Tick tock. The Fed's rate hike decision is almost here! Can you feel the tension in the air?
POSTSCRIPT: Up a quarter of a point. Idiots. How tight do they think the economy needs to be?
50 thoughts on “Morons at Fed raise interest rates yet again”
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Tight enough to teach people a lesson about wanting jobs and raises. They will be punished until they accept that if it takes 8% unemployment to maintain sub-two percent inflation, that's just how its gonna be.
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They did the right thing.
Okay, I'm game. How so? Because it sure as hell doesn't look like the economy is running hot, and maybe they should see what all their other rate hikes do (rate hikes take like six months to work their way into the economy) before hiking them more?
My guess is that a quarter point one way or the other matters not a whit. Not economically. What rules Fed policy is psychology. What matters is: (a) show Fed is still "serious" about inflation, and (b) find a middle path to meet expectations.
Though interest rates are not the only remedy in the Fed's medicine bag (e.g., this month the Fed has taken steps in response to the banking crisis), interest rates are the one thing everyone pays attention to. Every month or so, the doctors at the Fed examine the patient (that is, the economy) and decide how many leaches to apply. Then all the economists, pundits, and players get to debate whether it was too many or not enough.
I would like to think we'll find better ways to manage the economy in the future.
We have another proven way to manage the economy--fiscal policy.
Sadly, that method takes action by Congress and the President, so it's hopeless unless one party controls both houses with a bullet-proof majority, plus a President on the same team.
That's very true. One reason the Fed now has an outsize role is the lack of any kind of coordinated fiscal policy because obstructionists (in the majority or minority) can knock it down. The recent exception was during the pandemic (even in a split government, with Dems willing to do the right thing) and first two years of Biden's term (all Dem control).
One disqualifying thing about MMT when it was much discussed was how it addressed inflation. Its proposed solution was through fiscal policy, by adjusting taxes. That's a policy without any realistic chance of ever working.
Keep raising interest rates until job losses take everything from a few people?
Or raise taxes and take a bit from everyone?
Both take some money out of the economy. The second seems more fair.
Maybe it's time to try poultices. They might work.
No they did not do the right thing. No need to do this now after January inflation report.
The inflation report for January was not good. Not everyone is convinced the Fed has quite finished the job.
Unfortunately, the Inflation Report uses year-over-year calculations, which are hopelessly out of date by now. Consider an extreme reductio ad absurdum example:
Suppose CPI is absolutely steady for 12 months of year 2025. In January of 2026, it suddenly jumps three percent. Then it holds absolutely steady for the next eleven months of year 2026. The Inflation Report will show that we have 3% inflation in February, in March, in April, ...etc. For 12 consecutive months we will have 3% inflation, while for 11 of those 12 months the CPI moved not one iota.
There just HAS to be a better way.
I wasn't talking about year-over-year inflation. I was considering the core PCE index changes, month by month. The month of January by itself was bad, and so was December. November was not bad at all, but before that the last good month on core inflation was July. Two good months out of the past year.
The real point here is to have a major recession coming to a head in summer of 2024 to guarantee a Trump re-election.
Could be. You dance with him that appointed you.
This really is my fear.
You mean like how the current chair was re-appointed to the position by Biden and was initially appointed to the board by Obama?
The current board is 50/50 Democrats/Republicans with one vacancy…
https://en.m.wikipedia.org/wiki/Federal_Reserve_Board_of_Governors
One thing you can say about Trump. He would be absolutely blasting the Fed right now. Maybe time for Biden to take at least that lesson from Trump.
if the Fed had been more aggressive with rates in 2018-2019 we'd wouldn't be doing this now
Inflation has been a world-wide problem due to supply chain issues. The Fed could not have fixed that.
And when Trump blasted, Powell and the Fed listened, starting to drop federal funds in 2019.
I doubt that Powell has a deliberate plan to cause a recession now for political purposes, but to reject political influence entirely is naive.
Tight enough to squeeze yet more money out of workers so that the capitalists can slurp it up. They're running out of ways to get their wealth-sucking fixes.
This wealth sucker is looking forward to lower house prices. Got the cash gun loaded.
Tight enough that we need a tax cut for job creators to grease things up again?
How much of this rate increase might have been related to projecting confidence in the banking system? See everyone we can raise rates and no banking crisis -- nothing to see here (Notwithstanding the $700B+ in marked to market paper losses). How much did the yield on the 30 year react to this news?
Good lord, Kevin. They're not idiots. You can disagree with their decision, but you're doing your readers a disservice by calling them idiots.
Inflation is still running hot. You have consistently predicted it was about to come down, but it hasn't really. You may still be confident that further action from the Fed is unnecessary, but you don't have to be an *idiot* to disagree with that view.
I'd think someone who has been shouting "inflation is about to come down!" for the last year would have just the slightest smidge of humility about this.
This is a good point. Given that Kevin said inflation would be over spring 2022, some humility might be in order (even though I think the world of Kevin).
I am also a big KDrum fan! I've read just about everything he has posted since 2008!
This is why I keep hammering him on inflation - he is an otherwise-excellent writer who has developed a significant blind spot on this one issue.
Also housing. He's very wrong about housing. But everything else he's great on! I love me some Kevin Drum! Just not on this topic.
Inflation is falling.
To state that inflation is running hot when inflation is falling is a bit.....misleading?
But to your main point, its a mistake to assume that important people are really good at their jobs. It is sometimes the case that VIPs are idiots, even though they are very important.
What makes you certain that they arent idiots?
Inflation was falling. It is lower than it was at its peak. Is it still falling? I'm not so sure.
Whether or not the statement "inflation is still running hot" is misleading turns entirely on how you interpret that. For example, if you interpret "inflation is still running hot" to mean "inflation has not slowed down from its recent peak," then I would call that misleading. If, on the other hand, you interpret "inflation is still running hot" to mean "inflation is still higher than the Fed's goals and the market's long-term expectations", I think it's entirely accurate and not misleading.
To clarify, I meant the second interpretation. If you interpreted it differently, I apologize.
I do not assume important people are good at their jobs. Lots of important people are bad at their jobs. But usually, you can tell when an idiot has an important job. The way they speak, the way they answer questions, the way other people talk about them - there's usually good indication. And I just don't see it here. Powell's a smart guy!
Now, he might be wrong about the best way for the Fed to handle inflation. Predictions are hard, especially about the future. I don't think that someone being wrong about a topic as difficult as macroeconomic stabilization post-Covid means that person is an idiot.
But again, maybe you interpret the word "idiot" differently than I do. Merriam Webster defines it as "a foolish or stupid person." I do not believe the FOMC is made up of stupid or foolish people. I've heard most of them speak on several occasions.
They're not always right! They might be wrong about this! But that doesn't make them idiots.
If you think "inflation is still running hot" then you might read what I wrote above in reply to Jerry O'Brien.
Ken, what you wrote is correct, inasmuch as one should not cite the annual statistics to describe what is currently happening.
But the monthly statistics are also not good!
I don't have time right now to go look them up but there was big increase from December to January and then another (in CPI) from January to February. We'll see what February PCE looks like, but I am not getting my hopes up about moderation. We haven't whipped inflation yet.
Thank you, and month-to-month was what I was talking about. Core inflation was well above the target rate in both December or January.
I think they pretty much had to do this.
I have a fair retirement portfolio, and the only thing that will destroy it, is inflation. Inflation, in fact, is the single biggest determinant of when I can retire, not investment returns.
I will agree that this isn't how the problem should be solved. It should be by policy makers and it would involve increased taxes. But as long as 45% of the country is gerrymander into one-party rule that is 100% opposed to any tax increase, that's DOA.
Do you have medium or long-term bonds in your portfolio? The Fed has devalued them by raising federal funds rate. When interest rates go up, stock prices generally go down. In fact most people's portfolios have been devalued either way by the Fed action. If a recession is caused, stock prices will go down more, although the Fed would probably drop interest rates again.
Nope, just a mutual fund that probably has some exposure, otherwise moving a decent chunk to CD's because I can get 5% (3.75%ish after taxes) there. I probably should have been more diversified anyways.
I don't think anyone should have gone long on bonds, but I'm not an investment expert at SVB. That's not sarcasm, that may have been their best play based on their assessment of risk, sometimes you lose to a 2 and 7 with pocket AA's.
Feel so sad for you. Of course, I'm nowhere near retirement and every time we do stuff to protect older people's retirements, my generation and younger ones lose our jobs and savings. "We gotta make younger workers suffer so that older workers can retire comfortably" is pretty crappy, akin to "we had to destroy the village in order to save it" type logic. Cause if eventually younger gens have no future, they're going to see to it that nobody has any future either.
Great point.
Slowing the economy, reducing wages and throwing people out of work doesnt seem like the right way to address the problem of retirees who invested poorly or dont have enough money to retire in the manner of lifestyle that they want.
It's still the Boomers' world, we just live in it. 😛
Yeesh, just no. What is good for the economy is also good for retired boomers and those like me who will retire in the not too distant future and vice verse. It does not help me in the slightest to push the economy into a recession and inflation is no bigger a concern for me than it is for anyone else, maybe less so as a large chunk of my retirement income will be SS which has cost of living increases. The way to make our economy and country better is not to try to drag seniors down but to create a better society for everyone. There are evil geniuses among the boomer generation . And the ones before it. And the ones that follow. Trying to pin everything on the boomers plays right into THEIR hands.
Inflation hurts everyone, not just retirees. It hurts lower-income households the most.
There are US Treasury I-Bonds, yielding 6.89 at the moment, adjusted twice yearly. Not a bad number...just suggesting there are some decent bond ideas out there.
Best Wishes, Traveller
If only Silicon Valley Bank bought them....
Says Drum who has been been presenting "trend lines" that don't actually trend...
Have the members of the FED been "shorting" banks???
Kevin I with you. They are idiots. They certainly have waited for the last blast to catch up. This is getting insane!
To the extent that retirees -- aka baby boomers -- have shifted their money to CDs and TIPS, I'm thinking at least some folks aren't too concerned.
Also, c'mon man. Calling the Feds morons is uncalled for. Do you have their knowledge in macro, econ, and finance?
Powell thinks he must send a message that he’s determined to stay the course and see it through to victory no matter how much pain it imposes. And further that his job is to con, cozen, and coerce the people being hurt into sticking it out. The analog that comes to mind is a WWI general.
Agreed. These guys see everything through the eyes of a banker. They can't accept the fact that economic parameters can be affected by things that have nothing to do with their expertise -- things like pandemics, social trends, the fantasies of mad dictators, climate change, etc. It's a tired cliché, but it really fits here: when all you have is a hammer, everything looks like a nail.
Problem is, the guy with the hammer currently rules all our lives. And the sonofabitch is risking putting donald trump back in the White House.