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Jerome Powell Says the Fed is Prepared To Raise Rates To Tame Inflation (nytimes.com) 104

Jerome H. Powell, the Federal Reserve chair, told lawmakers on Tuesday that a rapidly healing economy no longer needed as much help from the central bank and that keeping inflation in check -- including by raising interest rates -- would be critical for enabling a stable expansion that benefits workers. From a report: Mr. Powell, whom President Biden recently nominated for a second term as chair, is confronting a complicated economic moment as he moves toward another four-year stint as head of the world's most powerful central bank. He provided his latest thoughts on the Fed's challenge during his confirmation hearing before the Senate Banking Committee.

The economy is growing swiftly, but it has been buffeted by repeated waves of the coronavirus and by a surge in inflation that has proved stronger and longer lasting than economists had expected. Workers are finding jobs and winning wage increases, but the rising costs of housing, gas, food and furniture are pinching shoppers and tanking consumer confidence. The Fed is charged with maintaining price stability, and its officials have recently signaled that they could raise interest rates several times this year to try to cool the economy and prevent rapidly rising prices from becoming permanent. Mr. Powell -- who is widely expected to win confirmation -- reiterated that commitment on Tuesday.

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Jerome Powell Says the Fed is Prepared To Raise Rates To Tame Inflation

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  • student loans need to stay locked in place and not have there rates go up.

    • by Anonymous Coward

      student loans need to stay locked in place and not have there rates go up.

      Why? Other than you don't want to fulfill your obligation to pay back a debt you took on voluntarily?

      • I want the same sweet interest free deals that the banks give the government.

    • Student loan rates, mortgage rates, credit card rates, all of the interest rates that the average person might pay aren't what's being talked about here. The "fed rate" that they manipulate is the rate that giant banks and corporations pay when they need money to cover short-term gaps (wouldn't it be nice if we all had a buddy who bailed us out when we were short at the end of the night). While ordinarily this might ripple down to consumer rates, the fed rate has been held so low for so long that there's pl

  • by jklappenbach ( 824031 ) on Tuesday January 11, 2022 @03:13PM (#62164975) Journal
    If money supply is truly at issue, there is a far better way of removing excess capacity from circulation: raising taxes. Taxes can be a focused instrument, in that we can target the socio-economic brackets where monetary supply is in greatest excess. Raising rates is a blunt weapon that regressively hurts the poorest and those just attempting to climb our of their tier to the next level.

    However, I'm not convinced this inflation is entirely due to excess supply. There's just as much evidence that this is a supply chain issue, where Covid has forced the shutdown of factories, and in many cases, entire suppliers. Raising rates would only make it more difficult for new suppliers to receive the funding they need to capitalize and start up again.

    This is the exact situation we had ourselves in the 1970s, and stagflation was only made worse by raising rates.
    • by imgod2u ( 812837 )

      I'm not sure how true this is. If we look at $$ borrowed (https://fredblog.stlouisfed.org/2020/04/household-debt-meets-corporate-debt/) about half of it is corporate debt. And even among household debt, only about half is borrowed by families of 1-4.

      So interest rates actually help corporations and single-proprietor businesses the most.

    • Printing money and giving it to the poor is politically far easier and faster than taking money away directly from the rich, that's why in a crisis everyone is a Keynesian.

      Stagflation happens when the rich sees it comes down to the same thing and start to get their media to print hyperinflation scare stories to stop the redistribution.

    • Er, high school economics said inflation was low supply relative to willingness to buy. "Too much money chasing too few goods". And that seems to be exactly what we have going on. Minimum wages going up, government stimulus, easy credit, and, as you said, supply chain issues. Reducing money is valid in this case. Taxes are also a way to reduce the money/demand, but the problem is when recession comes again and those taxes are difficult to repeal. Fed intervention is more responsive, and doesn't have a

      • Keep in mind how this happened.

        Back in March of 2020, the stock market tanked on the concerns of Corona Virus. At that point, the fed stepped in to say - nope. We can't have that. They then poured Virtual Money into the stock market, and the US had the best-ever stock market day with just about the worst-almost-ever unemployment period.

        The too-much-money is virtual money. The stimulus checks. The stock market dumps to the rich. Two TRILLION dollars in corporate welfare, after the stock market surge. Twice o

        • You would definitely get a mod-up from me if I had points right now!

          How many people are aware that the money supply has shot up about 40% in the last 12 to 18 months? Also note that a large amount was dispensed to "people" (rich, poor, whatever) as stimulus checks, no strings attached. This means that a HUGE swath of "spenders" just got a windfall. While the savings rate has gone up (a good thing), a lot of that money has been spent into the economy. So that's a kind of "way more money chasing the sam
          • Doesn't it stand to reason that when 1X goods are offered to a 1X money supply, and thereafter 1X goods is offered to a 1.4X money supply, prices are going to go up?

            Yes - that would be enough to drive up prices. But low amounts of travel and entertainment spending leaves a lot more money than usual to spend on "stuff" instead. So it's being hit from all sides. Also, we have less than 1X goods right now.

    • by DarkOx ( 621550 )

      Its no longer a supply chain issue and its not transitory. Fixed costs have been raised to cover the increased variable costs. Clearest example of this is rents, those will not go back down. If your rent went up wages have to go up too to prevent people from leaving town. Its locked in now.

      Raising rates in the 70-80s did retard growth but it was necessary to protect middle class wealth. We need fixed income solutions that at least pace with inflation when we don't have them we see more wealth concentratio

    • by JBMcB ( 73720 )

      Money is too damn cheap, and has been for at least ten years. Keeping interest rates artificially low encourages speculation (housing bubble) discourages banks from making money using traditional methods (risky investment instruments) and pushes regular people to not park their money in savings accounts as their interest rates are terrible, also taking on more risk.

      It's *way* past time for interest rates to go up. If the fed had increased interest rates ten years ago, they could have lowered them during the

      • Money is too damn cheap, and has been for at least ten years.

        That's why it's interesting that inflation didn't kick in until supply faltered, which was only much more recently with Covid.

        • by DarkOx ( 621550 )

          I am not sure that it did not 'kick in until supply faltered' it was just restricted to specific asset classes. Supply side faltering simply spread it out in the general economy. All that wealth piling up in equity positions in 401ks was going spill into the market sometime - Eventually people were going to retire eventually those assets were going to be sold (to smaller working force) and that money was going to go out into the economy without the underlying productivity to back it. COVID just moved the c

    • by Tyr07 ( 8900565 )

      Raising taxes is going to increase inflation.

      If you have people doing skilled jobs that require training, education and what not and you tax them down to having hardly more than unskilled labor, they either won't do the harder work or they'll increase the cost of their services to make up for it. The latter is the more likely.

      What's causing inflation is the 'redistribution of wealth'. People are sitting on their duff contributing nothing having an excess of money to spend. The more money the government spen

      • by Ksevio ( 865461 )

        That may be the case (probably not) but since taxes haven't changed (aside from being lowered a few years ago), it's not the cause of the current inflation. Supply chain issues are most likely the problem

        • by Tyr07 ( 8900565 )

          I should have clarified better, it's not taxes that are creating the current issue.

          It's the printing of money to give away to everyone which is causing inflation. Either way it's like a tax though. If you make 100$, and I charge you a 50$ tax, I took half your money. Imagine if all that was ever printed was that 100$ for this example.

          If you make 100$, then I print another 100$ and give it to someone else, so there is a total of 200$ out there. I also just took half your money, because whatever that money wa

          • by Ksevio ( 865461 )

            Sounds like the solution is to raise taxes in order to reduce the supply of money. If you make $100, then I print out another $100 and give it to someone, then I take $50 in taxes from everyone, it's even again!

            • by Tyr07 ( 8900565 )

              Sounds like the solution is to raise taxes in order to reduce the supply of money. If you make $100, then I print out another $100 and give it to someone, then I take $50 in taxes from everyone, it's even again!

              No, then I worked for 100$, you devalued to 50$, then you took 50$ from me, who worked, which leaves actual currency of 50$, at half value, so you leave me with a purchasing power of 25$. The other person has a purchase power of 50$.
              Or, I worked for 100$, you devalued it to 50$. So my purchasing power is 50$, and so is theirs. Then you tax 25$ from each of us, now we both have a purchasing power of like 33$.

              When you do that, most of the population, (Who by the way are not your slaves), we're not going to wo

              • by Ksevio ( 865461 )

                I think most people will work for more money. There's a big difference between getting enough money for the bare necessities and getting enough money to live comfortably

                • by Tyr07 ( 8900565 )

                  I think most people will work for more money. There's a big difference between getting enough money for the bare necessities and getting enough money to live comfortably

                  That I agree with.

                  I think safety nets are important for any country to consider themselves civilized.
                  The problem is it's been turning into a safety hammock. People in "poverty" that can "barely get by" but with the latest 1500$ iphone.

                  Some of it is just filtering, there are people who are in actual need, and there's people doing better off abusing the social programs.

      • by jbengt ( 874751 )

        People are sitting on their duff contributing nothing having an excess of money to spend. The more money the government spends supporting the lowest class, getting it from more taxes and costs to the middle or upper class is 100% why we're here right now.

        I tend to agree with that first statement, but not the second. The easy money has primarily been targeted to companies and the upper classes, and low interest rates have fueled over-valued stock market investments rather than middle/lower class savings ac

        • by Tyr07 ( 8900565 )

          Well I think in reference to what you quoted there is safety net vs safety hammock.

          You're statement in my opinion falls more under safety net and that's important. The fact that people and companies not affected were given benefits, and even quit working to sit on them, falls under my safety hammock comment.

    • by godrik ( 1287354 )

      I don't think inflation comes only from one thing. There are clearly still supply chain problems which are bound to raise prices. That's true in electronics for instance.

      But there is also cheap debt fueling prices up. The housing market is blowing up and that is partially due to cheap debt. I recently refinanced an ARM during the teaser period for a lower interest rate on a 30 year fixed rate. I have lots of friends saying "prices are going up and interest rates have never been lower in my lifespan, it's ti

    • If money supply is truly at issue, there is a far better way of removing excess capacity from circulation: raising taxes. Taxes can be a focused instrument, in that we can target the socio-economic brackets where monetary supply is in greatest excess. Raising rates is a blunt weapon that regressively hurts the poorest and those just attempting to climb our of their tier to the next level.

      The problem is, taxes are not an easy or simple issue - that's a mirage. The United States was founded on a tax revolt.

    • in the 1970s, and stagflation was only made worse by raising rates.

      That's not the normal interpretation of the events.

    • Well, I guess we'll find out who's over-leveraged.
    • This is the exact situation we had ourselves in the 1970s, and stagflation was only made worse by raising rates.

      FWIW, I don't think that view matches the consensus (such as it is) of economists. As I understand it, the consensus is that Carter's appointment of inflation hawk Volcker, and Volcker's subsequent interest rate hikes are what stopped stagflation. At the cost of a couple of recessions, granted.

      • The inflation in the 70's was not due to excess M2. Rather, we had a oil embargo against us for several years. And the resulting supply chain issues, coupled with the increase in prices from fuel costs, lead to inflation.

        If you really want the consensus from that time, everyone wanted Carter out and Reagan in as Reagan promised to cut the top tax tier from 70% down to 35%. What's more likely: the fed tanking the economy to purposely make Carter look bad in order to get Reagan in, or Volcker being stup
        • If you really want the consensus from that time

          No, I was talking about the modern consensus, with the benefit of history and hindsight, which AFAICT is specifically that it was increasing interest rates that ended stagflation.

    • Taxes do not remove money from circulation. They transfer money to the federal government. The federal government spends the money. They do not destroy the money they collect in taxes. I don't know what economics textbooks you are reading, but the widely held belief is that Volcker killed inflation by raising rates very aggressively and holding them high with steadfast determination. If you are going to contradict that, you need to assemble your points of evidence, I think. It is questionable whether the
    • The difference between taxes & rates is being "I take what you earned" vs "You pay back more on a loan". The first doesn't go down well. The second a bit better.
      Also the first is done by politicians, who need to get reelected. The second is a dictate by some banker (appointed by said politician, but that is already enough distance)
      Appearances are everything.

    • by DarkOx ( 621550 )

      The only way what you suggest would be an equivalence is if the government raised taxes AND cut spending. Really they could just cut spending, because the government deficit spends today. They are actually expanding the money supply through spending because they are borrowing, every bond they sell either to the public of the FED means even more money is lent into existence. Those bonds are considered so safe they are even used to collateralize even more debt elsewhere.

      Reality is taxation will only increas

    • If money supply is truly at issue, there is a far better way of removing excess capacity from circulation: raising taxes. Taxes can be a focused instrument, in that we can target the socio-economic brackets where monetary supply is in greatest excess. Raising rates is a blunt weapon that regressively hurts the poorest and those just attempting to climb our of their tier to the next level.

      This is no case of either-or. Rates have been way too damn low for way too damn long. This has to be corrected and then not fucked with. Money saved in banks is losing value and housing costs are skyrocketing due in part to prolonged periods of insanely low rates.

      Tax structures should be restored returned to what they were in the late 70s when the top bracket was in the high 80s. Corrupted taxing policy leading to insane aggregation of wealth is singularly responsible for pushing up Gini coefficients.

  • I'm not against raising interest rates -- they're way too low for way too long. But I have my doubts about how much effect this really has on inflation.
    Interest rates aren't going to unclog shipping ports or increase production. And it's not going to train more and more workers to fill the jobs that are needed right now. And it's not going to convince people who were out of work during the pandemic who decided they didn't need to work to come back to the workforce.

    And it's not going to heal the tension betw

    • I'm not against raising interest rates -- they're way too low for way too long. But I have my doubts about how much effect this really has on inflation.
      Interest rates aren't going to unclog shipping ports or increase production. And it's not going to train more and more workers to fill the jobs that are needed right now. And it's not going to convince people who were out of work during the pandemic who decided they didn't need to work to come back to the workforce.

      And it's not going to heal the tension between the US and its biggest trading partner.

      True.
      But it will make it appear as though "someone is doing something".

    • Here goes - a non-economist viewpoint.

      1. Raise interest rates
      2. It becomes harder to borrow $$
      3. Individuals and companies borrow less money.
      4. Thus, they spend less.
      5. Less demand means lower prices.
      6. AKA inflation counteracted.

      There's way more to it than that, but I think that's the main cause-and-effect.

      Turkey is trying the opposite. The guy in charge there, Erdogan, has pretty much become a dictator, and he doesn't believe this relationship. He's trying to fix Turkey's inflation p
      • Didn't Venezuela also try that approach?

        • Venezuela did everything you shouldnf if you want your country to thrive. Literally “do the opposite of Venezuela” is a viable plan for a country that wants to be a world power.
    • if there is less credit there are less orders and less work. But it's safe to say that "being prepared" to raise the cost to borrow to 0.25% when the inflation rate is heading over 10% won't have much effect
      • by DarkOx ( 621550 )

        What is missing from your equation is that right now a lot of activity can go on because rates are effectively zero coupled with a FED that continues to directly toe into the bond market slurping up the good debt, creating a willingness for others desperately seeking yield to slurp up bad debt.

        You can continue operating a business in that environment that makes no profit because more financing is available and additional debt has little cost. It lets you just break even or even lose money every reporting pe

    • by JBMcB ( 73720 )

      It's one piece of the puzzle. It encourages saving and discourages speculation. It tamps down speculative bubbles built on cheap capital. When the economy tanks again, it's another lever the fed can use to try to stimulate things (it's hard to stimulate the economy when interest rates are practically zero.)

  • inflation that has proved stronger and longer lasting than economists had expected

    Inflation that has inconveniently insisted on reflecting the policies inflicted on the economy by politicians: make workers stay home and provide them with checks to buy stuff. OMGWTFBBQ inflation! How could that have happened?!?

    Inflation that has failed to obey the preferred narrative:
    - It's temporary
    - And if it's not temporary it's minor
    - And if it's not minor it's ok because you can afford it
    - And if you can't actually afford it then just stop buying stuff because you're a bunch of mindless consu

  • Fed is Prepared To Raise Rates To Tame Inflation

    Can't this simply be fixed with blockchain? (*snicker*)

  • I'll believe they will go right back to 0 interest and printing money as soon as the market drops 10 or 20 percent. Problem is all those retired people have their nest eggs in the market and need the market to go up. I've said it before. It is going to take a miracle to raise rates and not crater the market and economy generally. Mortgages are near zero, so the housing bubble will pop too as soon as rates hit a normal 5-7%.
    • Don't hold your breath while you wait for mortgage rates to "hit normal". There's nothing magical about what the interest rates happened to be for a few years in the early 2000's. The historical trend is that of a continuous decline since 1980, and if something about our economic structure changes so radically that it'll be reversed there's no reason to expect it to stabilize at any particular interest rate.

  • Because if you don't then your entire economy is going to collapse when you do this. You can't just move to the Midwest where houses are cheap because there are no jobs there. People go where the work is. The reason those houses are cheap is the only people who are living there are either desperately poor or retirees. And if you're well enough off to retire you don't have to go live in the middle of nowhere and hope the city doesn't disconnect your water.
    • Higher interest rates will bring down housing prices. Once housing prices start to fall, the speculators will really start to sell, and then they'll tumble. The Fed has propped up housing prices with cheap loans, and removing the props might be dangerous.
      • by DarkOx ( 621550 )

        Its more than just speculators. Once rates go up the month mortgage payment follows. A lot of buys especially first time buyers start with "how much can I spend for on housing each month" and work backward from there in terms of how big a loan to take and how much house to buy.

        buy a 200k house with 40k down - so finance 160k at 3.8% that is about 1,000 a month in payments

        take that to 6.8% and its more like 1300 a month. 300 a month is a lot of money to a lot people in that price range currently. They are

        • Exactly, that's why higher interest rates bring housing prices down.
        • by boxless ( 35756 )

          Does anyone take out a variable interest rate loan when the fixed rates have been so low? I'm sure there's some, but is it big part of the market? My current fixed rate is silly-low.

          • by boxless ( 35756 )

            and, to state the obvious; if you have a fixed rate, and inflation also makes your wages rise, you are actually winning with respect to your mortgage. That's one reason why the banks can't stand it.

      • "For every problem there is a solution that is simple, neat—and wrong."

    • by Tailhook ( 98486 )

      You can't just move to the Midwest

      Correct. You can't do this so don't imagine you can. It's not possible. Never think that it might be possible. Just select some new urban hellscape with marginally lower costs on the coasts or Texas or New Mexico or somewhere and move there. There is nothing but jobless snaggletooth racists are far as the eye can see the in Midwest and they'll hate you and key your SUV and stuff so stay clear.

      kthxbye

    • I would add that houses in the Midwest are not cheap. They only seem cheap relative to other places.

    • by DarkOx ( 621550 )

      Your ignorance of any place other the squalid urban hellscape you live in is showing again. If you live in the middle of nowhere you have a well, their is not city to cut off your water.

  • To those doing the socialized* betting on the markets. I can't really complain too much other way. My money was/is deposited in both a savings account, which provides diddly even though getting the best rate, and Annuity funds, which benefited from the quantitative easing's effect on the stocks that they are ultimately invested in.

    *Losses were greatly shared, profits not so much.

  • It's not like this was an unpredictable outcome. Dumping a trillion borrowed dollars into an economy has a known outcome. Enacting policies that cut the energy supply has known effects on productivity, transportation and prices. Among the known results of these things are inflation and supply shortages. So, what economist was taken by surprise? The, "modern monetary theory", people who think numbers aren't real?

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