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They can and are raising rates, but do you think it’s feasible for them to go full Volcker if that’s what it takes to beat back inflation? When I worry about th

by ericd 4y ago

They can and are raising rates, but do you think it’s feasible for them to go full Volcker if that’s what it takes to beat back inflation? When I worry about the debt to GDP ratio, it’s not about whether we can withstand bumping from 0% to 1-2%, it’s whether we can withstand historically normal ranges, let alone what it took in the 80s.

JumpCrisscross 4y ago
> do you think it’s feasible for them to go full Volcker if that’s what it takes to beat back inflation? "US inflation, which peaked at 14.8 percent in March 1980, fell below 3 percent by 1983...Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981" [1]. For comparison, we're currently around 8.5% [2] and 0.75% to 1%, respectively. Long-term rates are below 4% [3]. There is no need to tip the economy into a recession at this time. If we needed to, the constraint would be--as it was in Volcker's time--political. If we were suffering double-digit inflation, I suspect the will would be there. [1] https://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_Federal_Reserve https://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_F... [2] https://fred.stlouisfed.org/graph/?g=rocU https://fred.stlouisfed.org/graph/?g=rocU [3] https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202205 https://home.treasury.gov/resource-center/data-chart-center/...
- smileysteve 4y ago
  What doesn't make headlines is the longer term average for inflation as well; The diminishing effectiveness (in part based on global unison from 2008) meant that the federal reserve could not reach its target 2% inflation a year from 2008 until 2021. In a history of being under inflation targets by .5% for 14 years, 8.5% in one year is partly a headline grabber. And we have wage growth happening.
  - JumpCrisscross 4y ago
    > the federal reserve could not reach its target 2% inflation a year from 2008 until 2021 This is an excellent point. Between January 2012 and January 2022, CPI-U grew at 2.2% annually [1][a]. [1] https://www.bls.gov/regions/mid-atlantic/data/consumerpriceindexhistorical_us_table.htm https://www.bls.gov/regions/mid-atlantic/data/consumerpricei... [a] (281.148 / 226.665) ^ (1 / 10) - 1

by ericd 4y ago

JumpCrisscross 4y ago

> do you think it’s feasible for them to go full Volcker if that’s what it takes to beat back inflation? "US inflation, which peaked at 14.8 percent in March 1980, fell below 3 percent by 1983...Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981" [1]. For comparison, we're currently around 8.5% [2] and 0.75% to 1%, respectively. Long-term rates are below 4% [3]. There is no need to tip the economy into a recession at this time. If we needed to, the constraint would be--as it was in Volcker's time--political. If we were suffering double-digit inflation, I suspect the will would be there. [1] https://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_Federal_Reserve https://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_the_F... [2] https://fred.stlouisfed.org/graph/?g=rocU https://fred.stlouisfed.org/graph/?g=rocU [3] https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202205 https://home.treasury.gov/resource-center/data-chart-center/...

smileysteve 4y ago
What doesn't make headlines is the longer term average for inflation as well; The diminishing effectiveness (in part based on global unison from 2008) meant that the federal reserve could not reach its target 2% inflation a year from 2008 until 2021. In a history of being under inflation targets by .5% for 14 years, 8.5% in one year is partly a headline grabber. And we have wage growth happening.
- JumpCrisscross 4y ago
  > the federal reserve could not reach its target 2% inflation a year from 2008 until 2021 This is an excellent point. Between January 2012 and January 2022, CPI-U grew at 2.2% annually [1][a]. [1] https://www.bls.gov/regions/mid-atlantic/data/consumerpriceindexhistorical_us_table.htm https://www.bls.gov/regions/mid-atlantic/data/consumerpricei... [a] (281.148 / 226.665) ^ (1 / 10) - 1