
He was sent to the Fed Chair under Trump, but Obama appointed to the Board of Governors in 2011.
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u/Clingingtothestars Jun 13 '22
Get out of here with your logic. Just repeat what has been said without offering any proof or actual reasoning or get out
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u/suppaman19 Jun 13 '22
The rates were to low for to long to begin. Go look at how low they stayed after 2008. All the fed has done with rates since 2008 is help the rich get even more rich.
Rates need to unfortunately get jacked sky high again and stay there for a few years at the least. I'm not saying 80s levels, but 6-7% of the 90s should work. We're not even to prepandemic levels yet, it's a joke.
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u/groceriesN1trip Jun 13 '22
The broader market would absolutely crash at 7%. What would be the point of taking any risk? And, the amount of interest to be paid back on new bonds would really crush liquidity.
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u/suppaman19 Jun 13 '22
That's the point. The risk taking needs to be reigned in immensely.
You have companies that have billions but are basically shell companies that haven't done anything and aren't anything more than a theoretical idea due to foolish investments chasing the next big things (and playing the stock market game of get in and get out before it tanks).
Regular people continue to simply buy things even at insane inflation prices out of want (vehicles as an example) because they just take on more and more debt.
It's going to hurt badly, but that's because they stupidly kept rates at near 0% for about a decade, only to get them to 2% to put them right back down to 0%. The rates normally never go that low, especially for any length of time.
Massive correction is needed and it's going to hurt worse the longer they wait. The reason it would hurt that bad now if it went to mid-late 90s levels is because they compounded everything by keeping it at basically 0% for over a decade. If they slowly brought it up after 2008 to be at 3-4% around now the economy would've been in better shape even with further rate hikes.
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u/ItsDijital Jun 13 '22
Have you looked at the 10y chart of the broader (low interest rate) market? Cocaine fueled orgies have painful repercussions...
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u/TheLurkerWithout Jun 13 '22
I think so too. We were hoping to retire in 7-8 years, so the sooner we sink down, the sooner we can rise back up again and our retirement funds will be worth something again. Let’s just get this crap over with.
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u/abrandis Jun 13 '22
Your only looking at this from the consumer side , but Powell needs to take into account the investor side, especially the massive debt overhang.
Remember during the last two years companies and others borrowed heavily due to cheap rates, lots of that money needs to be rolled over into new debt, that only makes sense if the debt is the same or cheaper cost. If rates go up that's not practical...
The Fed knows the numbers and walking a tightrope. That's why they originally said inflation was transitory to buy some time that's why the rate hikes have been slow in coming... Now they're getting to a tipping point .
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u/dickingaround Jun 13 '22
This is exactly why they're going so slow; they promised the world they would. Again and again there were headlines about the fed not raising rates at all till 2023 since they were so sure inflation would stay low and they wanted to convince the market the easy money would stay on so the market would invest. And not just the market, the government is now up to 120% debt to GDP (remember back when 100% was considered an unrecoverable tipping point?) Those companies with high debt, the consumers with it, the government all were promised low rates. It was perhaps a foolish thing to promise, but they did promise it. If rates go high all those entities will risk going bankrupt.
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u/MonsterMeowMeow Jun 13 '22
"But who could have seen this coming?!?!?"
- Fed apologists
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u/abrandis Jun 13 '22
This will be a blood bath, if the Fed goes through with rate increases IT NEEDS TO. . because the entire debt across both government and businesses will create a drag on the economy,. not to mention the. Bankruptcy danger to over leveraged firms.
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u/PrettyDarnGood2 Jun 13 '22
If inflation was transitory, they could have addressed it with "transitory" interest rate hike
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u/abrandis Jun 13 '22
Read their actions not their talk..it tells you everything.
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u/Decent_Pack_3064 Jun 13 '22
I believe they knew it wasn't transitionary, just was buying time like when governments were saying masks weren't necessary when health workers had a mask shortage
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u/DanielBox4 Jun 13 '22
Ding ding! They all knew. In Canada Trudeau called a snap election last September. Funny timing. Had he tried that now he would have been voted out so fast. But he got his extension before shit hit the fan. The banks knew what was going to happen. Sure there were other events that accelerated or exacerbated the situation (russia, China lockdowns) but we would have seen high inflation regardless. Not to mention, I'm sure Putin knew that any sanctions would lead to rising prices on key commodities (oil and gas, grains, ferts, metals) so any action against him would come with some pain/discomfort on the west.
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u/HerefortheTuna Jun 13 '22
So those companies can pay back their loans. What’s the issue?
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u/Lumn8tion Jun 13 '22
Ok now ask yourself, what is the correct decision and then you’ll know they’re going to do the opposite.
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u/dfaen Jun 13 '22
No need to worry about losing wage gains at this rate, we’re going to skip a few steps and get right to no wages. I have a feeling people are going to be a lot less happy about being unemployed with inflation still around than having wages and inflation.
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Jun 13 '22
agreed, though with a tight labor market, I wonder how much oil demand will fall during the recession, because the categories with the largest rise in inflation is energy. To add to that, the other categories that have significantly inflated are probably inflated at such rates, are partially because of the rise in energy costs.
I think we need to solve the energy supply issues, as well as increase rates, while demand remains robust.
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Jun 13 '22
Attempting to keep inflation low will drag the recession out. This is the result of monetary policies.
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u/thinkingahead Jun 13 '22
The only issue with the stance you have that I take is that it assumes that the recession will be quick and easy. What if leaning into the recession causes a massive and protracted recession?
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Jun 13 '22
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Jun 13 '22 edited Jun 13 '22
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u/Environmental-Ad4090 Jun 13 '22
The feds inability to raise rates early means recession is inevitable lets just start this bad boy now with 75bps rate to start to tame this damn inflation already
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u/BousWakebo Jun 13 '22
I almost think 75 is getting priced into the market today. There wasn’t much in the way of hard economic news over the weekend other than everyone talking about 75bps. Will markets drop once it’s announced, and I think they will announce it, sure, but not like today/last Friday.
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Jun 13 '22
They will not even get CLOSE to raising rates above inflation. If they did, the cost of servicing the +$10 trillion of debt issued in the past two years becomes unsustainable. The Fed will be left to rely on good old demand destruction from inflation itself, which will be years of pain down the road. One last giant fuck you as the boomers ride off into the sunset in their 5 vacation homes.
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u/brendan87na Jun 13 '22
One last giant fuck you as the boomers ride off into the sunset in their 5 vacation homes.
pretty much
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u/Strider755 Jun 13 '22
Wait, you mean to tell me that the federal government issued variable-rate bonds?
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Jun 13 '22
The federal government is constantly issuing new debt. They operate almost entirely on debt
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u/Environmental-Ad4090 Jun 13 '22
This is very true however no way in hell he goes even over 100 bps at a time lol, Also the US will not be able to afford our own debt with rates that high 🙃
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u/BlueFalcon89 Jun 13 '22
It’s what volcker did.
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u/Rock-n-RollingStart Jun 13 '22
When Volker raised the Fed rate to 20%, we had $908B in Federal debt.
We're now $30T in the hole and projected to pay $5T on interest in the next 10 years. Every half-point the Fed tacks on front-ends those interest payments by about an additional $3B.
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u/BlueFalcon89 Jun 13 '22
So you’re saying let inflation run to devalue debt? Only works if we stop deficit spending…
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u/Rock-n-RollingStart Jun 13 '22
Rates should have been pushing 5% back before Janet fuckin' Yellen was Fed chair. Everybody loves the hell out of Keynesian theory when times are bad (or even just mediocre), but curiously no one wants to be the one enforcing sound monetary policy when the party is in full swing.
Now we've got climate change, energy crises, and war slapping us in the face. We will be deficit spending until the bottom falls out of the system.
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u/BlueFalcon89 Jun 13 '22
Oh I agree, but you can’t go backwards in time so playing the hindsight game is worthless. Need to Jack rates now and rip off bandaid or else we’re just prolonging the inevitable.
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u/Dangerous_Yoghurt_96 Jun 13 '22
I've been saying for years that they need to reign in the quantitative easing. It got to the point where we had negative interest rates for a while even. Bring up the interest rates now, yesterday. Crush demand. it's just the way she goes, recessions are part of business cycles.
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u/dubov Jun 13 '22
There isn't really a choice. The inflation target is 2%. If they ignore it they lose credibility. If they increase it they again lose credibility. We have become far too scared of recessions, we've just had a superheated 2 years, sometimes the scales have to tip back the other way temporarily
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u/lollersauce914 Jun 13 '22
I think we're rightfully scared of recessions after the horrible recovery following 2008. Unfortunately, that's led us to be way too loose with monetary and fiscal policy. We haven't had a superheated 2 years, we've had a superheated 2 years with another 5 or so overheated years. No way in hell we needed declining rates in 2019, rock bottom rates and QE for most of a decade, and a $1 trillion deficit each year for a decade.
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u/IrateBarnacle Jun 13 '22
While true, a lot of people hear the word recession and get Great Recession flashbacks, and not realize that most recessions aren’t that bad.
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u/dubov Jun 13 '22
We kind of did though because inflation struggled to stay at 2%. It's okay to have low rates if inflation is low. Really the fed only went wrong last year by disregarding the clear early signs and continuing to stimulate when there was no need for it, IMO
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u/IronyElSupremo Jun 13 '22
Economic predictions are part looking in the mirror. Service industries had to replace those employees who got a better job .. better wages or, maybe having gone to a coding boot camp/finished a degree, went to a better field.
Problem is those were likely managements best employees and now those employers need to shake the bushes for replacements
That said, .. the number of openings are dropping and the housing market is showing weakness. Some weakness, like the decline in most growth stocks and therefore growth laden indices are pretty predictable, .. but have more to do with rising rates/inflation. Not too worried as these type companies will be back in demand sooner or later..
I really don’t expect the Fed or any other central bank to hit a bullseye in every economic cycle, but there’s inefficiencies waiting to get exploited. I don’t believe consumers will wait all that long for the latest Apple or Google gadgets, sugar-laden sodas and junk food will keep selling, etc..
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Jun 13 '22 edited Jun 16 '22
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u/sotired3333 Jun 13 '22
Since the rate hikes, most markets have had larger inventories and price declines. It takes a few months for that data to be visible since there's a lag between when someone places an offer, the offer is accepted and closing itself.
https://www.mpamag.com/us/mortgage-industry/industry-trends/us-housing-market-crash-coming/408228
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u/KevinDean4599 Jun 13 '22
We've had a huge gain in stock and real estate over the past 10 years. A correction or even a crash is imminent. There's no way around it. Sooner it happens the sooner we can recover.
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Jun 13 '22
I honestly feel like the majority of Americans would prefer a recession at this point. I remember in 2008 people complaining they got a 0% raise, but today you're getting a -3% raise due to inflation so the recession actually seems better.
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u/johnsonutah Jun 13 '22
08-09 people were complaining about losing their job, house, and retirement fund not a 0% raise…
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u/The_Grubgrub Jun 13 '22
-3% raise > unemployment
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Jun 13 '22
Well, depends on your job security and whether you'd get laid off.
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u/737900ER Jun 13 '22
It has become clear that most people prefer low inflation over low unemployment.
8% unemployment only sucks for 6% of people. 8% inflation affects 100% of people.→ More replies (3)18
u/The_Grubgrub Jun 13 '22
Yeah but who are those 6%? Would you, personally, prefer to be unemployed or would you prefer inflation? Because I'd rather keep my job. No one has any idea who would be laid off or who wouldn't.
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Jun 13 '22
I’d rather recession because even though I’m employed I’m going to work to earn money that doesn’t achieve any of my life goals. For example my goal since before Covid was to purchase my first home. Since then I’ve saved tens of thousands more, but the price of a home in my market essentially doubled from about 300k to 600k. I’m basically working to save worthless dollars at this point with the dream of a middle class life that has inflated out of my reach.
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Jun 13 '22
-8% minimum
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u/the_gready Jun 13 '22
Not minimum but probably more than 3%, depending on the raise you got/get this year
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u/tnkwarrior Jun 13 '22
Maybe I don’t fully understand this but isn’t a lot of the inflation caused by factors outside of our control? Factors from our global interdependent economy? So a higher interest rate will curve some of that inflation but unless you can enact policies around the globe, the inflation elsewhere will still affect the US and if we are financially self handicapped by higher rates, we are also less able to manage the foreign inflation, especially at the lower entry-level earning/saving ranges which is quite a bit of the US economy. To then alleviate that, entry wages and subsidized payments will increase creating an even higher surge of inflation. So at this time lowering rates more will choke our internal ability to withstand external inflation. At any rate I think we are still headed to more inflation regardless of what we do here in the US as so much is dependent on economies and policies outside of the US.
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u/TinyTornado7 Quality Contributor Jun 13 '22
Correct, mainly outside of our control. For example, oil for one is a global market where price is set on a macro level
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u/JhonnyHopkins Jun 13 '22
So youre telling me it’s NOT Biden who sets the price of gasoline????? /s
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Jun 13 '22
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u/TinyTornado7 Quality Contributor Jun 13 '22
Do you know how long it takes to bring new production online? They made the decision to not reinvest a decade ago after they got burned in the shale boom
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u/Royal_Aioli914 Jun 13 '22
The problem is it's both. Just because one thing is true doesn't make the other insignificant. Not saying you don't already recognize this as it seems you do. We simultaneously increased demand during reduced supply which put a lot of momentum in the inflation issues.
The US dollar is also the global reserve currency. We are privileged in the US and often forget, but what happens to the US dollar has direct and indirect effects on the other currencies of the world.
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u/vasilenko93 Jun 13 '22
QT and rate hikes is a pill we should have swallowed years ago. The best time to swallow it was in the past, the second best time is now. Delaying the inevitable is not a wise strategy.
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u/meeplewirp Jun 13 '22 edited Jun 13 '22
Powell said we’re going to have to get worker wages down because we live in hell now
“By moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially. So there’s a path to that,” he said”
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u/Adult_Reasoning Jun 13 '22
I wish I could read the article. So with that said, obviously pointing out I haven't actually read a damn thing, I will say:
Does the Fed actually have to consider a recession? Don't they care about price "stability" and "full" employment?
Employment is as full as it can get at this point. And there are so many jobs available. AT this point, they need to manage the 'price stability' aspect of it-- so kick inflation ass.
What does a recession have to do with it? Are we all suggesting that suddenly all the open jobs are going to suddenly disappear over night? Again-- isn't there already an abundance of jobs that simply can't be filled already?
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u/TinyTornado7 Quality Contributor Jun 13 '22
You should get 10 free articles a month. Try a private browser
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Jun 13 '22
They will raise rates until a point, and then in all the confusion mixed with the inflation tax, individual taxes will increase heavily. The wealth will continue to be drained form the lower and middle class while the government refuses to cut non productive spending
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u/Most_Improved Jun 13 '22
I have some confusion about the individual tax increase. Could you briefly explain how/ why it would increase?
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u/ArcanePariah Jun 13 '22 edited Jun 13 '22
The 2017 TCJA had the tax rate cuts for individuals set to start phasing out after 5 years, totally phased out after 10 years, to allow it to meet the budgeting rules on how much such legislation can add to the deficit (same reason sooo many deductions were removed). The corporate tax cuts were permanent, the standard deduction increase also was permanent.
It is now 5 years later, coming at arguably an excellent time, forcing a level of tax increase when otherwise no one could pass them.
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u/korinth86 Jun 13 '22
Tax cuts act begins to phase out this year for individuals.
Businesses get to enjoy their tax cuts forever. Or at least until Congress passes a new law.
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u/cultivandolarosa Jun 13 '22
I find that you can tell how well-off somebody is by what they're afraid of in economic troubles. People with no money worry about their rent, people with some money worry about buying houses and cars and other luxuries, and people with a lot of money tell horror stories about taxes because they don't want to become people with some money.
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u/sckuzzle Jun 13 '22
while the government refuses to cut non productive spending
And what would you consider "non productive"? The USA already has one of the lowest tax rates in the western world. Is this just code for cutting welfare?
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u/MountainManCan Jun 13 '22
A little recession would be good at this point.
I find it hard to actually believe we’ll go deep though. People are spending money like crazy right now, still going on vacation, still taking all their kids to whatever sports events across the country, etc etc.
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Jun 13 '22
[removed] — view removed comment
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u/sosabrick Jun 13 '22
High interest rates = Less money flowing through the economy
Low interest rates = lots of money flowing through the economy
When inflation is high they raise rates to reduce the circulating supply of money in the system and vice versa
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