No, its not a joke. The fed can screw up and cause inflation but they can't screw up the other way and cause a deflationary death spiral?
It will be the single biggest fight ever of every central bank to stop the death spiral that shows up on the back of their forced recession in the name of fighting inflation.
They will go negative and QE much larger than pandemic.
Serious question. Do you feel then that all of these layoffs are a wink wink nudge nudge 'aye aye captain' gesture to fall in line with the Fed?
Or do you(and they) think a recession is coming, and that in turn will drive rates down?
It's hard to me to imagine it all, with inflation having been so bad the last two years. But I'm not versed enough I feel to propose any kind of argument either way.
You can't sustain high government debt and high interest at the same time. "Federal government current expenditures: interest payments" are now at 0.9 trillion dollars annually. If inflation increases tax revenue fast enough then ok no big deal but that would still mean the interest rate has to be lower than inflation and if inflation has a downward trend then I would expect the interest rate to follow it with a huge lag.
I believe the layoffs were in response to the stock prices and the general market sentiment that the fed caused.
The rates will come down at first because inflation has been beat. Then it will come down more when it becomes clear that the fed screwed up both ways and now has to try to fix the economy.
Then the consumer will stop buying things because prices are going the other way fast. AKA a deflationary bust which can be much worse than anything we have seen in our lifetimes.
Market double bottomed June/Oct at 3600. Now 4100. Not seeing the disappointment. Mr. Market has you right where it wants you, on the sidelines or short.
Yes, when rates are cut valuations go up. This is finance 101.
American stocks are rich because a recession and low rates are priced in. If that doesn’t happen, if rates go where the Fed forecasts, the market needs to drop.
You’re in good company, by the way. Prominent managers are long equities and quality credit [1] on the hypothesis that rate cuts will keep valuations buoyed. (It’s also why the curve is inverted [2].) This is the dominant financial debate du jour. The market (specifically: professional money managers) are fighting the Fed. (My belief is this is more tied to fees and AUM than a fundamental read on the economy.)
Slightly OT but related to your links, can you say that the FT has maintained its "impartiality" (for lack of a better word) in its finance and economics section?
I'm asking because I used to read the FT on and off for 15 years going on 20 now, but the last couple of years have been really dire in terms of their biases and their lack of impartiality (especially in the politics and the international sections). At the same time your links made me miss their finance pieces, which I agree most of the times might have looked very "dry" but for a person outside finance (like I am) they were illuminating nonetheless. I'd go back to reading the FT again just for those.
> especially in the politics and the international sections
Most British coverage of American politics is abysmal. For international, the FT has biases, but they tend to get the facts straight. (Definitely Eurocentric.)
That sounds like a black swan. Rates that are historically unprecedented will soon become the norm. I can't say if you're wrong or not, but I don't think I'd gamble on it.
Jeremy Siegel who has proven to call monetary policy correct and proved the fed wrong many times is calling what the fed is doing the 2nd worse mistake since great depression.
If you think these morons can't cause a bust much worse than 2008 then pray to god Siegel is wrong for once.
The poor are not necessarily the most affected by inflation, and can be among the least affected. Being poor means having around no dollar-denominated wealth, and usually less than zero.
Rent, food and energy gets more expensive with higher inflation. That's not a picnic for poor people with low incomes.
The rich are affected as well but not in any way that actually hurts their lifestyle. Instead of having X million dollars they will have 0.8X million dollars.
The definition of inflation is a deterioration of the value of money. Nothing about this requires or suggests that it affects the prices of some goods more than others, or prices more than wages. If there is relative movement between distinct prices, or between prices and wages, this is an orthogonal phenomenon to "inflation", by definition.
The idea that inflation and unemployment move inversely and (broadly speaking) represent a policy trade-off is literally the first chapter of Macro 101. With all respect, I see it as very difficult to discuss economics on any serious level with someone who is not aware of this notion, or who believes the opposite is true (as opposed to someone who has a critique or a nuanced view of it).
2) To tame high inflation central banks need to raise interest rates, thus creating unemployment and economic slowdown in general https://rsmus.com/insights/economics/how-high-must-unemploym.... That's also much worse for the poor than the rich (who can afford not to work a few years without being thrown to the streets)
But honestly, you're right, we are talking past each other here there is nothing to be gained.
I agree with you that's worse. Hopefully these are not our only two options.
Anyway in the first signs of a true depression (which we are nowhere near at as unemployment is at a historic low) the Fed will likely lower interest rates.
But I agree things are difficult. There's a huge amount of debt in the system, the highest its ever been, and growth is low and inflation is rather high.
Seems like every generation insists on leaving the young with higher debt and worse off ecological ecosystem. We'll likely do the same to our kids until something truly collapses.
If you’re the type of guy that gets money from the fed, you’re still getting it at zero percent. If not, you won’t get it on the market for twice the official 4% interest rate either.
I don’t think you understand how this works. Nobody is taking money from the Fed right now, everyone is lending to the Fed. That’s why rates have gone up, the Fed is literally borrowing money.
We'll be back to zero and negative is coming folks.