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It seems we are in a similar situation today (though not exactly the same as unemployment is generally low). At some point, it seems fairly obvious that high ra
by avidphantasm 2y ago
It seems we are in a similar situation today (though not exactly the same as unemployment is generally low). At some point, it seems fairly obvious that high rates will start causing inflation as the cost of borrowing money is a factor of production for many goods and services. As much as I like earning fat interest on my savings, rates probably need to come down quite a bit (though not back to zero, which causes it’s own problems).
- arnorhs 2y agoThe fact that unemployment is low signals that we are not grappling inflation properly. You can't limit inflation without reducing employment rates. Those two go hand in hand. There is a school of thought that the goal of increasing rates is just to control employment rates. It's just a indirect/crude way to do it, and unfortunately, the most effective way the fed has at its disposal.
- siftrics 2y agoInflation far outpaces whatever "fat interest" rates you have on your savings. You need to hold real assets, not fiat currency.
- t1pster 2y agoFar outpaces? https://www.treasurydirect.gov/marketable-securities/tips/ https://www.treasurydirect.gov/marketable-securities/tips/
- siftrics 2y agoThat's theatrics. Everyone on Wall Street and Main Street knows the true cost of living — housing, gas, and grocery prices — has increased dramatically more than any Fed-anointed number with the word "inflation" near it.
- bryanlarsen 2y agoCertainly not for everyone. If you have a fixed mortgage, and are careful what you buy, you can live like its 2019. I was at the grocery store a week ago and everything in my basket was reasonably priced for 2019: pork, bread, bananas, carrots and potatoes. Is it a coincidence I happened to buy only things that didn't experience inflation? Heck no. Avoid name brands.
- spywaregorilla 2y agohttps://www.officialdata.org/Pork/price-inflation/2019-to-2024?amount=0 https://www.officialdata.org/Pork/price-inflation/2019-to-20... https://www.in2013dollars.com/Fresh-vegetables/price-inflation/2019-to-2024?amount=0.76 https://www.in2013dollars.com/Fresh-vegetables/price-inflati... https://www.in2013dollars.com/Bread/price-inflation/2019-to-2024?amount=0 https://www.in2013dollars.com/Bread/price-inflation/2019-to-... Also if you "have a fixed mortgage" you probably have a fixed mortgage that was locked in at drastically lower rates than current market rates, which is the most advantageous position possible
- bryanlarsen 2y agoYes, name brand bread has gone up in price. So don't buy name brand bread.
- spywaregorilla 2y agoThat doesn't seem likely
- deleted 2y ago[deleted]
- sgerenser 2y agoErdogan, is that you? (For background, Turkey’s President Erdogan believes that high rates cause inflation, and up until recently has been trying to keep rates very low to control Turkey’s massive inflation. It didn’t work).
- avidphantasm 2y agoIf you are a business and need to borrow money to fund production or expansion, it costs a lot more to borrow that money than it did two years ago. That means your cost of production is higher and you will seek to raise prices. I’m not saying that’s the only reason inflation remains high (greed-flation, shrink-flation, etc. are also factors), but it seems reasonable that this is having an effect.
- foolswisdom 2y agoI understand why it would increase the cost versus when interest rates are low, but I don't see why high interest rates should cause continuing inflation?
- detourdog 2y agoIf the rate stays steady it should not drive continuing inflation. Increasing interest rates only effecting shaky businesses. If a business has sufficient cash flow interest rates will have a small effect.
- satiated_grue 2y ago"The cure for high prices is... high prices."
- justin66 2y agoIs that what you think happened? It's not the most technically detailed article, but that is not what happened.
- detourdog 2y agoI wish the article touched on "Reaganomics". I would like a similar article with a discussion of Volcker's policy and the Treasury Secretaries actions.
- neom 2y agoI tried to write to them with your request, their contact form only allows you to send a questions with 255 characters, hah... worked out to around 30 words.
- detourdog 2y agoWow! Thank you I hope something comes of it I have never viewed "Reaganomics" favorably but I wonder if the intransigence of Volcker was the resistance that "Reaganomics" needed to fly...
- sobellian 2y agoExcept Volcker's interest rate hikes (far outstripping rate hikes recently) brought down inflation. If your model is that high interest rates beget inflation, then it is necessarily incomplete since it doesn't explain Volcker's success. In fact, most empirical observation indicates the exact opposite.
- bmacho 2y agoThis is my view as well, high interest rates fuel inflation just because people want higher profit for the risk than they could get if they just rested their money in a bank deposit.
- arnorhs 2y agoNot at all. In a debt-based economy, rising rates put downwards pressures on capital distributors, since they have to get more than the fed rate back on any investment/loan. Higher rates -> reduced money supply -> increased unemployment -> reduced demand => lower inflation. While lower rates -> reduced unemployment -> increases market demand -> raised prices = increased inflation