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Yellen Says Fed Can Bring Down Inflation Without Causing Recession (yahoo.com) 100

Posted by msmash from the how-about-that dept.
U.S. Treasury Secretary Janet Yellen said that she believes the Federal Reserve can bring down inflation without causing a recession because of a strong U.S. job market and household balance sheets, low debt costs and a strong banking sector. From a report: Yellen told a U.S. House of Representatives Financial Services Committee hearing on Thursday that "all of those things suggest that the Fed has a path to bring down inflation without causing a recession, and I know it will be their objective to try to accomplish that."
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Yellen Says Fed Can Bring Down Inflation Without Causing Recession More

Yellen Says Fed Can Bring Down Inflation Without Causing Recession

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  • What else would they say? (Score:5, Insightful)

    by byromaniac ( 8103402 ) on Thursday May 12, 2022 @12:18PM (#62526088)
    Largely, recessions are the self-fulfilling beliefs of the populace. So, regardless of their personal expectations, what else would the Treasury Secretary say? This headline is akin to "Defense attorney says their client isn't guilty."

    • Largely, recessions are the self-fulfilling beliefs of the populace. So, regardless of their personal expectations, what else would the Treasury Secretary say?

      This? [youtube.com]

    • The reactions being taken (Score:4, Insightful)

      by rsilvergun ( 571051 ) on Thursday May 12, 2022 @01:36PM (#62526456)
      To encourage a recession. The FED for example is raising interest rates in the hopes that it will reduce inflation but what they don't say, at least not that often, is that what they're counting on is it's will higher less and that'll result in lower wages and those lower wages are what's going to cut inflation.

      Basically as always the burden falls on the backs of the middle class and the poor. We could of course get inflation under control by constraining the money supply at the top, but somehow nobody ever talks about that as a solution.

      • Sorry, but raising interest rates IS "constraining the money supply at the top". That is literally what it accomplishes: by charging big banks more when they lend out too much to meet reserve requirements, those big banks lend less money so there is less money in the money supply. You seem to be complaining about a system while having not the slightest idea how it works. And if the big banks aren't "the top", I don't know what is.

        Increasing lending (as a result of lower FED interest rates) can *stimulat

        • Over on YouTube. Short version, there's lots of ways to reduce inflation without screwing over working Americans. The rich and powerful elites won't let us use them.

        • ... constraining the money supply at the top ...

          You describe the response of the lender, taking less risk in the future because raw materials (federal reserves) are now more expensive. Interest rates affect everyone equally, so the middle-class is constrained too.

          In reality, it's less effective at the top because wealthy people have spare cash to pay the increased costs of borrowing (or, unencumbered assets to use as collateral in re-financing). In contrast, the working-class have less disposable income, so the GDP suffers, hence a recession. Since

        • The problem is, in my opinion, is I believe that interest-rate changes are not the right control for cooling off in economy. I think that implementing real Keynesian policies as in spend at the bottom of a cycle and to the bottom percentage of income to increase economic activity and then when things start to get hot, increase taxes to slow things down and pay down the debt incurred by the deficit spending.

          We are really really good at airlifting dollars into the economy. We're not good at taxing it out
          • The basis of Keynesian theory is that government spending can make up for a collapse in consumer spending in a consumption-side recession. The problem there is that government doesn't buy the things consumers do, so the intended effect of keeping consumer-facing industries afloat (thus maintaining their workforces) never materializes. That's why it didn't work in 2008.

            From everything I just said, it should be obvious how Keynesian theory can work - government spending on checks mailed to everyone. Of

            • As you point out there are multiple levels to government spending. And yes in the last round of stimulus, corporations were too effective at capturing money that should not gone to them. I wish I could remember where I saw this but a theoretical CBO report said that for every dollar spent on unemployment (direct stimulus to an individual), it generated $1.6 of economic activity. Every dollar spent through a tax cut generated $0.3 of economic activity. Ostensibly because the tax cuts have a bigger effect on

    • Self-fulfilling beliefs? Sure, psychology plays some role in timing economic swings, but there are real fundamentals at play -- businesses, households and governments over-extend themselves. Then, interest rates rise in response, followed by widespread insolvency. These are real economic imbalances, in the real, physical world and they have to be worked through legally to get the resources out from under bankrupt management and reallocated to financially healthy owners. Yellen's remark is purely a political

    • Re: (Score:2)

      by Tablizer ( 95088 )

      > Largely, recessions are the self-fulfilling beliefs of the populace.

      If she had said, "Fox News negativism is the biggest threat to a recession", she'd be thrown out by her ear, even though there is some truth in that. Fox loves to scare their audience with doom and gloom, blaming it on Joe. (Other right-leaning news sources echo Fox to save a buck.)

    • Re: (Score:2)

      by tlhIngan ( 30335 )

      Recessions are periods of reduced economic activity.

      Economic activity is at an all time high, unemployment is at an all time low, consumer spending is up. These are signs of a boom time. Wages are rising, too - people are jumping to more preferred jobs and leaving shittier jobs.

      Times are good and if you let things go, inflation will run rampant because lots of new money will be buying up even more stuff.

      There is evidence the supply shortages we see aren't traditional supply shortages - sure there was some d

    • The problem is people think of the economy like they may think of their own bank accounts. If I spend less, I can save more, where I then can get something big later.
      However the economy is about how much money is moving.
      Lets just say there is a 10% tax.
      I buy something for a Dollar 1.00
      With that dollar the guy pays $0.10 in tax, then buys $0.90 of product ...
      Over a bunch of times, for that 1.00 to go back to taxes, it would have purchased about $12.00 worth of goods/services.

      If you lower the taxes it would

  • We could also stop having more money chase fewer goods and services. But that might involve math ...

    • Or more money chasing the same goods and services. Creating money because you want to spend more is relatively common for the government, but doing so is pretty much the definition of inflation....

    • Fewer? Last time I checked, our main problem was that we had fewer goods and services because people had no money left to chase tham.

  • You're too late (Score:5, Insightful)

    by smooth wombat ( 796938 ) on Thursday May 12, 2022 @12:24PM (#62526122) Journal

    Raising rates should have started in 2019. A quarter point every quarter. The Fed should also have stopped propping up all those failed private companies through its purchasing program. If those companies need money, they can go to a bank like the rest of us. Finally, those bullshit reports which came out in 2018 - 2020 about low to no inflation should be thrown out because it was quite clear inflation was rising much faster than the 0.1% or whatever lie they were claiming at the time. Anyone in the real world could see prices rising on everything much faster than those fake reports were stating.

    But nope, now we have to hear, again, how they'll work hard to not cause a recession because they waited far too long to do anything out of political considerations. If you're not going to do your job, why are you there?

    • Interest rates could have been higher in 2019, but they would have been cut back to zero by April 2020.

      But, propping up some private companies was absolutely needed when it was initially undertaken. Remember the days of negative oil prices? So many similar issues were very temporary and well within the scope of the Fed and Treasury to address. The real problem was that nobody wanted to end the stimulus around June/July 2020 and push things back to economic normalcy because of the impact on the election. Ha

    • Re: (Score:2)

      by quall ( 1441799 )

      I agree. It's amazing how the housing market had record low interest rates during Covid when unemployment was high, and the government was working on printing trillions in relief and stimulus packages. They should have raised rates. Instead, people were borrowing and buying homes at record numbers which just added to the mess.

    • The official rate is still well below the actual rate of inflation. Food is nearly twice as expensive where I live as 3 years ago. With the exception of a handful of loss leaders such as the store band bread, nothing on the shelf is less than 125% of its price two years ago. Most things are around 200% with a handful worse than that. The housing market is very similar, with some weak indications of cooling off. Every residential property within 50 miles of me is "worth" 30-75% more than it was 3 years

    • > Raising rates should have started in 2019.

      But it was hard to know how many and how big the Covid variant waves were going to be. We still don't know if another Big One is in the pipes. Evolution is sneaky.

      Shutting down bars, restaurants, vacations, stadiums, etc. kicks the economy pretty hard. Without the stimulus we may have been in a deep recession right now.

      To quote Yogi Berra, "It's tough to make predictions, especially about the future." Essentially the US gov't had to make a "best guess" about Co

      • Re: "Without the stimulus we may have been in a deep recession right now."

        Rework: "Without the stimulus or with a premature rate hike, we may have been in a deep recession right now."

        Also, it's probably better to risk over-juicing the economy than under-juicing it during a pandemic. Inflation is annoying, Great Depressions are deadly, especially during pandemics.

        • You "juice the economy" with public works, not by engorging the stock market. Its hyperinflation is now our inflation

          • Re: (Score:1)

            by Tablizer ( 95088 )

            Public works take roughly a year to ramp up, at least. When the bill passes, assessments have to be done, then plans drawn up and approved by various jurisdictions, all before a single shovel moves. There are some exceptions, but not enough.

            • Public works take roughly a year to ramp up...

              Still a better use of the money and better chance of lasting results. Various municipal water pipes could use some repair and replacement, drought mitigation out west, road repair, many things to be done and we had the money for it all. Throwing trillions at the stock market is like throwing it in a fire.

              • Re: (Score:1)

                by Tablizer ( 95088 )

                Direct payments to the lower and middle classes are the fastest stimulus. The rich tend to hold onto any new cash. Extending unempl. benefits is one of the quickest.

                • Direct payments to the lower and middle classes are the fastest stimulus.

                  and the briefest. Fixing and extending infrastructure provides long term benefits

                  • Re: (Score:1)

                    by Tablizer ( 95088 )

                    True, but if you wait too long to fix a slump you get similar to 1930's. It's hard to time infrastructure work schedules with the business cycle because it's slow ramp up and slow ramp down.

                    • Then you don't wait. None of what is happening should be a surprise to anybody.

                    • Re: (Score:1)

                      by Tablizer ( 95088 )

                      The original point was that most infrastructure takes a while to ramp up. There are quicker acting approaches to stimulus. To successfully counter the business cycle, we need quick tools, infrastructure ain't one.

                    • Yes, that would be true, if the business cycle weren't so predictable. And besides, we shouldn't be so easily affected by the "business cycle", it's just a lot of Wall Street gibberish to get more free money from the fed, money that could be used for infrastructure, but instead is burnt by "inflation"

    • No, they should have started back in 2012 when we had already recovered [google.com] from the great recession. For four years they kept the rates [macrotrends.net] at 0. Then when the pandemic hit they dropped down to absolute zero again almost immediately. A pandemic drop was warranted, but we could have started in a much better position.

    • Prices go up because 1. The money supply increases faster than the units of production output and 2. Supply and demand. Since 2007 until this very day the US government has printed uncounted trillions of dollars under the guise of Qualitative Easing 1 through 4. You cannot print that much money without a concomitant increase in units of product and not have price increases. It cannot be done. Now, you can through government policy, effect supply and demand, for instance increasing the supply of energy.

    • > Finally, those bullshit reports which came out in 2018 - 2020 about low to no inflation should be thrown out because it was quite clear inflation was rising much faster than the 0.1% or whatever lie they were claiming at the time. Anyone in the real world could see prices rising on everything much faster than those fake reports were stating.

      Sounds like a conspiracy theory and/or poor sample size. Do you have direct evidence of rigged stats? It's possible your particular area was experiencing inflation

  • Price controls. And punitive taxes on price gougers, like the oil companies, and the futures traders.

    • Re: (Score:2, Informative)

      by Anonymous Coward

      Bareshelves Biden, is that you? Didn't know you frequent /.

    • Price controls. And punitive taxes on price gougers, like the oil companies, and the futures traders.

      Price controls undercut the central strength of a free market, how do ensure that the price you set is sufficient to make the transaction profitable? At a certain point price controls just create a secondary market at the real price (just look at ticket scalpers).

      As for price gougers... that assumes that the majority of businesses knowingly leave money on the table by underpricing, which seems unlikely.

      As for the futures traders, I'm not a financial type, but they sound like a useful way for a business to r

      • Given that debt ceiling could as well hit googol and they won't care, government instead should stop printing money and pay with IOUs for everything.
      • Worse than that, price controls remove the best indicator of whether there is a shortage or surplus of a particular item, making it nearly impossible to manage the economy correctly. It's like treating a bleeding patient by telling them to pretend they aren't bleeding, it's just a way to ignore reality.

    • Re: (Score:2)

      by Mitreya ( 579078 )

      Price controls.

      I grew up in the former Soviet Union. Government-imposed price controls is not the solution you think it is.

  • She knows you'll believe anything (Score:1, Insightful)

    by Anonymous Coward

    "There's no inflation"

    "Inflation is transitory"

    "Inflation is still transitory"

    "Inflation is actually good for the economy"

    etc.

    Wake up! If this was your financial adviser, you would have fired them long ago.

    Anyone not trying to remove this person from power is either Charlie Brown trying to kick the football YET AGAIN or in on it.

    • Inflation is great for the economy. People have to bring a credit card to buy groceries, and run their transactions in two stages because of limits at the gas station's terminal. When working class people start defaulting on their mountain of debt we'll see just how "good" inflation and recession has been.

      The "good" thing about inflation is you can increase minimum wage without actually paying anyone more. Those who keep their money in a bank account or a low yield retirement account are the ones who lose t

    • A little bit of inflation is actually good. As long as it doesn't get out of hand, it gives people an incentive to spend their money instead of hoarding it.

      The main problem is that people instead put their money into "investments", i.e. they park it in various goods, mostly real estates. That's a problem.

      The solution to this would be if the people who have lots of money and would like to invest that have projects they could invest it in. That in turn, though, requires everyone to have at least a little mone

    • Re: (Score:1)

      by Tablizer ( 95088 )

      If you are intending to quote, do it right. Not like mouth-head cable pundits.

  • Think of the Fed Funds Rate as the input to a large physical system with a slow response. The outputs of the system are inflation, and unemployment.

    One thing I am happy about right now is, until recently, the Fed's control authority was used up. Interest rates were near zero. There was not much they could do to stimulate the economy.

    The risk is, while trying to control inflation, they may overshoot the target, and cause a spike in unemployment. It's a slow responding system, but inflation is pretty
    • Finding the right interest rate to solve the problem in a timely manner will be difficult.

      As I said above, they're too late. The Fed kept rates at artifically low numbers for too long and are now trying to play catch up. Which will fail. Always has, always will. Whatever the Fed does now won't show until next year.
  • Go to Youtube and watch "Some More News" and their Inflation video they just did.

    TL;DW, reducing inflation means reducing the money supply, and right now whenever we need to do that we attack the middle class and poor when we could just tax the rich instead.

    It's like an MMO. When World of Warcraft has inflation they release a cool new mount for 1000 gold and it sucks all the money out of the whales. But if they ran their economy like we do in the real world they'd shut down all the dungeons and mob

  • $40 Billions to EVERYBODY (Score:4, Insightful)

    by davide marney ( 231845 ) on Thursday May 12, 2022 @12:40PM (#62526258) Journal

    Look this is really so simple. This one trick will solve poverty forever, eliminate structural racism in a single blow, and make us all fabulously, insanely rich at the same time! What's not to love?!

    Just give $40B to everybody. Instant wealth.

    You can thank me later.

  • Yeah right (Score:3)

    by wakeboarder ( 2695839 ) on Thursday May 12, 2022 @12:49PM (#62526308)

    They over reacted on throwing gas on the fire. If you throw gas on a fire, things get out of control. The economy is like that now. I don't think the fed knows what they are doing and they are trying to cover their butts

    • Virus evolution is not linear. Nobody has a fucking crystal ball, except maybe in their head.

      • An unfunded tax cut, massive tariffs, negotiated reduction in oil production, and super low interest rates in a red hot economy set the stage for inflation before COVID happened. You didn't need a crystal ball to predict inflation back then.

        • Re: (Score:1)

          by Tablizer ( 95088 )

          Inflation was sub-par until well into the pandemic.

          • Inflation is like a fire. You can have lots of fuel and air, but until their is a spark it doesn't ignite. Once it gets started it can be hard to put out and in this case we piled up a ton of explosive fuel.

            Another important lesson is that the more labor components a product has, the less likely the price will ever come down. Commodities can come down significantly if supply is increased. This is why we need to attack inflation aggressively as soon as possible. The Fed is compounding their error of over

      • Maybe except for me, I was furious when they handed it checks because I knew it would devalue money and lead to inflation. I thought the third round of stimulus was unnecessary. Plus the government created that problem in the first place with lockdowns instead of letting people decide what they wanted to do.

        • Re: (Score:1)

          by Tablizer ( 95088 )

          Whether the lockdowns were "justified" is a different issue. (Perhaps just as tricky as predicting the future of the economy.)

  • Nothing was actually said. Great politician. (Score:5, Insightful)

    by quall ( 1441799 ) on Thursday May 12, 2022 @01:05PM (#62526352)

    "America is strong, we can reduce inflation".

    That sums up her statements, which did not even elude to a plan or explain why she thinks the value of the American dollar will go up. Just a pow-wow fluff statement.

    • Re: (Score:2)

      by Entrope ( 68843 )

      That's true. On the other hand, the situation is not as bad as it might be. I'm about to return to the US from a business trip to Australia, and the Australian dollar is now $0.68 US. When I got here on Monday, $1 AU was $0.71 US. A month ago, it was $0.75, and a year ago it was $0.78.

      Over the last year, the euro has dropped from $1.22 to $1.03, the pound from $1.42 to $1.22, and so on. US inflation is high, but the dollar is strong against foreign currencies, so international markets still see it as h

    • They don't know what's going on they've already admitted that. The worst is yet to come, the best model that I think anyone could find is probably Japan. They've gone into a decade of stagflation where they can't raise interest rates or they'll kill the economy. We are next

  • Neither is very likely though.

  • Raising Rates Cools What? (Score:3)

    by byronivs ( 1626319 ) on Thursday May 12, 2022 @01:25PM (#62526420) Journal
    My understanding was that low rates allow industries to expand, because money is cheaper. So what happens when supply (of anything) is low and industry cannot expand cheaply (attractively) to fill out supply? I'm personally not spending any more money than I need to. I'm living with what I got and saving the rest unless (and for the reason of) something breaks.

    But even if this is supposed to cool interbank lending, how does that help the high-finance folks? Perhaps this is to prevent the easy money available to investment buyers so that over-valued companies will be market corrected. that's gonna fuck retirements.

    The problems I see don't seem to have much to do with an over-hot marketplace of the consumer. More like opportunism in price raising, and also, legitimate scarcity in basic materials causing price to increase. And scarcity in supply chains, importing, lack of domestic capacity and now bonus warfare.

    Either way changing leadership will not help. Those screeching about Bidenism or that the Republicans will fix it once their guy is in or Yellen or other leadership related stuff are going to be severely disappointed or y'know denialistic about how a ruling party change will change absolutely nothing. Nothing at all.

    Even if any ruling party were to incentivize opening factories locally, or boosting raw material acquisition, it would take years for private plans to get off the ground. Essentially providing no temporary relief from inflation. Plus high interest rates just makes that kind of capital growth more expensive. Tax-code to the rescue?

  • When they save things like this you know there's real trouble coming.

    They have the power to borrow and destroy, but not to create. We need creation as the path out and every one of their controls harms it. Mises wrote the thesis on this about a hundred years ago and Information Theory only cemented it.

  • It's barely even an article.
  • Who made her millions from citadel and other SHF.
  • Never in the history of a free market economy has it self corrected. This is such a farce. Itâ(TM)s simply the next redistribution of wealth upward. Average joe loses his savings a company is driven to the brink my âoemarket forcesâ then Fat cats fly in buying everyone and everything for Pennieâ(TM)s on the dollar. This is the way.
  • Recession/Depression is now being redefined as a boom time.
  • We demanded an unfunded tax cut, massive tariffs, negotiated reduction in oil prices, huge pandemic relief giveaways, and record low interest rates sustained in a red hot economy. We elected a fool who thought this was a good idea and elected another one that sustains the effort only to express surprise and dissatisfaction when we have inflation.

    Yellen was the Chairman of the Federal Reserve who kept the prime lending rate low. We replaced her with Powell who insisted on keeping them low. Now that they ha

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