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"Tell me you were too young to remember Alan Greenspan without telling me that" The Fed has always shied away from saying things too bluntly, and preferred to

"Tell me you were too young to remember Alan Greenspan without telling me that" The Fed has always shied away from saying things too bluntly, and preferred to deal with wishy washy code words. If it ever says something bluntly you know they really mean it. Something like "softened" is a deliberately ambiguous phrase designed to acknowledge the reality that they're declining without causing panic, by being uncertain and sounding not terribly bad. You're supposed to wonder what that means and argue about it, so the markets don't bolt one way or the other. If you look up the history of Alan Greenspan ("The Maestro") and the way that investors in 2003 watched for the changes in single words from meeting to meeting from the Fed, so that he never startled the emotionally delicate markets you'll see there's a long history of this kind of language. Also it kind of scares the crap out of me that they're bumping rates by 75 basis points every meeting. If you understand how much Greenspan was walking on eggshells back in 2003, they're fucking screaming right now by their actions that they're going to plunge the economy into a recession in order to get wage growth and unionization under control.

throwaway_4ever 4y ago
Oil is down 20% from June, so it's likely we'll have somewhat tapered inflation next CPI. Current best estimate for FOMC meeting 6 weeks from now is a 50 bps raise, and then two more 25 bps raise to end the year at 3.25%. Sounds reasonable to me.
- lamontcg 4y ago
  Over the course of 2 years from 2004 to 2006 the fed raised interest rates by 425bp which ultimately popped the housing bubble. In less than a year the Fed will have increased rates by 325bp in your scenario, and there's no indication by the Fed that they're going to slow down that much, and currently no indication that inflation will hit their 2% target rate. And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy (and you can't even see the last commodities boom when oil went to $100/bbl in the core-CPI readings from that time -- the rise in oil prices didn't cause the core CPI increase, so falling oil prices won't reverse it). And I think the markets are underestimating how much they'll hike rates to close out the year. If core CPI remains elevated even as oil comes off its highs then they could at least do 3 more 50bp hikes to close out the year.
  - dragonwriter 4y ago
    > And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy Energy, as well as being a CPI component itself, is a key production input and has outsize effects on prices across the board (though that effect is smoothed compared to immediate energy costs); if energy costs have peaked (and not just seeing a downward fluctuation over the last month or so), then that itself is going to be a huge brake on core inflation.
pindab0ter 4y ago
How does an interest increase influence unionization?
- lamontcg 4y ago
  Ultimately by creating a recession and rising unemployment and desperation in the working class.
- dragonwriter 4y ago
  The more leverage labor has, the harder union-busting is, generally, because labor rights enforcement is...decidedly spotty, but witholding labor, or even making your firm less attractive to applicants, in a tight labor market is highly effective whether or not the state is enforcing labor rights. Interest rate hikes slow the economy and reduce labor demand and leverage.
- rurp 4y ago
  Raising interest rates can crash the economy resulting in higher unemployment. Higher unemployment means less bargaining power for workers, of which includes union strength. I'm not much for conspiracy theories but it's hard to not fixate on the sequence of events here. The past year or two is the only time in my lifetime that workers have seen their market power increase significantly, and it's being quickly followed up by moves that will likely crash the economy and will certainly decrease labor's bargaining power.
lamontcg 4y ago
Here's a good example of how the Fed language causes debate. From Paul Krugman: > Well, we’ll have to wait and see. The good news is that policymakers appear willing to do just that. From my point of view, the most encouraging aspect of the Fed’s statement on Wednesday was the paragraph declaring that the committee setting monetary policy is prepared to be flexible, that it “will continue to monitor the implications of incoming information” and “would be prepared to adjust the stance of monetary policy as appropriate.” That’s a not-too-subtle rejection of demands from inflation hawks that the Fed commit itself now now now to a long period of extremely tight money. https://www.nytimes.com/2022/07/28/opinion/recession-inflation.html https://www.nytimes.com/2022/07/28/opinion/recession-inflati... My reading of that language, on the other hand, is that its pretty tepid and just what would be expected, and that the Fed not actually coming out with the most hard-line language possible is not worth much. It still suggests that they'll stick to their guns until they see a considerable amount of change in the data. I'm drawn more to the single blunt sentences which are "The Committee is highly attentive to inflation risks" and "The Committee is strongly committed to returning inflation to its 2 percent objective" which are two pretty harsh statements that they terminated paragraphs with that I think signal their overriding concerns. Given that I think that they'll wait until they see clear changes in the data, and given that I think that the foundations of the economy are vulnerable to shocks and I'm expecting at least a commercial real estate implosion to go off once everything gets "stress tested" by higher rates, I am not anywhere near as hopeful as Krugman. The fact that people can get such wildly different takes out of the Fed language is a feature, not a bug. I'm over here building a nuclear fallout shelter, Krugman is in la-la land thinking its all coming up roses, we're both reading the same announcement, yet nothing in the Fed announcement is wrong or false.

throwaway_4ever 4y ago

Oil is down 20% from June, so it's likely we'll have somewhat tapered inflation next CPI. Current best estimate for FOMC meeting 6 weeks from now is a 50 bps raise, and then two more 25 bps raise to end the year at 3.25%. Sounds reasonable to me.

lamontcg 4y ago
Over the course of 2 years from 2004 to 2006 the fed raised interest rates by 425bp which ultimately popped the housing bubble. In less than a year the Fed will have increased rates by 325bp in your scenario, and there's no indication by the Fed that they're going to slow down that much, and currently no indication that inflation will hit their 2% target rate. And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy (and you can't even see the last commodities boom when oil went to $100/bbl in the core-CPI readings from that time -- the rise in oil prices didn't cause the core CPI increase, so falling oil prices won't reverse it). And I think the markets are underestimating how much they'll hike rates to close out the year. If core CPI remains elevated even as oil comes off its highs then they could at least do 3 more 50bp hikes to close out the year.
- dragonwriter 4y ago
  > And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy Energy, as well as being a CPI component itself, is a key production input and has outsize effects on prices across the board (though that effect is smoothed compared to immediate energy costs); if energy costs have peaked (and not just seeing a downward fluctuation over the last month or so), then that itself is going to be a huge brake on core inflation.

pindab0ter 4y ago

How does an interest increase influence unionization?

lamontcg 4y ago
Ultimately by creating a recession and rising unemployment and desperation in the working class.
dragonwriter 4y ago
The more leverage labor has, the harder union-busting is, generally, because labor rights enforcement is...decidedly spotty, but witholding labor, or even making your firm less attractive to applicants, in a tight labor market is highly effective whether or not the state is enforcing labor rights. Interest rate hikes slow the economy and reduce labor demand and leverage.
rurp 4y ago
Raising interest rates can crash the economy resulting in higher unemployment. Higher unemployment means less bargaining power for workers, of which includes union strength. I'm not much for conspiracy theories but it's hard to not fixate on the sequence of events here. The past year or two is the only time in my lifetime that workers have seen their market power increase significantly, and it's being quickly followed up by moves that will likely crash the economy and will certainly decrease labor's bargaining power.

lamontcg 4y ago

Here's a good example of how the Fed language causes debate. From Paul Krugman: > Well, we’ll have to wait and see. The good news is that policymakers appear willing to do just that. From my point of view, the most encouraging aspect of the Fed’s statement on Wednesday was the paragraph declaring that the committee setting monetary policy is prepared to be flexible, that it “will continue to monitor the implications of incoming information” and “would be prepared to adjust the stance of monetary policy as appropriate.” That’s a not-too-subtle rejection of demands from inflation hawks that the Fed commit itself now now now to a long period of extremely tight money. https://www.nytimes.com/2022/07/28/opinion/recession-inflation.html https://www.nytimes.com/2022/07/28/opinion/recession-inflati... My reading of that language, on the other hand, is that its pretty tepid and just what would be expected, and that the Fed not actually coming out with the most hard-line language possible is not worth much. It still suggests that they'll stick to their guns until they see a considerable amount of change in the data. I'm drawn more to the single blunt sentences which are "The Committee is highly attentive to inflation risks" and "The Committee is strongly committed to returning inflation to its 2 percent objective" which are two pretty harsh statements that they terminated paragraphs with that I think signal their overriding concerns. Given that I think that they'll wait until they see clear changes in the data, and given that I think that the foundations of the economy are vulnerable to shocks and I'm expecting at least a commercial real estate implosion to go off once everything gets "stress tested" by higher rates, I am not anywhere near as hopeful as Krugman. The fact that people can get such wildly different takes out of the Fed language is a feature, not a bug. I'm over here building a nuclear fallout shelter, Krugman is in la-la land thinking its all coming up roses, we're both reading the same announcement, yet nothing in the Fed announcement is wrong or false.