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Message
re: Is the role of the Fed to "stimulate the economy"?
Posted on 8/21/19 at 10:18 am to LSURussian
Posted on 8/21/19 at 10:18 am to LSURussian
Right.
I guess the thing rests on what one views as "controlled".
IMO 2.4% inflation is controlled. You are of course correct in that admittedly the target is 2%. If we are now in a world where the Fed plans to aggressively raise rates to attack a 2.4% inflation number though, God help us. I think the real motivation last year was the Fed's desire to regain its rate cushion, reload arrows in the quiver s2s.
Going forward, couple of TV economists this week were citing 1.5-1.6% annualized inflation unless things change.
I guess the thing rests on what one views as "controlled".
IMO 2.4% inflation is controlled. You are of course correct in that admittedly the target is 2%. If we are now in a world where the Fed plans to aggressively raise rates to attack a 2.4% inflation number though, God help us. I think the real motivation last year was the Fed's desire to regain its rate cushion, reload arrows in the quiver s2s.
Going forward, couple of TV economists this week were citing 1.5-1.6% annualized inflation unless things change.
2
Posted on 8/21/19 at 10:23 am to NC_Tigah
They expected higher growth and more inflation. Neither came to fruition.
Posted on 8/21/19 at 10:24 am to AUCE05
quote:and?
What the hell are you talking about? Inflation was almost 2.4% in 2018
Where, given the nature of the world economy, would US inflation be had the Fed held the final two hikes? That's what I'm talking about.
quote:
Those of you wanting our gov to have control of our money
Posted on 8/21/19 at 10:26 am to yatesdog38
quote:Indeed.
They expected higher growth and more inflation. Neither came to fruition.
My beef is they sat on the thing for months when the mistake was apparent.
Posted on 8/21/19 at 10:29 am to NC_Tigah
I don't they should act on a whim though. I don't think there was any reason to lower rates. I think they should just let it ride. Basically they are trying to micro manage the economy.
Posted on 8/21/19 at 10:40 am to NC_Tigah
quote:I guess "aggressively" is relative.
If we are now in a world where the Fed plans to aggressively raise rates to attack a 2.4% inflation number though, God help us.
I'm so old I lived through the period when Paul Volcker's Fed raised the Fed funds rate by 1.0% twice in ONE WEEK and by a total of 4.0% in ONE MONTH!
I ended up getting a 10-year, 12% fixed-rate certificate of deposit for my IRA thanks to Volcker.
Posted on 8/21/19 at 10:43 am to LSURussian
quote:
E means the Fed is buying bonds. To reverse QE the Fed either sells bonds or lets bonds mature without replacing them.
Right. The fed wants the bonds off their balance sheet.
Posted on 8/21/19 at 10:44 am to 90proofprofessional
quote:
But in their defense, it doesn't turn on a dime in response to fed policy, so waiting until then would have incurred an overshoot of uncertain magnitude, particularly if the economy is truly as hot as the president claims it is.
Adjusting rates to control inflation is like using a piledriver, not like a surgical tool.
Posted on 8/21/19 at 10:47 am to LSURussian
quote:
Since 1977, the Federal Reserve has operated under a mandate from Congress to "promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates" — what is now commonly referred to as the Fed's "dual mandate."
Beat me to it.
This is the stated purpose of the Fed. These three goals.
Posted on 8/21/19 at 10:47 am to NC_Tigah
quote:
My beef is they sat on the thing for months when the mistake was apparent.
6 months.
The only thing worse than a controlling Fed, is a controlling Fed that whiplashes.
If the economy is doing as well as Trump says, this was a minor adjustment.
Posted on 8/21/19 at 10:48 am to LSUFanHouston
It'd be a truly impressive feat if they ever got the "soft landing" thing right
Posted on 8/21/19 at 10:52 am to LSUFanHouston
quote:What other option does the Fed have to manage inflation that's less of a shock to the economy?
Adjusting rates to control inflation is like using a piledriver, not like a surgical tool.
The Fed could raise commercial bank deposit reserve rates but raising bank reserve rates is the nuclear bomb for controlling inflation.
Posted on 8/21/19 at 10:57 am to LSURussian
quote:
What other option does the Fed have to manage inflation that's less of a shock to the economy?
To my knowledge, there isn't.
But that's why saying, hey, at 2.4% inflation we shouldn't adjust, but at 2.5%, yeah, we gotta do it... that's not how this works.
When it gets close, one side or the other, you pull the trigger, and you always overshoot or undershoot. But it's the best we have as of now.
Posted on 8/21/19 at 11:05 am to LSUFanHouston
In your opinion what’s worse for an economy, inflation or deflation? Or, are they equally bad?
Posted on 8/21/19 at 11:11 am to LSURussian
quote:
In your opinion what’s worse for an economy, inflation or deflation? Or, are they equally bad?
Deflation, I think, is worse in the short term. Puts people out of work, leads to bank runs, etc. I think there are more tools (for example, QE, tax cuts) that can be used to prevent deflation, or at least, shorten it's term.
Inflation, I think, is worse in the long term. Other than interest rates, there aren't many tools to combat it. Once the horse is out the barn, it takes more drastic steps to reign it in. And while you might not have too much problem in the runup, you run the risk of the whole damn thing blowing up.
Also, deflation can happen by kicking an economy while down, or by allowing inflation to get too hot and the bubble bursts.
Posted on 8/21/19 at 11:22 am to LSUFanHouston
IMO, deflation is always worse than the same level of inflation.
An economy can thrive with low inflation.
But even low deflation can drive an economy into a depression. And deflation is more difficult to turn around once it becomes the mindset of consumers and industries.
Why buy something today if it's going to be cheaper tomorrow?
That mindset applies to almost all asset classes, from cars, to houses, to stocks, to manufacturing equipment and even to raw materials.
Japan started going through a deflationary spiral in the 1990's and they still haven't recovered fully from it.
Their main stock market index, the Nikkei 225 Index, hit a record high of over 37,700 in January, 1990 and today it is at 20,600. It has yet to recover from the asset deflation Japan is still fighting.
An economy can thrive with low inflation.
But even low deflation can drive an economy into a depression. And deflation is more difficult to turn around once it becomes the mindset of consumers and industries.
Why buy something today if it's going to be cheaper tomorrow?
That mindset applies to almost all asset classes, from cars, to houses, to stocks, to manufacturing equipment and even to raw materials.
Japan started going through a deflationary spiral in the 1990's and they still haven't recovered fully from it.
Their main stock market index, the Nikkei 225 Index, hit a record high of over 37,700 in January, 1990 and today it is at 20,600. It has yet to recover from the asset deflation Japan is still fighting.
Posted on 8/21/19 at 11:50 am to LSURussian
quote:There is currently no appetite for fiscal responsibility. Inflation with higher costs to carry US debt would force budgetary constraint. I'd prefer inflation now, rather than continually winding the spring.
In your opinion what’s worse for an economy, inflation or deflation?
Posted on 8/21/19 at 12:25 pm to Hooligan's Ghost
quote:
is it their role to hinder the economy? where the hell do they get their power from anyway?
Are you using a VPN connection? Are you hiding your IP? Lol!
Posted on 8/21/19 at 1:23 pm to LSUFanHouston
So the constant lowering of rates during the years of Obama's weak economy, wasn't an attempt to keep the first black president's economy from tanking?
This is a rhetorical question, because we all know the answer to that.
This is a rhetorical question, because we all know the answer to that.
quote:
2008: GDP = -0.1%, Unemployment = 6%, Inflation = 0.1%
Apr 30 - 2.0%
Oct 8 - 1.5%
Oct 29 - 1.0%
OBAMA elected
Dec 16 - 0.25%
Effectively zero. Lowest fed fund rates possible Between 2008 and 2015, the Fed kept the rate at zero.
Fed Chair Janet Yellen (February 2014—February 2018)
2015: GDP = 2.9%, Unemployment = 6%, Inflation = 0.7%
Dec 17 - 0.5%
TRUMP elected
2016: GDP = 1.6%, Unemployment = 4.6%, Inflation = 2.1%
Dec 15 - 0.75%
2017: GDP = 2.4%, Unemployment = 4.1%, Inflation = 2.1%
Mar 16 - 1.0%
Jun 15 - 1.25%
Dec 14 - 1.5%
Fed Chair Jerome Powell (Since February 2018)
2018: GDP = 2.9%, Unemployment = 3.9%, Inflation = 1.9%
Mar 22 - 1.75%
Jun 14 - 2.0%
Sep 27 - 2.25%
Dec 19 - 2.5%
Fed promised to stop raising rates.
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