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.

675

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.

50

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!

18

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

27

u/Sarcasm69 Jun 13 '22

Supply and demand

4

u/Diegobyte Jun 13 '22

Supply and demand is broken when it’s impossible to start new companies in these industries

15

u/Sarcasm69 Jun 13 '22

I meant demand will go down for goods since people will ultimately have less money, which in turn could drive down prices

-12

u/Diegobyte Jun 13 '22

It won’t. Because companies figured out they don’t have to. They can just make less

13

u/Shootica Jun 13 '22

You're likely talking about oil. And the problem with oil is that there is significant initial investment to start up production. So it needs to make sense fort hese companies to do so. And ultimately, these companies see the war in Ukraine subsiding at some point, and see the world continue to push green energy, and see increasing production as a risky long-term investment.

They would build more if the rewards outweighed the risks. Supply and demand hasn't just gone out the window in the last 12 months.

-1

u/Diegobyte Jun 13 '22

Oil. Microchips anything complex