Welcome home, fellow Gator.

The Gator Nation's oldest and most active insider community
Join today!

Fed monetary policy

Discussion in 'Too Hot for Swamp Gas' started by okeechobee, Sep 29, 2022.

  1. okeechobee

    okeechobee GC Hall of Fame

    9,336
    1,183
    328
    Sep 11, 2022
    Hello all. I was curious what you all think of the current Federal Reserve monetary policy situation. I am looking at this subject without a political bias, because after all, the Fed is supposed to be apolitical and I think for the most part, they truly are. I was wondering if any of you have a problem with what the Federal Reserve is doing currently, which is standing on top of the brake pedal with both feet come hell or high water. The sharp reversal in monetary policy, not only this year, but also in 2020 at the onset of Covid, is troubling to me.

    Then we take into account what we saw this past week with the Bank of England. They had to do a complete 180 overnight to stop their currency from cratering. Going from a hawkish policy right back into bond purchases. My question is, are such quick reversals in monetary policy a reflection of our society wanting "instant gratification", etc? I'm disturbed by the Federal Reserve all but saying they are steering our economy into a recession. What I see and what many corporate CEOs, analysts and investors are seeing, is a BIG problem on our doorstep.

    Yes, the inflation problem needs to be corrected, but.. it was the Federal Reserve who stoked that bubble to begin with, with the quick reversals in monetary policy at the onset of Covid. Many believe the Fed overdid it and waited way too long to reverse course. Now they are reversing course so quickly, it's having a whiplash type of impact, where the economy will almost inevitably contract in a big way due to the scope of the ensuing liquidity crunch. Which is already underway, of course. It has more room to run and will get worse.

    Stocks are reacting, signaling lots of pain that lie ahead. It is difficult to believe with such a low unemployment rate that we could be headed for such a painful scenario, but everyone sees it coming. I think the Fed has really put us in a pickle with sharp reversals in course over the past 3 years. It seems they are desensitized. 1,000,000 job losses...if it stops inflation, so be it, seems to be their current line of thought.
     
    • Like Like x 2
    • Winner Winner x 1
  2. BigCypressGator1981

    BigCypressGator1981 GC Hall of Fame

    6,686
    1,371
    3,103
    Oct 11, 2011
    It depends on if it works or not. I’m certainly not a fan today.
     
    • Agree Agree x 1
  3. GatorNorth

    GatorNorth Premium Member Premium Member

    17,132
    8,055
    3,203
    Apr 3, 2007
    Atlanta
    Conventional wisdom is to raise interest rates above the rate of inflation, but the fed can’t (and won’t) take rates from near zero to 9+% overnight. So instead it’s death by a dozen increases that still haven’t brought interest rates to the rate of inflation and which don’t necessarily solve the problem today. But they are likely cratering the economy in the interim.
     
    • Agree Agree x 5
    • Fistbump/Thanks! Fistbump/Thanks! x 1
  4. okeechobee

    okeechobee GC Hall of Fame

    9,336
    1,183
    328
    Sep 11, 2022
    I agree, but their increases have been pretty steep this time around, compared to historical norms. Successive moves of .750% up in such a quick period of time don't have a lot of precedent in our history. Just makes me think they see it too. The disaster lurking. But they also waited entirely too long to reverse course, which just added to the problem.
     
    • Agree Agree x 2
    • Like Like x 1
  5. RealGatorFan

    RealGatorFan Premium Member

    14,902
    7,673
    2,893
    Apr 3, 2007
    That's because of their tampering over the past 20+ years. When you look at interest rates over the past 20 to 25 years, we have been way too low for way too long. Add QE during the Great Recession and really we are in unknown territory. Everything they are doing today is not resulting in the outcomes they expected. I just think those results are slower to act, so expect high unemployment in 2023. If you think 2022 has been bad, 2023 is eagerly waiting at the door to say, "Hold my beer!"
     
    • Like Like x 1
  6. oragator1

    oragator1 Premium Member

    22,882
    5,578
    3,488
    Apr 3, 2007
    I’ve said it before. but the causes of this inflationary round are largely outside of the norm. While the last stimulus in particular was a bad idea, Russia, supply chains, labor disruptions due to the pandemic driving up salaries etc, the only way to stop the inflation train is to run the economy into a ditch and greatly lower demand on pretty much everything.
    When that happens, there will be more than one “expert” wondering if inflation was really the bigger risk.
     
    • Agree Agree x 5
    • Funny Funny x 1
    • Winner Winner x 1
  7. magnetofsnatch

    magnetofsnatch Rudy Ray Moore’s Idol Premium Member

    1,008
    258
    1,783
    Apr 10, 2020
    North Florida
    They need to pause and see if the lagging indicators of inflation come down. I will say; however, that if you have a long term outlook the Fed is giving you an unbelievable buying opportunity.

    Inflation will collapse and a recession will result. The Fed will then cut and we will go into a 10-20 year negative real interest rate environment. Assets will skyrocket. Strap in and enjoy the next big bull.
     
    • Agree x 3
    • Like x 1
    • Fistbump/Thanks! x 1
    • Winner x 1
    • Optimistic x 1
  8. okeechobee

    okeechobee GC Hall of Fame

    9,336
    1,183
    328
    Sep 11, 2022
    I agree rates were likely held too low over the past 20 to 25 years, however, we were able to contain inflation during that period with relative ease. I believe it was the overcorrection at the onset of Covid, coupled with two years of aggressive quantitative easing..much of which was done after it was clear the economy was on a strong rebound, which caused most of the inflation we're seeing today. It's been talked about for years, but it's finally come to fruition. There was simply no need to pump for two years. Their current policy basically confirms this thought as they are hiking at unprecedented levels.
     
    • Agree Agree x 2
    • Winner Winner x 1
  9. okeechobee

    okeechobee GC Hall of Fame

    9,336
    1,183
    328
    Sep 11, 2022
    But there have always been inflationary pressures like the ones you mention above, for as long as there has been a monetary policy. The outlier in the past couple of years is the enormous quantitative easing, which went on for way too long.
     
    • Agree Agree x 1
  10. okeechobee

    okeechobee GC Hall of Fame

    9,336
    1,183
    328
    Sep 11, 2022
    100% agree, that's where we're heading. Negative rates. American public won't settle for less. Which is why we went so nuclear with rates and QE at the outset of Covid and why we waited so long to reverse. I suppose that's my bigger point here. Public sentiment drives a lot of these moves, whether they'll admit it or not.
     
    • Like Like x 2
    • Winner Winner x 1
  11. WarDamnGator

    WarDamnGator GC Hall of Fame

    10,688
    1,339
    1,718
    Apr 8, 2007
    Seems like overkill when the fed now doesn't seem to be just happy with lowering inflation, but are also adding higher employment and "resetting the housing market" to their list. Who benefits from high unemployment? Just Employers?
     
    • Agree Agree x 1
  12. docspor

    docspor GC Hall of Fame

    5,691
    1,819
    3,078
    Nov 30, 2010
    The dual mandate (UE & inf) is a bad idea. inf should be their only concern. W/o the dual mandate, they’d’ve acted sooner

    Real int rates are still neg. UE is too low.

    The mkt is going down not so much due to a “cratering economy” as it is just using a higher rate to discount future expected cash flows. Very mechanical
     
    Last edited: Sep 29, 2022
    • Like Like x 1
    • Agree Agree x 1
  13. AgingGator

    AgingGator GC Hall of Fame

    3,696
    794
    2,088
    Apr 24, 2007
    Powell is a fool. Anyone with a lick of sense could see that the Covid response and then Biden’s spending and other policies would lead to this, but he kept singing the Transitory Song. He should have starting raising rates in late 2020 when it became apparent that no matter who won there would be huge Covid spending.

    I didn’t think we would do worse than Greenspan in my lifetime but we certainly have.
     
    • Like Like x 3
    • Agree Agree x 2
    • Winner Winner x 2
  14. oragator1

    oragator1 Premium Member

    22,882
    5,578
    3,488
    Apr 3, 2007
    the supply chain mess is unprecedented and yes there have been wars, but energy hasn’t been weaponized like this ever, other than the opec crisis in the 70’s and we got exactly what we have now. Rising rates, no real relief and a crappy economy.
    As far as QE, I agree they could have stopped it much earlier but let the markets dictate far too much. And making a thing around tapering it now is a bit silly since mortgage loan volume has dropped significantly and corporate boring will follow with the rising rates anyway.
    And it went nearly a decade and a half without causing an inflationary corrective recession, the difference was all the things that changed in the pandemic. The stimulus packages, energy shortages, supply chain disruptions etc. The timing wasn’t a coincidence. And you can’t fix the supply chain or Russia with interest rate hikes. You usually fix bubbles with hikes. Asset bubbles, debt bubbles, spending bubbles etc…this go round isn’t that. Other than maybe stocks, which this has effectively tamed.
    So we will see where we are in a 6 months or a year, but my guess is that it won’t be good.
    Jmo.
     
  15. citygator

    citygator VIP Member

    11,170
    2,507
    3,303
    Apr 3, 2007
    Charlotte
    • Raising rates is a mistake.
    • Inflation currently is caused by supply and labor shortages, not too much purchasing
    • Inflation is transitory until labor and supply chains are corrected - transitory will be years (another 18 mos)
    • GDP went backwards during the pandemic and that included government spending
    • Destroying the house building market is a mistake which will trickle into rent
    • Messaging from the administration is terrible and leading people to believing incorrect diagnoses
     
    • Disagree Bacon! Disagree Bacon! x 2
    • Optimistic Optimistic x 1
  16. AgingGator

    AgingGator GC Hall of Fame

    3,696
    794
    2,088
    Apr 24, 2007
    Fed policy in that time frame was inflationary. It was intentional to offset/prevent the deflation caused by the the housing bubble (one of Greenspan’s Bubbles).

    Once housing was stabilized the fed should have been setting rates higher.

    Doc is right about the dual mandate, there are too many potential conflicts between the two mandates for them to be effective. With the foolish government policies responding to Covid there was unemployment pressures created that they had to respond to. But once again, they went along for the ride with the foolish politicians and here we are.
     
    Last edited: Sep 29, 2022
    • Agree Agree x 1
  17. slocala

    slocala VIP Member

    2,890
    723
    2,028
    Jan 11, 2009
    In my opinion, the Fed is doing the “right” thing on rates, if you have a certain point of view. No doubt they are looking for certain indicators. Central Banks are looking for a softening labor market and jobs being shed coupled with personal bank accounts being depleted. Then all the surplus pandemic money under Trump and Biden will have found its home in the top 0.01% hands in the form of real assets — a further indenture of the common man and woman.

    OT: I fear the Fed will announce a CBDC in the midst of this crisis. We will be confined to a tracking CBDC that constrains our freedom and anonymity of cash.
     
  18. docspor

    docspor GC Hall of Fame

    5,691
    1,819
    3,078
    Nov 30, 2010
    Water puts out most fires regardless of cause. Raising Int rates is the best course of action at the feds disposal.
     
    • Like Like x 1
  19. gtr2x

    gtr2x GC Hall of Fame

    16,230
    1,464
    1,393
    Aug 21, 2007
    Fed kept rates too low for way too long. Should have raised rates long before they did and now will raise them too high and kill the economy. Recession becomes self fulfilling, just a matter of how bad.
     
    • Winner Winner x 4
    • Like Like x 1
  20. okeechobee

    okeechobee GC Hall of Fame

    9,336
    1,183
    328
    Sep 11, 2022
    Good points about the dual mandate. Each mandate is kind of driven by public sentiment. High unemployment = people freaking out, what can we do? High inflation = people freaking out, what can we do? Back to my point that the Fed is all too often trying to appease public sentiment, instead of doing the right thing in a timely manner.