‘So, We Raised Interest Rates’
"If you get to the mid-3s or maybe even a little bit higher, and then you stay there...," Goldman's Jan Hatzius mused, while chatting with Bloomberg TV on Tuesday about the prospects for the terminal rate and, more immediately, the likely tone of Jerome Powell's remarks at Jackson Hole later this week.
I'll confess to harboring more than a little cognitive dissonance at this point. There's a sense in which the Fed has to (must) lean in, even if everyday people's outlook for price growth is info
What happens if the “sticky” US inflation most analysts now expect for 2023 is accompanied not by falling commodity prices, but instead by additional acute commodity supply shocks? What happens if inflation in the US goes to 15%? Does the Fed just keep hiking? If so, to where? Until fed funds overtakes headline CPI? Surely not, right?
Luckily the US enjoys having the worlds reserve currency, would be interesting to see what the choices would be otherwise,
maybe have to pull an “Ergodan”
Go back and read what Volcker did. Check the rate and inflation charts. The answer was yes.
There is no doubt in my mind that recession, even a deep one, is preferable to runaway inflation. Recession will depress irrationally exuberant asset prices (home, stocks, crypto, PE) and cost many millions a job — temporarily, we can only hope. Runaway inflation will lead to widespread social unrest and maybe the end of American democracy.
The end of American democracy is already here thanks to gerrymandered districts. If you want to read something truly disconcerting, the linked article (below) is among the most frightening pieces I’ve read in a long time. And don’t make the same mistake I did — namely, read the title, assume you already know the story and click away. It took me a week to find my way back to it because I just assumed it was another run-of-the-mill lament for unfairly redrawn electoral maps. It’s much more than that. Unless you’re already an expert on Ohio state politics, it’ll still shock you no matter how much you know about gerrymandering…
https://www.newyorker.com/magazine/2022/08/15/state-legislatures-are-torching-democracy
I saw that article. I would not go so far as to say gerrymandered districts in red states are the end of democracy. The simple reality is that state houses are an important part of the American political playing field, which democrats have largely ignored for 20 years. As a result, democrats have definitely played a role in facilitating the end of democracy. But American democracy is not dead yet.
Since Lincoln the US has seen an ebb and flow of success for different parties in different areas of the country. But after the year 2000, where before they had always dwelled and vigorously supported party candidates, the Democratic Party decided that spending money in red states wasn’t worthwhile. In effect, they substantially ran away from red statehouses in the late 90s and early 2000s. They outright focused on national office and ceded statehouses to the republicans.
Alongside the rise of red states, democrats were cowed by Gingrich and the so-called “freedom caucus.” They did not know how to confront Gingrich’s rhetoric. I still don’t believe the abundance of democrats know how to use rhetoric on media platforms. But it’s at the state level where they need (desperately at this point) to develop their rhetoric and assert themselves for the good of their state and country.
American politics, government by the people and for the people, is about being engaged. If the Democratic Party does not invest in all red states and make effective arguments with “Mr. and Mrs. Jones” in places like Ohio, which today is definitely a red state, then we are indeed more likely to meet the fate you expressed, the demise of our democracy. It would also be helpful if they learned how to use the media. The party needs to confront the reality.
An unsettling read. Thanks.
The Economist magazine I read yesterday had a two page look at how the GOP in the US is being pulled away from their traditional financial and ideological partners in the business community. After reading that I turned to a partner and said ” this country is f5@&=k going forward.”
Your commentary builds on that unease.
Thanks to an imbeded hatred of anything “socialist” in this country, the outcome is likely to resemble Bolsonaro’s Brazil or Peron’s Argentina. We once laughed at those stupid nations ….
The real issue is 2024 assuming a trump 2 or desantis 1 term. As for rates, well you won’t have to wait too long for lower rates, but be careful what you wish for….
Losing faith in the Fed is not losing de facto losing faith in currency. As pointed out, most people don’t know what the Fed does, but they sure know the function of the dollar.
If the Fed can’t control inflation why do they exist? Full employment! Oh wait, nope, not that either. Maybe we’ll collectively wake up to the lie and move closer to jettisoning the institution that stands most in the way of economic mobility, both up and down.
H-Man, the New Yorker article on Ohio gerrymandering was more than scary. I assumed the judicial system would come to the rescue and was even more shocked to see a federal court basically overrule the Ohio State Supreme court to permit patently illegal redistricting.
I must assume when you are thinking about relocating, Ohio is not going to be on the list.
As for Powell and the Fed…they need to be “the Adults in the Room,” …for now that means Powell being steadily and convincingly hawkish this Friday, then raising rates btw50-75 bps next month depending on tightness or looseness of financial conditions, then sooner rather than later (assuming markets finally accepting reality) declaring a pause to allow economic trends and rate hikes to play out with reevaluations at subsequent meetings. This also tacitly acknowledges the limitations of fiscal policy given current extenuating circumstances…
As for the US I’ve stated before that the 2000 election where the Supreme Court 5-4 overruled Florida’s right to count their votes started the decline of the American empire. Trump’s ascendancy in 2016 put the decline on steroids, and we may be too far gone already.
We’re left with hope and very little else.
I’m already too depressed to read the piece on Ohio, but having a hypocritical and religiously motivated Supreme Court that rules mask mandates as government overreach yet forced pregnancies not pretty much takes the cake for me, and of course we were all warned by Trump in his 3rd debate where he said he would appoint SC justices who will overturn Roe.
GLTA…
The only way to reduce gerrymandering, and simultaneously save democracy in the US, is to enact term limits and reduce the amount of money available to politicians, thereby make being a politician less financially lucrative – either legally or illegally. Our current system is not attracting the type of public servants that we want and need.
Frightening article, indeed.