The Fed Has To Stop Worrying About A Recession It's Ingrained High Inflation That's Deadly!

Media reports are that the Federal Reserve Board will not raise the Federal Funds Rate at the next meeting on October 31/November1. This is a colossal mistake; inflation is a devastating cancer to a country's economy and America's inflation problem is not under control it is not on a certain trajectory to two percent long-term. The Federal Reserve has done great work over the last eighteen months or so bringing down the inflation rate but it is not tamed it could readily begin to rise again. Last month the inflation rate was 3.7 percent and for August it was also 3.7 percent, far from the needed 2.0 percent target. The 2nd quarter GDP growth was 2.1 % and the 1st quarter was 2.2 % and the estimate for the third quarter is 1.9 percent indicating a strong economy owing to the infrastructure and green energy bills passed in Washington over the last three years, on the employment front the economy created 336K jobs in September and 227K in August meaning America's jobs picture is higher than just stagnant employment indicating workers still have a decent hand in getting a high wage and the American consumer will have money to spend all putting upward pressure on prices. Plus, once inflation gets bad it has a self-propelling cyclical effect which America is seeing where high inflation causes workers to ask for higher wages which causes employers to raise prices.

The Feds got to raise the Fed Funds rate a quarter point at the next meeting and the one in mid-December and they got to announce to the public they aren't lowering it for all of 2024 barring a major recession. The medicine so far given to the inflation problem cancer hasn't given great confidence that the cancer will be completely destroyed, a stronger treatment program than heretofore utilized is needed, it is obvious! Chairman Jay Powell has got to realize that the nation's political leadership is too political they don't have the character to endure a really long stretch of high interest rates to stop unduly high inflation rate from being ingrained in the economy and causing terrible harm. This political leadership cannot be trusted to endure another round of interest rate increases in 2025 if it turns out inflation is not under control at that time. President Donald Trump if he follows his track record will deem such an effort by the Fed in 2025 as grounds for removing the sitting Fed. Chairman and a President Biden will be lobbied like crazy from his caucus in Congress to bring about a change!

 

Part of what is driving high interest rates is inflation.

In the face of high inflation, it gets more difficult for the Fed to hold interest rates down. A lot of people don't understand that the Fed cannot just magically "set" interest rates at whatever they want. There is a cost to lowering interest rates. That cost creates more inflation, which in turn creates more market pressure on interest rates to rise, which in turn makes it even more difficult for the Fed to try to hold interest down, and will mean it will only cause exponentially more inflation if the Fed tries to keep interest rates down. That could hypothetically cause inflation to shoot up very fast if the Fed insisted on trying to keep interest rates at 1%, for example.

To try to lower interest rates, the Fed has to have more money printed and lend out that money at low rates, subsidizing the cost of borrowing. That of course costs money and pushes inflation.

The Fed can only keep interest rates down by so much for so long between inflation catches up with the economy. This is supposed to be short-term economic tool, not a long-term economic policy. A lot of people, even some economists, fail to understand that.

In my opinion, the Fed has "stimulated" the economy for too long, with artificially low interest rates. We all know there is a risk that can result in overheating of the economy, and as everyone knows, if a bubble is allowed to build up, that bubble can eventually pop. Which is not good. Things would have been much better if that bubble had not built up in the first place. The role of the Fed is supposed to be economic stability. But sometimes it seems they have encouraged the opposite through foolhardy policies, and poor understanding about how monetary policies actually work on the economy, unable to visualize the bigger picture and how it all fits together.

 

~ The Fed is not " worried " about anything but maintaining their position of power. The average citizen has little to no influence on them.

 

Sometimes this is known as an inflationary spiral. There are several big reasons why inflation can result in a feedback effect, leading to more inflation. Sometimes this feedback effect can be very quick, so creates a danger that is hard to accurately foresee. We could say that the economy "quickly unwinds".

I won't get into all those different reasons here. That would probably be another discussion.

I can say that some of this is similar to other forces in the economy that both create bubbles and cause them to collapse. Basically anything that creates a self-reinforcing and self-amplifying cycle. When individual members in an economy do something in response to a signal, but what they do amplifies that signal even more.

 

Just to point out to everyone, when it is said that the Fed "raises rates", what that really means is the Fed raises their target rate, the rate at which they are targeting.

It's more analogous to changing the setting on your heater/cooler thermostat. Your heating/cooling unit still has to expend energy to keep the inside temperature different from what it is outside, unless the thermostat is set at the same temperature as it is outside. In which case, the heater/cooler doesn't have to do anything.

So paradoxically when we are talking about the Fed "raising rates", it means the Fed doing less (or even nothing at all).
If the Fed were not to "raise rates", it would involve doing a lot of work and the Fed having to have more money printed to loan out.

 

Or the Fed chairman might be under some pressure to do whatever the current president wants him to do, to try to keep his job.

A lot of people may not realize this but a lot of the leaders who rise to the top are very concerned about their own self-interest and position. If they weren't, they never would have risen through the ranks in the first place. It's very unfortunate and Machiavellian.

 

inflation has been happening forever... even from the time I was a kid, inflation has happened, it's only been a issue if wages do not keep up

in fact, if your grandparents bought a house when younger, ask them if it got easier to pay the mortgage as inflation rose and their wages rose

wages not keeping up with inflation is the real issue

 

Why do we accept it as a given that inflation just happens? Inflation happens because the US govt has commondeered money.

 

corporations could lower prices back down, but that rarely happened after supply issues like after Covid, thus inflation

inflation is good, especially when one has debt, and the country has 30 Trillion in debt

 

Inflation of the money supply is essentially theft.

 

so can we arrest corps for artificially raising prices due to the Covid supply issues and not lowering prices when the supply issue resolved themselves?

and don't forget the Trump Trade wars he mishandled, that unfortunately happened right before covid - that also causes higher prices

 

Corporations didn't inflate the money supply. The federal reserve did.

 

they can cause inflation though, so can a trade war

 

Firms cannot inflate the money supply. Only the US government can inflate the money supply.

 

A trade war is only much more likely to cause price rises if the country allowed themselves to become overly dependent on foreign trade in the first place. That especially includes countries that we know could be problematic in the future - like China and Russia.