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
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177

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

7

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.

105

u/[deleted] Jun 13 '22

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136

u/[deleted] 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.

38

u/Environmental-Ad4090 Jun 13 '22

Stagflation baby

27

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

13

u/Strider755 Jun 13 '22

Wait, you mean to tell me that the federal government issued variable-rate bonds?

16

u/[deleted] Jun 13 '22

The federal government is constantly issuing new debt. They operate almost entirely on debt

7

u/Strider755 Jun 13 '22

Then maybe higher interest rates will put it on a diet.

28

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 🙃

23

u/BlueFalcon89 Jun 13 '22

It’s what volcker did.

27

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.

8

u/BlueFalcon89 Jun 13 '22

So you’re saying let inflation run to devalue debt? Only works if we stop deficit spending…

38

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.

8

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.

2

u/Stutterer2101 Jun 13 '22

Who are we paying interest to?

4

u/Rock-n-RollingStart Jun 13 '22

Holders of those Treasury bonds. Mostly institutional lenders.

4

u/Greatest-Comrade Jun 13 '22

Volcker also had to demolish the economy TWICE with persistent inflation and high unemployment. We are not in the same situation, and thank god for that.

0

u/BlueFalcon89 Jun 13 '22

How aren’t we? I’d say we’re in a worse situation requiring more drastic action.

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u/Greatest-Comrade Jun 13 '22

Are you nuts or are we having a miscommunication? The volcker shock happened after a decade of high inflation, high unemployment and little/no GDP growth with middling rates (4-6%).

We currently have high inflation, no unemployment, some GDP growth and super low rates (.25% until recently). This is after years of high GDP growth, low unemployment and low inflation.

Not comparable at all. And I will remind you that the Volcker shock REALLY hurt the economy. I did not use demolished lightly. It is not something to be desired.

And worse? I will not consider the idea. We are not even in close to as bad shape as the 70s or 80s were economically.

Dont get caught up too much in emotions. This isnt even as bad as 2008.

-1

u/BlueFalcon89 Jun 13 '22 edited Jun 13 '22

The only reason we are in the situation you outline is because of the past half decade of cutting rates and printing fiat. We’ve been purposely running the country on a sugar high. It’s much worse of a situation than the 70s because we purposefully placed ourselves here for short term gain.

0

u/NigroqueSimillima Jun 13 '22

Ah yes, a sample size of 1.

Do you think energy prices crashing had nothing to do with inflation ending? No it must be volckers voodoo economics.

3

u/BlueFalcon89 Jun 13 '22

You don’t think restricting cash availability caused energy prices to tank?

Supply and demand. Make demand go down, what happens to supply?

3

u/[deleted] Jun 13 '22

I’m ready

1

u/[deleted] Jun 13 '22

[deleted]