Fed increases target rate to 3.75-4.00%

https://www.federalreserve.gov/newsevents/pressreleases/monetary20221102a.htm

by lpage • 4 years ago

40 173 4 years ago

Not much to say here since this was foretold / expected.

All eyes on the 2:30pm press conference, where people will hope to divine the future from Powell's statements. I'm going to bet ~40 minutes of "Inflation isn't at 2% yet and we're committed to reducing inflation to that level".

I think what people really want to know is, where do these rate-increases end? In Sept. 22nd meeting, Powell thought 4.5% was roughly where things would end. Is the target rate higher now? Inflation is still strong, job numbers are also strong. Are we looking at additional hikes to 5% as we enter May 2023 or so??

bern44443• 4 years ago

The answer from the meeting was effectively, "we don't know".

People continue to underestimate the final rate and duration we'll end up at.

The market shot up initially on a 3 line statement in the released notes that was interpreted as beginning of the end of rate hikes.

Then the press conference started and the market shot right back down as Powell said we don't know how high and how long rates will go for.

I'm banking on another 75 bps raise in December and then another in January and then maybe a slow down to one or two 50 bps raises and then maybe a 25 bps finale.

I'm starting to love the yields on bonds. 3 month T Bill at 4+% is sweet. Hoping to continue collecting this sweet sweet guaranteed returns that I can ladder into.

dragontamer3• 4 years ago

The market shot up initially on a 3 line statement in the released notes that was interpreted as beginning of the end of rate hikes.

I'm not sure about that.

My coworkers are arguing that a bunch of people are buying put options, effectively shorting the stock market, in the days prior to these FOMC meetings. At 2pm, the meeting notes come out, and we see that the expected .75% rate happened.

Since that was "expected", all the put options are now sold. That causes the stock market to jump up (since the effective-short positions are liquidated).

Its just a hedge, just in case the numbers come in and the Fed chooses like 1% hike or higher instead of the expected .75%.

incomingpain2• 4 years ago

Not a huge increase. Inflation is under control in the sense it's not rising, but they need to still pull a ton of money out of the economy; or let it ride.

Powell's speech doesn't matter at all until we see the results of midterms.

nightski2• 4 years ago

The way I see it, it is still rising. But that was hidden by the fact that oil & gas prices dropped during the last period which was largely due to dipping into strategic reserves pretty heavily. Unfortunately I don't think oil & gas will continue to drop, or even stay even going forward. Especially with the middle east cutting production.

factsarelolz2• 4 years ago

Oil dropped in the US because the current administration is depleting the strategic reserve. It's almost gone but the current administration doesn't care. The current administration punched down Trump attempting to top off the reserve for $24/barrel. Once the reserve runs out we'll be at 5.50 a gallon again but midterms will be over and I'm sure the other party will get the blame.

yieldcrv2• 4 years ago

well good news for you then, a year from now they’ll just say inflation rose 2% from November 2022

despite still being 10% above November 2021

and your people will say “we did it guys!”

incomingpain2• 4 years ago

Oh I assure you this is quite likely to occur. Deflation is certain to not occur; this inflation is locked in.

Im not sure who you think 'my people' are... my people aren't in power and wont be for years. Remember, not all people live in the USA.

apropos_g20• 4 years ago

"I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas.

(This should be the new Deleuze meme.)

guyzero5• 4 years ago

By reducing demand. I guess.

bwb• 4 years ago

This is it. You trigger a pull back in the economy, if you get lucky you don't trigger a recession. But, if you need to trigger a recession you do it rather than out of control inflation.

apropos_g20• 4 years ago

How exactly do rising interest rates reduce demand for food?

How does it reduce demand for gas?

This is what I mean.

foobarian2• 4 years ago

It won't reduce the prices. It will merely reduce the rate of increase of those prices.

avmich3• 4 years ago

If done enough, it may reduce prices; we may not want that though.

apropos_g20• 4 years ago

Well, I don't see a common sense explanation as to why the rate of increase should decrease either. We could also say, "Eventually, the rate of increase will go down anyway, in the absence of any action from the fed."

avmich3• 4 years ago

The idea is that people will cut spending somewhat to have more money stored in saving accounts where they produce more low-risk return. Cutting spending will dampen prices.

Increasing interest rates increases the temptation to lend money instead of spending.

apropos_g20• 4 years ago

is that people will cut spending somewhat

Why would people cut spending on food and gas? They need both to survive. That's what the CPI is made of.

Analemma_2• 4 years ago

It won't, because the current inflation is supplyside-driven, not expectations-driven. But if we transition to an expectations-driven inflation regime, that's really bad, because it would require much more severe action to bring under control. The Fed is doing this as a preventive measure to keep expectations-driven inflation from taking hold. It sucks, but it's being done to prevent more pain later.

monkmartinez3• 4 years ago

I disagree. Supply constraints were a figment of unsustainable demand. There was simply too much money sloshing around to satisfy the hedonistic human treadmill of MORE!

whimsicalism11• 4 years ago

But most measures of demand for durable goods show that it is up.

apropos_g20• 4 years ago

It won't, because the current inflation is supplyside-driven, not expectations-driven. But if we transition to an expectations-driven inflation regime, that's really bad, because it would require much more severe action to bring under control. The Fed is doing this as a preventive measure to keep expectations-driven inflation from taking hold. It sucks, but it's being done to prevent more pain later.

We have differing definition of common sense.

willcipriano• 4 years ago

More expensive credit to businesses leads to less investment and growth leading to less hiring leading to higher unemployment. Higher unemployment means some people won't be able to afford food and gas lowering the demand for food and gas.

That's the theory anyway, they don't say it in plain terms like that though.

glofish4• 4 years ago

or it could mean people waste a lot less - we all know in the western world waste is gigantic

apropos_g20• 4 years ago

Higher unemployment means some people won't be able to afford food and gas lowering the demand for food and gas.

People need food and gas to survive. They're not going to stop buying food and gas, unless they are dead.

glofish4• 4 years ago

By sucking the money out of the system.

It reduces demand - in the modern world the prices are disconnected from cost of production - instead reflect the demand for that product - how much can it be sold for

apropos_g20• 4 years ago

By sucking the money out of the system.

Does it suck money out of the system? Here's a common sense example: Raising interest rates caused assets like stocks and bonds to decline in price. People sell these equities and now have cash they are willing to spend on more shit, specifically what is in the CPI. So the opposite can also happen.

monkmartinez3• 4 years ago

Reduce demand, broadly, as credit tightens with increased interest rates. Can't borrow at basically free money rates across the board anylonger.

Translates into, Less money for stock buybacks, less Yolo with stimy checks, left over money to yolo is also reduced == the market returns to mean. People feel less wealthy == slow purchases. Reduced purchases == Business struggle. Businesses lay people off == less demand. All of this == Less driving, less food.

Really very simple.

georgeecollins3• 4 years ago

That's not quite right, because if you only reduce demand you could also reduce supply and prices would be unchanged. Higher interest rates reduces money supply (which can induce a recession) but does not necessarily reduce the supply of goods. Less money chasing the same amount of goods (ideally) causes lower prices.

I don't think you are wrong intuitively. I am just trying to be a little more specific because get very vague about monetary policy and it leads to some bad assumptions.

nine_zeros4• 4 years ago

"I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas.

It will not. The only way to reduce prices of oil/gas and fertilizers (for food) is to bring back the amount of oil/gas and ammonia that went offline due to Russia. There is no amount of digging anywhere in the world that will quickly replace this much lost natural resource.

What raising interest rates will do is cause less spending in all non-oil/gas goods and services. This means every other industry must expect a reduction in revenues because the average customer is going to be spending more on oil/gas and food.

In other words, the choices for companies are: be ok with reduced revenue or be ok with reducing prices.

The choices for individuals are: be ok with consuming less non-oil/gas/food things or sell assets to fund oil/gas/food things.

adventured3• 4 years ago

Oil isn't a serious problem, neither is gasoline. The West can safely maintain the situation with Russia indefinitely.

Brent has been in the $90s for a while now. That's equivalent to $65-$70 from ten years ago, which also wasn't a problem then. It's very modestly elevated at present.

Natural gas may be a different matter, although the Europeans look like they can have that permanently solved over the next few years through diversification and greater energy conservation.

apropos_g20• 4 years ago

The only way to reduce prices of oil/gas and fertilizers (for food) is to bring back the amount of oil/gas and ammonia that went offline due to Russia. There is no amount of digging anywhere in the world that will quickly replace this much lost natural resource.

At least this has a modicum of common sense to it.

As others have pointed out, oil prices fluctuate all the time though. So do food prices.

Gas can affect retail prices, because to me, common sense says, you use gas, not oil, to move food from wherever it is to the supermarket and into people's carts, back to their homes. And gas prices are not oil prices. And a lot of the price of many goods is, secretly, gas, because that is how the people get to where they work, how the goods that are otherwise useless without transportation get to where they're sold, etc.

What raising interest rates will do is cause less spending in all non-oil/gas goods and services.

So what? The CPI, even the "core" CPI, is food and gas, or food and gas in disguise.

Even if you buy less clothing, a lot of the price of the clothes doesn't come from demand. It comes from the price of the gas used to move it from A to B and all the people involved moving it, and the price of the food to feed all the people who made it and sell it. Gas and food are hiding in all the inputs of clothes. There is a floor on the cost of clothes, it keeps rising, what exactly will increasing interest rates do to the rising (producer's) cost of clothes?

prottog• 4 years ago

The Fed's tools are very blunt, and the only way it can reduce at-the-register prices for things like food and gas are indeed by hammering down aggregate demand, i.e. inducing a recession.

Of course, whatever the Fed does may be counterbalanced by supply-side issues, whether economic or political; a warmer-than-expected winter moderating gas prices, or executive actions impeding investment into O&G raising prices, and so on; and other demand-side issues, such as more helicopter money sprayed against fixed supply.

apropos_g20• 4 years ago

The Fed's tools are very blunt, and the only way it can reduce at-the-register prices for things like food and gas are indeed by hammering down aggregate demand, i.e. inducing a recession.

By some measures, it's not even succeeding in inducing a recession. Demand isn't even necessarily declining - you would need a common sense explanation why the rate of increase in demand doesn't sometimes fluctuate or go down anyway, in the absence of fed action.

The Fed's tools are extremely effective at taking a huge shit on bond prices. They have huge financial impacts. But you are not giving me a common sense explanation for how raising interest rates will reduce the prices of food and gas.

za3faran• 4 years ago

What's the guarantee that inducing a recession would be recoverable at some point in the future?

adventured3• 4 years ago

They're not trying to reduce existing prices per se. They're trying to reduce the extent of price increases going forward.

The Fed can do that be damaging demand by damaging the labor market and reducing the value of assets (which also damages spending power ultimately in numerous ways).

There should be a lot more consideration given to increasing and improving on the production side right now, however the US is not nearly so skilled at that these days (whether industrially or policy wise). If you walk into your typical CVS or Walgreens and look at their empty baby formula section, it tells all. Supply chains are still a mess in the US.

WillPostForFood3• 4 years ago

There should be a lot more consideration given to increasing and improving on the production side right now

The US knows how to drill for oil and frack. It would help curb inflation and help Europe deal with Russia.

apropos_g20• 4 years ago

They're trying to reduce the extent of price increases going forward.

What is the common sense explanation for how increasing interest rates reduce the extend of price increases of food and gas?

georgeecollins3• 4 years ago

Here's my try: - Unlike popular perception, money is not created by "printing it". Money is created, or the supply of money is added to, when entities (corporations, institutions, people) borrow money from a bank.

- When interest rates go up, the cost of borrowing goes up because you have to pay back more over time.

- When the cost of borrowing goes up people borrow less.

- When their is less borrowing their is less money in the economy. Less of a currency trying to purchase the same amount of goods lowers prices.

mywittyname• 4 years ago

Lots of companies make money from the cash flow spread between interest rates and whatever their investment is. And when interest rates rise, entire segments of their business become fundamentally unprofitable. It's not just banks either.

Say a company buys a $100k asset, and they can use it to generate $10k in revenue. That's a profitable investment at 5% interest ($5k), but not at 10% ($10k). So at high enough interest rates, it's not economically viable for that company to expand. That lack of expansion has upstream implications, and can have a cooling effect on asset prices at broad levels.

apropos_g20• 4 years ago

... borrowing... borrowed...

Borrowed money is rarely spent on food and gas.

You can be stupid and talk about buying food and gas on credit cards. Very few people in this country will stop buying food and gas to prevent default. People need food and gas to survive. So it's not really the borrowed money that is spent on food and gas.

gitfan86• 4 years ago

They are not targeting retail food and gas specifically. The hope is that removing money from the economy will cause spending to slow down everywhere and that eventually will hit food.

apropos_g20• 4 years ago

They are not targeting retail food and gas specifically.

Then it should be obvious why the Fed is doing a terrible job.

thehappypm2• 4 years ago

Interest rates make things requiring financing (cars, homes, stuff bought on credit) more expensive and out of reach. People either buy less, or buy the same but pay more interest, meaning they have less money for the next purchase.

apropos_g20• 4 years ago

Interest rates make things requiring financing (cars, homes, stuff bought on credit) more expensive and out of reach.

This is complex.

Lower interest rates overall increase home prices, because people buy the biggest home they can afford on a monthly payment.

There are many kinds of cars. Some are cheap and some are expensive.

Anyway, how do interest rates make things like food and gas more expensive and out of reach? Those don't require financing. They're hugely impactful on inflation. You can be the Fed, and pretend there's a "core" CPI, but the people who make your clothes and cars need food and gas, your clothes are made with a lot of gasoline directly, via shipping and manufacturing, etc., so it is sort of a fiction that there is this non-food-and-gas CPI.

lamontcg6• 4 years ago

They're increasing the cost of borrowing, which directly affects the cost of loan financing for something like a car or a house.

But probably more importantly the increased cost of borrowing hits businesses which are living on the edge and have been rolling over short term loans at low interest rates. When that debt service triples then those unprofitable businesses will start facing negative cash flow losses and can be pushed into insolvency.

For just one example, look at all the commercial real estate vacancies in downtown SF and Portland. Behind a lot of that will be very cheap financing which will go under when interest rates rise (and it is all reasonably short-term financing because it had to be in order to get the lowest interest rates and keep the businesses barely treading water -- so think of this as ARM mortgages for business).

So you have reduced demand for anything funded by loans, along with businesses at the margins going under because their cost of borrowing increases. You get layoffs from the businesses going under which will remove demand for goods. The reduced demands for goods then filters through the system producing more layoffs and more reduced demands for goods across every sector and the economy contracts into a recession.

All the Fed does is raise the cost of borrowing money which causes enough businesses on the edge of failure to fail that it pushes the economy into a recession--amplified by all the positive feedback loops in the economy.

Honestly don't know why this is such a mystery to everyone or why the question needs to be a "meme", it is pretty straightforwards. The only tricky part might be understanding why failures of businesses on the margins could lead to an economic collapse, but you'd think that with the audience of engineering-oriented people here that we'd collectively understand positive feedback loops amplifying small changes into big ones.

Oh there's also purely subjective psychological positive feedback loops as well. Layoffs at FAANGs right now (or whatever they're called these days) is more due to forward expectations and those businesses getting a bit more runway for the recession. But by doing that they're helping to create the very recession that they're getting prepared for. Similarly in the middle of a recession businesses cut jobs and curb spending because they're in a recession, making the recession worse.

apropos_g20• 4 years ago

The reduced demands for goods then filters through the system producing more layoffs and more reduced demands for goods across every sector and the economy contracts into a recession.

Yes, but prices are not demand, they are supply and demand. What if you shut down the parts of the economy that make food and gas?

For example, how do fed interest rates shut down the parts of Saudi's economy that makes oil?

Anyway, in your explanation, you do not use the words "food" or "gas" which is how the "CPI" is calculated.

Honestly don't know why this is such a mystery to everyone or why the question needs to be a "meme", it is pretty straightforwards.

Using the words in the question to answer the question is "straightforwards."

miamibre• 4 years ago

I think a lot of people aren't approaching the problem correctly.

Prices going down (Deflation) in a modern economy is very very very bad even if it's for Food and Gas. Since WW2 our economic system has been based on prices going up because that means people are producing goods to make money to spend it on goods. The real goal of these interest rate is to slow the rate of price increase because now there is less money available to borrow / print into the system. People / Businesses will now use debt less often to leverage their purchases which will slow down the economy. If prices increase too quickly the system burns itself alive. If prices lower it decays and dies.

So to answer your question prices will continue to rise because inflation will remain positive, however the rate of it will be lower.

lamontcg6• 4 years ago

Economists have predicted "soft landings" before every recession I can remember where I've followed what the Fed has been saying (I don't quite remember the Volker Fed, I was a little too preoccupied with Star Wars toys and Legos).

harambae• 4 years ago

It won't necessary reduce the price of food or gas much (some nominal decrease from "discretionary," or non-essential, spending on both).

It will bring down housing, which is 1/3 of the CPI by weight and helps get the Fed's inflation metrics down. (Just as an example, it won't make as much sense to leverage up and buy 5 Airbnb's at higher interest rates.)

corny• 4 years ago

Both groceries and gas are sold at low profit margins - I've heard as low as 1-2% for groceries. They are commodities, there's a lot of competition, and shoppers are very price conscious. If grocery stores can make a profit selling food cheaper they will. If grocery stores can pay less rent for their stores, pay less wages for their staff, pay less for all their expenses, those savings will get passed down to consumers as cheaper food.

trs8080• 4 years ago

I mean, when was the last time a company the size of a grocery store chain passed down savings to consumers? If anything, the pandemic has shown that companies will gladly continue to fleece customers despite lowering expenses. At the end of the day, they exist to extract as much profit as possible - if every one of their peers maintains high prices, consumers don't have any choice but to pay those prices.

rtkwe3• 4 years ago

TL;DR It puts people out of work so there's less demand and we move back down the demand/supply curve towards lower prices/slower increase in prices.

The simplistic version is one idea of the cause of inflation is there's too much demand for all goods as a whole in the economy because there's too much money floating around causing demand to push higher on the demand/supply curve because it's more expensive to produce more of something past a certain point. Making it harder to get loans decreases the money flowing in for some expenditures so there's less expansion in areas like hiring (which when we're near full employment like now usually means having to raise wages pushing costs up and injecting money into the more general market). Thus by increasing the cost of expansion you slow it down and cool the labor market and maybe even cause it to contract.

In the end it boils down to getting more people out of work so they can't buy as much and are willing to accept lower wages meaning it costs less to produce so you might meet the increased demand curve in the middle. It's an incredibly shaky way to try to run the economy but the government has limited knobs to turn and ideally it's easier to target relief at people put out of work because of this than it is to aid the entire population generally.

That's one theory I've heard explained at least. It's incredibly callous to me though because it depends on just putting people out of work and our safety nets in the US are extremely weak meaning you wind up with the fact that a 1 percentage point increase in the unemployment number is associated with a 1-1.6& increase in suicide rates. [0]

[0] https://www.healthaffairs.org/do/10.1377/hpb20220302.274862/....

rsj_hn• 4 years ago

There are several mechanisms:

1. choice: The idea is that you can put your money in the bank and get some interest or you can spend it. So when interest rates go up, people will chose to spend less and save more. Obviously rates have to be higher than inflation which is now 10%, for this strategy to work, but at high enough rates, they will choose to save rather then spend. Less spending, demand falls, so prices should drop.

2. money supply: For the non-financial sector of the economy, money is created when households borrow from banks, and money is destroyed when loans are repaid. Increasing interest rates reduces loan growth and thus the money supply. A smaller money supply should lead to lower prices.

3. business investment: higher interest rates means that the cost of capital to firms goes up. They must earn a higher margin in order to service whatever debt they have at the higher rates, and investors can choose to invest in the business or buy a bond, and so the business has to earn a return at least as high as the bond. So higher interest rates means that ventures which would have been profitable at a lower rate are no longer profitable. So less business investment at higher rates.

nurettin• 4 years ago

You should see the insane jumps in spdr futures right now.

lordswork• 4 years ago

Well, that didn't last long.

Raydovsky• 4 years ago

I dont get it. Prices are rising because fossil fuels are more expensive.

How do interest rate hikes fix that?

HPsquared4• 4 years ago

Flip the causality: fossil fuel (and everything else) prices are increasing because of an increased money supply. Raising the interest rate indirectly lowers the money supply.

https://fred.stlouisfed.org/series/M1SL

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

glofish4• 4 years ago

prices are rising because we want to use the same amount of fuel as before

use less and the prices will be falling

agildehaus• 4 years ago

I just started to have enough money for a decent downpayment on a house when all this rate hike started. Now I'm basically priced out.

glofish4• 4 years ago

that is the exact purpose of the action,

reduce demand

it does suck being on the receiving end - I do sympathise - and I am simply making an observation

datalopers• 4 years ago

Home prices will fall materially once people are forced to sell. That won't happen until broad layoffs occur.

c0nsumer4• 4 years ago

This affects mortgage rates, but not housing prices. If anything, housing prices should decrease a bit as rates go up, since people tend to buy based on monthly payment which is house price + rate.

Therefore, your down payment should be just as effective as it was before, particularly if it's enough to pay for much of the house and keep your monthly payment lower.

BitwiseFool• 4 years ago

This should be happening, but prices do not seem to be falling in-line with what we would expect. I have no answer as to why this is.

r00fus4• 4 years ago

Builders are holding off building more housing because interest rates going high means they get less. The lowered prices actually reduce the stock, making housing even less available.

https://www.businessinsider.com/housing-market-outlook-downt...

hahla2• 4 years ago

This is a pretty blanket statement. That same down payment will not be effective at all. Current interest rates have definitely impacted housing prices but its not significant enough to make up for the difference in monthly payment. Think of it this way:

Scenario 0: 500k house, 30yr/3% interest rate, 100k down (20% standard) = 400k total loan amount and 1,686 monthly payment

Scenario 1: 400k house, 30yr/7% interest rate, 100k down (let's say you still have that cash and put it all towards down payment) = 300k total loan amount and 1,996 monthly payment.

This is assuming in your housing market prices have cooled by 20%, I'm not seeing drops like that in my market. Your monthly payment just increased $300.

nine_zeros4• 4 years ago

Don't worry. You wouldn't want to be the bag holder in an economy where there are wholesale layoffs.

cj• 4 years ago

(Not sure if this is good advice, but...) remember that you can always refinance at a lower rate when the rates come back down.

It's obviously still not advisable to buy a house if you can't afford the monthly payments, but remembering that you can always refinance in a couple years when the rates normalize might help if you have FOMO from the super low rates of the past few years.

rpmw• 4 years ago

If you have good credit, you'd be surprised how low PMI can get when you put less than 20% down. I wish I had learned it sooner. Saved 6 figures for a down payment only to find out that my PMI was only $103/mo on a $600k mortgage. Ended up doing 5% down instead and threw the rest of the cash into immediate home improvements and the market.

Disclaimer: I did get in when rates were in the low 3s. No clue what PMI is like nowadays or if it changes with the current rate environment.

monkmartinez3• 4 years ago

A few months from now will be the best time to buy. You can renegotiate the terms of the loan, but you can never renegotiate the price you pay!!!!

adventured3• 4 years ago

The damage in the housing market will play out over several years. A few months from now will still be far too early into the damage. Wait longer. The hit to the housing market will run on a longer delay than that from the Fed's hikes, historically it always does.

gedy2• 4 years ago

I don't understand this fear. I was in same boat over 10 years ago, when the household bubble popped, so did prices (over a few years period). Then my downpayment was like 30-40% of the home costs.

There are always people who want or need to sell, even if people who bought high hold on to their homes.

linguae• 4 years ago

Same here. When I started my search last year, while I could afford the mortgage payments, I kept getting outbid on everything I could find within my price range ($550,000). This year I'm priced out due to the doubling of interest rates. Home prices in the area I'm looking at (the Monterey Bay Area and some of the Central Valley exurbs of the Bay Area) have fallen a little bit since this summer, but they are still dramatically higher (roughly 30-50%) than they were in 2020 when the pandemic started. My performance-based salary increases haven't kept up with inflation. Thus I'm stuck renting my one-bedroom apartment longer.

r00fus4• 4 years ago

This will do nothing for actually impacting inflation. Instead it will crash the economy. Real inflation seems to be due to price gouging by companies[0], combined with energy increases due to OPEC price fixing [1], and rent increases due to collusion [2] and corporate domination housing market [3].

Jerome Powell had no answers to the Senate Oversight committee when asked how increasing rates would actually reduce that kind of inflation because his goal is to crash the economy for his buddies on Wall Street - they have lobbyists at the Fed too. [4]

[0] https://www.theguardian.com/commentisfree/2022/sep/25/inflat...

[1] https://newrepublic.com/article/166752/opec-cartel-gas-price...

[2] https://www.propublica.org/article/yieldstar-rent-increase-r...

[3] https://wjno.iheart.com/featured/brian-mudd/content/2022-02-....

[4] https://theintercept.com/2022/10/26/federal-reserve-bank-lob...

stu2b502• 4 years ago

Crashing the economy would ease inflation though by cause a big demand hit.

ok123456• 4 years ago

Our current inflation isn't being driven by demand, therefore decreasing demand won't be an effective lever for dealing with it.

hornd• 4 years ago

This is the current talking point du-jour of the American progressive left, but I think it's safe to say the Fed knows what they're doing and have done this before.

r00fus4• 4 years ago

The "Fed" isn't some apolitical entity. It's lobbied and banks want to crash the economy so their wealthy clients can get in at the bottom.

They have an agenda.

connorgutman• 4 years ago

Ah yes, the almighty Fed which knew exactly what to do in 2020, 2008, 2001, 1990, 1987...

bergenty• 4 years ago

Raising rates will curb people’s savings and consumer cash in general. This WILL reduce inflation.

whimsicalism11• 4 years ago

Real inflation seems to be due to price gouging by companies

Yes, it is too bad that our previously benevolent corporations all decided to end that benevolence in the year 2021 and gouge prices.

crash the economy for his buddies on Wall Street

Of course, exactly what Wall Street wants.

guyzero5• 4 years ago

It's an unexpected result that shortages of core consumer goods - specifically gas and food - cause a rise in prices due to demand but this has become more decoupled from underlying input costs thus... high corporate profits in these areas. It's true that Exxon isn't any more or less rapacious than ever, but their profits are objectively much, much higher.

wcarss• 4 years ago

It wasn't said that corporations were good but now are not, and it is not a requirement for the above to be relevant or true.

The theory is that corporations will price at the highest price the market will bear and know that price from price tests they are willing to perform. "Inflation in the air" gave them all an impetus to more aggressively explore the space of prices consumers would bear, and it turns out, people who eat chips mostly won't stop buying them when they're 1.5x the price and the packaged weight is cut by 25% over a 2 year period -- and the same follows for a huge number of similar goods.

This is an acceleration of processes that were already under way, but it's also likely enabled by, likely not directly caused by, and likely feeding into "inflation", and it's likely not something that rate changes will directly impact -- though, maybe a second order change, e.g. a crash to the economy, could hurt workers to such a degree that they simply cannot possibly both buy chips and live. That might finally curb price hikes and would indirectly have fought inflation.

whoooooo1232• 4 years ago

If inflation is caused by selfish companies raising their prices, why are they only doing it now and not, say, three years ago? Did they only decide recently that they want to make more money?

xhrpost• 4 years ago

It's a good question, seems like corporations have more power to do so now, from linked article:

Corporations have the power to raise prices without losing customers because they face so little competition. Since the 1980s, two-thirds of all American industries have become more concentrated.

yieldcrv2• 4 years ago

his goal is to crash the economy for his buddies on Wall Street

nah, any avid trader can take any direction of the market to capitalize on any opportunity

it doesnt matter what someone is lobbying for

when he was increasing the fed balance sheet, who do you think he was buying from and giving free money to at every transaction? his buddies on wall street

its the same any direction

nightski2• 4 years ago

I like how the law of supply and demand in economics has been renamed "price gouging" by democrats.

SantalBlush• 4 years ago

You're not wrong, but we see the same thing with the "labor shortage" rhetoric, which is just conservatives and business owners refusing to acknowledge supply and demand in the labor market.

yunwal3• 4 years ago

Laws of supply and demand work very differently when dealing with monopolies/consolidated industries and inelastic goods. Laws of supply and demand only work "how they're supposed to" with either perfect competition or perfect elasticity. So yeah, people don't like that companies are getting away with destroying competition so they can jack up their prices.

megous• 4 years ago

"Crashing the economy"? Any definition of that? It's not like it's a car or a plane. Some metrics will be 5% different than before?

Sounds like fearmongering, to me, this kind of language.

intrasight• 4 years ago

This will do nothing for actually impacting inflation.

Correct and incorrect. You are correct about the causes of inflation. But it's the Feds mandate to tame inflation, and their only tool is rates. The correct solution would be for congress to act - but they won't.

WillPostForFood3• 4 years ago

It already seems to have had an impact on inflation though - we are in a much better place today than 6 months ago with inflation. If real wages decline, and housing declines (both tied to interest rates), then rents will decline. If we need to get energy prices down, we have abundant domestic supply waiting for extraction. High prices are currently a executive branch policy choice.

ren_engineer• 4 years ago

energy companies are simply acting rationally based on the fact that governments have made it clear they want to eliminate them, short term profit maximization is logical. Why would oil companies invest in refineries that will not only cut their profit margin by increasing supply but be shut down by the government in 20-50 years making the investment worthless? This is logic a 5 year old can understand but apparently is too much for the current executive branch to grok

every single current economic issue is a direct result of government actions during the pandemic and trying to achieve long term ideological goals that weren't based on rational decision making

metabagel• 4 years ago

None of what you wrote makes any sense to me. Almost without exception, corporations don’t plan 20 years into the future.

You left out supply chain disruptions and consumer demand fluctuation due to the pandemic.

It more seems to me like you have an ideological story you’d like to sell.

scotuswroteus• 4 years ago

Can't wait for your even handed replies to being challenged on literally anything here, lmao

SideQuark3• 4 years ago

Real inflation seems to be due to price gouging by companies

A IGM poll of ~100 of the world's leading economists pretty thoroughly show that your belief is very, very far to the fringe, more so than just about any other topic. [1]

They answer the "A significant factor behind today’s higher US inflation is dominant corporations in uncompetitive markets taking advantage of their market power to raise prices in order to increase their profit margins." with 2% strongly agree (with 3% confidence in this answer), 5% agree (7% confidence), 19% uncertain (12% confidence), 51% disagree (52% confidence), 16% strongly disagree (27% confidence), and 7% of no opinion or did not answer.

As to economic questions posed to this forum, this one is pretty slam dunk to the side opposite your claim.

Reich is about as far to the fringe of economists you can find. Try reading more widely. This forum is a much better place to get information about economics than opinion pieces in papers vying for views.

Real reasons for inflation: trillions were added to keep people afloat during COVID, and prices have gone up due to supply chain issues and the war in Ukraine.

If companies could simply raise prices willy-nilly, they'd have done it already.

[1] https://www.igmchicago.org/surveys/inflation-market-power-an...

lamontcg6• 4 years ago

This will do nothing for actually impacting inflation. Instead it will crash the economy.

This is literally nonsensical.

Businesses will lose pricing power in a recession and will slash prices. Nobody will be buying new cars and their prices will drop, the used market will similarly drop until it finds a new floor. People who are out of work and can't afford their car payments will flood the used car market, etc. Multiply this by all the other goods markets. Same things for rents as people get fired and move back in with their parents or move out of the expensive cities.

I think I've responded to you before and I think you've got a nonsensical opinion that price gouging and inflation are in opposition to each other, when they just aren't. If prices rise, that is inflation. If prices rise due to price gouging because demand is inelastic, then that is also inflation. If the fed crashes the economy that will be deflationary and cause a recession, that will reduce prices. Companies can only collude to pump prices when they have inelastic demand, once the economy contracts sharply they have to defect and slash prices again.

By crashing the economy Powell intends to break the back of the nascent labor movement and by dropping asset prices will allow the rich to buy up more of the country.

seydor• 4 years ago

Money for your parents but not for you.

Replace the Fed with an AI. They have a well defined objective function

Fed increases target rate to 3.75-4.00%

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