Powell On The Hill
"The Fed has basically one tool on inflation," Elizabeth Warren patiently explained, during a cameo on business television last week. Raising rates, she said, "works for some kinds of inflation problems" but not all of them.
Needless to say, Warren thinks it's time Jerome Powell lowered borrowing costs. "Right now, high interest are actually increasing costs for families," Warren added, in the same interview.
She isn't wrong. About rates or, frankly, about much else either. I've been down this
Sadly for Powell, there are two key characteristics needed by our members of Congress that are no longer a required part of the profile, intelligence and objectivity. He has no chance of convincing anyone of a rational point of view. And btw, isn’t the deficit down to Yellen and the Congress? Powell can’t make material changes in that item. (I know,interest rates can make it bigger …)
I heard a comment on a podcast that I will try to accurately paraphrase: the idea that by one measure of inflation that includes housing assumes a percentage of included energy costs for rentals (e.g. heat and hot water included leases), so that as energy costs decrease, the “value” that a renter receives goes down (if the dollar amount of rent is static). In other words, decreasing energy costs brings a negative return to renters with this situation, leading to a higher measured rate of ‘inflation.’
It did make me wonder if the amount that this dynamic is moving the inflation needle is so small as to be insignificant, but was still an intriguing thought. Of course, around the NYC area rents are surely not going down, so if this is skewing the inflation numbers even a little it might be something.
Sorry to not be more thorough on my retelling, but the source was Macro Voices episode 416 with guest Mike Green from 2/22.
I think Warren is very good , but I think she is wrong about the fed’s current interest rate stance. I think they should hold rates right here until there is a reason not to. Wait for the whites of their eyes. From April 1971 through December 2023 the average rate for 30 year fixed conforming mortgage is 7.74%. That is a fact, not an opinion. There is a lot wrong in our government policy tableau, but IMO not in short rates….Housing has about eight other things wrong with it, and they are mostly unintended outgrowths of our malignant politics….Meanwhile, we start our journey off an inch or two, and as we keep going the gap grows exponentially…
+1
I basically like Elizabeth Warren. However, I think interest rates are the least of our problems. I think her efforts would be better placed in so many other issues. Example-insanely low taxes on corporations. Example- abusive trusts. Example- hunger, particularly of children. Example-education, healthcare. Poisonous chemicals, etc…