I'd like to find numbers which illuminate how much of the inflation is caused by lack of supply for relatively inelastic commodities. If the way out of shortages is to invest in more production, higher interest rates seems detrimental in the face of that type of inflation. If, on the other hand, inflation is caused by groups/individuals buying lots of silly things because they are flush with tons of cash, then rising interest rates should put a stop to speculative/impulse elastic spending.
To me, it seems an important distinction whether "excess" cash is going towards buying elastic goods/services (peloton cycles, fancy grills, RTX3080 for gaming, etc) or simply fighting over shortages of inelastic goods (baby formula, bacteriostatic water, shipping space, gasoline, etc).
I suspect that our largest improvement would come from investment in transportation infrastructure for goods -- all of that is super choked right now and it affects everything.
Many people are concerned about the rising price of real-estate and I agree, but I'm not sure interest rates are fine-grained enough for this...ideally Congress could address that with Anti-NIMBY legislation and/or taxes on properties which are not lived in by their owners, which could be directly redistributed to anyone who purchases a new home.
You've hit on the issue the fed has - the only real tool they have to combat inflation is to kill demand. In this case, inflation is from a mix of demand because people have money and supply shocks due to covid. The feds main tool to address supply issues is to lower rates and spur investment. Problem is, they are also trying to kill demand at the same time. For now, we just have to wait for supply issues to sort themselves out.
> I suspect that our largest improvement would come from investment in transportation infrastructure for goods -- all of that is super choked right now and it affects everything.
Just an FYI, any remaining supply chain issues are not really transportation related at this point. We ship several containers a month from Asia to the ports of LA/Long Beach and we haven't seen delays on either side of the Pacific in a while at this point. The other major issue we faced in 2021 was getting containers out of the port complex and on a truck to their final destination. Those delays have also been resolved at this point.
We're also seeing transportation prices come down. Trucking is still expensive because of fuel costs, but ocean rates are way, way down. The most we paid for a container from Vietnam to LA/LB last year was $22,000. Right now we're getting quotes for $4,600.
I made a little side project https://totalrealreturns.com/ to plot inflation-adjusted asset and asset class returns, including the USDOLLAR virtual symbol which represents a nominal dollar. (Most users just enter symbols they care about, though.) In real (purchasing power) terms, I think this announcement means:
1. The Fed thinks the green line is declining too fast. (Green line = purchasing power of a nominal USDOLLAR, such as a paper dollar bill, or a zero-interest checking account.)
2. In order to make the green line flatten out a bit, we're going to raise interest rates more, reducing the supply of capital.
3. In the short-term to medium-term, raising interest rates will have an adverse effect on the blue line (bonds), due to interest rate sensitivity.
4. In the medium to long term, the effect on bonds may in fact be positive due to higher interest rates, but this depends on future Fed actions as well. (It seems to me structurally unlikely to create substantially positive real retuns for treasury bonds, at least. Maybe corporate bonds will benefit.)
5. Raising interest rates is intended explicitly to reduce aggregate demand in the short-term to medium-term. This reduces corporate revenues and corporate profits, which should hurt the red line (equities).
6. Raising interest rates also increases the discount rate which is applied to net-present-value (NPV) calculations, which means that future cash flows are discounted more heavily. This should also hurt the red line (equities).
At the height of the gas prices I paid $8.00 per gallon of diesel for several weeks (some drunk asshole totaled my other non-diesel vehicle) so I felt what truck drivers felt. It should be no surprise that when gas doubles, everything that is carried on those trucks goes up in price. When the truck is carrying super cheap items, the price of those super cheap items is roughly double. Transportation cost of expensive and small things aren't affected as much because the price of gas was already a smaller percentage of the overall price.
Large items, like RVs saw a roughly $4k markup (in CA) because they literally drive each one from Indiana. Not to mention everyone is buying them because they are alternatives to expensive homes now.
We really need to get off gasoline and encourage people to build. Messing with inflation with the feds "only tool" is fucking idiotic.
We have the technology today to have the vast, vast majority of our transportation miles powered by electricity, and the ability to generate electricity from numerous sources. Like you said, out of control energy prices ripple to everything else. Electrifying everything provides a counterbalance to the volatility of oil on the global market.
Agreed. An excessive money supply is a small part of the problem here. There are intrinsic economic issues (e.g. supply chain problems) that need to be solved.
2: No government will reduce the printing of money. It is just too convenient. It is like taxing more and more without getting much complaints.
3: Governments will rather use tricks to lower inflation. Change the definition. Make laws to restrict prices. Subsidize the production of goods to make them cheaper.
Conclusion: The value of money will go down the drain faster and faster forever.
This is mostly true most of the time, but this is not the only story. There is also a supply side to the equation: if supply can expand it can suck up a lot of money that is being printed without causing inflation.
I highly recommend Lyn Alden's overviews and analysis. Here is her recent one on inflation (a subsection that points to broad money vs inflation -- the trend you indicate as well as some exceptions). https://www.lynalden.com/inflation/#supply
This is only half the story. Inflation is measured based on the prices of goods in the wild. Yes, prices can increase when the value of a dollar falls based on the supply of dollars increasing. At the same time, the price of a good can increase when supply of the good decreases. We're in an era of unprecedented supply chain disruption due to covid, so it would be wrong to forget to account for this side of the story WRT inflation.
#1 is incomplete. There's obviously a supply side component. You think the price of lumber quadrupled because of excess money? Some countries printed a lot more money than others during COVID, but the correlation between the money printing and inflation is very low.
#2 is wrong. The fed can print money using QE and low interest rate loans. They can destroy money via reversing the easing and high interest rates. They've done this. Congress can destroy money through taxes. The Inflation Reduction Act does this.
Inflation can exist without the printing of money so I'm not sure it qualifies as the root. Supply and demand seems more likely to be the root, which can be affected by the printing of money and by other things such as supply chain constraints.
Stop printing money? After a few years population will increase, the workforce will be larger, and there won't be enough money to go around. This will result in deflation. (And is supported by evidence of what happened when people used physical gold and silver as money. As population went up, and people stockpiled, deflation happened.)
In this case, part of the cause (in the US) is a smaller work force. Not only did people retire early at the beginning of the pandemic, the baby boomers are retiring. This means there's less workers to go around. The remaining workers can demand more money.
The way I understand it (and this is not my area of expertise), this view could have been cutting-edge 50-100 years ago, but now it’s not really sophisticated enough.
> No government will reduce the printing of money. It is just too convenient. It is like taxing more and more without getting much complaints.
Well the Fed just reduced the effective rate it was printing money quite substantially by switching to Quantitative Tightening and increasing rates.
You could even argue that with QT, not only is the Fed no longer printing money, but they are taking money that was printed back out of circulation and effectively destroying it.
Completely wrong, the gold standard had a mostly fixed supply that was growing over time but the price went up over the long term but there was inflation over the short term anyway.
Deflation happens when people save more than others have a desire to spend and invest. Inflation happens when people spend and invest more than other people want to save.
The other problem is that no printing is happening, that operation simply doesn't exist beyond the creation of physical dollar bills.
>No government will reduce the printing of money
Do you live under a rock? Germany was running a hard debt brake before the pandemic and right now the debt isn't excessive either. How about you actually look what is happening around the world before making universal claims?
>The value of money will go down the drain faster and faster forever.
What did you expect, did you really think the opposite is going to happen? That you are going to enslave the future faster and faster forever?
> Governments will rather use tricks to lower inflation. Change the definition.
I may agree with the rest, but not with this one. The definition of inflation (or CPI) is owned by the Bureau of Labor Statistics, which is obviously part of the Government. Still, nobody in this bureau will get a bonus or a salary increase, or anything really, if they tweak the definition. Moreover, how many times can the Government change the definition?
> 1: The root of inflation is the printing of money
The root of inflation is an increase in the cost of goods & services.
If the money supply increased, but the head of every company willfully elected to ignore this (due to patriotic duty, for instance) and continue charging the same for their goods & services, then inflation would not occur.
> Conclusion: The value of money will go down the drain faster and faster forever.
Most Western countries try to keep inflation low, and succeed. If what you were saying were true, wouldn't we have hyperinflation everywhere? Right now we're having a supply shock, but that's not normal.
> Inflation feeds in part on itself, so part of the job of returning to a more stable and more productive economy must be to break the grip of inflationary expectations.
There were several months where officials continued to refer to inflation as "transitory," when it was obviously anything but. I wonder how much that was deliberately misleading, in an attempt to stem inflation by adjusting people's expectations. And I wonder how bad it might have gotten if officials had told the full truth.
That trick is a double-edged sword, because those predictions were ultimately incorrect, which reduces credibility. Now even an honest forecast of declining inflation is less likely to influence expectations, making stronger action is necessary.
> Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions.
The Fed has some tools, most notably the interest rate, that can probably slow down inflation but at the cost of probably slowing down growth. A big question has been the degree to which the Fed will give up growth in order to try to reduce inflation. This speech makes it sound like the Fed is likely to trade off a lot of growth in order to hit inflation targets.
What does that mean for most people? Probably bad things in the short term.
> While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.
It makes it sound like the Fed is willing to inflict some damage to hit its inflation target. This isn’t a change exactly, but it’s a confirmation about what lots of people have speculated might happen.
The fed during the 1970s brought down inflation for a little while, but it spiked again. The hope is that Powell has learned this lesson and will keep interest rates high enough for long enough to stop it from being more persistent.
But then you have those that argue that inflation is a bit more transitory and different than the 1970s, as it is more supply chain induced. And if we keep interest rates high for too long, it will hurt the economy, as cheap money isn't the cause of inflation.
Interest rate hikes will continue until inflation subsidies and interest rates will remain high after that.
"Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy"
I think the key take aways are as follows. Prerequisite is the understanding that the Fed has a mandate to: maximize (productive?) employment, and maintain inflation at 2%.
- Employment is very high, as it stands. The intention of easy money was to maintain purchasing power, and prevent household shocks due to government shutdowns during the pandemic. It is being used by companies to game the market, and win as evidenced by this change, producing demand-side inflation.
- Productivity is low, as measured presumably by per-capita GDP projections. Indicating continued economic dislocations between prices and corporate activities. Investments are concentrating into unproductive sectors. Capital inflows aren't improving productivity, so the cost of productivity is going up -- supply-side inflation.
- Households and businesses are still gobbling up a lot of debt OR a lot of savings, spurred on by USD inflation -- to employ those individuals, to live outside reasonable means -- or preparing "for the worst." This is the manifestation of the K-shaped recovery, where activities are significantly altered, in anticipation of near-term economic changes. Acquisitions probably would highlight this, but the branches of government have talked FAANG out of this but Broadcom-VMWare highlights a counterexample.
The narrative that is latched onto by investors pertains to the Fed's intention to hike rates until employment begins to fall, he states that they're planning on "overshooting" the fed-funds rate, so that business investment will fall, and concentrate onto more reliable business-models. Jerome Powell also invoked Paul Volkert, basically to signal that risk assets are no longer a key-metric being observed.
I asked OpenAI to write it as an "explain like I'm five":
[edit: which according to a comment below is a mix of copy paste and a 180 degree misreading, lol. I'd be curious if the synopsis would be better had I pasted his remarks rather than passed a link in, but I'm not at my desk to try rn.]
The Federal Reserve is responsible for ensuring that the economy is stable and that inflation is low. In order to do this, they use a number of tools, one of which is interest rates.
When the economy is doing well, the Fed will raise interest rates in order to prevent inflation from getting too high. When the economy is not doing well, the Fed will lower interest rates in order to encourage spending and help the economy grow.
The Fed has been keeping interest rates low for a while now because the economy has not been doing well. However, as the economy has begun to improve, the Fed has been slowly raising interest rates.
In his speech, Powell said that the Fed plans to continue to raise interest rates slowly as the economy continues to improve. However, he also said that the Fed is prepared to lower interest rates again if the economy begins to slow down.
The fed is going to try to put the economy into a recession by jacking up rates in the hopes that it eviscerates demand which will (maybe, but I don't think so) bring inflation down by balancing supply and demand. Fun times.
He said, "We're going to jawbone a lot about inflation and make some token steps, but not actually do what will solve the issue. Who do you think I am, Paul Volsker? We're in debt trap and more worried about springing the trap than about persistent and high inflation. Don't worry, young whippersnapper, in the future you'll own nothing and you'll be happy!"
Which middle class are we talking about? The plumbers and nurses or the techies and doctors?
Because I think the former would justifiably be very, very, very happy to see the latter take a big haircut since the latter's money is a large part of what's propping up asset prices (and the prices of many consumer goods) and directly reducing the access the former has to such things.
What is the general recommendation for buying a house in this economic climate? Hold off until interest rates go down or just buy if you are ready and not time the market?
Assuming you plan to live in the house, I wouldn't try to time it.
Inflation could cause the price of houses to skyrocket (and the value of your down payment to tank), and interest rates will certainly increase for the next few years.
Current prices reflect people's best guess as to which way things will move.
If you want to buy as an investment, I suggest diversifying as much as possible. If you already have enough assets to tolerate the additional risk and can still get a sub-5% mortgage, then maybe buy an investment property right now (in expectation, it's still free money at those rates, and, even if the market tanks, the price of the house will probably bounce back in the long term).
Real estate is very local and housing is a necessity so its not a purchase you can think about like a pure investment.
I am finally in a place where I am looking to move to a house (currently in a condo) and am very happy that rates are increasing right now. The local real estate market has slowed considerably and I've watched multiple listings of mediocre houses with huge price tags sit for a month before being quietly delisted. It seems like sellers are just now realizing that the days of one weekend of open house followed by multiple competing offers are over. The overpriced flips are getting hammered right now. Well priced properties are still moving, but it will take time for the new reality to filter through the market.
Personally I'm giving it about a year to see where things are next summer.
I'm hopeful that the interest rate increase causes prices to drop but real estate prices (like wages) are sticky. Prices may come down, but sellers could also just decide to hold off and hoard. Hard to tell.
Same as everything else. If you like it, you can afford it, and you think it will provide you sufficient utility relative to the price you pay (this would be based on your available options), then you buy it.
"Volcker's Federal Reserve board elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of high interest rates on the construction, farming, and industrial sectors, culminating in indebted farmers driving their tractors onto C Street NW in Washington, D.C. and blockading the Eccles Building. US monetary policy eased in 1982, helping lead to a resumption of economic growth"
For as long as I can remember, there has been a vocal group of doomsayers predicting financial catastrophe. Powell's speech is like catnip to that group.
Were you born in 2009? Because if your memory worked in 2008, you'll recall that massive government bailouts were required to prevent full on collapse: the doom you dismiss as though anyone fearing it is no less in control of their critical faculties than a household pet. That happened less than twenty years ago.
[+] [-] runnerup|3 years ago|reply
To me, it seems an important distinction whether "excess" cash is going towards buying elastic goods/services (peloton cycles, fancy grills, RTX3080 for gaming, etc) or simply fighting over shortages of inelastic goods (baby formula, bacteriostatic water, shipping space, gasoline, etc).
I suspect that our largest improvement would come from investment in transportation infrastructure for goods -- all of that is super choked right now and it affects everything.
Many people are concerned about the rising price of real-estate and I agree, but I'm not sure interest rates are fine-grained enough for this...ideally Congress could address that with Anti-NIMBY legislation and/or taxes on properties which are not lived in by their owners, which could be directly redistributed to anyone who purchases a new home.
[+] [-] matwood|3 years ago|reply
[+] [-] wiremonger|3 years ago|reply
Just an FYI, any remaining supply chain issues are not really transportation related at this point. We ship several containers a month from Asia to the ports of LA/Long Beach and we haven't seen delays on either side of the Pacific in a while at this point. The other major issue we faced in 2021 was getting containers out of the port complex and on a truck to their final destination. Those delays have also been resolved at this point.
We're also seeing transportation prices come down. Trucking is still expensive because of fuel costs, but ocean rates are way, way down. The most we paid for a container from Vietnam to LA/LB last year was $22,000. Right now we're getting quotes for $4,600.
[+] [-] onlyrealcuzzo|3 years ago|reply
Do you have numbers that show that's what people do when interest rates are low?
I don't have numbers - but my suspicion is that they mostly just speculate on asset prices.
Where was all the investment in the last 20 years that low interest rates should've brought on?
What it did bring on was companies borrowing money to buy-back their shares to return >100% of profits to investors.
And don't even get me started on how negative real interest rates are a negative wealth tax.
[+] [-] compumike|3 years ago|reply
1. The Fed thinks the green line is declining too fast. (Green line = purchasing power of a nominal USDOLLAR, such as a paper dollar bill, or a zero-interest checking account.)
2. In order to make the green line flatten out a bit, we're going to raise interest rates more, reducing the supply of capital.
3. In the short-term to medium-term, raising interest rates will have an adverse effect on the blue line (bonds), due to interest rate sensitivity.
4. In the medium to long term, the effect on bonds may in fact be positive due to higher interest rates, but this depends on future Fed actions as well. (It seems to me structurally unlikely to create substantially positive real retuns for treasury bonds, at least. Maybe corporate bonds will benefit.)
5. Raising interest rates is intended explicitly to reduce aggregate demand in the short-term to medium-term. This reduces corporate revenues and corporate profits, which should hurt the red line (equities).
6. Raising interest rates also increases the discount rate which is applied to net-present-value (NPV) calculations, which means that future cash flows are discounted more heavily. This should also hurt the red line (equities).
[+] [-] rhacker|3 years ago|reply
Large items, like RVs saw a roughly $4k markup (in CA) because they literally drive each one from Indiana. Not to mention everyone is buying them because they are alternatives to expensive homes now.
We really need to get off gasoline and encourage people to build. Messing with inflation with the feds "only tool" is fucking idiotic.
[+] [-] megaman821|3 years ago|reply
[+] [-] superb-owl|3 years ago|reply
[+] [-] TekMol|3 years ago|reply
1: The root of inflation is the printing of money
2: No government will reduce the printing of money. It is just too convenient. It is like taxing more and more without getting much complaints.
3: Governments will rather use tricks to lower inflation. Change the definition. Make laws to restrict prices. Subsidize the production of goods to make them cheaper.
Conclusion: The value of money will go down the drain faster and faster forever.
[+] [-] ptero|3 years ago|reply
This is mostly true most of the time, but this is not the only story. There is also a supply side to the equation: if supply can expand it can suck up a lot of money that is being printed without causing inflation.
I highly recommend Lyn Alden's overviews and analysis. Here is her recent one on inflation (a subsection that points to broad money vs inflation -- the trend you indicate as well as some exceptions). https://www.lynalden.com/inflation/#supply
Another one she wrote a couple of years ago on the global reserve currency situation is IMO relevant as well. https://www.lynalden.com/fraying-petrodollar-system/
[+] [-] kibwen|3 years ago|reply
This is only half the story. Inflation is measured based on the prices of goods in the wild. Yes, prices can increase when the value of a dollar falls based on the supply of dollars increasing. At the same time, the price of a good can increase when supply of the good decreases. We're in an era of unprecedented supply chain disruption due to covid, so it would be wrong to forget to account for this side of the story WRT inflation.
[+] [-] bryanlarsen|3 years ago|reply
#2 is wrong. The fed can print money using QE and low interest rate loans. They can destroy money via reversing the easing and high interest rates. They've done this. Congress can destroy money through taxes. The Inflation Reduction Act does this.
[+] [-] axlee|3 years ago|reply
Not exactly. It's the "printing of money" that increases faster than the economic output/demand curve that causes inflation.
You can definitely be "printing money" in a deflationary environment as well.
You can also see a general price level increase with the same money supply, if the velocity of money increases, or if the supply of goods goes down.
[+] [-] Sparkle-san|3 years ago|reply
[+] [-] gwbas1c|3 years ago|reply
It's always more complicated than that:
Stop printing money? After a few years population will increase, the workforce will be larger, and there won't be enough money to go around. This will result in deflation. (And is supported by evidence of what happened when people used physical gold and silver as money. As population went up, and people stockpiled, deflation happened.)
In this case, part of the cause (in the US) is a smaller work force. Not only did people retire early at the beginning of the pandemic, the baby boomers are retiring. This means there's less workers to go around. The remaining workers can demand more money.
[+] [-] epgui|3 years ago|reply
[+] [-] aeternum|3 years ago|reply
Well the Fed just reduced the effective rate it was printing money quite substantially by switching to Quantitative Tightening and increasing rates.
You could even argue that with QT, not only is the Fed no longer printing money, but they are taking money that was printed back out of circulation and effectively destroying it.
[+] [-] imtringued|3 years ago|reply
Completely wrong, the gold standard had a mostly fixed supply that was growing over time but the price went up over the long term but there was inflation over the short term anyway.
Deflation happens when people save more than others have a desire to spend and invest. Inflation happens when people spend and invest more than other people want to save.
The other problem is that no printing is happening, that operation simply doesn't exist beyond the creation of physical dollar bills.
>No government will reduce the printing of money
Do you live under a rock? Germany was running a hard debt brake before the pandemic and right now the debt isn't excessive either. How about you actually look what is happening around the world before making universal claims?
>The value of money will go down the drain faster and faster forever.
What did you expect, did you really think the opposite is going to happen? That you are going to enslave the future faster and faster forever?
[+] [-] throw0101a|3 years ago|reply
Japan enters the chat
* https://fred.stlouisfed.org/graph/?g=PA7P
> 2: No government will reduce the printing of money. It is just too convenient. It is like taxing more and more without getting much complaints.
It's not the government that creates money, but rather private banks:
* https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
[+] [-] credit_guy|3 years ago|reply
I may agree with the rest, but not with this one. The definition of inflation (or CPI) is owned by the Bureau of Labor Statistics, which is obviously part of the Government. Still, nobody in this bureau will get a bonus or a salary increase, or anything really, if they tweak the definition. Moreover, how many times can the Government change the definition?
[+] [-] ParksNet|3 years ago|reply
https://www.nationalpriorities.org/analysis/2015/presidents-...
We can no longer afford that. Government pensions should be abolished and the retirement age raised.
[+] [-] acuozzo|3 years ago|reply
The root of inflation is an increase in the cost of goods & services.
If the money supply increased, but the head of every company willfully elected to ignore this (due to patriotic duty, for instance) and continue charging the same for their goods & services, then inflation would not occur.
[+] [-] TazeTSchnitzel|3 years ago|reply
Most Western countries try to keep inflation low, and succeed. If what you were saying were true, wouldn't we have hyperinflation everywhere? Right now we're having a supply shock, but that's not normal.
[+] [-] superb-owl|3 years ago|reply
There were several months where officials continued to refer to inflation as "transitory," when it was obviously anything but. I wonder how much that was deliberately misleading, in an attempt to stem inflation by adjusting people's expectations. And I wonder how bad it might have gotten if officials had told the full truth.
[+] [-] jbay808|3 years ago|reply
[+] [-] digdugdirk|3 years ago|reply
[+] [-] ddulaney|3 years ago|reply
> Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions.
The Fed has some tools, most notably the interest rate, that can probably slow down inflation but at the cost of probably slowing down growth. A big question has been the degree to which the Fed will give up growth in order to try to reduce inflation. This speech makes it sound like the Fed is likely to trade off a lot of growth in order to hit inflation targets.
What does that mean for most people? Probably bad things in the short term.
> While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.
It makes it sound like the Fed is willing to inflict some damage to hit its inflation target. This isn’t a change exactly, but it’s a confirmation about what lots of people have speculated might happen.
[+] [-] kyrra|3 years ago|reply
See: https://www.wsj.com/articles/jerome-powell-should-learn-from...
But then you have those that argue that inflation is a bit more transitory and different than the 1970s, as it is more supply chain induced. And if we keep interest rates high for too long, it will hurt the economy, as cheap money isn't the cause of inflation.
See: https://www.wsj.com/articles/inflation-isnt-transitory-but-i...
[+] [-] Afforess|3 years ago|reply
"Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy"
[+] [-] meltyness|3 years ago|reply
- Employment is very high, as it stands. The intention of easy money was to maintain purchasing power, and prevent household shocks due to government shutdowns during the pandemic. It is being used by companies to game the market, and win as evidenced by this change, producing demand-side inflation.
- Productivity is low, as measured presumably by per-capita GDP projections. Indicating continued economic dislocations between prices and corporate activities. Investments are concentrating into unproductive sectors. Capital inflows aren't improving productivity, so the cost of productivity is going up -- supply-side inflation.
- Households and businesses are still gobbling up a lot of debt OR a lot of savings, spurred on by USD inflation -- to employ those individuals, to live outside reasonable means -- or preparing "for the worst." This is the manifestation of the K-shaped recovery, where activities are significantly altered, in anticipation of near-term economic changes. Acquisitions probably would highlight this, but the branches of government have talked FAANG out of this but Broadcom-VMWare highlights a counterexample.
The narrative that is latched onto by investors pertains to the Fed's intention to hike rates until employment begins to fall, he states that they're planning on "overshooting" the fed-funds rate, so that business investment will fall, and concentrate onto more reliable business-models. Jerome Powell also invoked Paul Volkert, basically to signal that risk assets are no longer a key-metric being observed.
[+] [-] baobob|3 years ago|reply
[+] [-] gdubs|3 years ago|reply
[edit: which according to a comment below is a mix of copy paste and a 180 degree misreading, lol. I'd be curious if the synopsis would be better had I pasted his remarks rather than passed a link in, but I'm not at my desk to try rn.]
The Federal Reserve is responsible for ensuring that the economy is stable and that inflation is low. In order to do this, they use a number of tools, one of which is interest rates.
When the economy is doing well, the Fed will raise interest rates in order to prevent inflation from getting too high. When the economy is not doing well, the Fed will lower interest rates in order to encourage spending and help the economy grow.
The Fed has been keeping interest rates low for a while now because the economy has not been doing well. However, as the economy has begun to improve, the Fed has been slowly raising interest rates.
In his speech, Powell said that the Fed plans to continue to raise interest rates slowly as the economy continues to improve. However, he also said that the Fed is prepared to lower interest rates again if the economy begins to slow down.
[+] [-] bedhead|3 years ago|reply
[+] [-] BayAreaEscapee|3 years ago|reply
[+] [-] akomtu|3 years ago|reply
[+] [-] throwaway0a5e|3 years ago|reply
Because I think the former would justifiably be very, very, very happy to see the latter take a big haircut since the latter's money is a large part of what's propping up asset prices (and the prices of many consumer goods) and directly reducing the access the former has to such things.
[+] [-] ra7|3 years ago|reply
[+] [-] hedora|3 years ago|reply
Inflation could cause the price of houses to skyrocket (and the value of your down payment to tank), and interest rates will certainly increase for the next few years.
Current prices reflect people's best guess as to which way things will move.
If you want to buy as an investment, I suggest diversifying as much as possible. If you already have enough assets to tolerate the additional risk and can still get a sub-5% mortgage, then maybe buy an investment property right now (in expectation, it's still free money at those rates, and, even if the market tanks, the price of the house will probably bounce back in the long term).
[+] [-] oramit|3 years ago|reply
Personally I'm giving it about a year to see where things are next summer.
I'm hopeful that the interest rate increase causes prices to drop but real estate prices (like wages) are sticky. Prices may come down, but sellers could also just decide to hold off and hoard. Hard to tell.
[+] [-] richiebful1|3 years ago|reply
Since rent has been going up about as fast as the total cost of a mortgage has, it doesn't really affect my decision.
[+] [-] lotsofpulp|3 years ago|reply
[+] [-] dominotw|3 years ago|reply
[+] [-] crypto420_69|3 years ago|reply
From https://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_F...:
"Volcker's Federal Reserve board elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of high interest rates on the construction, farming, and industrial sectors, culminating in indebted farmers driving their tractors onto C Street NW in Washington, D.C. and blockading the Eccles Building. US monetary policy eased in 1982, helping lead to a resumption of economic growth"
TL;DR it's going to get ugly
[+] [-] newaccount2021|3 years ago|reply
[deleted]
[+] [-] aluminussoma|3 years ago|reply
[+] [-] scotuswroteus|3 years ago|reply