Today's big headline:
Fed Opens Door Further to a September Rate Cut
Officials held rates steady, but made an important pivot by highlighting a more equal focus on employment and inflation goals
Fer chrissake. "Opens door"? An "important pivot"? What more does the Fed want? Every measure of inflation has been hovering between 2-3% for the past year, and estimates of underlying inflation are around 2%. It's time to declare victory and go home.
The Fed wants the same thing as the John Roberts Court: Trump Uber Alles.
And the media. It is continually striking how many "educated" people want TFG just for their own personal reasons.
Yes, I agree. I think as long as there’s a reasonable possibility of bringing about a recession to damage the Democrats, Powell will keep rates where they are for as long as possible. This is yet another reminder of why Democrats should never appoint Republicans to anything, ever.
So Powel holds king-like sway over the Fed, and Biden was too befuddled and duped into reappointing him?
Right. Because the governors appointed by Biden are all Quislings…
Frankly, I'm pretty happy that rates are holding. The housing bubble needs more time to deflate and sellers in a bunch of markets are finally dropping prices. A rate drop would just push those prices right back up.
At this point, high interest rates are doing more harm to the housing market than good.
There is no housing bubble. There is a housing supply crisis.
FFS.
yes
Every measure of inflation has been hovering between 2-3% for the past year, and estimates of underlying inflation are around 2%
Plus, we really are seeing a deterioration in the labor market. This is no longer imaginary. Krugman has stated that the Sahm Rule is likely to be in effect as of Friday's jobs report.
https://en.wikipedia.org/wiki/Sahm_rule
I'm personally not too worried about the economy's effect on the election. As I understand it, the effect on the election of perceptions of the direction of national conditions are more or less cemented by mid summer. Well, right now the economy is pretty good.I suspect even if we are on the verge of sliding into a recession (and I doubt we're quite at that point) it will not be perceived by the electorate in time to influence the election (early voting begins in some states in a mere eight weeks!).
But yeah, Powell should start cutting for substantive reasons: to get ahead of the next downturn and reduce human suffering.
It's not that inflation is over; it's that the economy remains "in a good place" and so a rate cut appears unnecessary. If the new normal is the current rate structure, most of us have lived through that in the 90s.
Many have reset their expectations, believing that the 2000s and the 2010s struggle with ZIRP/ZLB means we should always have low rates. I'm not one of those people.
Lol, conservative? The nation's central bank? What an astounding idea!
Look, the economy really does seem to have managed a "soft landing" for the first time in a generation or so, and "if it ain't broke, don't fix it" isn't a bad rule of thumb. It's now clear the question is not whether but when (target) rates will be cut, and the when is almost certainly very soon.
And anybody who says they know for sure the difference between the medium-term economic effects of cutting rates a quarter-point THIS month vs. NEXT month is simply lying.
(Also, all respect, but the Fed has even BETTER charts than Kevin, so I'll defer to them.)
Framing this as 'conservative' doesn't really make sense. Prioritizing low inflation at the expense of jobs, wage gains and economic growth isn't 'conservative' in any sense of the word.
Justifying this priority is hard to do, so we often end up with this odd framing in an attempt to justify it without having to actually address the issue.
That nobody, the Fed included, can be certain about what the future will bring, isn't a good argument for keeping rates higher and it isn't a good attack against anyone asking the Fed to weigh their priorities more evenly.
a quarter point cut is warranted
The phrasing is more indicative of the "reporter" than it is of the Fed.
Commentary over time (in general)...
Fed is going to stay the course to squeeze out the last bit of inflation.
(sounds strong)
The Fed realizes their interest rates adjustments take time to filter through the economy.
(sounds wishy-washy).
I'm surprised the economy hasn't suffered more due to the Fed--but Biden really did pass measures that helped with employment. Housing prices are still high, and interest rates keep payments higher. High interest rates also curtail builders, so fewer new homes get built, and prices stay high.
Does Drum understand that the Fed operates extraordinarily cautiously in every regard, and if they're going to cut rates, they'll do it in an extremely non-splashy way?
In previous years I would have said "of course he knows this, he's just having a mini-tantrum" but these days I'm not so sure.
No. This blog pays attention to the month-by-month changes, and it always puts focus on the Fed's favored "core" inflation measure. Well, from January through March 2024 the monthly core rate hovered between 3% and 6.25% annualized. That's why the rate cuts forecast at the end of 2023 haven't started yet.
I wish they'd have started already, but September is what they've been talking about lately. I believe the majority of the FOMC is committed to that, as long as August looks about the same.
This is certainly a way to justify their approach, but it doesnt make a lot of sense. Its always possible to slice the data in just the right way to arrive at the preferred conclusion.....
The Q1 rate in isolation makes a weak case for maintaining higher rates, but there is absolutely no reason to only look at the Q1 PCE rate. The Q3 2023, Q4, 2023, Q2 2024, info on wages, hiring and recent housing costs are all important evidence that shouldnt be ignored in an effort to justify a preferred conclusion.
I think Jerome likes to hear himself, rather like t-Rump. Time for Jerome to move along.
Current interest rates are not really very high. If you can get a rate of return on a secure investment equal to the federal funds rate then you're looking at a real rate of return of 2-3%. Ditto if you borrow at the federal funds rate, you're paying a real interest rate of 2-3%. That's about a neutral rate, not stimulative and not depressive either.
The economy is presently in good enough shape that it doesn't need stimulation, although it's still getting it in the form of federal deficit spending. My prescription would be to keep interest rates about where they are and work on reducing the federal deficit.
Adding a second 'depressive' measure (reduced govt deficits) to high interest rates is not a neutral action and there is little evidence that this would be a good idea from a macroeconomic perspective.
Stacking multiple ways of slowing down an already slowing economy is a very risky approach.
I repeat, current interest rates are neutral, not depressive. Addressing the federal deficit would be ONE depressive measure applied to a very healthy economy.