4 ms·

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%.

> 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%.