Interest Rate Pause

I 100% agree. The FED's job should be to ignore UE. Even the ECB has a single mandate - inflation. Our dual mandate sucks. We should not be trying to manage the UE rate with monetary policy.

 

No, I'm saying that trying to drive up unemployment and tank the economy in 2024 just so we can lower inflation by the last suborn 1% would be a disaster for Biden in an election year and likely not get him re elected.

Also, I don't watch Jon Stewart, but that is literally what that guy is saying ... his #1 point in the article you linked is that the labor market is "too tight", too many jobs are being created, and wage growth is too high. That kind of stuff is good for workers and workers spend money and contribute to the economy. We don't have to kiss corporate asses all day, everyday.

 

without reading the article, it seems that this guy is not advocating crashing the economy, but saying that the economy is strong enough to deal with a hike.

BTW, for those you think the FED is out to "fire" people. Inf is an exceptionally cruel tax & the poor tend to suffer the most from it.

 

Markets have priced in 100bps cut starting Q2 just in time for the election. Steep cuts in lodging cuts will show up in the inflation data soon.

 

No, not at all, but crashes tend to come rapidly and unexpectedly. I’m not predicting one, but can’t rule it out either. If bond rates keep going up, that puts a lot of pressure in various places, such as banks, who own lots of bonds, similar to what happened with Silicon Valley Bank. Also, as these commercial real estate companies have to refinance at higher rates, at the same time vacancy rates have gone down post Covid, that could be a point of stress. But that doesn’t happen overnight. Also some apartment syndicates financed with variable rates and those could blow up.

I have no idea if any of these things could come into play, and what the results could be. If and when it happens, it will become obvious to everyone after the fact.

 

Partly, sure ... the political implications of intentionally trying to put people out of work in an election year seems impossible to ignore. Your hero Trump lost his shit when the fed slowly started raising rates in late 2019 so this shouldn't be a surprise to you.

 

He may have. I had Denslow 40 years ago.

As Biden can attest, everybody hates inflation. People think their inflation induced wage increases are earned but when the price of eggs go up the same amount they feel screwed.

BTW given Wardamngaors replies I’m inclined to agree with your initial assessment.

 

The political implications of inflation are also severe. In spite of low unemployment and strong gdp growth most people think the economy sucks, because of inflation.

 

The issue is people like the OP article are seeing the 70s and 80s where we kept taking our foot off the brakes and inflation kept popping back up for a decade, and they think we are making the same mistake. I’m not 100% sold they are right, but I understand the thinking.

 

I agree, but inflation has come down from like 9% to 3% and people still complain like it's 9% ... now add some artificially created unemployment, slowing economy, and the likely stock market drop that goes along with that, I doubt very many people will be like, "I'm sure am glad we got inflation down to 2% instead of 3%".

 

Treasurys have next to no default risk & int rate risk is easily managed by holding to maturity. You're right, their bonds severely lost value due to inflation, but it was a good ole bank run that did them in b/c otherwise, they could have just held the bonds to maturity. But, inf also caused the bank run. It hurt them b/c they were concentrated in the start up tech sector, inf scared off VC money & created a cash crunch for those firms all at once (same sector) forcing the bank to sell treasuries at a steep losses to honor withdrawals. To me, the real regulatory lesson, is what to do about banks that are too concentrated in one sector.

 

No one cares about the poor. The poverty rate is virtually unchanged over 50 years. Certainly it’s been unaffected by inflation now or in the 70’s. However it’s edged up every time unemployment has been an issue. Wages keep up with inflation. Nothing offsets being unemployed.

 

I strongly disagree. hyper-focus on UE can lead to all kinds of disastrous policy. See Trump/Biden's tariffs (which increased UE, despite being sold as a way to decrease it), Trump paying $820,000 per washing machine job (we'd be better off losing those jobs). See Trump's desire to decrease legal immigration. See New NAFTA. We could ban foreign coffee - that would add a shitload of jobs. Outlaw machinery for digging.

As I said above, it is bad policy in my opinion to have the FED's role be anything other than price control, that is, it is inferior policy to in any way try to manage UE with monetary policy.


While traveling by car during one of his many overseas travels, Professor Milton Friedman spotted scores of road builders moving earth with shovels instead of modern machinery. When he asked why powerful equipment wasn’t used instead of so many laborers, his host told him it was to keep employment high in the construction industry. If they used tractors or modern road building equipment, fewer people would have jobs was his host’s logic.

“Then instead of shovels, why don’t you give them spoons and create even more jobs?” Friedman inquired.

 

6 months ago the markets were pricing in cuts in Q4 of this year, they were wrong then and we won’t have cuts in Q2 of next year. Unless there is some black swan event and the economy craters, in that case cuts won’t move the needle by election day.

 

A potential 25bps cut in q4 don’t think it was much more than 50% more likely Q1 24. Timing has moved slightly and the 100bps is intact. Shelter cost data is going to show up in #’s soon.

 

That story is made up. In the context of the fed, thinking that laying people off to make it more economical for capital owners to hire is not good policy. That is what capital owners like. It does not help the poor. Wages rise with inflation. Wages lag during unemployment. We had decades of low inflation and no wage growth and the only people who made out are capital owners.