The rapid cycling of decisions is concerning, but from an economic standpoint, rates shouldn't be cut for the foreseeable future if there is any hope of bring inflation under control. I frankly doubt there is any hope for that given that neither presidential candidate seems to want to reduce spending and people keep pushing for rate cuts "to revitalize the housing industry." No! NO! NO!!! We won't have a housing industry if we fall into hyperinflation and while the rate of inflation has slowed, the (lowball) 40% inflation that characterized the last couple of years didn't go away and the inflation rate is only moderating now because rates are higher than they were.
Remember, rates dropped to a normalized rate of 6% after Reagan's Fed increased them to over double-digits to address the Nixon-Ford-Carter inflation. So the rates right now are still historically low, which is one reason we keep seeing periodic bank failures. Is there a balance the Fed could achieve? Probably not so long as the federal government keeps borrowing/printing/digitalizing $1 for every three it takes in revenue. Until we get that under control, this is all just bandaids on arterial slices.
The actual influence of the federal funds rate on inflation is problematic at best.
During both the hyperfinlation of the 1970s and this most recent episode, energy prices play a big role in overall inflation, far more than interest rates. This is especially true when the interest rates are ultimately only setting the cost of capital for the consumer market.
The Fed needs to stop trying to micromanage interest rates period.
I'm not sure what you mean by "problematic". If you mean that "economists" who believe in the Magic Money Tree (Modern Monetary Theory) don't like it, well...I don't care what they think.
I agree the existence of the Fed is problematic. If it didn't exist, interest rates would be set by natural economic forces and they'd be in double digits right now as banks would seek to mitigate their risks from lending in a shaky economy.
Inflation is caused by government increasing the money supply beyond what the market can bear, so that you have too many dollars chasing too few goods. Scarcity demands the price of those coveted items will go up since the supply of dollars increased. It's always a risk in fiat currencies, but became an existential threat when the MMT fantasizers told Obama that the rules of economics didn't apply when you digitalized the money supply. We're learning now that they were wrong. Some of us knew it at the time. The rest of the country is about to have a rude light cast on the fantasy that is MMT.
Unfortunately, the government is now $35 Trillion in debt and every American owes $100,000 on that debt. It would be one thing if we just owed it to China who might impose slave labor for a couple of decades to force us to repay it, but a lot of it is owed to American retirement accounts. Granny won't be happy when she hears she has to live in her son's basement (that used to be her basement because he couldn't afford to buy a house) instead of retiring to the Villages because her retirement account is worthless if the government gets serious about balancing the budget.
I say we should go for it before the country collapses into a Greater Depression. Granny will be okay...just not rich and she'll have to help take care of her grandchildren...just like her grandparents did when they became dependent upon their children. And don't think I'm saying that cavellierly. I'm within a decade of retirement myself. I just see what the country needs to do and I see no upside to continuing the status quo. The longer we wait, the worse the pain will be.
Unfortunately, neither current political candidate appears to be aware of economic reaities.
What I mean when I say the Fed's "success" in bringing inflation down is problematic:
The common truism in economic circles is that central banks raise interest rates to stop inflation.
However, when you look at inflation and the federal funds rate and their variances over time, that just doesn't play out. Even Volcker's claimed triumph over inflation in the early 80s is extremely dubious, as the disinflationary cycle preceded much of the rate increase.
What a great many tend to overlook is the influence on inflation of the VELOCITY of money -- which is a measure of how rapidly the existing stock of money circulates through an economy. Alll else being equal, the greater the velocity the higher the inflation.
One of my ongoing analytical efforts is leading me to believe that money velocity may be more determinative of inflation than money supply, particularly now in the post-Great Finanacial Crisis era.
Failure to appreciate money velocity properly is, I suspect, how we get Modern Monetary Theory. If money velocity is low then you can expand the money supply with little or no inflation. However, that then obligates the central bank to KEEP money velocity low, which then becomes its own drag on the overall economy.
Lack of money velocity means correspondingly fewer transactions, less liquid (and therefore more volatile) markets, and overall an economy that is far more brittle than the "experts" realize.
Plus there's the ongoing risk that if money velocity ever increases, all that pent-up inflation immediately crashes over the economy like a tsunami.
Thus we are left with two possible outcomes: stagnation/stagflation and a "lost decade" or two of economic growth, or destabilizing hyperinflation at Weimar Republic levels.
I am grateful for your ability to expose the manipulations and show us the real picture, Peter - a picture that you consistently back up with current, accurate data and grounded analysis.
Here’s the dilemma that we non-finance people have: we can follow along with their explanations, but we don’t have the knowledge to discern how much they’re lying, and what the nuances and implications of it all are likely to be.
For example, a textbook will say that the Fed is politically neutral. That seems pretty naive, so I’m not buying it. But what percentage of the financial pros do - 20%? 1%? I don’t know. So, assuming that the majority of Wall Street players believe that Powell’s statements are, at least in part, politically motivated, what percentage of them think statements such as, “the economy is in good shape” are complete bullfeathers? I don’t know. We can tell by Wall Street’s reactions, but we don’t know what other factors are entering into their reactions and skewing the equation. Are they factoring in effects of the new tariffs, the likelihood of Trump’s election, or the likelihood of war ramping up? I don’t know how much of these, and other issues, are weighing in on their immediate market moves after Powell comments. And what percentage of them can see through all the lies as you are able to - 10%? 50%? I don’t know.
So keep exposing nonsense and explaining things to us, Peter, and know that your efforts are appreciated!
Powell et.al. are supposed to be data driven not politicians. It’s frustrating how even with all the graphs of data which you faithfully use as concrete objective reality are completely rejected. Warped thinking and feelings are ruling every sphere, gender is a feeling, 2+2=5 or whatever you subjectively wish it was, singing and whistling while the ship is taking on water and sinking. Refusing to see objective reality and taking action is hateful and harmful wickedness
The rapid cycling of decisions is concerning, but from an economic standpoint, rates shouldn't be cut for the foreseeable future if there is any hope of bring inflation under control. I frankly doubt there is any hope for that given that neither presidential candidate seems to want to reduce spending and people keep pushing for rate cuts "to revitalize the housing industry." No! NO! NO!!! We won't have a housing industry if we fall into hyperinflation and while the rate of inflation has slowed, the (lowball) 40% inflation that characterized the last couple of years didn't go away and the inflation rate is only moderating now because rates are higher than they were.
Remember, rates dropped to a normalized rate of 6% after Reagan's Fed increased them to over double-digits to address the Nixon-Ford-Carter inflation. So the rates right now are still historically low, which is one reason we keep seeing periodic bank failures. Is there a balance the Fed could achieve? Probably not so long as the federal government keeps borrowing/printing/digitalizing $1 for every three it takes in revenue. Until we get that under control, this is all just bandaids on arterial slices.
The actual influence of the federal funds rate on inflation is problematic at best.
During both the hyperfinlation of the 1970s and this most recent episode, energy prices play a big role in overall inflation, far more than interest rates. This is especially true when the interest rates are ultimately only setting the cost of capital for the consumer market.
The Fed needs to stop trying to micromanage interest rates period.
I'm not sure what you mean by "problematic". If you mean that "economists" who believe in the Magic Money Tree (Modern Monetary Theory) don't like it, well...I don't care what they think.
I agree the existence of the Fed is problematic. If it didn't exist, interest rates would be set by natural economic forces and they'd be in double digits right now as banks would seek to mitigate their risks from lending in a shaky economy.
Inflation is caused by government increasing the money supply beyond what the market can bear, so that you have too many dollars chasing too few goods. Scarcity demands the price of those coveted items will go up since the supply of dollars increased. It's always a risk in fiat currencies, but became an existential threat when the MMT fantasizers told Obama that the rules of economics didn't apply when you digitalized the money supply. We're learning now that they were wrong. Some of us knew it at the time. The rest of the country is about to have a rude light cast on the fantasy that is MMT.
Unfortunately, the government is now $35 Trillion in debt and every American owes $100,000 on that debt. It would be one thing if we just owed it to China who might impose slave labor for a couple of decades to force us to repay it, but a lot of it is owed to American retirement accounts. Granny won't be happy when she hears she has to live in her son's basement (that used to be her basement because he couldn't afford to buy a house) instead of retiring to the Villages because her retirement account is worthless if the government gets serious about balancing the budget.
I say we should go for it before the country collapses into a Greater Depression. Granny will be okay...just not rich and she'll have to help take care of her grandchildren...just like her grandparents did when they became dependent upon their children. And don't think I'm saying that cavellierly. I'm within a decade of retirement myself. I just see what the country needs to do and I see no upside to continuing the status quo. The longer we wait, the worse the pain will be.
Unfortunately, neither current political candidate appears to be aware of economic reaities.
What I mean when I say the Fed's "success" in bringing inflation down is problematic:
The common truism in economic circles is that central banks raise interest rates to stop inflation.
However, when you look at inflation and the federal funds rate and their variances over time, that just doesn't play out. Even Volcker's claimed triumph over inflation in the early 80s is extremely dubious, as the disinflationary cycle preceded much of the rate increase.
What a great many tend to overlook is the influence on inflation of the VELOCITY of money -- which is a measure of how rapidly the existing stock of money circulates through an economy. Alll else being equal, the greater the velocity the higher the inflation.
One of my ongoing analytical efforts is leading me to believe that money velocity may be more determinative of inflation than money supply, particularly now in the post-Great Finanacial Crisis era.
Failure to appreciate money velocity properly is, I suspect, how we get Modern Monetary Theory. If money velocity is low then you can expand the money supply with little or no inflation. However, that then obligates the central bank to KEEP money velocity low, which then becomes its own drag on the overall economy.
Lack of money velocity means correspondingly fewer transactions, less liquid (and therefore more volatile) markets, and overall an economy that is far more brittle than the "experts" realize.
Plus there's the ongoing risk that if money velocity ever increases, all that pent-up inflation immediately crashes over the economy like a tsunami.
Thus we are left with two possible outcomes: stagnation/stagflation and a "lost decade" or two of economic growth, or destabilizing hyperinflation at Weimar Republic levels.
I am grateful for your ability to expose the manipulations and show us the real picture, Peter - a picture that you consistently back up with current, accurate data and grounded analysis.
Here’s the dilemma that we non-finance people have: we can follow along with their explanations, but we don’t have the knowledge to discern how much they’re lying, and what the nuances and implications of it all are likely to be.
For example, a textbook will say that the Fed is politically neutral. That seems pretty naive, so I’m not buying it. But what percentage of the financial pros do - 20%? 1%? I don’t know. So, assuming that the majority of Wall Street players believe that Powell’s statements are, at least in part, politically motivated, what percentage of them think statements such as, “the economy is in good shape” are complete bullfeathers? I don’t know. We can tell by Wall Street’s reactions, but we don’t know what other factors are entering into their reactions and skewing the equation. Are they factoring in effects of the new tariffs, the likelihood of Trump’s election, or the likelihood of war ramping up? I don’t know how much of these, and other issues, are weighing in on their immediate market moves after Powell comments. And what percentage of them can see through all the lies as you are able to - 10%? 50%? I don’t know.
So keep exposing nonsense and explaining things to us, Peter, and know that your efforts are appreciated!
Powell et.al. are supposed to be data driven not politicians. It’s frustrating how even with all the graphs of data which you faithfully use as concrete objective reality are completely rejected. Warped thinking and feelings are ruling every sphere, gender is a feeling, 2+2=5 or whatever you subjectively wish it was, singing and whistling while the ship is taking on water and sinking. Refusing to see objective reality and taking action is hateful and harmful wickedness
Well said, Heldfast!
Dr Kust - seems lip service to the employment mandate, his only charge is to keep inflation in check. But he won't say that.
Except he hasn't kept inflation in check. Federal Funds rate cuts don't do squat when it comes to controlling inflation.
"Why on earth would anyone think the FOMC was indulging in a bit of CYA with the large rate cut? "
What did communists use before candles?
Electricity.
Touche!