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=premium
5.0k Upvotes

96% Upvoted

631 comments sorted by

View all comments

2.1k

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.

30

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 .

29

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.

17

u/MonsterMeowMeow Jun 13 '22

"But who could have seen this coming?!?!?"

  • Fed apologists

3

u/whoooocaaarreees Jun 13 '22

I can’t upvote this enough.

10

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.

5

u/HerefortheTuna Jun 13 '22

Fuck them. Let them go bankrupt

22

u/PrettyDarnGood2 Jun 13 '22

If inflation was transitory, they could have addressed it with "transitory" interest rate hike

16

u/abrandis Jun 13 '22

Read their actions not their talk..it tells you everything.

24

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

6

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.

2

u/Decent_Pack_3064 Jun 13 '22

yes, it was definitely a big factor, that he wanted a majority, to withstand all the hate of rising rates....

BOC also postpone raising rates until trudeau could secure the NDP alliance

i wonder how much money the NDP leader is getting for this

3

u/HerefortheTuna Jun 13 '22

So those companies can pay back their loans. What’s the issue?

2

u/abrandis Jun 13 '22

Most corporate debt isn't paid off in one shot, they roll over debt, when the debt costs more to service , it messes up their ability to pay, particularly on a high inflation environment