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Why does the Fed want to keep rates as low as possible? Their mandates are to provide price stability and maximize employment, not keep rates as low as possibl
by TinyRick 4y ago
Why does the Fed want to keep rates as low as possible? Their mandates are to provide price stability and maximize employment, not keep rates as low as possible. Unemployment is very low so they are doing well in terms of maximizing employment, but inflation is still running hot, so the logical thing for them to do is keep rates high enough to stave off continued inflationary pressures.
- rcme 4y agoThe Fed wants to keep rates as low as possible because their mandate is to keep inflation at 2% and maximize employment. If inflation is at or under 2%, then lowering rates will increase economic activity and increased economic activity will reduce unemployment.
- nostrademons 4y agoThe unemployment rate is now 3.6%, about the lowest it's ever been. Where are these workers going to come from? The Fed has been very explicit that they need to tighten labor market conditions. "Tighten labor market conditions" = "cause layoffs". That's how it works, they just can't say it out loud because it'll spook people. They can't bring down inflation until they raise rates high enough that companies start going under, and they have no incentive to lower rates unless actual bad things are happening in the real economy. (Remember also that when rates are high, the Fed has more room to cut when actual bad things do happen, because there's a floor at zero.)
- TinyRick 4y agoI can't reply to your most recent comment rcme, but it sounds like you are agreeing with me? Yes, if inflation is at 2% then the Fed would be incentivized to reduce rates, but....it's not, it's over 5% and has been for some time.
- rcme 4y agoYes, but they want to lower rates, they just can't :)