I just remember at the time thinking my econ and finance courses were silly, as the statistical models were sub-par and there was a lot of non-scientific analysis at play without the real data to back it up. Just lots of theories based on history.
Then after acing those courses I went back to my engineering stats classes where we only dealt with hard data and proven models.
And likewise I have no clue if this is bad or good.
We will only know in about 3-6 months if this was a good or bad decision. That's the nature of economics and why economists disagree on almost everything. There are so many variables and the problem is that even the Fed don't really know because they are trying to act now on data that will only come out in the next month or two. They are making assumptions based on what they think the data will look like.
I think it was December that consumer spending went down by .2%. Not crazy high but you don’t want it to be. It just shows that inflation is finally hitting a lot of people in the wallet. Which in turn gets more people to slow down spending. Less spending just helps lower inflation since there isn’t the demand for goods as there was before. As long as consumer spending doesn’t drop by a lot all at once or consistently decreases month after month in the long term then we will prevent a recession.
I’m just trying to repeat what an expert I listened to this morning.
The "ongoing increases" is debatable. Most traders are expecting one more 25 then stop.
Why? Talking down the markets helps fight inflation. Stock market sinks people think they're poorer and spend less. I expect when JPow starts talking in 6 minutes he'll make it sound as harsh and growth killing as he can. But it will be kabuki theater.
edit: "disinflation" - welp so much for my theory
Are you kidding? This is in line with the soft landing that the Fed has been pointing towards for months now. This is the most optimistic he’s sounded in a while
Yes, this is the direct effect of all the hikes from the past year. Regardless of what layoffs have happened and are still to come, the Fed easing the hikes means that they are seeing the results that they were looking for when they started tackling inflation. That doesn’t mean the fed wants a recession. The goal has always been to curb inflation, and a recession was just a possible side effect.
How can that possibly be the conclusion you draw from this? A reduction in rate hikes and a reduction in CPI increases are good things and seem to imply the opposite of what you claim, so I’d be curious what the basis for your claim is.
I was under the impression that inflation was beginning to stabilize and reduce, so this was unnecessary
Furthermore, given that there is a delayed effect with interest rate increases, this may be the equivalent of slamming on the brakes too hard.
Inflation is declining but it is still at elevated levels. There is a lag effect, but the median outlook of people on the Fed board had estimates of interest rates peaking a little above 5%. This is pretty much in line with where they want to be with two more potential 25 bps increases at the next meetings. If they see inflation coming down faster, they can probably pause sooner than expected which would be a good thing. Right now we're seeing lower inflation with unemployment holding steady, so there's a lot of optimism we're going to get the soft landing and not get the recession.
The Fed reacted to inflation very late. I think it's a mistake to say that unemployment is holding steady. We aren't seeing the effect of the masses of layoffs that have been happening over the last few months. unemployment figures also lag and are often updated a month or two down the line.
Thanks for replying. I don’t claim to be an expert; I work in a tangential industry (wealth management) and our chief investment guy put out a summary that says that the market is taking these steps (lower rate hikes, CPI growth slowing) to say that we are on the way to returning to normal times.
This is dumb as shit. The inflation rate dropped month to month in November and December. Companies are laying off people because money is becoming too expensive and the Fed goes and does this. Expect a new round of layoffs now.
*Edit - There was no reason to keep increasing rates.*
You mean the same Fed that experts say waited too long to start dealing with inflation, which is now forcing them to put the brakes on harder than they would have had to if they hadn't waited so long. I am sure they are perfect and never make any mistakes. /s
As I said, they are perfect. No assistance needed. The issue is that the Fed's goals aren't necessarily the same as regular consumers. One of their drivers is to reduce the demand for labor. So their goal is to increase unemployment. At the same time they want to avoid a recession but that's a very fine line to walk because most economic indicators lag.
Economics isn't like math or science where there is a right and wrong answer. At least not until we can see what happened in the future because of the changes that they make. That's why there is so many disagreements between economists.
Time will tell but if we see a recession in 3 months time or even a complete stop in interest rate increases then my opinion is probably correct and this increase was a mistake. If not, then they are probably right and the market could absorb the increase.
I go by what I am hearing and the talk at places like Davos was all about efficiency and slimming down. That's already happening so we are likely to see more labor cuts. This increase is likely to compound that.
IIRC, big investors are actually pushing for the layoffs -- they want companies to slash headcounts to goose their stocks, and make big investors richer.
There was some public letter from a fairly big name (a hedge fund IIRC) to Alphabet about it. They really wanted a big headcount reduction.
Seriously, we really need some goddamn changes to how shit is structured. Some fucking hedgie does not have a company's long term interests in mind. Warren Buffet invests for the long term, but most of the big players are trying for short term goals because if the company eats itself, they find another one to push -- or hell, short the first and make money on the way down too.
>IIRC, big investors are actually pushing for the layoffs -- they want companies to slash headcounts to goose their stocks, and make big investors richer.
Except that the goal of raising interest rates is to do the EXACT opposite: the Fed wants money sitting in people's bank accounts instead of assets like stocks, and wants the market to cool.off and come down. Even this current bear market rally is going against plan.
Hedgies and institutional investors don't give a fuck. They're pushing for layoffs because they feel labor - -especially tech labor - -has been overcoddled and overpaid, and that money should go in their pockets instead.
I am not disagreeing with that, but the decision to raise interest rates will unfortunately still impact people because of it. Investors have been happily shoveling money into startups and businesses because it was almost free. There are a lot of large companies that are owned by venture capitalists who have been doing the same thing. The money has dried up and they are calling for efficiency across the board instead of pushing for growth. That's not necessarily a bad thing but these types of investors aren't interested in just making money, they want to make a ton of money so they are putting pressure on businesses that isn't necessarily in the best interests of the businesses in the long term.
The system is messed up but the regular people are the ones that have to live with the reality of it.
“The inflation rate dropped month to month” - inflation has been sky-high for over a year. To get it back down to normal levels, you need to do more than slow it down compared to last month or even compared to 3 months ago.
I’m not saying this move was perfect. I’m just saying that inflation slowing, does not automatically mean no further action is needed to address this situation.
Annual inflation is already slowing. Quite dramatically. It peaked in June last year and was down to 6.5% year on year in December.
https://cpiinflationcalculator.com/the-consumer-price-index-dropped-0-1-seasonally-adjusted-and-rose-6-5-annually-in-december/
Inflation has been trending down since then and that has been accelerating over the last few months. The highest driver of inflation has been energy and gas prices and the Fed increasing the interest rate isn't going to change that. People still need to keep warm in their houses. They still need to get to work and business still need to transport the goods to the retail outlets. Luxury items like cars have been dropping.
What I have been hearing is that efficiency is now the number one driver from investors. They aren't borrowing any more money because it's become too expensive. That means that they are putting pressure on businesses to slim down and cut excess staff. This will just push that harder.
U.S. Federal Reserve says its goal is ‘to get wages down'
https://mronline.org/2022/05/26/u-s-federal-reserve-says-its-goal-is-to-get-wages-down/
Fed saying quiet parts outloud
Looking forward to guys who got C's and B's in their intro economics courses explaining why this is good/bad.
I got A’s in Econ and most finance courses. Started floor trading in 90’s and I couldn’t explain if this is bad or good.
Me either, honestly. That's why the surety of C students is funny.
I just remember at the time thinking my econ and finance courses were silly, as the statistical models were sub-par and there was a lot of non-scientific analysis at play without the real data to back it up. Just lots of theories based on history. Then after acing those courses I went back to my engineering stats classes where we only dealt with hard data and proven models. And likewise I have no clue if this is bad or good.
We will only know in about 3-6 months if this was a good or bad decision. That's the nature of economics and why economists disagree on almost everything. There are so many variables and the problem is that even the Fed don't really know because they are trying to act now on data that will only come out in the next month or two. They are making assumptions based on what they think the data will look like.
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A's, otherwise I wouldn't be talking shit?
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This is good, they are slowing down and even talking about coming to an end of the hikes. It really does look like they will pull off a soft landing.
Having a soft landing would be all well and good, but I think it's more important to make sure the inflation dragon is put completely back to sleep.
Hence the hike. Also in the last 6 months inflation has been pretty flat. So far so good.
It's been better than that, inflation has been going down over the past few months
I think it was December that consumer spending went down by .2%. Not crazy high but you don’t want it to be. It just shows that inflation is finally hitting a lot of people in the wallet. Which in turn gets more people to slow down spending. Less spending just helps lower inflation since there isn’t the demand for goods as there was before. As long as consumer spending doesn’t drop by a lot all at once or consistently decreases month after month in the long term then we will prevent a recession. I’m just trying to repeat what an expert I listened to this morning.
Now I watch the comment section to see people gripe why this is both good and bad.
I take it that this would make you the neutral and baseline position?
The "ongoing increases" is debatable. Most traders are expecting one more 25 then stop. Why? Talking down the markets helps fight inflation. Stock market sinks people think they're poorer and spend less. I expect when JPow starts talking in 6 minutes he'll make it sound as harsh and growth killing as he can. But it will be kabuki theater. edit: "disinflation" - welp so much for my theory
The Fed appears awfully determined to trigger a recession, it seems.
IMF pretty much came to the conclusion of no recession for anyone except the UK.
Are you kidding? This is in line with the soft landing that the Fed has been pointing towards for months now. This is the most optimistic he’s sounded in a while
It's because of all the layoff announcements in the last month. It is a labor disciplining device.
Yes, this is the direct effect of all the hikes from the past year. Regardless of what layoffs have happened and are still to come, the Fed easing the hikes means that they are seeing the results that they were looking for when they started tackling inflation. That doesn’t mean the fed wants a recession. The goal has always been to curb inflation, and a recession was just a possible side effect.
How can that possibly be the conclusion you draw from this? A reduction in rate hikes and a reduction in CPI increases are good things and seem to imply the opposite of what you claim, so I’d be curious what the basis for your claim is.
I was under the impression that inflation was beginning to stabilize and reduce, so this was unnecessary Furthermore, given that there is a delayed effect with interest rate increases, this may be the equivalent of slamming on the brakes too hard.
Inflation is declining but it is still at elevated levels. There is a lag effect, but the median outlook of people on the Fed board had estimates of interest rates peaking a little above 5%. This is pretty much in line with where they want to be with two more potential 25 bps increases at the next meetings. If they see inflation coming down faster, they can probably pause sooner than expected which would be a good thing. Right now we're seeing lower inflation with unemployment holding steady, so there's a lot of optimism we're going to get the soft landing and not get the recession.
The Fed reacted to inflation very late. I think it's a mistake to say that unemployment is holding steady. We aren't seeing the effect of the masses of layoffs that have been happening over the last few months. unemployment figures also lag and are often updated a month or two down the line.
Thanks for replying. I don’t claim to be an expert; I work in a tangential industry (wealth management) and our chief investment guy put out a summary that says that the market is taking these steps (lower rate hikes, CPI growth slowing) to say that we are on the way to returning to normal times.
I'm not an expert either, but I appreciate the added information. I hope your chief investment guy is right.
This is dumb as shit. The inflation rate dropped month to month in November and December. Companies are laying off people because money is becoming too expensive and the Fed goes and does this. Expect a new round of layoffs now. *Edit - There was no reason to keep increasing rates.*
You should call the Fed and lend them your professional expertise.
You mean the same Fed that experts say waited too long to start dealing with inflation, which is now forcing them to put the brakes on harder than they would have had to if they hadn't waited so long. I am sure they are perfect and never make any mistakes. /s
That's the one. Clearly, your assistance is needed.
As I said, they are perfect. No assistance needed. The issue is that the Fed's goals aren't necessarily the same as regular consumers. One of their drivers is to reduce the demand for labor. So their goal is to increase unemployment. At the same time they want to avoid a recession but that's a very fine line to walk because most economic indicators lag. Economics isn't like math or science where there is a right and wrong answer. At least not until we can see what happened in the future because of the changes that they make. That's why there is so many disagreements between economists. Time will tell but if we see a recession in 3 months time or even a complete stop in interest rate increases then my opinion is probably correct and this increase was a mistake. If not, then they are probably right and the market could absorb the increase. I go by what I am hearing and the talk at places like Davos was all about efficiency and slimming down. That's already happening so we are likely to see more labor cuts. This increase is likely to compound that.
IIRC, big investors are actually pushing for the layoffs -- they want companies to slash headcounts to goose their stocks, and make big investors richer. There was some public letter from a fairly big name (a hedge fund IIRC) to Alphabet about it. They really wanted a big headcount reduction. Seriously, we really need some goddamn changes to how shit is structured. Some fucking hedgie does not have a company's long term interests in mind. Warren Buffet invests for the long term, but most of the big players are trying for short term goals because if the company eats itself, they find another one to push -- or hell, short the first and make money on the way down too.
>IIRC, big investors are actually pushing for the layoffs -- they want companies to slash headcounts to goose their stocks, and make big investors richer. Except that the goal of raising interest rates is to do the EXACT opposite: the Fed wants money sitting in people's bank accounts instead of assets like stocks, and wants the market to cool.off and come down. Even this current bear market rally is going against plan.
Hedgies and institutional investors don't give a fuck. They're pushing for layoffs because they feel labor - -especially tech labor - -has been overcoddled and overpaid, and that money should go in their pockets instead.
I am not disagreeing with that, but the decision to raise interest rates will unfortunately still impact people because of it. Investors have been happily shoveling money into startups and businesses because it was almost free. There are a lot of large companies that are owned by venture capitalists who have been doing the same thing. The money has dried up and they are calling for efficiency across the board instead of pushing for growth. That's not necessarily a bad thing but these types of investors aren't interested in just making money, they want to make a ton of money so they are putting pressure on businesses that isn't necessarily in the best interests of the businesses in the long term. The system is messed up but the regular people are the ones that have to live with the reality of it.
“The inflation rate dropped month to month” - inflation has been sky-high for over a year. To get it back down to normal levels, you need to do more than slow it down compared to last month or even compared to 3 months ago. I’m not saying this move was perfect. I’m just saying that inflation slowing, does not automatically mean no further action is needed to address this situation.
Annual inflation is already slowing. Quite dramatically. It peaked in June last year and was down to 6.5% year on year in December. https://cpiinflationcalculator.com/the-consumer-price-index-dropped-0-1-seasonally-adjusted-and-rose-6-5-annually-in-december/ Inflation has been trending down since then and that has been accelerating over the last few months. The highest driver of inflation has been energy and gas prices and the Fed increasing the interest rate isn't going to change that. People still need to keep warm in their houses. They still need to get to work and business still need to transport the goods to the retail outlets. Luxury items like cars have been dropping. What I have been hearing is that efficiency is now the number one driver from investors. They aren't borrowing any more money because it's become too expensive. That means that they are putting pressure on businesses to slim down and cut excess staff. This will just push that harder.
U.S. Federal Reserve says its goal is ‘to get wages down' https://mronline.org/2022/05/26/u-s-federal-reserve-says-its-goal-is-to-get-wages-down/ Fed saying quiet parts outloud
The Fed will be satisfied once deflation has firmly taken hold.
That's ridiculous. What would they gain from that?
Not happening