3 ms·

So is this a sign of panic by the Fed as they're reading signs of financial stress in the system (things going to get bad), or are they capitulating to politica

So is this a sign of panic by the Fed as they're reading signs of financial stress in the system (things going to get bad), or are they capitulating to political pressure from billionaires and they now have a "low rate mandate" (things are gonna get pumped to the moon), or are they really going to pull off the soft landing (things going to be just okay without getting too crazy)? I did not expect the Fed to ever start talking rate cuts in the absence of any looming recession or heavy signs of financial system distress. For at least the past 20+ years the Fed has viewed rate hikes as "reloading the gun" to have more "ammo" for recessions and haven't really spent any of that ammo if nothing worrisome was going on.

jfengel 3y ago
The Fed's mandate goes both directions, without any external pressure. They have an optimal target rate for inflation and unemployment -- neither of which are "zero". When they get too far away from their target number, in either direction, they act. In this case, inflation is under 2% (or will be soon), and unemployment is already under 4%. There's no cause to panic, but they will act sooner rather than later so that it doesn't become time to panic. Sure, politicians and business types are always happy to have lower rates. It's free money. But the Fed is pretty insulated from them, by design. They're economists with a model of how the economy acts, and their behavior is in line with that model. They want to keep the economy on a moderate stable level of growth (~3-4% yearly GDP increase, not more and certainly not less). So it doesn't look like panic to me. It looks like the ordinary active management of an economy coming out of a recession. The key rate is at 5%, which is a huge amount of maneuvering room for them.

3 ms·

So is this a sign of panic by the Fed as they're reading signs of financial stress in the system (things going to get bad), or are they capitulating to politica

by lamontcg 3y ago

jfengel 3y ago
The Fed's mandate goes both directions, without any external pressure. They have an optimal target rate for inflation and unemployment -- neither of which are "zero". When they get too far away from their target number, in either direction, they act. In this case, inflation is under 2% (or will be soon), and unemployment is already under 4%. There's no cause to panic, but they will act sooner rather than later so that it doesn't become time to panic. Sure, politicians and business types are always happy to have lower rates. It's free money. But the Fed is pretty insulated from them, by design. They're economists with a model of how the economy acts, and their behavior is in line with that model. They want to keep the economy on a moderate stable level of growth (~3-4% yearly GDP increase, not more and certainly not less). So it doesn't look like panic to me. It looks like the ordinary active management of an economy coming out of a recession. The key rate is at 5%, which is a huge amount of maneuvering room for them.