7 ms·

> My point is, layoffs will continue until companies are much more efficient, or interest rates go down. Exactly what the FED wanted.

by saos 4y ago

jalino23 4y ago
how does interest rate affects company layoffs and why is being more efficient affects that? and why would FED want this? - serious question
- chasd00 4y ago
  The FED wants unemployment to go up which will drive demand, and therefore prices, down. That will reduce inflation.
  - JumpCrisscross 4y ago
    > FED wants unemployment to go up This is wrong. The Fed doesn’t want higher unemployment. It isn’t even willing to tolerate it. That’s the whole “soft landing” conversation, and why hikes are so hesitant. The ideal path would be labor market loosening with no more unemployment. Absent structural adjustments, that’s possible. But we need structural adjustments, so layoffs are necessary, which makes the closest to ideal layoffs and immediate reuptake, i.e. constant employment with less wage growth. A single-mandate Fed would respond to last year’s inflation like Russia did: a sharp, steep rate hike.
    - __jem 4y ago
      You're technically correct, but this seems like a bit of a distinction without a difference. The Fed may not want unemployment, but they do want people to lose their jobs, and an obvious risk of people losing their jobs is that they'll be unemployed. There's no guarantee the Fed will stick the "soft landing."
      - JumpCrisscross 4y ago
        > they do want people to lose their jobs, and an obvious risk of people losing their jobs is that they'll be unemployed No, they want less nominal wage growth. The less people lose their jobs, the better. But economies don’t adjust without creaking, which means yes, an expected effect is layoffs and bankruptcies. But the Fed doesn’t want that, and goes to significant lengths, often with negative impact on its price-level mandate, to manage this downside.
    - chasd00 4y ago
      "soft landing" is a hope but if bringing the labor market under control ( higher unemployment ) requires a hard landing or recession the FED is prepared and willing to do that. The whole concept of a soft landing is "well that would be nice but it's not the priority".
    - Octoth0rpe 4y ago
      Maybe the reason why people keep repeating it is because that's more or less what Powell keeps saying: "Reducing inflation will likely require a sustained period of below-trend growth, and it will very likely require a softening of labor conditions," (source: https://www.cbsnews.com/news/federal-reserve-interest-rate-hike-inflation-2022-09-21/ https://www.cbsnews.com/news/federal-reserve-interest-rate-h...) Softening of labor conditions is pretty directly saying "Increase unemployment". > and why cuts are so cautious. They're so cautious because they want to hit the right amount of increased unemployment, not that they don't want unemployment to go up at all.
      - JumpCrisscross 4y ago
        > Softening of labor conditions is pretty directly saying "Increase unemployment" Not at all. It means less nominal wage growth. That can and does happen without an increase in even job losses, let alone unemployment. (You can have job losses with constant or even increasing employment.)
        Octoth0rpe 4y ago
        That seems extremely hypothetical. Sure, in specific anecdotal places/times wages got frozen and employment stayed fixed, but I don't think _anyone_ expects that to happen at a national level if the policy goal of the day is to "soften labor conditions". The expectation is higher unemployment. I think most people understand this.
        JumpCrisscross 4y ago
        > seems extremely hypothetical It’s literally what we’re seeing right now. It’s not the norm, but it’s precedented[1], most recently in America in the 90s. [1] http://pombo.free.fr/phillips1958.pdf http://pombo.free.fr/phillips1958.pdf Figure 1
      - aCoreyJ 4y ago
        There is a major difference between "this thing we have to do in order to hit our target 2% inflation rate may unfortunately increase unemployment" and "the fed wants layoffs" Also job numbers have been incredibly good so it's not even generally true unemployment is increasing outside of sectors that are incredibly susceptible to fears of recession.
  - deleted 4y ago
    [deleted]
  - philipov 4y ago
    Won't unemployment lead to deflation, which is also bad?
  - btbuildem 4y ago
    Prices never come down. Except maybe gasoline, after it jumps high in a panic now and again. Everything else just ratchets up, always. The best I can understand it, the low interest rates encourage lending / borrowing, which expands the money supply. As the supply of real goods and services is not keeping up, theres more money than goods, so prices of everything go up. Layoffs are a way of keeping wages down, but that's just corporate greed. If wages went up, it would effectively negate inflation - we'd just get extra zeros on everything, but individual purchasing power would stay on par (you could still pay your rent with half a paycheck, etc). Of course in a global economy that would cause the country to be at a disadvantage in the import/export game.
    - sokoloff 4y ago
      Some categories do deflate over time. Consumer electronics, cell phone services, toys are examples that are cheaper now than 10, 20, or 30 years ago. You can get a 43" 1080p TV for $150: https://www.bestbuy.com/site/insignia-43-class-n10-series-led-full-hd-tv/6319495.p?skuId=6319495 https://www.bestbuy.com/site/insignia-43-class-n10-series-le...
      - dcow 4y ago
        I never quite understood this. For things that are new and novel it makes sense for price to decrease over time, like TV tech (do note that OLEDs today aren't any cheaper so the category is not TVs it’s LCD TVs). But games/toys it does not. It implies quality is lower or efficiency of production is higher and with something like video games I really doubt efficiency is higher. This is why I welcome the $10 price hike for video games. I want good games again.
        sokoloff 4y ago
        I paid $3500 for a high quality 480p TV in 1997. A 4K OLED TV that will stomp all over that TV can be had now for under $1500. In nominal dollars, the TV fell by over 50%. In real dollars, it fell by over 75%.
- alephnerd 4y ago
  To combat inflation in the housing market. A subset of White collar professionals (such as those in Tech, Real Estate, Finance) ended up earning so much that housing became unaffordable as a small but significant minority began buying multiple investment properties https://www.politico.com/news/2021/11/10/rent-inflation-biden-520642 https://www.politico.com/news/2021/11/10/rent-inflation-bide... https://www.politico.com/news/2022/12/31/labor-market-high-income-workers-inflation-00075446 https://www.politico.com/news/2022/12/31/labor-market-high-i... “Tech and finance are taking the impact of rate hikes the hardest because they gorged the most on low rates,” said David Kotok, chief investment officer at Cumberland Advisors. “But if you are a carpenter or a retail worker right now you can still quit your job whenever you want and instantly go somewhere else and get paid more. This won’t continue to be true if we go into a real recession.”
  - arroz 4y ago
    Tech workers are a small portion of workers overall
    - alephnerd 4y ago
      But a significant portion of the top 10% of Americans economically. The top 10% of Americans by combined household income is any household (not income, household) earning ~170k or above. [0] Layoffs at this point have mostly been within the tech industry only, hence why rates continue to be hiked. Who cares about techies who most live and vote in already dark blue districts. To win elections you gotta decrease inflation in purple districts and red districts with much more diverse economies. (Big reason Big tech started nearshoring in Atlanta, Austin, Nashville, Columbus, and RTP btw - to get some political capital from legislators in Red states) This is why you see Dems who get most of their support from white collar professionals like Warren and Ro Khanna slamming rate hikes as they negatively affect their core constituents. [1][2] This is a white collar recession [3] and most Americans aren't white collar. Hence why you are seeing strong job growth in blue collar jobs still [4] leading to even higher rate hikes, because they clearly aren't negatively impacting most Americans [0] - https://finance.yahoo.com/news/much-money-top-1-5-100000529.html https://finance.yahoo.com/news/much-money-top-1-5-100000529.... [1] - https://www.politico.com/news/2022/08/28/warren-elizabeth-recession-federal-reserve-00054010 https://www.politico.com/news/2022/08/28/warren-elizabeth-re... [2] - https://www.politico.com/news/2022/10/11/jerome-powell-risking-recession-to-beat-inflation-00061003 https://www.politico.com/news/2022/10/11/jerome-powell-riski... [3] - https://www.bloomberg.com/news/articles/2022-09-13/tech-layoffs-2022-portend-white-collar-recession https://www.bloomberg.com/news/articles/2022-09-13/tech-layo... [4] - https://www.politico.com/news/2023/02/03/employment-report-biden-powell-00081067 https://www.politico.com/news/2023/02/03/employment-report-b...
- sithlord 4y ago
  because if people don't have extra money to buy things, then merchandisers are forced to lower price to a point where people are willing to buy it. it's supply and demand, Feds can't really impact supply - but they can impact the demand of it
- sophacles 4y ago
  The best I've been able to determine is: we went through a period of very low unemployment, and as a result employee class people were able to do things like "ask for reasonable pay" and "switch jobs for more money".
  - JumpCrisscross 4y ago
    > the scariest thing that can happen to a capitalist system This is nonsense. Nobody benefits from high nominal and low or negative real wage growth. Everyone does from real wage growth, including investors.
- donavanm 4y ago
  The feds “dual mandate” is "maximum employment, stable prices, and moderate long-term interest rates." There’s too much employment at the moment, imperiling price stability and forcing their hand on interest rates. Inflation expectations, particularly”wage spiral”, are tied to unemployment. The historically low unemployment would/should drive further increases in wages due to scarcity/bargaining position of labor. More layoffs and job suppression will reduce that inflation pressure.
  - MonkeyMalarky 4y ago
    Wild to think a country can have both too much employment and millions living below the poverty line.
    - breatheoften 4y ago
      Yah which is exactly why this response is not going to work. The issue right now with "full employment" is incentive based -- after covid large numbers of people opted out of the jobs available to them because they finally recognized how much they have been being screwed over by the employer classes. The social contract is bad -- people are unhappy with raw deals. I think the only thing that could actually work right now will require actually addressing the structural social wealth imbalances. Too much employment --> introduce mandatory hour caps and increase mandatory vacation allowances and decrease retirement ages. Too much overhead per employee -- get healthcare the hell out of the employment contract ... It's insane to me that when we saw relative cross class wage growth for the first time in decades -- the immediate conclusion of all the decision makers had been that the labour market is over-exuberant and needs to be tamped down...
      - pm90 4y ago
        It’s important to understand that the Fed has limited tools at its disposal. Congress does have the power to enact the required structural changes. However, the Fed Chair has not been very vocal about this so it always seems like the Fed is the only agency that can do anything about the situation. Honestly Powell should stop pretending he has any control over the situation and say it explicitly that rate hikes aren’t really having the intended effect. He is a bad Fed chair.
- wanderingbort 4y ago
  A lot of answers for why the fed would want this but regarding your first question: The interest rate can be thought of as the “cost of money”. The higher it is, the more expensive it is to get more money in the short term. This is why 0% was labeled “free” When companies have access to cheap money it is less risky to invest short term in long term growth. Generally “growth” is expensive up front and pays out over time. Also, hiring takes time so starting to grow happens on a lag. Now, we had a long span of cheap money so, companies not only planned to grow but they planned to keep growing. This meant they were hiring today for tomorrows growth. Money is no longer cheap. All of the future growth is a lot riskier so any hires made for that purpose are cut. Also any in-progress growth became risky, so some of those hires are cut too. Lastly, there is no growth after the current crop of projects so, as they complete, some or all of those hires are let go. Cheap money is risk free growth opportunities. Growth needed people. Expensive money is very risky belt-tightening opportunities. That leads to layoffs.
- AFriendlyBeagle 4y ago
  Increasing interest rates can discourage investment by making it more expensive to borrow money, and by increasing the yield of savings relative to available investment targets. Corporations seeking investment in this climate might try to attract it by increasing the expected return on investment, which would involve committing fewer resources or achieving greater returns - being "more efficient". Labour costs are typically one of the main outgoings for a corporation, and so they might try to increase their rate of return by eliminating positions which are considered to be producing too few returns. The Federal Reserve might want this because they believe (erroneously, in my view) that high employment is the main contributing factor for inflationary pressure.
  - taylodl 4y ago
    You are absolutely correct and I wish more people understood this: poverty is a feature of the system. People who tell poor people to just "get a job" don't understand how this system works. Also, there's no point in trying to figure out how to "fix" the system, i.e. eliminate poverty, because we've found no alternative that works save for one: social safety nets to ensure the poor are at least housed, clothed, and fed.
    - jeremyjh 4y ago
      I don't think poverty is necessary, that problem could be solved by redistributing these returns, e.g. through a higher corporate tax and UBI. The alternative to monetary policy is a cycle of boom and bust that is much larger and more disruptive. Fundamentally though, we do not want people to be employeed in jobs that produce little value, and when interest rates are too low a lot of that starts to happen.
      - RestlessMind 4y ago
        > that problem could be solved by redistributing these returns, TBF, we already have redistribution via progressive taxation which funds "social safety nets to ensure the poor are at least housed, clothed, and fed." (to use GP's words). Trick is to ensure that we do not do too much of it, else people will not have any incentives to work harder.
- BirAdam 4y ago
  Regarding the interest rate, the interest rate is the price of both money and debt (as modern economies are debt based and not capitalist, socialist, communist, or anything else). As the cost of debt increases, pressure exists within any budget to cut costs wherever possible. This is exacerbated by a general tightening in investment markets due to returns needing to be higher than both the interest rate and the rate of inflation. The Federal Reserve wants to raise rates for multiple reasons. One is to try to slow inflation. Another is to try and salvage the dollar as the global currency. Yet another reason is to try and save the banking system. The overnight market has seen a lot of activity and change over the years as banks operate on slimmer margins with low required reserves. Raising interest rates will get people to park money in banks and help to ameliorate the heat.
- kypro 4y ago
  The Fed doesn't want layoffs – at least not directly. I'll give you the accepted economist explanation rather than my own, but I would note there is a serious lack of independent thinking in economic circles. It's like these people are all educated in the same elite universities reading the same textbooks – as an outsider the level of group think in economics is utterly bizarre. Now that disclaimer is out of the way... So the Fed has three mandates (in theory), minimize unemployment, keep inflation low and stable, ensure moderate interest rates. Inflation in an economy is always caused by supply and demand dynamics. If there's a lot of demand for something but not enough supply then prices will rise until an equilibrium is reached. Rapid changes in prices is something the Fed is mandated to tackle. The Fed as a central bank can't really do anything to change how many goods / services businesses are supplying so all they can really do to control prices (inflation) is influence demand. I won't get into the details of all the ways they can do this here, but to summerise they basically have a few really crap tools, with the primary one being to increase interest rates – not 100% true, but close enough. This has the impact of making it more attractive for consumers to save, rather than spend (basically). More saving and less spending means lower demand for goods, and therefore inflation should fall back to target. The opposite is true when the Fed wants inflation to be higher. The Fed wanting more inflation was why interest rates have been so low in recent years. One of the consequences of lower demand is that businesses may need to slow hiring, or cut jobs. Their mandate on employment and moderate interest rates largely stems from low and stable interest rates. This is because employment and interest rates are mostly a product of growth dynamics and the only way the Fed can encourage long-term growth is by ensuring prices in the economy are stable and accommodative to long-term decision making. When people say the Fed wants unemployment what they mean is that the Fed wants people to stop spending money so they stop bidding up the price of goods and services in the economny. Historically tight labour markets (as we have now) correlate well with robust economic demand, and therefore higher inflation. This is partly because consumers have jobs and can spend, but also because in a tight labour market businesses have to compete for labour so consumers tend to get pay rises easier too. I'm skipping over a ton here, so feel free to ask if there's anything you're unclear on. But basically the Fed wants you to lose your job so you'll stop spending money and so businesses don't have to compete as aggressively for labour. In theory, this is good for long-term growth dynamics.
throwaway5752 4y ago
The Fed wants lower inflation, period, that is part of its fundamental charter. It is taking pains to not cause extra damage to the economy in the process. The damage from Fed tightening is nothing compared to uncontrolled inflation.

> My point is, layoffs will continue until companies are much more efficient, or interest rates go down. Exactly what the FED wanted.

by saos 4y ago

> My point is, layoffs will continue until companies are much more efficient, or interest rates go down. Exactly what the FED wanted.

jalino23 4y ago

how does interest rate affects company layoffs and why is being more efficient affects that? and why would FED want this? - serious question

chasd00 4y ago
The FED wants unemployment to go up which will drive demand, and therefore prices, down. That will reduce inflation.
- JumpCrisscross 4y ago
  > FED wants unemployment to go up This is wrong. The Fed doesn’t want higher unemployment. It isn’t even willing to tolerate it. That’s the whole “soft landing” conversation, and why hikes are so hesitant. The ideal path would be labor market loosening with no more unemployment. Absent structural adjustments, that’s possible. But we need structural adjustments, so layoffs are necessary, which makes the closest to ideal layoffs and immediate reuptake, i.e. constant employment with less wage growth. A single-mandate Fed would respond to last year’s inflation like Russia did: a sharp, steep rate hike.
  - __jem 4y ago
    You're technically correct, but this seems like a bit of a distinction without a difference. The Fed may not want unemployment, but they do want people to lose their jobs, and an obvious risk of people losing their jobs is that they'll be unemployed. There's no guarantee the Fed will stick the "soft landing."
    - JumpCrisscross 4y ago
      > they do want people to lose their jobs, and an obvious risk of people losing their jobs is that they'll be unemployed No, they want less nominal wage growth. The less people lose their jobs, the better. But economies don’t adjust without creaking, which means yes, an expected effect is layoffs and bankruptcies. But the Fed doesn’t want that, and goes to significant lengths, often with negative impact on its price-level mandate, to manage this downside.
  - chasd00 4y ago
    "soft landing" is a hope but if bringing the labor market under control ( higher unemployment ) requires a hard landing or recession the FED is prepared and willing to do that. The whole concept of a soft landing is "well that would be nice but it's not the priority".
  - Octoth0rpe 4y ago
    Maybe the reason why people keep repeating it is because that's more or less what Powell keeps saying: "Reducing inflation will likely require a sustained period of below-trend growth, and it will very likely require a softening of labor conditions," (source: https://www.cbsnews.com/news/federal-reserve-interest-rate-hike-inflation-2022-09-21/ https://www.cbsnews.com/news/federal-reserve-interest-rate-h...) Softening of labor conditions is pretty directly saying "Increase unemployment". > and why cuts are so cautious. They're so cautious because they want to hit the right amount of increased unemployment, not that they don't want unemployment to go up at all.
    - JumpCrisscross 4y ago
      > Softening of labor conditions is pretty directly saying "Increase unemployment" Not at all. It means less nominal wage growth. That can and does happen without an increase in even job losses, let alone unemployment. (You can have job losses with constant or even increasing employment.)
      - Octoth0rpe 4y ago
        That seems extremely hypothetical. Sure, in specific anecdotal places/times wages got frozen and employment stayed fixed, but I don't think _anyone_ expects that to happen at a national level if the policy goal of the day is to "soften labor conditions". The expectation is higher unemployment. I think most people understand this.
        JumpCrisscross 4y ago
        > seems extremely hypothetical It’s literally what we’re seeing right now. It’s not the norm, but it’s precedented[1], most recently in America in the 90s. [1] http://pombo.free.fr/phillips1958.pdf http://pombo.free.fr/phillips1958.pdf Figure 1
    - aCoreyJ 4y ago
      There is a major difference between "this thing we have to do in order to hit our target 2% inflation rate may unfortunately increase unemployment" and "the fed wants layoffs" Also job numbers have been incredibly good so it's not even generally true unemployment is increasing outside of sectors that are incredibly susceptible to fears of recession.
- deleted 4y ago
  [deleted]
- philipov 4y ago
  Won't unemployment lead to deflation, which is also bad?
- btbuildem 4y ago
  Prices never come down. Except maybe gasoline, after it jumps high in a panic now and again. Everything else just ratchets up, always. The best I can understand it, the low interest rates encourage lending / borrowing, which expands the money supply. As the supply of real goods and services is not keeping up, theres more money than goods, so prices of everything go up. Layoffs are a way of keeping wages down, but that's just corporate greed. If wages went up, it would effectively negate inflation - we'd just get extra zeros on everything, but individual purchasing power would stay on par (you could still pay your rent with half a paycheck, etc). Of course in a global economy that would cause the country to be at a disadvantage in the import/export game.
  - sokoloff 4y ago
    Some categories do deflate over time. Consumer electronics, cell phone services, toys are examples that are cheaper now than 10, 20, or 30 years ago. You can get a 43" 1080p TV for $150: https://www.bestbuy.com/site/insignia-43-class-n10-series-led-full-hd-tv/6319495.p?skuId=6319495 https://www.bestbuy.com/site/insignia-43-class-n10-series-le...
    - dcow 4y ago
      I never quite understood this. For things that are new and novel it makes sense for price to decrease over time, like TV tech (do note that OLEDs today aren't any cheaper so the category is not TVs it’s LCD TVs). But games/toys it does not. It implies quality is lower or efficiency of production is higher and with something like video games I really doubt efficiency is higher. This is why I welcome the $10 price hike for video games. I want good games again.
      - sokoloff 4y ago
        I paid $3500 for a high quality 480p TV in 1997. A 4K OLED TV that will stomp all over that TV can be had now for under $1500. In nominal dollars, the TV fell by over 50%. In real dollars, it fell by over 75%.
alephnerd 4y ago
To combat inflation in the housing market. A subset of White collar professionals (such as those in Tech, Real Estate, Finance) ended up earning so much that housing became unaffordable as a small but significant minority began buying multiple investment properties https://www.politico.com/news/2021/11/10/rent-inflation-biden-520642 https://www.politico.com/news/2021/11/10/rent-inflation-bide... https://www.politico.com/news/2022/12/31/labor-market-high-income-workers-inflation-00075446 https://www.politico.com/news/2022/12/31/labor-market-high-i... “Tech and finance are taking the impact of rate hikes the hardest because they gorged the most on low rates,” said David Kotok, chief investment officer at Cumberland Advisors. “But if you are a carpenter or a retail worker right now you can still quit your job whenever you want and instantly go somewhere else and get paid more. This won’t continue to be true if we go into a real recession.”
- arroz 4y ago
  Tech workers are a small portion of workers overall
  - alephnerd 4y ago
    But a significant portion of the top 10% of Americans economically. The top 10% of Americans by combined household income is any household (not income, household) earning ~170k or above. [0] Layoffs at this point have mostly been within the tech industry only, hence why rates continue to be hiked. Who cares about techies who most live and vote in already dark blue districts. To win elections you gotta decrease inflation in purple districts and red districts with much more diverse economies. (Big reason Big tech started nearshoring in Atlanta, Austin, Nashville, Columbus, and RTP btw - to get some political capital from legislators in Red states) This is why you see Dems who get most of their support from white collar professionals like Warren and Ro Khanna slamming rate hikes as they negatively affect their core constituents. [1][2] This is a white collar recession [3] and most Americans aren't white collar. Hence why you are seeing strong job growth in blue collar jobs still [4] leading to even higher rate hikes, because they clearly aren't negatively impacting most Americans [0] - https://finance.yahoo.com/news/much-money-top-1-5-100000529.html https://finance.yahoo.com/news/much-money-top-1-5-100000529.... [1] - https://www.politico.com/news/2022/08/28/warren-elizabeth-recession-federal-reserve-00054010 https://www.politico.com/news/2022/08/28/warren-elizabeth-re... [2] - https://www.politico.com/news/2022/10/11/jerome-powell-risking-recession-to-beat-inflation-00061003 https://www.politico.com/news/2022/10/11/jerome-powell-riski... [3] - https://www.bloomberg.com/news/articles/2022-09-13/tech-layoffs-2022-portend-white-collar-recession https://www.bloomberg.com/news/articles/2022-09-13/tech-layo... [4] - https://www.politico.com/news/2023/02/03/employment-report-biden-powell-00081067 https://www.politico.com/news/2023/02/03/employment-report-b...
sithlord 4y ago
because if people don't have extra money to buy things, then merchandisers are forced to lower price to a point where people are willing to buy it. it's supply and demand, Feds can't really impact supply - but they can impact the demand of it
sophacles 4y ago
The best I've been able to determine is: we went through a period of very low unemployment, and as a result employee class people were able to do things like "ask for reasonable pay" and "switch jobs for more money".
- JumpCrisscross 4y ago
  > the scariest thing that can happen to a capitalist system This is nonsense. Nobody benefits from high nominal and low or negative real wage growth. Everyone does from real wage growth, including investors.
donavanm 4y ago
The feds “dual mandate” is "maximum employment, stable prices, and moderate long-term interest rates." There’s too much employment at the moment, imperiling price stability and forcing their hand on interest rates. Inflation expectations, particularly”wage spiral”, are tied to unemployment. The historically low unemployment would/should drive further increases in wages due to scarcity/bargaining position of labor. More layoffs and job suppression will reduce that inflation pressure.
- MonkeyMalarky 4y ago
  Wild to think a country can have both too much employment and millions living below the poverty line.
  - breatheoften 4y ago
    Yah which is exactly why this response is not going to work. The issue right now with "full employment" is incentive based -- after covid large numbers of people opted out of the jobs available to them because they finally recognized how much they have been being screwed over by the employer classes. The social contract is bad -- people are unhappy with raw deals. I think the only thing that could actually work right now will require actually addressing the structural social wealth imbalances. Too much employment --> introduce mandatory hour caps and increase mandatory vacation allowances and decrease retirement ages. Too much overhead per employee -- get healthcare the hell out of the employment contract ... It's insane to me that when we saw relative cross class wage growth for the first time in decades -- the immediate conclusion of all the decision makers had been that the labour market is over-exuberant and needs to be tamped down...
    - pm90 4y ago
      It’s important to understand that the Fed has limited tools at its disposal. Congress does have the power to enact the required structural changes. However, the Fed Chair has not been very vocal about this so it always seems like the Fed is the only agency that can do anything about the situation. Honestly Powell should stop pretending he has any control over the situation and say it explicitly that rate hikes aren’t really having the intended effect. He is a bad Fed chair.
wanderingbort 4y ago
A lot of answers for why the fed would want this but regarding your first question: The interest rate can be thought of as the “cost of money”. The higher it is, the more expensive it is to get more money in the short term. This is why 0% was labeled “free” When companies have access to cheap money it is less risky to invest short term in long term growth. Generally “growth” is expensive up front and pays out over time. Also, hiring takes time so starting to grow happens on a lag. Now, we had a long span of cheap money so, companies not only planned to grow but they planned to keep growing. This meant they were hiring today for tomorrows growth. Money is no longer cheap. All of the future growth is a lot riskier so any hires made for that purpose are cut. Also any in-progress growth became risky, so some of those hires are cut too. Lastly, there is no growth after the current crop of projects so, as they complete, some or all of those hires are let go. Cheap money is risk free growth opportunities. Growth needed people. Expensive money is very risky belt-tightening opportunities. That leads to layoffs.
AFriendlyBeagle 4y ago
Increasing interest rates can discourage investment by making it more expensive to borrow money, and by increasing the yield of savings relative to available investment targets. Corporations seeking investment in this climate might try to attract it by increasing the expected return on investment, which would involve committing fewer resources or achieving greater returns - being "more efficient". Labour costs are typically one of the main outgoings for a corporation, and so they might try to increase their rate of return by eliminating positions which are considered to be producing too few returns. The Federal Reserve might want this because they believe (erroneously, in my view) that high employment is the main contributing factor for inflationary pressure.
- taylodl 4y ago
  You are absolutely correct and I wish more people understood this: poverty is a feature of the system. People who tell poor people to just "get a job" don't understand how this system works. Also, there's no point in trying to figure out how to "fix" the system, i.e. eliminate poverty, because we've found no alternative that works save for one: social safety nets to ensure the poor are at least housed, clothed, and fed.
  - jeremyjh 4y ago
    I don't think poverty is necessary, that problem could be solved by redistributing these returns, e.g. through a higher corporate tax and UBI. The alternative to monetary policy is a cycle of boom and bust that is much larger and more disruptive. Fundamentally though, we do not want people to be employeed in jobs that produce little value, and when interest rates are too low a lot of that starts to happen.
    - RestlessMind 4y ago
      > that problem could be solved by redistributing these returns, TBF, we already have redistribution via progressive taxation which funds "social safety nets to ensure the poor are at least housed, clothed, and fed." (to use GP's words). Trick is to ensure that we do not do too much of it, else people will not have any incentives to work harder.
BirAdam 4y ago
Regarding the interest rate, the interest rate is the price of both money and debt (as modern economies are debt based and not capitalist, socialist, communist, or anything else). As the cost of debt increases, pressure exists within any budget to cut costs wherever possible. This is exacerbated by a general tightening in investment markets due to returns needing to be higher than both the interest rate and the rate of inflation. The Federal Reserve wants to raise rates for multiple reasons. One is to try to slow inflation. Another is to try and salvage the dollar as the global currency. Yet another reason is to try and save the banking system. The overnight market has seen a lot of activity and change over the years as banks operate on slimmer margins with low required reserves. Raising interest rates will get people to park money in banks and help to ameliorate the heat.
kypro 4y ago
The Fed doesn't want layoffs – at least not directly. I'll give you the accepted economist explanation rather than my own, but I would note there is a serious lack of independent thinking in economic circles. It's like these people are all educated in the same elite universities reading the same textbooks – as an outsider the level of group think in economics is utterly bizarre. Now that disclaimer is out of the way... So the Fed has three mandates (in theory), minimize unemployment, keep inflation low and stable, ensure moderate interest rates. Inflation in an economy is always caused by supply and demand dynamics. If there's a lot of demand for something but not enough supply then prices will rise until an equilibrium is reached. Rapid changes in prices is something the Fed is mandated to tackle. The Fed as a central bank can't really do anything to change how many goods / services businesses are supplying so all they can really do to control prices (inflation) is influence demand. I won't get into the details of all the ways they can do this here, but to summerise they basically have a few really crap tools, with the primary one being to increase interest rates – not 100% true, but close enough. This has the impact of making it more attractive for consumers to save, rather than spend (basically). More saving and less spending means lower demand for goods, and therefore inflation should fall back to target. The opposite is true when the Fed wants inflation to be higher. The Fed wanting more inflation was why interest rates have been so low in recent years. One of the consequences of lower demand is that businesses may need to slow hiring, or cut jobs. Their mandate on employment and moderate interest rates largely stems from low and stable interest rates. This is because employment and interest rates are mostly a product of growth dynamics and the only way the Fed can encourage long-term growth is by ensuring prices in the economy are stable and accommodative to long-term decision making. When people say the Fed wants unemployment what they mean is that the Fed wants people to stop spending money so they stop bidding up the price of goods and services in the economny. Historically tight labour markets (as we have now) correlate well with robust economic demand, and therefore higher inflation. This is partly because consumers have jobs and can spend, but also because in a tight labour market businesses have to compete for labour so consumers tend to get pay rises easier too. I'm skipping over a ton here, so feel free to ask if there's anything you're unclear on. But basically the Fed wants you to lose your job so you'll stop spending money and so businesses don't have to compete as aggressively for labour. In theory, this is good for long-term growth dynamics.

throwaway5752 4y ago

The Fed wants lower inflation, period, that is part of its fundamental charter. It is taking pains to not cause extra damage to the economy in the process. The damage from Fed tightening is nothing compared to uncontrolled inflation.