12 ms·
The drop coincides with the market tanking at the end of last year, due to the Fed badly miscalculating their rate hike policy. TFA omits this context, and gla
by zaroth 8y ago
The drop coincides with the market tanking at the end of last year, due to the Fed badly miscalculating their rate hike policy.
TFA omits this context, and glaringly doubles down on the omission when they state;
“The report from the Commerce Department on Friday also showed inflation pressures remaining tame, which together with slowing domestic and global economic growth gave more credence to the Federal Reserve’s “patient” stance towards raising interest rates further this year.”
The Fed caused tremendous damage at the end of Q4 with their breakneck rate hikes in the face of record-low inflation. They sucked over a trillion dollars out of the economy which is why the numbers are down.
To write that this gives credence to the Fed’s “patient” stance is wallpapering over the real story, and it smells politically motivated.
- SlipperySlope 8y agoNailed it. Plus tariffs are voluntary taxes drawing from funds from importers. The economy will slow down as it adjusts to re-industrialization with higher prices paid out as wages to USA workers.
- tomrod 8y agoI disagree. Tariffs are the culprit here, rate hikes were needed and long announced. Really, the 2018Q4 expenditure, mostly unfunded due to the tax changes, hit at the same time as the full Fed rate impact landed. Fiscal hamfist refuses to acknowledge the monetary hand.
- apercu 8y agoActually, tariffs seem to me to just another consumer tax.
- Dangeranger 8y agoTariffs are paid by the consumers of imported goods, not by the importers themselves. Costs are simply passed down as higher prices. The idea that an importer would absorb the tariffs doesn’t hold water.
- burfog 8y agoNo, the cost of a tax on trade is always split. The way it is split is determined by elasticity of demand and elasticity of supply. In this particular case, Chinese suppliers have been paying about 83% of the tariff.
- mrmuagi 8y agoIf I recall correctly from an economics class yay days ago, it doesn't matter if the seller pays the tax or the buyer -- the effective cost is shared (fewer buyers too).
- witcherchaos 8y agoIncorrect. There was a recent study done on tariffs effects. The study found negligible effects on consumer good prices. Turns out most tariff costs were eaten by manufacturers in China. (The importers forced them to eat the costs) Which prompted them to either shut down or move overseas
- zephharben 8y agoCan you share a link to this study?
- burfog 8y agoI recall seeing it, but I can't seem to track it down at the moment. It was a study done by Europeans, concluding that China was eating about 83% of the tariff cost. The remaining 17% hits the US consumers. Of course, that 17% can sort of be returned to the American consumers via reduced taxes or increased federal spending. The jobs are nice too.
- zephharben 8y agoThis study reached a different conclusion: http://www.princeton.edu/~reddings/papers/CEPR-DP13564.pdf http://www.princeton.edu/~reddings/papers/CEPR-DP13564.pdf
- gruez 8y agoThat might be true for US tariffs, but what about retaliatory tariffs enacted by China?
- simonh 8y agoThat can only ork in the short term though. If they go bust prices will go up for consumers due to constrained supply. If they move abroad to avoid the tariffs, we’ll presumably the reason they didn’t already do that was higher manufacturing costs abroad, so again increased costs for consumers, even if less than the tariffs. You can put it off for a while, but not indefinitely. After all the justification given for the tariffs was to make less efficient local production more viable. Higher consumer prices are an explicit part of that calculation.
- throwaway34241 8y agoSteel tariffs (for example) are great for US steel producing jobs but terrible for US steel consuming jobs (auto makers, etc). From a jobs perspective (ignoring any retaliation) it would make more sense to have tariffs on consumer goods instead of intermediate goods, but that's more politically difficult since obviously consumers are going to notice tariffs on consumer goods more. I'm very skeptical that even without retaliation, tariffs on China will lead to much USA manufacturing jobs (as opposed to automated US manufacturing, or manufacturing shifting from China to Vietnam, Thailand etc. Of course certain industries will be big winners or losers though.
- kadendogthing 8y agoHow was it miscalculated? We can't sit there and leave interests rates low forever. It's a mitigating tactic, not a tenable one. We've been doing this for _years_. It's long, long, long over due for fed interest rates to come back up. Because right now all it's really doing is building a credit bubble. Real wages and real purchasing power must keep going up. And for that to happen the upper 1% are going to have to take a nice hit for the economy to truly correct. Both effectively need to happen at the same time. The FED is essentially signalling to policy makers that the time to up minimum wage is... was, yesterday. I want to challenge you to really dive into your perspective and defend why you think the fed miscalculated here, and why you think leaving interest rates low isn't going to have extremely negative effects if we don't start changing course now. If not now, when?
- pjc50 8y ago> Real wages and real purchasing power must keep going up. Yes and yes - but how? The interest rate is only monetary policy, not fiscal. Traditionally, low rates were expansionary. Maybe we need lower rates?
- kadendogthing 8y agoIncreasing minimum wage, and essentially workers across the board need to start demanding higher wages. Maybe if there was a way to band together and seek a unified compensation policy on a company/industry basis.
- Dangeranger 8y agoWorkers have been “demanding” higher wages for quite some time. I’m not sure why it would work any better this time. Outside of technology workers are still looked at as replaceable and expendable. I’m not sure what is going to break the ceiling in this climate.
- craftyguy 8y ago> Outside of technology workers are still looked at as replaceable and expendable I know HN users tend to have 'high horse' syndrome, but this is incredibly naiive. There are plenty of skilled jobs where workers are not easily replaced/expended. Physicians, RNs, higher education teachers/professors, many jobs related to architecture design, construction, etc. > I’m not sure what is going to break the ceiling in this climate. There's been recent success in the old school technique of 'striking'.
- SCAQTony 8y agoDoes the Fed really set interest rates or do the credit card companies and bond markets? The Fed funds rate is 2.5%, the average credit card rate is 15.6%, the average mortgage rate is 4.67% which historically is quite anemic. Does the FED really control the economy? The money supply per the FRED graph at the Saint Louis FED is nearly double what it was in 2009 yet spending is down. https://fred.stlouisfed.org/series/WCURCIR https://fred.stlouisfed.org/series/WCURCIR
- xxpor 8y agoConsidering the fed rate effects the prime rate, and credit card interest (for example) is set as prime + X%, yes they do have an effect.
- deleted 8y ago[deleted]
- selimthegrim 8y agoWhere are you getting this average credit card rate from?
- SCAQTony 8y agoI am an expert at google-fu ;-) "...CreditCards.com releases the national average APR, which is made up of 100 of the most popular credit cards in the country. According to their June 21, 2017, release, the national average credit card rate across all types of cards was 15.96 percent. — Jan 2, 2019"
- saghm 8y agoI don't doubt your honesty here, but a link would be helpful
- selimthegrim 8y agoJune 2017 was quite a while ago in terms of fed funds rate hikes. I would bet $100 the average APR is greater than 15.96% now. More likely between 17-18%, I have a source too but would need to dig it up.
- 40acres 8y agoIf anything, I would say that the markets are out of control. Many large companies are gorged with debt and are afraid of what higher interest rates would mean for that debt, and thus the market panicked at the end of Q4 which slowed down the Fed. We've been in a low interest rate environment for all of my adult life, at some point the crows will come to roost and these companies will need to pay the price for their strategy of taking on debt + share buybacks and come back to earth. I'm extremely dissapointed that the Fed was spooked out of performing their duty by Wall St.
- mruts 8y agoEconomists call this the “narrowing corridor.” The lower the cut rates, the less room you have to maneuver. The fed needs to increase rates by like 5x in order to get us back on stable footing. My wife always likes to make the analogy of the economy being a bathtub. When the government sells bonds or lowers rates or prints money, the bathtub gets filled up. When the government buys bonds or increases rates, the water line lowers. The size of the bathtub increases along with real growth in the economy. Inflation is when the water rises faster than the size of the bathtub, deflation when the water isn’t rising fast enough.
- jonny_eh 8y agoHow is the analogy helpful? Am I supposed to be afraid of the bathtub emptying or overflowing?
- opo 8y ago>...When the government sells bonds or lowers rates or prints money, I think you have that backwards. The common consensus is that the Fed selling bonds has the opposite effect: >...f the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds. Therefore, OMO has a direct effect on money supply. OMO also affects interest rates because if the Fed buys bonds, prices are pushed higher and interest rates decrease; if the Fed sells bonds, it pushes prices down and rates increase. https://www.investopedia.com/articles/economics/08/monetary-policy-recession.asp https://www.investopedia.com/articles/economics/08/monetary-...
- roenxi 8y agoConcur, but with reservations. > the Fed badly miscalculating their rate hike policy There is a mis-frame in politics that the current status quo is always good and should be preserved. I strongly disagree with that, and think we would get much better results if market leaders weer replaced when it is evident that they don't understand how to create real wealth. The idea that allowing the market to fall is 'miscalculation' is in itself a political topic. Personally, after the evidence of something like 2008, it seems a reasonable theory that the current leaders in the US economic system - particularly bankers and money managers - are mismanaging (potentially even reducing) real wealth and America simply started from a very strong position so taking a long time for that to become obvious and unchangeable. I havn't heard good reports about the infrastructure situation in the States, and they are starting to lose military dominance to the Chinese.