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It has real effects until the economy is at full employment, after which it only causes inflation.

by QuesnayJr 7y ago

throw0101a 7y ago
At which point rates are generally raised to cool things down.
- seanmcdirmid 7y ago
  Which should have happened along time ago in the current economy but haven’t, you can’t cut rates in bad times if you don’t raise them enough in good.
  - QuesnayJr 7y ago
    They started raising rates but then Trump successfully bullied the Fed. Though inflation had remained low, so it's not clear that it was necessary to raise rates.
    - seanmcdirmid 7y ago
      Inflation remains low? Seriously, I have no idea how they are computing that rate when asparagus is $4.99/pound these days. It seems like low rates feed the housing bubble nicely, and if housing costs were more adequately represented in the CPI, it would be much higher.
      - QuesnayJr 7y ago
        Housing costs are reflected in CPI, as imputed rent. I couldn't find the exact weights with a quick search, but IIRC housing costs are around a quarter of the basket. Asparagus is less than that.
      - throw0101a 7y ago
        * https://fred.stlouisfed.org/series/FPCPITOTLZGUSA https://fred.stlouisfed.org/series/FPCPITOTLZGUSA If you doubt the official numbers, the Billion Prices Project goes out scrapes price data, and it matched pretty well with the CPI: * https://en.wikipedia.org/wiki/MIT_Billion_Prices_project https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
  - x86_64Ubuntu 7y ago
    I'm an economic idiot, but the interest rates have started concern me. It's seemed like no one wants to cut them as that might put the brakes on "growth". There are also rumorings of a crash being around the corner. So if a crash does come about, what's the Fed going to do seeing as how rates are already bottomed out?
    - csa 7y ago
      > It's seemed like no one wants to cut them as that might put the brakes on "growth". I assume you meant “raise” instead of “cut” here. If so, you are correct, and the question about what the fed does when the market corrects/crashes is why a lot of folks are wringing their hands right now.
    - andrekandre 7y ago
      > So if a crash does come about, what's the Fed going to do seeing as how rates are already bottomed out? potentially, negative interest rates, that’s what [1] [1] https://www.investopedia.com/articles/investing/070915/how-negative-interest-rates-work.asp https://www.investopedia.com/articles/investing/070915/how-n...
  - throw0101a 7y ago
    The Fed isn't seeing any inflation, so it's not seeing a reason to raise rates. But you're right that it doesn't give them much monetary room--I guess if/when the downturn comes resorting to fiscal stimulus be the only answer. Not that the GOP deficit chickenhawks have given any room there: remember when GOP was against deficits? US$ 1T later Pepperidge Farms remembers.

It has real effects until the economy is at full employment, after which it only causes inflation.

throw0101a 7y ago

At which point rates are generally raised to cool things down.

seanmcdirmid 7y ago
Which should have happened along time ago in the current economy but haven’t, you can’t cut rates in bad times if you don’t raise them enough in good.
- QuesnayJr 7y ago
  They started raising rates but then Trump successfully bullied the Fed. Though inflation had remained low, so it's not clear that it was necessary to raise rates.
  - seanmcdirmid 7y ago
    Inflation remains low? Seriously, I have no idea how they are computing that rate when asparagus is $4.99/pound these days. It seems like low rates feed the housing bubble nicely, and if housing costs were more adequately represented in the CPI, it would be much higher.
    - QuesnayJr 7y ago
      Housing costs are reflected in CPI, as imputed rent. I couldn't find the exact weights with a quick search, but IIRC housing costs are around a quarter of the basket. Asparagus is less than that.
    - throw0101a 7y ago
      * https://fred.stlouisfed.org/series/FPCPITOTLZGUSA https://fred.stlouisfed.org/series/FPCPITOTLZGUSA If you doubt the official numbers, the Billion Prices Project goes out scrapes price data, and it matched pretty well with the CPI: * https://en.wikipedia.org/wiki/MIT_Billion_Prices_project https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
- x86_64Ubuntu 7y ago
  I'm an economic idiot, but the interest rates have started concern me. It's seemed like no one wants to cut them as that might put the brakes on "growth". There are also rumorings of a crash being around the corner. So if a crash does come about, what's the Fed going to do seeing as how rates are already bottomed out?
  - csa 7y ago
    > It's seemed like no one wants to cut them as that might put the brakes on "growth". I assume you meant “raise” instead of “cut” here. If so, you are correct, and the question about what the fed does when the market corrects/crashes is why a lot of folks are wringing their hands right now.
  - andrekandre 7y ago
    > So if a crash does come about, what's the Fed going to do seeing as how rates are already bottomed out? potentially, negative interest rates, that’s what [1] [1] https://www.investopedia.com/articles/investing/070915/how-negative-interest-rates-work.asp https://www.investopedia.com/articles/investing/070915/how-n...
- throw0101a 7y ago
  The Fed isn't seeing any inflation, so it's not seeing a reason to raise rates. But you're right that it doesn't give them much monetary room--I guess if/when the downturn comes resorting to fiscal stimulus be the only answer. Not that the GOP deficit chickenhawks have given any room there: remember when GOP was against deficits? US$ 1T later Pepperidge Farms remembers.