15 ms·

We have gone from a zero interest rate economy to a high interest one within months. Whoever claims to accurately predict what's going to happen in the next few

by mkl95 4y ago

We have gone from a zero interest rate economy to a high interest one within months. Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. We know inflation should start decreasing within a year or so, but you cannot predict how millions of people will react to suddenly not being able to afford stuff.

pjc50 4y ago
There has been a lot of argument over whether the inflation was transitory or not, and the theory that it was caused by the massive energy price spike in Europe caused by sanctioning Russian gas seems to have won. And the rate spikes were relatively modest. (Energy prices were much less affected in the US, but the economies are linked by trade)
mschuster91 4y ago
> We know inflation should start decreasing within a year or so That is assuming the Russians eventually pull out of Ukraine, are completely beaten militarily and their assets will be used to fund Ukrainian reconstruction, and it assumes that China does not increase tensions with Taiwan or, heaven forbid, actually invade. Should the war drag on, the situation will grow completely unpredictable - eventually, governments (no matter their political orientation or prior campaign promises) will have to raise taxes to pay for Ukraine aid and especially new arms projects, which means price hikes for the masses as companies will just pass through tax increases instead of accepting lower dividends for the capitalist owner class. > but you cannot predict how millions of people will react to suddenly not being able to afford stuff. IMO: Riots are inevitable IMO unless politicians invest money into at least filling the gaps for the lowest rungs of the societal ladder, the French are blazing the trail here - and it's only a matter of time until at least the UK population has enough of empty supermarket shelves. In the US, it depends if Biden will be able to secure a second term.
- lizardking 4y ago
  Support for funding the war could just as easily become an electoral liability in the west, in which case Ukraine loses some territory and the rest of the world moves on as they did when Russia seized Crimea. Either outcome is better for global economic stability than a protracted multi year war.
  - mschuster91 4y ago
    > Either outcome is better for global economic stability than a protracted multi year war. The problem is the political implications... for one, it would send a signal to China that a land-grab against Taiwan will yield a bit of trouble but nothing too serious. That's the worst case and I seriously hope that that alone (and the economic devastation associated with TSMC blowing up their fabs to prevent them from falling into Chinese hands) is enough to keep the support going. The other factor is that it might lead to a complete fracture of the NATO - Finland, the Baltic nations and Poland will not accept any kind of Russian success out of that war. They're all no big economic players in the EU/NATO, but a major internal dissatisfaction in NATO may entice other players in the world to play rough again as well, not just China.
    - _kbh_ 4y ago
      The other factor that a lot of people overlook is how badly Ukraines defeat would affect nuclear nonproliferation. Ukraine gave up their nuclear weapons and long strike weapons in exchange for a promise to not be invaded. After Russia broke that promise who would ever make that same deal again?.
coldtea 4y ago
>Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. Especially since the same was true (financial experts were talking out of their ass) for the whole easier to predict zero interest rate period too!
endisneigh 4y ago
> Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. > We know inflation should start decreasing within a year or so Indeed
- mkl95 4y ago
  I sort of trust the ECB, but I won't be shocked if they miss their targets.
  - eftychis 4y ago
    I trust the ECB to miss their targets. It is part of the job description setup. You are trying to control a chaotic system with one knob and you have to follow a manual that gets rewritten with past learnings: a) if the issue reoccurs, the learnings are ineffective b) if the issue is new, how can you tell how to move the knob without pissing a lot of people and losing your job. It is a lose-lose game.
    - WeylandYutani 4y ago
      The ECB problem is that they have to run a collective of wildly varying economies. What's good for the Netherlands would destroy Italy. The genius solution that they came up with is transfering billions of taxpayer money from the North to the South- which is not very popular among voters.
    - drexlspivey 4y ago
      They have two knobs, setting interest rates and their balance sheet
      - eftychis 4y ago
        https://www.ecb.europa.eu/pub/pdf/other/art01_eb201504.en.pd https://www.ecb.europa.eu/pub/pdf/other/art01_eb201504.en.pd The balance sheet is used to direct effective interest rates intramarket -- not a separate knob.
- 4y ago
ethbr0 4y ago
> to a high interest one We're at 4.50–4.75, no? That's not low, but it's not high either. https://en.m.wikipedia.org/wiki/Federal_funds_rate#Historical_rates https://en.m.wikipedia.org/wiki/Federal_funds_rate#Historica...
- satellite2 4y ago
  Interpreting interest rates linearly is a fallacy. As we have seen the asset markets have adapted to low rates by increasing assets prices. Thus an increase in interest rates to what historically has been low does not offer a great way to analyze its effect. The question we should rather answer is by how much the assets will lose in value and what are the options of people depending on this value (retirement, disability funds etc...) and for people indebted, did they forecast and are they able to stomach an increase in interest spending of roughly an order of magnitude?
- almog 4y ago
  Not only it's not high compared to historical rates but worse I think is that Fed's real interest rate is still in the negative territory: January CPI report headline came at 6.3% YoY and core at 5.3% YoY (it's negative with current rates even if you use the PCE index as a baseline, which is the Fed's favorite index to measure inflation).
  - shjake 4y ago
    Annualized inflation in last quarter was just 3.1% and Core was 4.6%. The peak in Q2 was 10.5% and 6.6%. So looking just at the YoY figure is problematic cause it’s a strongly lagging indicator. Of course it depends if the current trend continues. It starting going back up in January so it might not (then again certain components in CPI like housing generally tend to lag more than others).
  - roflyear 4y ago
    seems the consensus is "a little more inflation" is better than "a bigger recession" which is probably true. People are still trying to get on their feet, and inflation is "felt" a lot less than losing your job (and not being able to find a new one for a long time).
onlyrealcuzzo 4y ago
> Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. That's true regardless of the interest rate situation... > We have gone from a zero interest rate economy to a high interest one within months. IIUC, even the Fed's pretend "Natural Rate of Interest" is higher than current rates - meaning even they seem to believe they're still stimulating the economy somewhat with their policies. Current interest rates are still arguably low. And AFAIK, no major central bank is even considering an interest rate - ever - that would actually be "high" or even positive in REAL terms.
- deleted 4y ago
  [deleted]
- boppo1 4y ago
  How do I calculate real interest rates?
  - onlyrealcuzzo 4y ago
    https://en.m.wikipedia.org/wiki/Real_interest_rate https://en.m.wikipedia.org/wiki/Real_interest_rate
bluGill 4y ago
This isn't a high interest rate ecconomy, this is normal interest rates. Rates have been absurdily low for a while so you may not remember it, but history provides a record.
- paganel 4y ago
  > This isn't a high interest rate ecconomy, Unfortunately it is for the people who have gotten their mortgages at those lower rates. It's a ticking bomb for many of them.
- rcme 4y ago
  Interest rates have been falling for hundreds of years, so anything you consider "normal" by historical standards is probably high by current standards.
- flkiwi 4y ago
  Historians in 500 years will stare in wonder at the stunning evidence we did not, in fact, build ALL the infrastructure, physical and otherwise, during the last ~25 years of absurdly cheap money.
  - red-iron-pine 4y ago
    There will be no wonder -- as long as they have a list of F500 companies it will not be hard to understand. Much like we have records of Chinese warlords or Byzantine princes engaging in rent seeking and breaking the system to cater to their needs, so to is their plain evidence of what and why things played out they way they did.
  - actionfromafar 4y ago
    The Historians will Honk the Toots in Urbit, praise artificial scarcity, amen.
  - marcosdumay 4y ago
    Well, maybe in 500 years people will have an explanation for why people don't create fundamental things in low-interest times. Lasting investment seems to be very strongly and positively correlated with rates.
ajross 4y ago
> We know inflation should start decreasing within a year or so, but you cannot predict how millions of people will react to suddenly not being able to afford stuff. If people in aggregate are suddenly unable to "afford" things, then you're not talking about inflation. People (again, in aggregate) have more money (not wealth) than they did a few years ago, which is what "inflation" means. On average, it's a rescaling, nothing changes. Now, individuals may be hurt or helped[1] by this aggregate rescaling. But it remains a rescaling, and if you try to interpret it the way you just did you're going to get your predictions wrong every single time. [1] FWIW: if you hold a mortage or any other large non-inflation-indexed loan, you should be cheering for inflation to dilute your debt. Most US homeowners are coming out ahead. They don't explain this well on the news networks though.
- ivalm 4y ago
  It’s not just rescaling, overall production is not constant and is dependent on interest rates/economic activity/etc. eg after COVID there was all kinds of weird price dynamics due to supply/demand mismatches.
  - ajross 4y ago
    Again, that's wrong. Inflation is by definition the scale-dependent part of price changes. You're right that prices can go up because of a reduction in supply too, but that's measures as part of numbers like GDP; which, importantly, are routinely expressed using inflation-adjusted numbers to avoid precisely the conflation you and the grandparent are making. So, sure, if you want to rephrase and lament that people are unable to afford stuff because of the recent drop in supply (or increase in demand) for the products they want, that would be logically consistent. But it would be factually wrong, as in fact in aggregate[1] world GDP is doing pretty well right now. [1] As above, specific products and markets are always moving. Something is always more expensive than it should be and there's always a glut in something else. People were complaining about eggs last week, IIRC.
    - marcosdumay 4y ago
eftychis 4y ago
Best case what happened in the 70s if this keeps up. Can't predict really as you said. You can bound expectations though. Best outcome is perhaps interest rates get lower and things resume as normal assuming there is no other lockdown say.
- thephyber 4y ago
  > what happened in the 70s Do you mean the early 1970s when the US moved off the gold standard and there was a massive oil shock? Or the late 1970s when inflation made an attempt for a runaway spiral? > get lower and things resume as normal The last few years (2008-present) have been anything but “normal”. The Fed has been full throttle on the lowest interest rate for years and Quantitative Easing / asset purchase programs. Stocks and VCs have been juiced with cheap money causing massive distortions in many markets. Normal would involve checking and savings accounts paying a non-trivial interest rate. It would involve actual due diligence in VC, not rubber stamping FOMO. Your “normal” probably needs some recalibration.
  - eftychis 4y ago
    Offering a reply as it seems my comment was perceived incorrectly and I can not unfortunately edit it. My wording was perhaps a bit too nuanced. (Again this is my opinion, and I might be wrong. I appreciate your opinion. (And other readers' opinion.)) a) You assume that me saying "best case" if we continue as is, is a good case scenario -- from my point of view it is not. Which is what I am expressing. We both agree here we are not in a good situation. Even if we "recover" GDP wise the buying power of the middle and lower classes is taking a serious hit. This is one of the results of Volcker's policy (to remind he set the Fed policy in '70s) which we are following or asked to follow by some segment of the banking world today (cf. https://econreview.berkeley.edu/then-and-now-the-crisis-of-the-1970s-and-the-upheaval-of-the-2020s/ https://econreview.berkeley.edu/then-and-now-the-crisis-of-t...) Thus, my '70s reference. b) Already economists do not consider 2008 crisis as over. But we are arguably in a continuation of that crisis. Again, this is how an economist historian is going to treat the 2000s. Normal could be before that and sure I could recalibrate my normal, but do you think we should expect magical times? The view that Fed is using too much QE and too much free money is political and moral. I offer no opinion and definitely did not try to include it in my 3 line opinion. Disclaimer: I do not abide in the market efficiency camp. I think history proves that markets are inefficient. > Normal would involve checking and savings accounts paying a non-trivial interest rate. Even now that the fed fund rate has increased, the savings rate offered is low. Why? Because the business model and flows of banks has changed. They don't need to ask for your money. They are going to get it in the U.S. even indirectly. Perhaps they still care if you are a high value individual that can give them a few millions and give them a few percentages of fees annually. They are also now allowed to treat checking and savings the same, thus able to issue more loans. (U.S. detail.) Namely, Regulation D has changed and thus the definition of M1 money also. [0]https://www.federalreserve.gov/boarddocs/supmanual/cch/int_depos.pdf https://www.federalreserve.gov/boarddocs/supmanual/cch/int_d... [1] https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply/ https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec... Those times are over for the foreseeable future, unless U.S. or E.U. enters an unprecedented recession that stirs the banking world fundamentally.
gitfan86 4y ago
Inflation will not go away for 20 years.
eek2121 4y ago
Accurate prediction: Job data trails rate increases by many months. So do recessions. If the fed levels off interest rates within the next year or so, we have a very good chance of avoiding a recession. I am young/old enough to remember the last time interest rates were this high, and we were BOOMING. If the fed pushes the gas on interest rates, it will likely push us into a mild recession. Thanks (covid!) to millions retiring along with remote work, it would take a black swan event to really push things into the red. Note that we have a few possibilities for that setup, but so far, nothing has pushed every button as of yet. I predict a sideways trend for the near future. A really good event unrelated to employment will pull us up, a really bad event will drag us down.
- lordfrito 4y ago
  > we have a very good chance of avoiding a recession Not sure that's the case, I work in RV, which is a leading indicator for recession and recovery. RV volumes have been getting hammered for the last 8 months. OEM mfg numbers are down over 50% year on year. [1] Sure it's just one small segment of the overall economy, but things are getting strange out there. [1] https://rv-pro.com/wp-content/uploads/2023/01/Shipments2.png https://rv-pro.com/wp-content/uploads/2023/01/Shipments2.png
  - tracerbulletx 4y ago
    You really think that it's not just that the RV surge was another COVID phenomenon? The same thing is happening with the bike market.
    - lordfrito 4y ago
      You are correct that COVID was responsible for a huge boom in RV. In fact, 2021 was biggest year ever for RV. The numbers speak for themselves. [1] However volumes this year are projected to be in the low 300k range. [2] Also these projections seem to be getting revised lower every month. These are numbers the industry hasn't seen since 2014. So we're not returning to pre-COVID levels (record shipments in 500k range in 2017 and 2018). The industry is being cut in half (at least) right now. And the drop is predicted to be long (we're already 6 months in, and the articles are saying this will last until at least the end of 2023). There's something deeper going on here. I think that something deeper is a recession. Not saying I have all the answers. But from the angle I'm sitting at this looks a lot like the decline seen after the housing bubble and 2008 crisis. YMMV [1] https://www.rvia.org/historical-rv-data https://www.rvia.org/historical-rv-data [2] https://www.rvia.org/rv-roadsigns-quarterly-forecast https://www.rvia.org/rv-roadsigns-quarterly-forecast
lsh123 4y ago
> We know inflation should start decreasing within a year or so Right, of course. Election time.
YZF 4y ago
Inflation has already decreased. A lot of articles talk about year-over-year inflation which isn't a useful measure. Seasonally adjusted, month-over-month, is what you want to look at. Whether this decrease is sustainable is indeed an open question.
midhhhthrow 4y ago
Yes. For the longest time everyone was saying there’s no way the fed can raise rates above 2% without completely crashing the economy because the entire world was “addicted to low rates”. Whatever happened to the crash?
- seizethecheese 4y ago
  A phrase in known in macroeconomics that interest rate changed have unpredictable lags.
  - lamontcg 4y ago
    Recessions usually follow at least 6 months after the Fed hits their terminal rate. The lag is also easy to understand since interest rates don't immediately hit businesses borrowing cheap money short, until their loans rollover and readjust on a roughly 1-2 year schedule. The economy can also absorb the first waves of those failures and it just takes awhile for the volume to build up.
beebmam 4y ago
It's quite incredible seeing these two statements right next to each other: > Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. > We know inflation should start decreasing within a year or so, We don't know that. In fact, it's actually a pretty commonly discussed possibility that inflation could stay high (>5%) for the next decade due to retiring baby boomers and other reasons

by mkl95 4y ago

pjc50 4y ago

There has been a lot of argument over whether the inflation was transitory or not, and the theory that it was caused by the massive energy price spike in Europe caused by sanctioning Russian gas seems to have won. And the rate spikes were relatively modest. (Energy prices were much less affected in the US, but the economies are linked by trade)

mschuster91 4y ago

> We know inflation should start decreasing within a year or so That is assuming the Russians eventually pull out of Ukraine, are completely beaten militarily and their assets will be used to fund Ukrainian reconstruction, and it assumes that China does not increase tensions with Taiwan or, heaven forbid, actually invade. Should the war drag on, the situation will grow completely unpredictable - eventually, governments (no matter their political orientation or prior campaign promises) will have to raise taxes to pay for Ukraine aid and especially new arms projects, which means price hikes for the masses as companies will just pass through tax increases instead of accepting lower dividends for the capitalist owner class. > but you cannot predict how millions of people will react to suddenly not being able to afford stuff. IMO: Riots are inevitable IMO unless politicians invest money into at least filling the gaps for the lowest rungs of the societal ladder, the French are blazing the trail here - and it's only a matter of time until at least the UK population has enough of empty supermarket shelves. In the US, it depends if Biden will be able to secure a second term.

lizardking 4y ago
Support for funding the war could just as easily become an electoral liability in the west, in which case Ukraine loses some territory and the rest of the world moves on as they did when Russia seized Crimea. Either outcome is better for global economic stability than a protracted multi year war.
- mschuster91 4y ago
  > Either outcome is better for global economic stability than a protracted multi year war. The problem is the political implications... for one, it would send a signal to China that a land-grab against Taiwan will yield a bit of trouble but nothing too serious. That's the worst case and I seriously hope that that alone (and the economic devastation associated with TSMC blowing up their fabs to prevent them from falling into Chinese hands) is enough to keep the support going. The other factor is that it might lead to a complete fracture of the NATO - Finland, the Baltic nations and Poland will not accept any kind of Russian success out of that war. They're all no big economic players in the EU/NATO, but a major internal dissatisfaction in NATO may entice other players in the world to play rough again as well, not just China.
  - _kbh_ 4y ago
    The other factor that a lot of people overlook is how badly Ukraines defeat would affect nuclear nonproliferation. Ukraine gave up their nuclear weapons and long strike weapons in exchange for a promise to not be invaded. After Russia broke that promise who would ever make that same deal again?.

coldtea 4y ago

>Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. Especially since the same was true (financial experts were talking out of their ass) for the whole easier to predict zero interest rate period too!

endisneigh 4y ago

> Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. > We know inflation should start decreasing within a year or so Indeed

mkl95 4y ago
I sort of trust the ECB, but I won't be shocked if they miss their targets.
- eftychis 4y ago
  I trust the ECB to miss their targets. It is part of the job description setup. You are trying to control a chaotic system with one knob and you have to follow a manual that gets rewritten with past learnings: a) if the issue reoccurs, the learnings are ineffective b) if the issue is new, how can you tell how to move the knob without pissing a lot of people and losing your job. It is a lose-lose game.
  - WeylandYutani 4y ago
    The ECB problem is that they have to run a collective of wildly varying economies. What's good for the Netherlands would destroy Italy. The genius solution that they came up with is transfering billions of taxpayer money from the North to the South- which is not very popular among voters.
  - drexlspivey 4y ago
    They have two knobs, setting interest rates and their balance sheet
    - eftychis 4y ago
      https://www.ecb.europa.eu/pub/pdf/other/art01_eb201504.en.pd https://www.ecb.europa.eu/pub/pdf/other/art01_eb201504.en.pd The balance sheet is used to direct effective interest rates intramarket -- not a separate knob.
4y ago

ethbr0 4y ago

> to a high interest one We're at 4.50–4.75, no? That's not low, but it's not high either. https://en.m.wikipedia.org/wiki/Federal_funds_rate#Historical_rates https://en.m.wikipedia.org/wiki/Federal_funds_rate#Historica...

satellite2 4y ago
Interpreting interest rates linearly is a fallacy. As we have seen the asset markets have adapted to low rates by increasing assets prices. Thus an increase in interest rates to what historically has been low does not offer a great way to analyze its effect. The question we should rather answer is by how much the assets will lose in value and what are the options of people depending on this value (retirement, disability funds etc...) and for people indebted, did they forecast and are they able to stomach an increase in interest spending of roughly an order of magnitude?
almog 4y ago
Not only it's not high compared to historical rates but worse I think is that Fed's real interest rate is still in the negative territory: January CPI report headline came at 6.3% YoY and core at 5.3% YoY (it's negative with current rates even if you use the PCE index as a baseline, which is the Fed's favorite index to measure inflation).
- shjake 4y ago
  Annualized inflation in last quarter was just 3.1% and Core was 4.6%. The peak in Q2 was 10.5% and 6.6%. So looking just at the YoY figure is problematic cause it’s a strongly lagging indicator. Of course it depends if the current trend continues. It starting going back up in January so it might not (then again certain components in CPI like housing generally tend to lag more than others).
- roflyear 4y ago
  seems the consensus is "a little more inflation" is better than "a bigger recession" which is probably true. People are still trying to get on their feet, and inflation is "felt" a lot less than losing your job (and not being able to find a new one for a long time).

onlyrealcuzzo 4y ago

> Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. That's true regardless of the interest rate situation... > We have gone from a zero interest rate economy to a high interest one within months. IIUC, even the Fed's pretend "Natural Rate of Interest" is higher than current rates - meaning even they seem to believe they're still stimulating the economy somewhat with their policies. Current interest rates are still arguably low. And AFAIK, no major central bank is even considering an interest rate - ever - that would actually be "high" or even positive in REAL terms.

deleted 4y ago
[deleted]
boppo1 4y ago
How do I calculate real interest rates?
- onlyrealcuzzo 4y ago
  https://en.m.wikipedia.org/wiki/Real_interest_rate https://en.m.wikipedia.org/wiki/Real_interest_rate

bluGill 4y ago

This isn't a high interest rate ecconomy, this is normal interest rates. Rates have been absurdily low for a while so you may not remember it, but history provides a record.

paganel 4y ago
> This isn't a high interest rate ecconomy, Unfortunately it is for the people who have gotten their mortgages at those lower rates. It's a ticking bomb for many of them.
rcme 4y ago
Interest rates have been falling for hundreds of years, so anything you consider "normal" by historical standards is probably high by current standards.
flkiwi 4y ago
Historians in 500 years will stare in wonder at the stunning evidence we did not, in fact, build ALL the infrastructure, physical and otherwise, during the last ~25 years of absurdly cheap money.
- red-iron-pine 4y ago
  There will be no wonder -- as long as they have a list of F500 companies it will not be hard to understand. Much like we have records of Chinese warlords or Byzantine princes engaging in rent seeking and breaking the system to cater to their needs, so to is their plain evidence of what and why things played out they way they did.
- actionfromafar 4y ago
  The Historians will Honk the Toots in Urbit, praise artificial scarcity, amen.
- marcosdumay 4y ago
  Well, maybe in 500 years people will have an explanation for why people don't create fundamental things in low-interest times. Lasting investment seems to be very strongly and positively correlated with rates.

ajross 4y ago

> We know inflation should start decreasing within a year or so, but you cannot predict how millions of people will react to suddenly not being able to afford stuff. If people in aggregate are suddenly unable to "afford" things, then you're not talking about inflation. People (again, in aggregate) have more money (not wealth) than they did a few years ago, which is what "inflation" means. On average, it's a rescaling, nothing changes. Now, individuals may be hurt or helped[1] by this aggregate rescaling. But it remains a rescaling, and if you try to interpret it the way you just did you're going to get your predictions wrong every single time. [1] FWIW: if you hold a mortage or any other large non-inflation-indexed loan, you should be cheering for inflation to dilute your debt. Most US homeowners are coming out ahead. They don't explain this well on the news networks though.

ivalm 4y ago
It’s not just rescaling, overall production is not constant and is dependent on interest rates/economic activity/etc. eg after COVID there was all kinds of weird price dynamics due to supply/demand mismatches.
- ajross 4y ago
  Again, that's wrong. Inflation is by definition the scale-dependent part of price changes. You're right that prices can go up because of a reduction in supply too, but that's measures as part of numbers like GDP; which, importantly, are routinely expressed using inflation-adjusted numbers to avoid precisely the conflation you and the grandparent are making. So, sure, if you want to rephrase and lament that people are unable to afford stuff because of the recent drop in supply (or increase in demand) for the products they want, that would be logically consistent. But it would be factually wrong, as in fact in aggregate[1] world GDP is doing pretty well right now. [1] As above, specific products and markets are always moving. Something is always more expensive than it should be and there's always a glut in something else. People were complaining about eggs last week, IIRC.
  - marcosdumay 4y ago

eftychis 4y ago

Best case what happened in the 70s if this keeps up. Can't predict really as you said. You can bound expectations though. Best outcome is perhaps interest rates get lower and things resume as normal assuming there is no other lockdown say.

thephyber 4y ago
> what happened in the 70s Do you mean the early 1970s when the US moved off the gold standard and there was a massive oil shock? Or the late 1970s when inflation made an attempt for a runaway spiral? > get lower and things resume as normal The last few years (2008-present) have been anything but “normal”. The Fed has been full throttle on the lowest interest rate for years and Quantitative Easing / asset purchase programs. Stocks and VCs have been juiced with cheap money causing massive distortions in many markets. Normal would involve checking and savings accounts paying a non-trivial interest rate. It would involve actual due diligence in VC, not rubber stamping FOMO. Your “normal” probably needs some recalibration.
- eftychis 4y ago
  Offering a reply as it seems my comment was perceived incorrectly and I can not unfortunately edit it. My wording was perhaps a bit too nuanced. (Again this is my opinion, and I might be wrong. I appreciate your opinion. (And other readers' opinion.)) a) You assume that me saying "best case" if we continue as is, is a good case scenario -- from my point of view it is not. Which is what I am expressing. We both agree here we are not in a good situation. Even if we "recover" GDP wise the buying power of the middle and lower classes is taking a serious hit. This is one of the results of Volcker's policy (to remind he set the Fed policy in '70s) which we are following or asked to follow by some segment of the banking world today (cf. https://econreview.berkeley.edu/then-and-now-the-crisis-of-the-1970s-and-the-upheaval-of-the-2020s/ https://econreview.berkeley.edu/then-and-now-the-crisis-of-t...) Thus, my '70s reference. b) Already economists do not consider 2008 crisis as over. But we are arguably in a continuation of that crisis. Again, this is how an economist historian is going to treat the 2000s. Normal could be before that and sure I could recalibrate my normal, but do you think we should expect magical times? The view that Fed is using too much QE and too much free money is political and moral. I offer no opinion and definitely did not try to include it in my 3 line opinion. Disclaimer: I do not abide in the market efficiency camp. I think history proves that markets are inefficient. > Normal would involve checking and savings accounts paying a non-trivial interest rate. Even now that the fed fund rate has increased, the savings rate offered is low. Why? Because the business model and flows of banks has changed. They don't need to ask for your money. They are going to get it in the U.S. even indirectly. Perhaps they still care if you are a high value individual that can give them a few millions and give them a few percentages of fees annually. They are also now allowed to treat checking and savings the same, thus able to issue more loans. (U.S. detail.) Namely, Regulation D has changed and thus the definition of M1 money also. [0]https://www.federalreserve.gov/boarddocs/supmanual/cch/int_depos.pdf https://www.federalreserve.gov/boarddocs/supmanual/cch/int_d... [1] https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply/ https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec... Those times are over for the foreseeable future, unless U.S. or E.U. enters an unprecedented recession that stirs the banking world fundamentally.

gitfan86 4y ago

Inflation will not go away for 20 years.

eek2121 4y ago

Accurate prediction: Job data trails rate increases by many months. So do recessions. If the fed levels off interest rates within the next year or so, we have a very good chance of avoiding a recession. I am young/old enough to remember the last time interest rates were this high, and we were BOOMING. If the fed pushes the gas on interest rates, it will likely push us into a mild recession. Thanks (covid!) to millions retiring along with remote work, it would take a black swan event to really push things into the red. Note that we have a few possibilities for that setup, but so far, nothing has pushed every button as of yet. I predict a sideways trend for the near future. A really good event unrelated to employment will pull us up, a really bad event will drag us down.

lordfrito 4y ago
> we have a very good chance of avoiding a recession Not sure that's the case, I work in RV, which is a leading indicator for recession and recovery. RV volumes have been getting hammered for the last 8 months. OEM mfg numbers are down over 50% year on year. [1] Sure it's just one small segment of the overall economy, but things are getting strange out there. [1] https://rv-pro.com/wp-content/uploads/2023/01/Shipments2.png https://rv-pro.com/wp-content/uploads/2023/01/Shipments2.png
- tracerbulletx 4y ago
  You really think that it's not just that the RV surge was another COVID phenomenon? The same thing is happening with the bike market.
  - lordfrito 4y ago
    You are correct that COVID was responsible for a huge boom in RV. In fact, 2021 was biggest year ever for RV. The numbers speak for themselves. [1] However volumes this year are projected to be in the low 300k range. [2] Also these projections seem to be getting revised lower every month. These are numbers the industry hasn't seen since 2014. So we're not returning to pre-COVID levels (record shipments in 500k range in 2017 and 2018). The industry is being cut in half (at least) right now. And the drop is predicted to be long (we're already 6 months in, and the articles are saying this will last until at least the end of 2023). There's something deeper going on here. I think that something deeper is a recession. Not saying I have all the answers. But from the angle I'm sitting at this looks a lot like the decline seen after the housing bubble and 2008 crisis. YMMV [1] https://www.rvia.org/historical-rv-data https://www.rvia.org/historical-rv-data [2] https://www.rvia.org/rv-roadsigns-quarterly-forecast https://www.rvia.org/rv-roadsigns-quarterly-forecast

lsh123 4y ago

> We know inflation should start decreasing within a year or so Right, of course. Election time.

YZF 4y ago

Inflation has already decreased. A lot of articles talk about year-over-year inflation which isn't a useful measure. Seasonally adjusted, month-over-month, is what you want to look at. Whether this decrease is sustainable is indeed an open question.

midhhhthrow 4y ago

Yes. For the longest time everyone was saying there’s no way the fed can raise rates above 2% without completely crashing the economy because the entire world was “addicted to low rates”. Whatever happened to the crash?

seizethecheese 4y ago
A phrase in known in macroeconomics that interest rate changed have unpredictable lags.
- lamontcg 4y ago
  Recessions usually follow at least 6 months after the Fed hits their terminal rate. The lag is also easy to understand since interest rates don't immediately hit businesses borrowing cheap money short, until their loans rollover and readjust on a roughly 1-2 year schedule. The economy can also absorb the first waves of those failures and it just takes awhile for the volume to build up.

beebmam 4y ago

It's quite incredible seeing these two statements right next to each other: > Whoever claims to accurately predict what's going to happen in the next few years is talking out of their ass. > We know inflation should start decreasing within a year or so, We don't know that. In fact, it's actually a pretty commonly discussed possibility that inflation could stay high (>5%) for the next decade due to retiring baby boomers and other reasons