Fed is about to bring the PAIN

seminole97

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Jun 14, 2005
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Why is fighting inflation the main goal above everything else? I simply don’t understand why taking steps to put our country into a recession, with all the resulting job loss and negative spinoff effects, is better than letting inflation work itself out.
A recession is when unprofitable (aka wealth destroying) businesses go out of business. This is a Good Thing™.
It sucks for the individuals who worked at those firms or owned them, but the wealth destruction has to be stopped. Those people need to be employed in activities that produce more wealth, not destroy it.

Inflation doesn’t provide the net benefit that shutting down unprofitable businesses does.
 

luvmyhawks

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Mar 22, 2005
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I am not going to say the Fed is wrong - way smarter than me. But what does increasing the interest rate do to curb inflation?

It seems to me that this inflation is being caused primarily by demand exceeding supply. Supply is short because of a labor shortage and problems in the supply chain.

Higher rates means it's more expensive for banks to borrow money. Banks are already struggling with their investment portfolios and deposit rates are being repriced as we speak. All this means loans to businesses and consumers will become more expensive.

That, in turn, will make it harder for businesses to expand capacity to meet demand. Harder for them to invest in infrastructure to become more efficient - also to meet demand.

Yes, housing prices are coming down, but they are actually more expensive to buy with higher rates.

Also, interest rates may encourage savings instead of spending - that can cool inflation I suppose. But raising rates certainly creates headwind for the stock market, so maybe less incentive to save.

So, again, what does increasing the interest rate do to slow inflation?

It almost seemed as though you were answering your own question as you continued to type this out.
 
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Feb 9, 2013
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You know, this is a good question. The really short answer is stagflation.
I’ve said before, I’m not even knowledgeable enough to say I’m no expert, but it feels like the Fed is a new driver steering on snow for the first time. Powell made a point to basically say he wasn’t rooting for mass unemployment but then spent all his time focusing on moderating demand by creating conditions that result in lower wages and higher unemployment.

None of the guest commentators I heard on CNBC said they had any confidence in what the Fed was doing and they all thought they were minimizing the lag issues and their bullheadedness would result in an overcorrection.
 
Feb 9, 2013
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A recession is when unprofitable (aka wealth destroying) businesses go out of business. This is a Good Thing™.
It sucks for the individuals who worked at those firms or owned them, but the wealth destruction has to be stopped. Those people need to be employed in activities that produce more wealth, not destroy it.

Inflation doesn’t provide the net benefit that shutting down unprofitable businesses does.
Doesn’t that minimize the economic damage a recession has on the entire economy? You say people need to be employed in more productive activities but are those employers even hiring in a recession?
 

IaHawk44

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While yea the government COVID response is part of the issue with flooding the market and consumers with money they didn’t need let’s not forget the supply chain issues due to Covid as well. We are still seeing issues due to that currently. Kind of a perfect storm of once in a lifetime global pandemic shutting everything down and a horrible government response.
Disrespect for Covid 19 social distancing/mask precautions made the largest negative impact on our economy.

The government was dealing with a novel virus and its inconceivable that some Americans think their response to it was horrible.

Horrible was purposely downplaying Covid 19, there's no way around that.

 

luvmyhawks

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Mar 22, 2005
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I’ve said before, I’m not even knowledgeable enough to say I’m no expert, but it feels like the Fed is a new driver steering on snow for the first time. Powell made a point to basically say he wasn’t rooting for mass unemployment but then spent all his time focusing on moderating demand by creating conditions that result in lower wages and higher unemployment.

None of the guest commentators I heard on CNBC said they had any confidence in what the Fed was doing and they all thought they were minimizing the lag issues and their bullheadedness would result in an overcorrection.

Brother, you are spot on with this. Which is why I said several post back that I have zero confidence in this fed. His commentary yesterday was all over the place. I can go back to 2018 and his absurd commentary and handling of the economy at that time, but I digress. Thought maybe he learned his lesson, but their handling of this mess for about the last 14-15 months is.... ridiculous.
 

Hawk_4shur

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Jan 2, 2009
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It almost seemed as though you were answering your own question as you continued to type this out.
Please explain.

Restrictions on businesses to produce more goods more timely to meet demand?

An increase in the cost of housing?

Somewhat conflicting reasons to save?

I admit that I don't get it.
 

Finance85

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Oct 22, 2003
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Disrespect for Covid 19 social distancing/mask precautions made the largest negative impact on our economy.

The government was dealing with a novel virus and its inconceivable that some Americans think their response to it was horrible.

Horrible was purposely downplaying Covid 19, there's no way around that.

You're funny.

Are you still hiding in your mother's basement? IT's A VIRUS.
 

seminole97

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Jun 14, 2005
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Doesn’t that minimize the economic damage a recession has on the entire economy? You say people need to be employed in more productive activities but are those employers even hiring in a recession?
Yes, profitable, growing firms hire. They can’t do that as well when unprofitable firms are tying up workers and destroying capital.
 

IaHawk44

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You're funny.

Are you still hiding in your mother's basement? IT's A VIRUS.
 
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binsfeldcyhawk2

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Why is fighting inflation the main goal above everything else? I simply don’t understand why taking steps to put our country into a recession, with all the resulting job loss and negative spinoff effects, is better than letting inflation work itself out.
Because wage gains are washed out by inflation....becomes a spiral. Need to get it under control. Can't have a healthy economy with inflation this high...
 
Feb 9, 2013
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Because wage gains are washed out by inflation....becomes a spiral. Need to get it under control. Can't have a healthy economy with inflation this high...
So we overcorrect and end up with millions of unemployed? That’s not a healthy economy.

As an aside, if you are correct, why did we bother stimulating the economy in 2020? We had low inflation, if that was the primary goal. I’m half joking, but seems like we are chasing our tail.
 

Hammer93

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Nov 6, 2001
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That’s one side of the coin, the other is that we are in this situation because our politicians at the state and federal levels were tripping over themselves to print and hand out money to pretend that shutting down the economy due to an Act of God would have no impact on peoples lives. We were either going to pay for it in 2020 or afterwords, now we have the worst of both worlds of paying for it and having inflation
The policy makers sending out that last bunch of checks in early 2021 is what put the nail in the coffin. Everyone warned them that it was too much, too fast. They went for being popular instead of prudent and now here we are. They were warned. Not only by the GOP, but by economists on CNBC and other non-political sources. This one is on the current leadership. Not a good move.
 
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Yes, profitable, growing firms hire. They can’t do that as well when unprofitable firms are tying up workers and destroying capital.
Yet companies like Google and FB are profitable and are already announcing job cuts to reduce costs before the anticipated recession.
 

Hammer93

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So we overcorrect and end up with millions of unemployed? That’s not a healthy economy.

As an aside, if you are correct, why did we bother stimulating the economy in 2020? We had low inflation, if that was the primary goal. I’m half joking, but seems like we are chasing our tail.
They did that because they told everyone to stay home. Seemed like the humane thing to do and was supported by both political parties at the time. I think that was a choice HAD to accompany the shut-down that was being strongly recommended by the CDC and Fauci.
 
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seminole97

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Yet companies like Google and FB are profitable and are already announcing job cuts to reduce costs before the anticipated recession.

How many quarters in a row before we can drop ‘anticipated’ from describing the recession?

My brother is hiring.
Job cuts are usually net negative during a recession.
Google and FB will tell you they have over expanded some units in their business.
If those staff were making them money instead of costing them money they wouldn’t get cut.
Job cuts at even a large firm don’t change the fact there are always profitable firms trying to expand to meet demand. Some of them will need more workers to expand production.
 

BrunoMars420

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How does it do that, specifically?

Also, it doesn't seem like the economy over heating.
When you raise rates you are discouraging consumers from spending and Businesses from investing and expanding. Basically they are slowing the flow of cash into the economy to help fight inflation
 

Hawk_4shur

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Jan 2, 2009
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When you raise rates you are discouraging consumers from spending and Businesses from investing and expanding. Basically they are slowing the flow of cash into the economy to help fight inflation
Yeah, but this particular inflationary period is due, I believe, to businesses inability to even meet the current demand. Making it harder for a business to expand seems counterintuitive to me.

I agree that rising rates will curb demand - I guess that it the key. Reduce demand to better match the supply.
 
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bhawk24bob

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Jul 8, 2001
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The policy makers sending out that last bunch of checks in early 2021 is what put the nail in the coffin. Everyone warned them that it was too much, too fast. They went for being popular instead of prudent and now here we are. They were warned. Not only by the GOP, but by economists on CNBC and other non-political sources. This one is on the current leadership. Not a good move.

It wasn't just 1 round of unnecessary checks, or one type of check recipient, that caused this
 

BrunoMars420

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Yeah, but this particular inflationary period is due, I believe, to businesses inability to even meet the current demand. Making it harder for a business to expand seems counterintuitive to me.

I agree that rising rates will curb demand - I guess that it the key. Reduce demand to better match the supply.
Bingo on your last point.
 

BrunoMars420

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But won’t demand always naturally reduce to match supply?
Well when the demand is due to some fed and government policies which is in turn creating this inflation the fed is there to help minimize and hopefully*** correct it.

But if we have to the tools to help fight inflation wouldn’t you want us to act compare to wait and see what happens on the inflation front? Especiallly with recent government and federal policy?
 

binsfeldcyhawk2

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Oct 13, 2006
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So we overcorrect and end up with millions of unemployed? That’s not a healthy economy.

As an aside, if you are correct, why did we bother stimulating the economy in 2020? We had low inflation, if that was the primary goal. I’m half joking, but seems like we are chasing our tail.
There's no easy fix.....there's going to be pain somewhere. An endless inflationary cycle isn't sustainable.

I think Stimulus because of the forced shutdown of the economy was warranted....it was too large and not targeted enough. Continued stimulus was obviously a mistake.

We made this bed to a certain degree....some unavoidable and I think we exacerbated what was always going to happen.
 
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Well when the demand is due to some fed and government policies which is in turn creating this inflation the fed is there to help minimize and hopefully*** correct it.

But if we have to the tools to help fight inflation wouldn’t you want us to act compare to wait and see what happens on the inflation front? Especiallly with recent government and federal policy?
I don’t know, I’m sure you’re right. I just think it’s messed up the Fed is trying to depress wages and increase unemployment because things cost a bit more right now.
 

Hammer93

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How many quarters in a row before we can drop ‘anticipated’ from describing the recession?

My brother is hiring.
Job cuts are usually net negative during a recession.
Google and FB will tell you they have over expanded some units in their business.
If those staff were making them money instead of costing them money they wouldn’t get cut.
Job cuts at even a large firm don’t change the fact there are always profitable firms trying to expand to meet demand. Some of them will need more workers to expand production.
Every business is cutting back on labor hours (labor costs) somehow. That's what business does when costs soar, and the consumer is forced to cut back. They have to adapt with what they have under their control. Labor is one of the only costs they are controlling right now. But here's why the job market is really, really tough for everyone. The hourly pay for employees has gone up (which theoretically is good for the populous). But, the increase in wages at such a fast pace is responsible for childcare costs going through the roof, cost of food, transportation of goods, housing, rents, home heating/cooling costs etc.... which is also accompanying a very, very low employee pool. With the cost the goods going up, accompanied with material shortages and labor facts mentioned previously, it has caused the circle which is inflation (have to pay more to get employees, goods, etc.... which causes prices to go through the roof for the end product at consumer). Employees do NOT want to come back to work because daycare costs, free money that boosted their savings/debt reduction, gas prices that are now way out of control.... those items make the financial part of the going back to work decision not as good for the employee. But the prices are NOT going to go down until more labor comes back into the employee pool which will decrease the hourly wage that is being forced to be paid. Therefore, the fed is going to do whatever they need to burn off the excess money so people are forced to go back to work at a lower wage rate.
 
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BrunoMars420

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I don’t know, I’m sure you’re right. I just think it’s messed up the Fed is trying to depress wages and increase unemployment because things cost a bit more right now.
It sucks to say but economies need a good ole recession every once in awhile. Hopefully not like 08 but just a small recession where, unfortunately, some of us will go through some financial #pain
 

srams21

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Bingo on your last point.
I think people are honestly forgetting the supply chain issues that, to some extent, still linger.

I am a big believer that the supply chain issues and supply shortage is what started all this. Obviously, to get to this point it wasn't just one issue. However, supply shortages caused demand to exceed supply. And when that happens, prices go up. I don't understand how that isn't obvious.
 

BrunoMars420

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I think people are honestly forgetting the supply chain issues that, to some extent, still linger.

I am a big believer that the supply chain issues and supply shortage is what started all this. Obviously, to get to this point it wasn't just one issue. However, supply shortages caused demand to exceed supply. And when that happens, prices go up. I don't understand how that isn't obvious.
Yeah I agree but it’s election year. Politicians and pundits will always spin it to get points for their team.
 

luvmyhawks

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Mar 22, 2005
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I think people are honestly forgetting the supply chain issues that, to some extent, still linger.

I am a big believer that the supply chain issues and supply shortage is what started all this. Obviously, to get to this point it wasn't just one issue. However, supply shortages caused demand to exceed supply. And when that happens, prices go up. I don't understand how that isn't obvious.

I don't think anyone forgets about it unless completely playing politics. Just some, .like myself will disagree that supply was what started all of this. Excessive demand is the culprit making supply virtually impossible to catch up. The federal reserve has even said as much.
 

srams21

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I don't think anyone forgets about it unless completely playing politics. Just some, .like myself will disagree that supply was what started all of this. Excessive demand is the culprit making supply virtually impossible to catch up. The federal reserve has even said as much.
Fair enough.

Really all of this was started years ago but I was more speaking to the events right after the pandemic. The potential was always there and the pandemic and then the ensuing supply chain issues were the spark to set the gas on fire. From there, several decisions compounded the problem.

I do think the Fed has done the right thing action-wise this year. I do worry about them overcorrecting as they now seem to be hyper aggressive in their words. I still think inflation will be on the way down and it will happen slowly.
 
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Hawk_4shur

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But won’t demand always naturally reduce to match supply?
If demand is measured by completed orders, then demand always matches the supply, because you can't buy something until it is there for you to buy it.

For example, I'm interested in buying a very popular car - the RAV4 Hybrid. The wait time is 6 months. I "was" interested in the RAV4 Prime for about 5 minutes, until I learned that the wait time is 2 years.

So, obviously Toyota knows they can sell every one of those cars they can make, so they might as well charge more.

If I have to pay high interest or lease rates, my interest in any new car will cool considerably. I assume that is the same thought process for many people.

If demand cools, maybe supply can catch up and prices will soften.
 
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Ree4

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I think people are honestly forgetting the supply chain issues that, to some extent, still linger.

I am a big believer that the supply chain issues and supply shortage is what started all this. Obviously, to get to this point it wasn't just one issue. However, supply shortages caused demand to exceed supply. And when that happens, prices go up. I don't understand how that isn't obvious.
This is a huge part of it. What I don't understand is why is there so much anger about families getting cash as if it was the only money supply expansion, but nothing about banks having their reserve requirements reduced to zero or propping up the stock market with a $2 trillion injection? Nothing about record profits for energy companies when gas prices were through the roof?

Without a stimulus we might have seen the economy tip into outright deflation and slower economic growth which would likely be worse. Most of it is fallout from the pandemic, lingering effects that you described regarding supply chain, exacerbated by the war in Ukraine and sanctions on Russia. This is a global problem, not just a US problem.
 
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DogBoyRy

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How many quarters in a row before we can drop ‘anticipated’ from describing the recession?

My brother is hiring.
Job cuts are usually net negative during a recession.
Google and FB will tell you they have over expanded some units in their business.
If those staff were making them money instead of costing them money they wouldn’t get cut.
Job cuts at even a large firm don’t change the fact there are always profitable firms trying to expand to meet demand. Some of them will need more workers to expand production.
Pure gold.
Thanks
 

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