4 ms·

What's your biggest guess as to why, even with 5% interest rates, they haven't been able raise unemployment yet? How long will they need to hold interest rates

What's your biggest guess as to why, even with 5% interest rates, they haven't been able raise unemployment yet? How long will they need to hold interest rates at 5%+ before we see a raise in unemployment?

fauxpause_ 3y ago
I don’t think interest rates have the capacity to change unemployment right now until they hit some truly emergent effects like a much bigger banking crisis. The US’ economy is not as capital intensive as other economies past.
- MuffinFlavored 3y ago
  > I don’t think interest rates have the capacity to change unemployment right now I don't know. New + used car sales as well as new 15/30 year mortgages (or what would typically be refinances maybe) have to have some effect. A car salesman closes less deals, he has less money to go on vacation with, etc. etc.
bilsbie 3y ago
My guess would be: Lots of companies still filling back orders and latent demand from the last three years When unemployment is low companies are reluctant to lose staff for fear of not being able to rehire when needed The housing market hasn’t slowed much which is a huge employer Pent up demand for travel and services is still strong
- Kon-Peki 3y ago
  A lot of back orders relate to the construction and fitting out of factories as part of the reshoring movement. Once those factories are ready to produce widgets, they need reasonably-priced labor to staff them (and export the unemployment to China). It's going to be really tough to do that if they can't create some unemployment over here.
nostrademons 3y ago
Until bankruptcies. The Fed rate doesn't directly affect employment - at best it may encourage some larger businesses to postpone hiring, but most companies (outside tech, which a.) has some very good macroeconomists b.) intends to survive and c.) is unusually sensitive to cost of capital) aren't going to lay off people until their bottom line takes a hit that puts their survival in question. Smaller profitable companies aren't directly exposed to the cost of capital at all, because they fund operations out of cash flow. The way interest hikes combat inflation is that they make certain lines of business unprofitable, which makes companies either voluntarily shutter them or go out of business for being unprofitable, which frees up the workers involved in those businesses to compete for core, need-to-have industries like food and logistics, which holds down wages. This is happening in tech, but it hasn't filtered down into the broader economy. And it needs to - even if you lay off everyone who "learned to code" in the last 10 years and force them back to working retail, there are still way more job openings than workers. We'll see unemployment go up when we see major Fortune 500 companies go bankrupt, and we'll see inflation drop sustainably when people are on bread lines.
2devnull 3y ago
Balance sheets. It takes awhile for cash fattened organizations to bleed to death.
- MuffinFlavored 3y ago
  Interesting. This is different than the narrative (with no proof) that gets upvoted to the max at r/stocks that "the stock market is filled to the brim with zombie companies who shouldn't be in business/are artificially surviving"
dataviz1000 3y ago
My theory. If you are in Austin, look at all the new buildings being built on every block. Those building, often with the bank that financed them at almost free money loan rates shown an a placard outside, will eventually finish being built without anymore being financed at today's interest rates. Then look at thousands of laborers doing the building. Every month those buildings are being completed. We are at the apex right now. Eventually everyone one of those laborers are going to have to find a new job however there will not be loans to finance more building. The money injected into the system was created 2, 3, and 4 years ago. It takes a few years for the effects of multi million dollar financing to show.

fauxpause_ 3y ago

I don’t think interest rates have the capacity to change unemployment right now until they hit some truly emergent effects like a much bigger banking crisis. The US’ economy is not as capital intensive as other economies past.

MuffinFlavored 3y ago
> I don’t think interest rates have the capacity to change unemployment right now I don't know. New + used car sales as well as new 15/30 year mortgages (or what would typically be refinances maybe) have to have some effect. A car salesman closes less deals, he has less money to go on vacation with, etc. etc.

bilsbie 3y ago

My guess would be: Lots of companies still filling back orders and latent demand from the last three years When unemployment is low companies are reluctant to lose staff for fear of not being able to rehire when needed The housing market hasn’t slowed much which is a huge employer Pent up demand for travel and services is still strong

Kon-Peki 3y ago
A lot of back orders relate to the construction and fitting out of factories as part of the reshoring movement. Once those factories are ready to produce widgets, they need reasonably-priced labor to staff them (and export the unemployment to China). It's going to be really tough to do that if they can't create some unemployment over here.

nostrademons 3y ago

Until bankruptcies. The Fed rate doesn't directly affect employment - at best it may encourage some larger businesses to postpone hiring, but most companies (outside tech, which a.) has some very good macroeconomists b.) intends to survive and c.) is unusually sensitive to cost of capital) aren't going to lay off people until their bottom line takes a hit that puts their survival in question. Smaller profitable companies aren't directly exposed to the cost of capital at all, because they fund operations out of cash flow. The way interest hikes combat inflation is that they make certain lines of business unprofitable, which makes companies either voluntarily shutter them or go out of business for being unprofitable, which frees up the workers involved in those businesses to compete for core, need-to-have industries like food and logistics, which holds down wages. This is happening in tech, but it hasn't filtered down into the broader economy. And it needs to - even if you lay off everyone who "learned to code" in the last 10 years and force them back to working retail, there are still way more job openings than workers. We'll see unemployment go up when we see major Fortune 500 companies go bankrupt, and we'll see inflation drop sustainably when people are on bread lines.

2devnull 3y ago

Balance sheets. It takes awhile for cash fattened organizations to bleed to death.

MuffinFlavored 3y ago
Interesting. This is different than the narrative (with no proof) that gets upvoted to the max at r/stocks that "the stock market is filled to the brim with zombie companies who shouldn't be in business/are artificially surviving"

dataviz1000 3y ago

My theory. If you are in Austin, look at all the new buildings being built on every block. Those building, often with the bank that financed them at almost free money loan rates shown an a placard outside, will eventually finish being built without anymore being financed at today's interest rates. Then look at thousands of laborers doing the building. Every month those buildings are being completed. We are at the apex right now. Eventually everyone one of those laborers are going to have to find a new job however there will not be loans to finance more building. The money injected into the system was created 2, 3, and 4 years ago. It takes a few years for the effects of multi million dollar financing to show.