Jerome Powell’s Fed is beginning to think its interest rate hikes ‘may be having smaller effects than in the past’

7 comments

1. Took a whole fucking team of people to come up with this big idea? I’d bet almost all the money to my name that the FED’s interest rates are just being passed onto the consumer.

2. When you cut 40% of the population from the economy because these people aren’t taking out loans and you are just depending on people who can afford to outright buy with cash, what do you expect? Low wage workers and those right above that are trying to live off rice and beans, yogurt and bananas, potatoes. This will have an impact on the economy, you are forcing people to live on nothing and I don’t know how everyone will back from that.

3. No shit Sherlock

4. They’re fighting something different than ever before; an enormous spike in M2 money supply.

   We peaked at 27% more M2 than expected (based on previous decade-long M2 growth rate) in Dec 2021 (after reaching 20% at the end of Trump’s term).

   They didn’t start hiking rates till March 2022, and didn’t hit their current peak rates till Aug 2023.

   Yet, I believe that their actions have had a significant impact; for instance, our M2 supply is now lower than it was 2 years ago; this is the first time on record that our M2 supply has been lower than it was 2 years prior.

   We’re now down to “only” about 10% more M2 than expected, so, it seems likely that inflation is going to remain higher than desired for another year or so, and that their rate hike significantly impacted M2.

   I think inflation will return to ~2.25% by mid 2025 if no actions are taken in the meantime.

5. Really? He’s just now figuring that out?

   How can the Fed be this oblivious to the fact that a purely demand-side intervention like interest rates hikes would have very little impact in a mostly supply-side inflationary environment?

   People still gotta eat, put gas in their car, pay mortgage or rent, or see a doctor when they are sick or injured no matter how much it costs. Demand for those things is largely inelastic and increasing the cost of borrowing won’t fix that. In fact, it could make things worse because it restricts business investment that might otherwise help relieve some of the material and labor shortages.

   We’re damned lucky that the frequent rate hikes didn’t break the economy and trigger massive recession.

   The Fed hasn’t been able to fix inflation because the only tool at their disposal isn’t addressing the core problem.

6. Ummm, we’ve known this for the past couple of decades. Higher interest rates reduce inflation by pulling the economy down along the Phillips Curve. However, the Phillips curve is extraordinarily flat now compared to the 70s and early 80s, due to reduced competition across most sectors. A flat Phillips curve means that contractionary monetary policy won’t have much impact.

7. They should be exploring taxes. That’ll do the trick. Make the hundred millionaires and billionaires shed some cash and that will slow consumption plenty.