The Fed's Rate Hikes

[gab13by13]

I am a financial idiot, I let my daughter pick my investments, but am I wrong in seeing this;

The Fed wants to create a recession to cure inflation. Isn't that like blood letting to cure a patient?

A recession will last throughout President Biden's term and make it hard for Dems to win in 2024.

All the other explanations I hear about rate hikes are BS. Central banks want a recession.

[honest.abe]

1. I hear you and I agree with your comments.

But the "experts" in charge think runaway inflation is worse than a recession. I dont know for sure why that is but that's basically it.. I think.

[Timewas]

2. Take a look

At what happened when Carter tried it

https://www.google.com/search?client=firefox-b-1-d&q=carters+price+freeze

[SheltieLover]

3. Isn't the head of Fed Reserve a qpuke?

Can Joe not remove this guy?

[Xoan]

4. The fix appears to be "in".

[Wicked Blue]

5. I think that's exactly what they are planning

Anything to make President Biden and Democrats in general look bad.

[Groundhawg]

6. The only way out of this inflation is to cause a recession

It would be over sooner if we rip the band-aid off all at once instead of this 3/4 points at a time.

[Fiendish Thingy]

7. Thank you for your honesty in your first sentence.

The Fed wants to curb inflation. Powell waited too long (12 months past when he should have started) to begin raising rates, so economy ran even hotter, inflation ramped up, and now he’s had to hike rates by .75-1.00% at each and every Fed meeting, instead of the typical .25-.50%, and it’s still not enough to put the brakes on inflation, at least not yet.

The consequences of rapid, steep rate hikes can indeed be to trigger a recession, but there’s no evidence I’ve seen that a recession is the specific goal of the Fed. They let the pendulum swing too far to one side, and now the momentum of trying to swing it the other way could result in a recession.

Currently, unemployment sits at 3.5%; projections I’ve seen are that, if a recession occurs in early-mid 2023, it could rise to 5-6%. For context, 5% unemployment is considered full employment, and is generally the Fed’s target.

The other intervention that could cool inflation quickly, but is beyond the Feds control, is significant tax hikes on the rich.

Let’s hope Dems get a Manchin-Sinema proof majority in the Senate and hold the house.

[Igel]

8. I went through the '70s and early '80s.

(Obviously, since I was born years before 1970 and I'm still kicking.)

Right now I'm looking at my retirement. Every month, it declines in value. My pay increases by 4-5% less than inflation.

Every year this keeps up, I have a "raise" of -4.5%. And every year it continues with inflation much more than investment income, my retirement is delayed. It was in 3 years. Now it's in 5. It keeps up another year and I'll be looking at 70 before I can consider retirement. Not all pensions are taxpayer funded; mine is not. It's more of an annuity (where I really do get out of it what I put in, plus employer contribution and fund investment income--the claim's falsely made that this is the case for OASDI).

Once inflation gets priced in, you find that some assets increase in ascribed value at the rate of inflation. So houses will increase by 8% but wages by less than that. More people are priced out of the market.

Take the SS increase. For the last year the monthly amount paid to a retiree has been worth less and less. Next year that loss is not going to be fully recovered. And if inflation continues, they'll again suffer a net loss before their income resets; the same is true in quality but not in quantity for employees. The response my family had in the '70s was to buy things in advance. You know your money's will buy 94% less next year, so you "invest" in things you know you'll use. That's already kicked in in my household: Every trip to the store I buy something I know I'll need in a year or two, provided I'm still alive. Stuff I bought for $20 last year is priced at $22 now (inflation not being even across all product lines, ever) while my money if saved would be worth 20.10. I've saved $1.60.

Businesses realize that adjusting prices after the fact, like Social Security is going to do, is a net loss. Business also don't suffer that kind of loss if they have a profit margin that's fairly low. If they do, they reduce investment (which leads to a recession anyway).

If it's country specific, you wind up with the national currency becoming devalued (which is most of what I just said). A piss-poor country allows its currency to be trashed, esp. if it's a reserve currency.

I also don't think the Fed is trying to hurt people; ascribing malice isn't what I do unless there's really good evidence for that kind of ill-will.