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This is what the prelude to stagflation looks like - no job growth, yet prices rising. If the administration pressures the Federal Reserve into lowering intere

This is what the prelude to stagflation looks like - no job growth, yet prices rising. If the administration pressures the Federal Reserve into lowering interest rates, say, right before November 2026, then we lock in a stagflationary cycle. An initial stock rally then long-term bond yields rising on inflation fears. A weakening U.S. dollar, and a Federal Reserve that has no tools to fight inflation in the medium-term.

lesuorac 1y ago
Federal Reserve has no real tools to fight inflation. They can get the buckets out and start bailing but until somebody plugs the whole in the deficit there's a structural problem with the boat. People love to bring up the gold chart and be like "what happened in the 1970s!". It wasn't ending the gold standard that was the problem. It was the endless deficit spending; if you want to get a handle on inflation you need current demand to match current production.
- mothballed 1y ago
  The federal reserve buys deficit creating treasury securities, with newly created unbacked money. It's hard to separate deficit spending from the federal reserve and unbacked currency.
  - gruez 1y ago
    That might be true during the pandemic but it's been over for years now. The fed is moving in the opposite direction, selling bonds it previously bought. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
    - mothballed 1y ago
      Good point; fed also creates buyers of treasury securities, including ones it holds, through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets (which the government is happy to swoop in and offer the ~most stable one -- allowing them to satisfy the market they create.)
      - gruez 1y ago
        >through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets. Is this actually true? It might make sense at a surface level, but if you think a few steps further, you'd realize that that the price of "inflation tracking assets" (TIPS?) would eventually incorporate whatever inflation expectations that the market expects, thereby neutralizing any advantages it might have. Moreover there are deep markets for interest rate swaps/futures, so there's little need to pile into TIPS directly.
        mothballed 1y ago
        High inflation pressures a near time preference in discharging USD. Also "inflation tracking" I should have written more as "inflation hedging" -- needn't be TIPS exactly. Higher inflation raises the cost of not buying treasury and other asset classes. You're right that there may not much change in the general preference in treasuries vs other non-USD asset classes, but it makes all inflation hedging boats rise. This should be obvious if you simplify the market to just USD and say bonds -- at 0% inflation the opportunity cost of not buying bonds is just the real bonds rate, whereas at 10% inflation the opportunity cost is going to approximate closer to 10+real rate. In the latter the pressure to buy bonds would be much higher. ( Of course Fed can buy treasuries with essentially money created from thin air so the opportunity cost analogy may break down for securities first purchased by the fed, which could spoil the presumption that treasury sales proportion of inflation hedging assets might not change much)
- ThinkBeat 1y ago
  The traditional way a central bank fights inflation, and take Norway as an example. The central bank raises interest rates, until there are enough bankrupcies and unemployment rate reaches a high enough level, The economy cools down. The nation has low inflation again. Rinse out and repeat. They do the direct opposite of bailing anyone out. Now the US is different. The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out. Which heats up the economy and should raise inflation .
  - TimorousBestie 1y ago
    > Now the US is different. The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out. Biden did not invent quantitative easing.
    - smileysteve 1y ago
      Indeed, it was expanded greatly during the admins of Bush and Trump.
  - serioussecurity 1y ago
    I'm sorry you're blaming the Biden admin for a bush era policy why?
  - arunabha 1y ago
    > The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out Can you provide some references for your claim? IIRC, under Biden, inflation was stoked by the Covid stimulus(arguably necessary to avoid rapid deflation due to Covid, but probably kept for too long) and the Fed moved pretty decisively in the second half of the Biden presidency to raise interest rates rapidly to combat inflation. FWIW, the inflation issue seemed to be under control and heading in the right direction before the administration changed.
    - dgfitz 1y ago
- deleted 1y ago
  [deleted]
- gruez 1y ago
  >Federal Reserve has no real tools to fight inflation. Yes, interest rates?
  - wakawaka28 1y ago
    If they let interest rates go high, the government will go bankrupt along with many companies and individuals. We can't afford 20% base rates anymore. The economy is not healthy enough for that. At least I don't think anyone is ready for the shitstorm that would unleash...
    - downrightmike 1y ago
      They need inflation, it lowers the old debt burden because it is cheaper to service.
      - wakawaka28 1y ago
        No, they don't. If the debt cannot be afforded, they should default. Start by balancing the budget. This inflation will probably ruin us. Kicking the can down the road makes the reckoning worse. It's not fixing shit, and it is causing way more problems.
        downrightmike 1y ago
        Logically, sure, but Japan has been our aspirational model since things went sideways in 2020. Illogically, even the UK is paying back interest on the South Sea company from 400 years ago. Debt isn't going anywhere even after everyone who accrued it is long dead and dust.
- wakawaka28 1y ago
  >People love to bring up the gold chart and be like "what happened in the 1970s!". It wasn't ending the gold standard that was the problem. It was the endless deficit spending; if you want to get a handle on inflation you need current demand to match current production. The deficit spending is the reason why we had to leave the gold standard. France, for example, sent a battleship to NYC to retrieve their gold. The US government realized that they could not give out gold for all the dollars that they spent, and went into default on that obligation. The gold standard could have kept the government honest. But they were given too much slack and they abused it to the point of having to break promises officially. The Fed cannot actually destroy all the money that they created. But they could start by not printing any more. They won't do that but they theoretically could.
klooney 1y ago
Although the labor supply is also contracting, which makes reasoning about job growth weird
- AftHurrahWinch 1y ago
  Is the BLS reported labor supply contracting?
  - danaris 1y ago
    The BLS head got fired after delivering a report that Trump didn't like. I wouldn't count on being able to trust whatever they do, or don't, report for the time being.
BizarroLand 1y ago
I think we're already in stagflation but no one wants to be the person who calls it. Even Arizona Iced Tea had to come off their $0.99 price tag. Everyone in America is hard-pressed to find anything for sale for at or under $1.00 Minimum wage is still federally $7.25. How much worse does it actually have to get to be official stagflation?
- deleted 1y ago
  [deleted]
- helsinkiandrew 1y ago
  Stagflation is inflation+low (or -ve) growth + higher unemployment. If inflation (or some other shock) caused growth to head towards 0 with unemployment going above ~4% I believe economists would say it was a stagflation try period
  - BizarroLand 1y ago
    Stagflation is the simultaneous appearance in an economy of slow growth, high unemployment, and rising prices. Thousands of people are getting laid off every week, prices are higher than they have ever been for most goods and services, and while unemployment is low, the number of jobs available per person looking for work is less than the number of people looking for work, the government is shut down for now, and there are promises/threats of more jobs and positions being cut before it opens back up. Really walking the razors edge here, lol.
- nerdsniper 1y ago
  Candy bars generally seem to be >$2.00 everywhere I look. It blows my mind that minimum wage pays <30 candy bars per day.
  - elevation 1y ago
    How many people actually earn minimum wage? In my low cost of living region you’d be hard-pressed to find any entry level positions (fast food, retail) below $15/hour. Panera (which needs staff at 4 or 5 AM to prep food for the day) are starting at $20/hour. Local restaurants and grocery stores can and do lose employees when a corporate chain raises their rates, so they have to keep up. We could eliminate the federal minimum wage and very little would change.
downrightmike 1y ago
It isn't the Fed's job to fight economic problems, Congress is responsible to do that. But Congress doesn't want to legislate where they need to. Yes stagflation is the best outcome in the current climate. I don't think we'll have it that good.
- it_is_I 1y ago
  > But Congress doesn't want to legislate where they need to. Everyone keeps saying this, but then go and re-elect the same do nothings.
  - masfuerte 1y ago
    Because if they didn't vote for a lizard, the wrong lizard might get in.
  - WorldMaker 1y ago
    I think part of the current problem is that "everyone" elected a bunch of "do somethings" with what seems to be low collective civic education, way too many sledgehammers, and "new" economic ideas like retrying the Smoot-Hawley Tariff Act near to its Centennial Anniversary (and to certain other related key anniversaries of the Great Depression).
- rtkwe 1y ago
  The Fed was created to do that work for Congress free of the short term pressures of needing to get reelected and to have people who are actually at least trained in economics making those decisions instead of a random grab bag of people able to win our popularity contest elections. Congress is also still free to override the Fed and make their own programs or change the operation of the Fed too.
deleted 1y ago
[deleted]
NomDePlum 1y ago
Is this not Trumps fiscal policy? These are the conditions the US administration is trying to create are they not?
wakawaka28 1y ago
Prelude? Have you been asleep for the past 5 years, or 20? We've had plenty of inflation with little/no real growth. Number goes up but jobs/salaries/domestic production goes down. Government consumption goes up year after year.

lesuorac 1y ago

Federal Reserve has no real tools to fight inflation. They can get the buckets out and start bailing but until somebody plugs the whole in the deficit there's a structural problem with the boat. People love to bring up the gold chart and be like "what happened in the 1970s!". It wasn't ending the gold standard that was the problem. It was the endless deficit spending; if you want to get a handle on inflation you need current demand to match current production.

mothballed 1y ago
The federal reserve buys deficit creating treasury securities, with newly created unbacked money. It's hard to separate deficit spending from the federal reserve and unbacked currency.
- gruez 1y ago
  That might be true during the pandemic but it's been over for years now. The fed is moving in the opposite direction, selling bonds it previously bought. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
  - mothballed 1y ago
    Good point; fed also creates buyers of treasury securities, including ones it holds, through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets (which the government is happy to swoop in and offer the ~most stable one -- allowing them to satisfy the market they create.)
    - gruez 1y ago
      >through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets. Is this actually true? It might make sense at a surface level, but if you think a few steps further, you'd realize that that the price of "inflation tracking assets" (TIPS?) would eventually incorporate whatever inflation expectations that the market expects, thereby neutralizing any advantages it might have. Moreover there are deep markets for interest rate swaps/futures, so there's little need to pile into TIPS directly.
      - mothballed 1y ago
        High inflation pressures a near time preference in discharging USD. Also "inflation tracking" I should have written more as "inflation hedging" -- needn't be TIPS exactly. Higher inflation raises the cost of not buying treasury and other asset classes. You're right that there may not much change in the general preference in treasuries vs other non-USD asset classes, but it makes all inflation hedging boats rise. This should be obvious if you simplify the market to just USD and say bonds -- at 0% inflation the opportunity cost of not buying bonds is just the real bonds rate, whereas at 10% inflation the opportunity cost is going to approximate closer to 10+real rate. In the latter the pressure to buy bonds would be much higher. ( Of course Fed can buy treasuries with essentially money created from thin air so the opportunity cost analogy may break down for securities first purchased by the fed, which could spoil the presumption that treasury sales proportion of inflation hedging assets might not change much)
ThinkBeat 1y ago
The traditional way a central bank fights inflation, and take Norway as an example. The central bank raises interest rates, until there are enough bankrupcies and unemployment rate reaches a high enough level, The economy cools down. The nation has low inflation again. Rinse out and repeat. They do the direct opposite of bailing anyone out. Now the US is different. The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out. Which heats up the economy and should raise inflation .
- TimorousBestie 1y ago
  > Now the US is different. The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out. Biden did not invent quantitative easing.
  - smileysteve 1y ago
    Indeed, it was expanded greatly during the admins of Bush and Trump.
- serioussecurity 1y ago
  I'm sorry you're blaming the Biden admin for a bush era policy why?
- arunabha 1y ago
  > The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out Can you provide some references for your claim? IIRC, under Biden, inflation was stoked by the Covid stimulus(arguably necessary to avoid rapid deflation due to Covid, but probably kept for too long) and the Fed moved pretty decisively in the second half of the Biden presidency to raise interest rates rapidly to combat inflation. FWIW, the inflation issue seemed to be under control and heading in the right direction before the administration changed.
  - dgfitz 1y ago
deleted 1y ago
[deleted]
gruez 1y ago
>Federal Reserve has no real tools to fight inflation. Yes, interest rates?
- wakawaka28 1y ago
  If they let interest rates go high, the government will go bankrupt along with many companies and individuals. We can't afford 20% base rates anymore. The economy is not healthy enough for that. At least I don't think anyone is ready for the shitstorm that would unleash...
  - downrightmike 1y ago
    They need inflation, it lowers the old debt burden because it is cheaper to service.
    - wakawaka28 1y ago
      No, they don't. If the debt cannot be afforded, they should default. Start by balancing the budget. This inflation will probably ruin us. Kicking the can down the road makes the reckoning worse. It's not fixing shit, and it is causing way more problems.
      - downrightmike 1y ago
        Logically, sure, but Japan has been our aspirational model since things went sideways in 2020. Illogically, even the UK is paying back interest on the South Sea company from 400 years ago. Debt isn't going anywhere even after everyone who accrued it is long dead and dust.
wakawaka28 1y ago
>People love to bring up the gold chart and be like "what happened in the 1970s!". It wasn't ending the gold standard that was the problem. It was the endless deficit spending; if you want to get a handle on inflation you need current demand to match current production. The deficit spending is the reason why we had to leave the gold standard. France, for example, sent a battleship to NYC to retrieve their gold. The US government realized that they could not give out gold for all the dollars that they spent, and went into default on that obligation. The gold standard could have kept the government honest. But they were given too much slack and they abused it to the point of having to break promises officially. The Fed cannot actually destroy all the money that they created. But they could start by not printing any more. They won't do that but they theoretically could.

klooney 1y ago

Although the labor supply is also contracting, which makes reasoning about job growth weird

AftHurrahWinch 1y ago
Is the BLS reported labor supply contracting?
- danaris 1y ago
  The BLS head got fired after delivering a report that Trump didn't like. I wouldn't count on being able to trust whatever they do, or don't, report for the time being.

BizarroLand 1y ago

I think we're already in stagflation but no one wants to be the person who calls it. Even Arizona Iced Tea had to come off their $0.99 price tag. Everyone in America is hard-pressed to find anything for sale for at or under $1.00 Minimum wage is still federally $7.25. How much worse does it actually have to get to be official stagflation?

deleted 1y ago
[deleted]
helsinkiandrew 1y ago
Stagflation is inflation+low (or -ve) growth + higher unemployment. If inflation (or some other shock) caused growth to head towards 0 with unemployment going above ~4% I believe economists would say it was a stagflation try period
- BizarroLand 1y ago
  Stagflation is the simultaneous appearance in an economy of slow growth, high unemployment, and rising prices. Thousands of people are getting laid off every week, prices are higher than they have ever been for most goods and services, and while unemployment is low, the number of jobs available per person looking for work is less than the number of people looking for work, the government is shut down for now, and there are promises/threats of more jobs and positions being cut before it opens back up. Really walking the razors edge here, lol.
nerdsniper 1y ago
Candy bars generally seem to be >$2.00 everywhere I look. It blows my mind that minimum wage pays <30 candy bars per day.
- elevation 1y ago
  How many people actually earn minimum wage? In my low cost of living region you’d be hard-pressed to find any entry level positions (fast food, retail) below $15/hour. Panera (which needs staff at 4 or 5 AM to prep food for the day) are starting at $20/hour. Local restaurants and grocery stores can and do lose employees when a corporate chain raises their rates, so they have to keep up. We could eliminate the federal minimum wage and very little would change.

downrightmike 1y ago

It isn't the Fed's job to fight economic problems, Congress is responsible to do that. But Congress doesn't want to legislate where they need to. Yes stagflation is the best outcome in the current climate. I don't think we'll have it that good.

it_is_I 1y ago
> But Congress doesn't want to legislate where they need to. Everyone keeps saying this, but then go and re-elect the same do nothings.
- masfuerte 1y ago
  Because if they didn't vote for a lizard, the wrong lizard might get in.
- WorldMaker 1y ago
  I think part of the current problem is that "everyone" elected a bunch of "do somethings" with what seems to be low collective civic education, way too many sledgehammers, and "new" economic ideas like retrying the Smoot-Hawley Tariff Act near to its Centennial Anniversary (and to certain other related key anniversaries of the Great Depression).
rtkwe 1y ago
The Fed was created to do that work for Congress free of the short term pressures of needing to get reelected and to have people who are actually at least trained in economics making those decisions instead of a random grab bag of people able to win our popularity contest elections. Congress is also still free to override the Fed and make their own programs or change the operation of the Fed too.

deleted 1y ago

[deleted]

NomDePlum 1y ago

Is this not Trumps fiscal policy? These are the conditions the US administration is trying to create are they not?

wakawaka28 1y ago

Prelude? Have you been asleep for the past 5 years, or 20? We've had plenty of inflation with little/no real growth. Number goes up but jobs/salaries/domestic production goes down. Government consumption goes up year after year.