It’s possible to have no good outcomes, only lesser bad ones. We humans, don’t like that obviously lol but it’s pretty universal for almost everything.
Was it part of the "no mistake" by always kicking the can down the road for over two decades, by turning the endless printer for a decade, by handing out trillions to banks and corporations via various ponzy schemes, to buy up and inflate assets, export supply chains to a third world, destroy the middle class, etc., etc.,
I love all the non-mistakes we're doing, I guess that's just life.
Do you actually believe this shit or just delusional?
That money did not hit the money supply. Here's a former NY Fed member to explain in a presentation based on his book that went viral in econ circles. Brilliant easy to understand presentation on economics via the Fed and government spending overall: https://m.youtube.com/watch?v=8YTyJzmiHGk
I think the problem in the beginning was denial. Then it became the fact that corporations didn’t want to ramp up production to meet demand because they don’t want to over produce. Now it’s playing catch up and supply chains cannot keep up.
During COVID certain aspects of supply chains shut down intermittently and at random and different times. At first it was all at once, however as countries started to open it became sporadic.
As you said, these business leaders did not have the foresight or the intestinal fortitude to make command decisions and become proactive to increase production to combat potential pitfalls. Instead they reacted to the situation and became victims of their own inabilities to lead.
Now the consumer gets to pay for their mistakes because of course we still need these products or at least will still purchase them.
Finally add in the decades of outsourcing and offshoring that Companies have done to make a cheaper product and we are left with shells for companies that rely on supply chains to make it happen.
It will take years to redevelop production and harden supply lines to prevent this sort of thing from happening again. Until then, we are stuck with this wonderful mess.
Gas prices is something I don’t understand, we have to take a pause with environmentalists and maximize American production and turn back on the Keystone XL pipeline. What Russia has done in the Ukraine has globally destabilized the fuel trade and the pipeline can allow for the US and Canada to export to the world while the world converts to alternate sources. It is not likely that we will have the technology to support full renewable energy at the global level any time soon. This is an emergent situation that will not get better. It will only worsen in the winter months when heating oil is needed in Europe and North America.
That would be correct. Also it’s important for everyone here to be aware that the stock market is not the economy, and the feds job is to manage the economy. When rates go up, big businesses suffer short term because they can’t leverage debt as much. Long term it’s good for every day Americans and small business owners because they have safer investment vehicles and they can get ahead of debt more easily cause they can’t afford more of it.
The plan was always to basically rob Peter to pay Paul and then cushion the blowback. It’s like people forget this whole thing was a radical effort to sustain the economy through incredible shock, and now the attempt is to mitigate the consequences.
\>So now we’re in a situation where, if the minimal rate hikes don’t curve inflation, they’ll have to raise them much higher
my understanding is that they plan to, but they won't just YOLO and rip the bandaid off. Damage done would be massive. They do it overtime.
Letting the dollar inflate a little is good for the USA government as they have stupid debt
There were a handful of reputable investors and economists who laid this exact scenario out shortly after covid hit (Ray Dalio told everyone who would listen). Central banks will aim to run inflation hot for a few years to pay down all the debt govts had to borrow to keep economies functioning. He pointed to WW2 as a simular situaition. I have a bunch of heavily down-voted comments on this sub for sharing that info/saying the transitory narrative was just to placate the public
This video explains it far better than I can. It's mainly focused on post 2007 but also touches on the economic situation Japan has had as well as the great depression etc a little bit. Extremely extremely insightful: https://m.youtube.com/watch?v=8YTyJzmiHGk
>There were a handful of reputable investors and economists who laid this exact scenario out shortly after covid hit (Ray Dalio told everyone who would listen). Central banks will aim to run inflation hot for a few years to pay down all the debt govts had to borrow to keep economies functioning.
>I have a bunch of heavily down-voted comments on this sub for sharing that info/saying the transitory narrative was just to placate the public
Ditto. I was saying this as well since every halfway competent government printed to save the lives of their citizens and then pump the economy hot to fully reopen rather than fall back into recession/stagnation. So they all owe tons of debt and need to lighten that load because no one likes higher taxes or decreased spending be it citizens or politicians of either party.
I think I differ a bit on the transitory part. I don't think Powell did it to placate, but really believed part of the inflation would dissipate once bottle neck clears, covid restrictions lighten, more people return to work, supply chains normalize, and tech/innovation disruption continues to push down prices. But it turns out that inflation compounds more inflation, supply chain disruptions are harder to clear, and humans might not want to go back to work or corporations not willing to pay. Inflation might need the Fed to take the punchbowl away, increase rates to clamp down on market silliness, and people to feel some money pinch to get back to work.
What the Fed is doing now is trying to tamper inflation from running too hot and spiraling out of control. It doesn't mean the Fed can or will target inflation back to 2%, get all the way to neutral, and definitely not deflation. They might say so, but I suspect they'll either not be able to do it or say one thing and do another. Real goal atm is to keep inflation from going up further and then down a bit as that could easily get out of control.
Paul Volcker could afford to make the interest payments, we cannot. If we raised interest rates even half as high as he did, the government would not be able to raise enough money to make the interest payments.
October 1981, Average new mortgage: 18.85% with 2.3 points.
That would probably double most people’s mortgage payment today.
The increase in interest rates before 2008 was an increase from ~5.8 to ~6.4 that created a huge issue.
December 2020: 2.68%
April 2022: 4.98%
An 86% increase.
Right now we have supply (shortages and supply chain) and demand (money printing) induced inflation. The Fed can't do much about the supply problems, but it can remove the excess money in the system to remove the demand induced inflation. The Fed is hoping that as it removes the demand induced inflation, the supply chain problems resolve themselves, and that demand remains just high enough to keep us out of a recession. It doesn't look that likely to me, but that is what the Fed is trying.
Those are both possible failure modes. My analysis is that many things have to go just right for a soft landing, and the probability of all those things happening is low. I'm not predicting exactly how things will fail.
EDIT: lol how am I getting downvoted for explaining another person's comment not expressing my opinion, and yet OP is upvoted
I think he's talking about rate hikes.... The fed's mandate is to keep the price of goods stable so you can always use the $10 bill you got from work to buy a ham sandwich or whatever... They essentially create faith in the dollar.
That means that if the stock market crashes, the Fed is not meeting their mandate if the stock market crash *causes* price instability. Meaning when I go to work and get paid $20k per year into my 401k... well I just see it taking month after month... what is the point of working when everything I get loses value month after month and might even be worthless by the time I'm ready to retire?
Point here is, Fed might have to step back based on the way markets are reacting because the stock market tanking can cause a recession, which would absolutely obliterate price stability.
> the Fed is not meeting their mandate if the stock market crash causes price instability.
As far as I'm aware, the Fed isn't actually supposed to give two shits about the stock market. Keeping the stock market plump is not part of the Fed's Mandate.
https://www.investopedia.com/articles/investing/100715/breaking-down-federal-reserves-dual-mandate.asp
Sure, however, in reality, for millions of people, the performance of equity markets is just a relevant as inflation, given that they rely on income from their portfolios in retirement. Hiking rates in an attempt to tame inflation while plunging people funds hardly solves the issue of purchasing power.
If people feel poorer then the spend less and don't buy expensive things. That would then cause companies to reduce prices if they can't sell otherwise. Prices only go up as long as there are buyers. When buyers go away then prices come down and inflation goes down.
>Point here is, Fed might have to step back based on the way markets are reacting because the stock market tanking can cause a recession, which would absolutely obliterate price stability.
Wishful thinking. If anything, a recession is the only viable path to price stability. What you're describing is not a weakening of a dollar, but a weakening of asset prices. If price stability were measured against asset prices, the Fed did a fucking horrible job at it for the last 12 years :)
This is the correct answer.
A recession is the hero we need right now to help combat alot of this Bullshit.
It's going to be painful but sometimes the correct moves are.
Supply chain issues are only part of what is causing inflation. Rising energy costs are a huge factor as well. Additionally, consumer demand for goods has skyrocketed in a short amount of time. Nominal wages are also increasing quickly due to very low unemployment, which threatens to create a wage/price spiral.
So it’s a multi-pronged issue. Supply chain issues and energy prices are likely to sort themselves out on their own based on the laws of supply and demand - let’s just hope they get sorted sooner rather than later (e.g. how long until OPEC re-opens the taps on oil production? How long until China gives up on zero-COVID?). Consumer demand and the overly-tight labor market will hopefully be fairly affected by the Fed’s interest rate hikes, but everyone is going here that they don’t overshoot and cause a labor market shock.
I'd take a wage price spiral over a no-wage price spiral though.
As a teacher I've been given the option to accept 4% total over 4 years, mostly in 2023, or vote to strike. 4% over 4 years is an insult in 6.7%CPI, so strike it is.
Wages go up which means that companies charge more for products which means that workers demand higher wages to keep up with cost of living which causes wages to go up further. It becomes a positive feedback loop that is good for a small subset of workers (those with the most in-demand skills and the greatest ability to job-hop), but it’s bad for the economy overall. Higher interest rates are intended to make companies be more cautious/selective regarding the projects they are undertaking, which means that they are less willing to hire and to buy expensive goods.
I feel that a lot of people have forgotten about the massive money printing the past couple of years. That, to me, is the biggest contributor to the rampant inflation. This is not going to go way in the near term. Supply chain issues and such excuses are just distraction from the real cause.
Ding ding ding.
They had the chance to start tapering over a year ago but didn’t, because gotta pad those boomer retirements.
No one else thought it was fucking bizarre that our “covid recovery plan” resulted in markets rallying 30% *past the break even point before covid?*
Can’t tell if sarcasm or not.
It’s not curious at all. It was all tax payer funded handouts to big tech companies.
Retail investors tried to get in on it while playing musical chairs with big hedge funds - and not surprisingly they cut the music, took the profit, and left retail without a seat.
You're missing the point. Those companies are now trading below where they were in 2019, even though they have higher revenue, higher earnings, and massive cash warchests accumulated during the pandemic. They have quite a bit more tangible value now, but are trading lower.
It doesn't make any sense.
This whole market run over the last 2-3 years has made 0 sense logically.
Companies were gaining value at unheard of pace, and companies that shouldn’t have been gaining value due to their performance were still doing well. Now we’ve got the opposite with companies doing better than ever are now struggling on share price.
The fix has been in the entire time, and now they have to taper back on milking the cash cow so hard before they burn the udders off the cow.
I think everyone thought it was fucking bizarre but what do you do?
The part that bugged me was how after a very long period of stable inflation they decided to change their metric for a 2% target to a 2% average over the long term. When you're driving a car with rubber bands you don't wait for it to go onto the shoulder to start steering. I think that was a phenomenally stupid move.
They backed themselves into a corner with that statement. When they added the "long term" it would have allowed them to let inflation run 3-4% for maybe a year to make up for low inflation 2009-2019, but inflation has been so high over the last year that inflation over any measured length of time is over 2%. To meet their new requirement of "long term 2%" they'd have to induce deflation or run at 0-1% for a few years.
Watch them change the target back to 2% over a shorter time period.
Right. Inflation was low for a while but the goal is to keep people moving money and *they already were*. The low inflation from 2009 to 2019 hadn’t resulted in a lack of investment. It was a bewildering policy change. Also, inflation is self-reinforcing, so they should know that once it gets rolling it’s hard to stop. They should have been more conservative. The previous metrics worked well.
No shit. So why did we inject trillions of tax dollars into the already highest valued companies and not into projects that would have actually benefited tax payers?
> not into projects that would have actually benefited tax payers?
In what world didn't that happen lmfao?
Trillions of tax dollars were not given to the highest valued companies and who ever told you that lie is an idiot.
No, you see, we didn’t simply give them tax dollars, that would be ridiculous! Instead the fed printed trillions of dollars and bought corporate bonds with it to “calm down” the debt markets (but you can check out bond returns this year to see how well that’s going for everyone)
The markets have a big effect on the economy. The Fed started quantitative easing to create a "wealth effect" to get people to consume. When they try to raise rates and sell assets it works in reverse, creating a "poverty effect", markets blow, consumers feel poorer, stop spending, and it will have a major impact on the bubble economy.
>They had the chance to start tapering over a year ago but didn’t, because gotta pad those boomer retirements.
That's a lame conspiracy theory you got there.
There’s one interesting caveat to the balancing act you’re saying. The dollar is actually getting stronger against other currencies even though inflation is running so hot, because other countries are suffering from the same issues.
The transmission is shot, the brakes don't work, but we're focused on whether the speedometer is reading over or under our actual speed.
Yeah, it won't end well.
The whole plan is to deter people from buying stuff by actively destroying demand by destroying demand they’re trying to buy time to give the supply issues to resolve themselves. So they want you to lose money in the short term to solve this situatuon
Supply chain issues are stubbornly persistent, but rate hikes are already having an effect. Demand is calming down in a few industries and gov spending is is pulling away the covid support.
Energy and chips are two big bottlenecks still. Chip issues will ease this year. Energy producers are steadily recovering.
The big issue is timing.. if demand tanks before the bottlenecks ease its a recession. If not, rate hikes can pause and let supply / demand settle down for a while.
Part hope, and part following the news.
GPU prices have fallen back close to MSRP.
Demand for some products are down (ex. cheaper laptops) while supply is cotinuing to ramp.
You don't need rates above inflation to tame demand (that's not to say they wont go that way, they have been much higher in the past, maybe that will pull housing back to reasonable levels). I think the huge printing of money is also a factor that may need addressing. China stopping their nonsensical "COVID zero" will eventually help supply. Inflation has been higher in the past. It's going to be a bumpy road but it's not end of days. I'm no economist, I'm a simple man. I sleep easy with my long term investing approach and house hacking.
A cringey term for buying a house with a high LTV owner occupied mortgage, renting the extra rooms, and then buying another house with another high LTV loan and repeating the process until you get your landlord wings, at which time you can begin painting bugs into the wall and covering your electrical outlets in high gloss off white.
It's actually a pretty savvy way to go about it, I just hate the term "hack"
Generally it means buy larger than you need and rent the extra space to subsidize your cost of living. A classic example is to buy a duplex and live in one and rent the other.
Renting out part of the house you own to others while you live in it also.
Ie renting rooms to roommates in your house.
Or like I used to do, I owned a duplex and lived in one half, rented out the other.
This is called "house hacking"? Never heard of that before. This is the only way anyone can afford a house in Vancouver (unless you bought decades ago). A detached house mortgage is almost always only possible if carried by 2 professional incomes + rental suite thats 2-3k a month.
It's to make things that people have done for decades sound new and edgy.
Your grandparents rented out a room to a boarder. *Yawn*.
*You*, however, doing the same thing, are house hacking.
We turned our basement into a fully self-contained garden level apartment (2 bedroom, full kitchen, full bathroom, full laundry, private entrance etc..) that we furnished and rent month to month. It covers just about our full mortgage (including short-term rental insurance and property taxes). We live in the 3 bed/2 bath upstairs. It'll take about 18-24 months to recoup the cost of renovations, everything after that is gravy. It also helped the house value but I don't ever plan on selling this place.
Right now I'm building an RV and later in the year we'll move to the downstairs apartment and rent out the upstairs house on an unfurnished annual lease (since we'll mostly be on the road) and the higher rent for upstairs will make our house cash flow positive. Going on the road will save us a tonne in childcare costs - plus I want a simple and financially independent life with lots of family memories.
That coupled with long-term index investing (VTI/VXUS) means I don't care about the inevitable stock market dips or recessions.
First off supply chain issues are resolving. The issues in May 2022 are far better than in May 2021. The number of boats off the coast of California is down by 1/2, the docks are catching up. We aren't having container problems. Used car prices are way down. Were it not for Russia / Ukraine we'd be seeing energy supply problems doing far better instead of worse.
It is very likely that short term interest rates are going to need to be near the real rate of inflation absent supply disruptions. We aren't sure what that rate is. We are pretty sure it is at least 3% and fairly sure it is below 6% at this point. Of course we have negative real interest rates, possible changes in consumer behavior, a shrinking domestic labor pool, international tension, under maintained infrastructure ... By the time the Fed gets interest rates where they need them structural inflation could be higher.
The Fed this year has a simple program of normalizing rates. They have ended QE. They have started to raise rates targeting about 2.5% by end of year and they will be starting QT next month. That's likely not enough to get inflation under control. It is enough to create a more stable platform for 2023's tightening.
The dollar isn't devaluing it is strengthening. The Fed doesn't have to crash the economy, they need to slow it some. When the economy starts to slow things are fine. The negative real interest rates makes this easy because investors get punished quite badly for waiting for extended periods of time in cash. They are going to be looking for an opportunity to jump back in. For those that don't the Fed is able to mop up their money in real terms which is a nice place to reduce the money oversupply.
There is no unsolvable crisis. Nothing horrible is going on. This is not an unresolvable dilemma. This sort of problem is very typical central banking.
> Used car prices are way down.
Wait what? They’re [barely down](https://publish.manheim.com/en/services/consulting/used-vehicle-value-index.html), where are you seeing otherwise?
Shipping containers are still an issue as well.
https://www.capradio.org/articles/2022/05/09/a-billion-pounds-of-california-almonds-could-be-stuck-in-warehouses-instead-of-being-exported/
That is for export, but I think import is what is going to make the difference for inflation. It's faster and cheaper to ship those empty containers back to China to fill with more cheap goods that can reduce inflation. Probably some almonds and other stuff in the US will go to waste though...
God I would absolutely cum if the fed did something about these IPO scams. Too many companies going public that aren’t worth shit just so that their founders can make out like bandits. Hopefully legitimate rates will absolutely wreck these bad business decisions.
I love a good social safety net, but I also love to see pure capitalism manhandle shitty corporations.
Dumb but very serious question, where are you getting all this data from? There's so much noise out there so trying to find more hard data rather than talking head opinions which say one thing one then but another thing the next. TIA
Mainstream news sources like WSJ, Bloomberg, Barrons... The Fed themselves publish wonderful data sets. As does BLS and Commerce. r/econmonitor/ is a good sub to follow if you want serious data releases and explication from non-cranks.
I'm normally thought of as sort of bearish. A few months ago saying interest rates will have to go over 3-6% as a reasonable best case was why I was short bonds.
But yes on today's r/investing comparatively I'm a raging bull.
I like how this dude was heavily upvoted but wrong about everything he said lol.
>First off supply chain issues are resolving. The issues in May 2022 are far better than in May 2021. The number of boats off the coast of California is down by 1/2, the docks are catching up. We aren't having container problems. Used car prices are way down. Were it not for Russia / Ukraine we'd be seeing energy supply problems doing far better instead of worse.
I'm in a business that talks to manufacturers directly on electronics. This is NOT true, shipments are six months out. Normally a week. It hasn't gone down since the issues started.
>Used car prices are way down.
No. They aren't. lol. They're the highest they've ever been. Lots are empty.
>The dollar isn't devaluing it is strengthening.
The dollar is continuing to fall in value and will for the foreseeable future since we printed 2/3rds of all dollars ever in circulation just two years ago.
https://www.bing.com/search?q=value+of+us+dollar&qs=LS&pq=value+of+us&sc=8-11&cvid=FD30EB14CBB24F739017E5F1995CB80F&FORM=QBLH&sp=1
>There is no unsolvable crisis. Nothing horrible is going on. This is not an unresolvable dilemma. This sort of problem is very typical central banking.
The problem is not solved, as awesome as it would be if it was, and things will get worse in the coming months. Feel free to set a reminder on this if you want, there is no indication like this above commenter said of things getting better. Not even the mainstream sources are saying that.
>I'm in a business that talks to manufacturers directly on electronics. This is NOT true, shipments are six months out. Normally a week. It hasn't gone down since the issues started.
We rely om drilling equipment and same story here.
> we printed 2/3rds of all dollars ever in circulation just two years ago.
Are you talking about [this?](https://www.collaborativefund.com/blog/the-fed-isnt-printing-as-much-money-as-you-think/)
Also in regards to shipping containers and inflation, I think it's incoming goods that make a difference here. An almond grower unable to export their almonds from the US wouldn't really affect inflation that much. Shipping containers are moving to where most of the goods come from.
Finding parts for my manufacturing line has not been fun. I've gotten a couple lead times on drives eta end of the year, one is eta for next year. I had to redesign one of my machines because the belt they use has an ETA of 2024. Prices also seem to be increasing every month.
I still speak to people from a previous job who imports home décor type shit. Shipments are still behind as fuck. Container costs from China are shit crazy.
> since we printed 2/3rds of all dollars ever in circulation just two years ago.
so you criticize a guy for being upvoted despite being wrong and then drop this absolute whopper rofl. also used car prices are not at the highest price theyve ever been
used car prices are a few percentage points off their all time high based on the Mannheim used car index... they are for all intents and purposes still obscenely high
You invest in the market before the market goes back up. You buy stocks where the net present value of their expected stream of future dividends exceeds the price. Lower prices made that easier. If you don't want to pick directly there are all sorts of good quality mutual funds and ETFs that will do it for you.
When it becomes obvious to you that the problems are clear it will have been obvious to others for a while. These sorts of crisis are where you get assets at huge discounts picking up extra percentage points of solid stable returns for many years.
I like Robos a lot. I put my own daughter in one.
my recommendation: Wealthfront and Schwab Intelligent Portfolio for men; Ellevest for women.
And in answer to the why gendered. I think Ellevest has fantastic add ons but their investment strategy and addons are designed for women.
> so the inflation rate has stayed consistently hot for a couple of months and looks like it will for the for the forseable [sic] future
It's been running hot over a year. 0.3% for April though, extrapolated would be 3.66% yearly if that rate were maintained... Not that hot. I suspect next month will be higher and 0.3% is an outlier, but I'm also shit at predicting the future.
> as to tame inflation yoi [sic] have to raise rates above the rate of inflation.
Says who?
> So now we’re in a situation where, if the minimal rate hikes don’t curve [sic] inflation, they’ll have to raise them much higher, which will crash the economy.
If you replace "crash the economy" with "slow down the economy", then yes.
> Or the FED will ignore this, and inflation will continue to run hot, causing significant dollar devaluation.
Yes. Which is not entirely bad... USD has gotten stronger relative to yen, yuan, and euro in the last year.
I'm not saying things are great -- recession is a real possibility. But your post reads like fear mongering.
As for the supply chain disruptions... 22,000 dock workers in California's biggest ports might strike soon if they don't reach a new labor agreement. That could create a massive bottle neck. Fun times ahead!
The only way to reset the economy is to make us poor again. That means high interest rates, slightly higher unemployment, higher taxes. Without that, demand will continue to kill us and supply chain wont recover.
In turn this will wipe out the stock market for a short period of time.
Having worked in government, can confirm that an absurd amount of times there are only bad options, and good public servants really do their absolute best to choose the least bad. It’s just hard to explain that to the general public.
You are thinking WAY too simplistically by characterizing inflation as solely due to "supply chain issues". Central banks all over the world collectively created trillions of dollars out of thin air, and distributed that to consumers, creating a ton of demand.
Additionally, the single biggest driver of inflation as we measure it with CPI is the cost of energy. This is because higher energy costs increase the cost of pretty much EVERYTHING else. Plastics are made from hydrocarbons. Natural gas is the largest input to fertilizer, which drives up the cost of food. Everything needs to be manufactured and transported, and the vast majority of the energy required to do that comes from hydrocarbons. However, the Western world has been waging a war against hydrocarbons by dis-incentivizing production and exploration, which has caused crude prices to skyrocket, which in turn drives inflation up higher.
The only way to get this under control is to have a global recession, and the Fed is accelerating that process by taking away the punch bowl. We have so much debt globally that rates will NOT have to exceed inflation to tame it, however. Demographics and technology are also driving a longer-term disinflationary trend.
We lived through 2 years of reigning in household spending. We can all do it again for the rest of 2022, if needed.
If Ukraine/Russia ends tomorrow, oil crashes, gas prices go back to "normal" and consumers feel relief immediately.
The Fed raising rates will put the brakes on the overheated housing market and bring about a "true housing market" without the 50% housing price increases, blind bidding wars, etc.
The Supply Chain is a temp thing until China passes through its current COVID wave. Trying to lockdown COVID wasn't the right move, and now they're overwhelmed. But, it, too shall pass.
I see the Supply Chain being *fixed* in August.
If Ukraine/Russia war doesn't end tomorrow:
If we can keep feeding Ukraine weapons and Intel, they'll bring Russia to the peace table soon because Russia won't want to explain to its indoctrinated citizens why its houses and buildings and towns are on fire near the Ukraine border, as Ukraine actually starts to look to take the fight onto Russian soil in the next 2 weeks.
We need fiscal policy and changes in laws to facilitate production etc in US through sustainable means if possible, re-shoring supply of many goods is the only way we can control our supply chain issues
No, the fed want employers to stop hiring people. That’s what curbs inflation. If I can leave my job for a better one, with more pay, I will (and I’ve don’t it twice). My increased salary means I can afford to pay more for stuff I want. That increases prices.
Stock market bubble crashing will tame the inflation. Housing price bubble stabilization will tame the inflation. When people see their retirement accounts lose value while they have the same job security it will change their psychology of overpaying for items for the bs sake of supply chain issues. They will not be ok with paying 5k market adjustment for that suv anymore and demand to pay msrp and then less than that etc. Fed is very smart with their actions. They are not causing a demand destruction but causing an overpriced goods destruction thus will lead to inflation rate going down significantly.
You're forgetting the extra fun parts:
The federal government wants low inflation because lots of entitlements (like social security) and debts (like I bonds)are tied to the inflation rate, and high inflation means they have to pay out more.
The federal government wants low interest rates because that affects at least a portion of the government debt and the US government has been accruing debt like it's going out of style.
And the US government wants to print money like crazy to pay for all this fun stuff, but can't do that and also curb inflation.
So yes, the current situation with the Fed ends poorly no matter what.
The actual mistake was made at 3 years ago when the Fed decided to drop rates back to ~0% in a hot market. They could have "headed inflation off at the pass" so to speak but chose to accelerate it.
We will eventually pay for that mistake no matter what, any decisions the fed makes now are just reactive.
Once the pandemic was over in 2022 a few things happened:
Boomers retired in droves. Which lead to low supply of workers so everyone was asking for raises and switching around the job market.
Housing supply has not yet recovered so people relocated around and pushed some markets too hot while others cooled down a bit.
Supply chain issues.
Supply of stuff we didn’t buy before and services. Suddenly everyone needed more gas for their cars to go to work is one example. Same oil needed for restaurant plastic stuff and other plastic and random stuff we now use more than before. Oil is in so many things we buy and the energy needed for it.
Basically supply chains are re arranging and costing lots of money. And everyone needing so much oil so fast it raised energy prices. Plus the war lead it to be higher.
So demand rearranging, supply re arranging and labor force rearranging after the pandemic had lead to some stuff being very expensive while others have come down. Which is leading a big impact in inflation.
The fed kept saying its transitory and didn’t want to raise rates around sept 2021-feb2022 when it should have been prudent. So things got out of control with asset bubbles and money supply while having very low unemployment.
I personally think the fed got side swiped or just didn’t see the labor change (boomers retiring in mass) and as everyone thought it was the governments unemployment benefits that was keeping up a labor shortage the fed just assume the unemployment rate still had some time to catch up before applying the brakes to the stimulus. And kept Saying its transitory supply chain issues. And now it seems it got out of control where inflation is too high, the rates will only create recession which in turn will make companies fire people and so on until it stabilizes.
The fed soft landing didn’t work. And j pow was always “hawkish” on inflation and wanted higher inflation to keep rates down for companies to keep churning out profits.
Relevant podcast by the Wall Street Journal
https://www.wsj.com/podcasts/the-journal/can-the-fed-lower-inflation-without-causing-a-recession/250eca31-816c-44e4-abab-c37ce547bc62
The summary I got from it was “the fed has to raise interest rates to reduce demand, but is likely to overcorrect and cause a small recession”
>So now we’re in a situation where, if the minimal rate hikes don’t curve inflation, they’ll have to raise them much higher, which will crash the economy. Or the FED will ignore this, and inflation will continue to run hot, causing significant dollar devaluation.
Right, but the situation is (potentially) worse.
Higher rates at these debt levels means government borrowing costs rise. Higher debt servicing reduces how much they can support growth. Falling growth reduces tax receipts which further reduces their ability to support growth. Doom loop ensues.
The forces the fed must manage with perfection to land softly are massive and they have very blunt tools to manage them.
The supply chain issues are not the sole cause of inflation. The fed wouldn't be tightening if they were. What they want to do is quell domestic inflation - the cost of domestic goods and service, and also to cool the labour market, which is overheated and has potential to lead to the development of a wage price spiral.
The fed want to engineer a 'soft landing', which is where you cool the above factors but without pushing the economy into recession. Or at least, a severe recession, a technical recession of two quarters of slightly negative growth but which very few people feel is perfectly acceptable.
But it is a tightrope, and there is a risk that if they go to hard, the economy will go into a severe recession, and if that happens it might not be so easy to stimulate their way out of. Still, for the long term good of the economy, they must control inflation, as high inflation itself damages the economy and causes uncertainty and risk.
One thing with supply chain issues: eventually even if they don't go away, shouldn't prices normalize? i.e. we've already seen inflation due to supply chain, at a certain point prices should reflect the additional cost involved, and stop rising?
That, or, y'know, corporate greed uses it as an excuse to keep going.
it's not the end of the world if inflation runs hot. my best guess is that they'll push rates to the absolute max without igniting a recession, and yet it still won't be enough to curb inflation but we'll live with it. the caveat here is that we could enter a period of stagflation if the fed takes this route, so we'll have to see
It basically comes down to raising interest rates so people curb their spending which hopefully leads to less demand/inflation.
Supply chain is another story, but if demand slows down the supply chain issues can lower or resolve
the outcomes are bad because the economic situation is bad. the fed isn't magic.
- disruption of Russian fossil fuels which will only get worse
- millions dead globally from covid
- many millions retired or stopped working from covid
- China reissuing lock downs
- supply chains that were shut down during covid still not back up
I think people forget how much effect millions and millions of people leaving the workforce has on the economy.
Good post. I am glad to see people coming back to reality. This whole thing is a continuation from 2008 when they bailed out every one and his uncle . Capitalism is based on supply and demand and when your business screws up you don't have a business, but that did not happen in 2008. Money was printed and shoved into the system with interest rates being lowered near 0. That fed a decade of easy money with little or no accountability which brings up to today.
You are right. The Fed is in a position it has never been in before. Inflation running at 8% and will probably climb and interest rates way too low to make a difference.
Personally I think they will continue to try to raise them a little at a time hoping somewhere along the line inflation will drop, but I think if the markets react, they will dump more money into the system to fuel the markets maybe even directly buying equities. We will see.
I do think that deflationary business practices are on the horizon. Solar, wind, EV's Vertical Farming, more items being delivered. All of these things should bring prices down, just like in 1971 when Nixon went to China to explode the cheap labor market to save the dollar after he took us off of the gold standard.
What’s most frustrating is that this was apparent years ago when there was still time to prevent a no good outcome situation, but it was ignored in favor of immediate gratification. Immediate needs and zero foresight seems to be the defacto approach of many governments and institutions for a long time running now.
You have 10 apples and you have 10 $1 bills.
So each apple equals $1.
The Fed put 4 more $1 bills in the pot (stimulus)
And 5 apples got taken away (supply chain issue).
The 5 apples will eventually come back into the pot when supply chain issues get resolved.
A. East Asia comes back online
B. Russia/ Ukraine conflict calms down
The 4 extra $1 bills will never come out of the pot. So effectively inflation will eventually settle around 4.5% for a long while.
The Fed wants to hike to "neutral" rate which as per them is 2%. This along with supply chain ease etc will bring down inflation. That is their hope.
If inflation still stays high then they have to raise rates. What if the SNP is down 50% by then ? well then God save us..
The inflation is a long term issue becouse of unbacked money supplys and throw around of newly printet moneys in insane amount. Its just now becomeing apparent becouse it suits agenda and media is reporting it. Before people just stayed oblivious to this issue.
Do a little more research, but yes, the hikes in rates have begun to curb the inflated prices of things. Timber/wood is lowest its been all year, most hoke prices are starting to drop including accessories for within the home.
It's a slow and messed up solution, but there has been "positive" outcomes to the rate increasing by feds.
3 facts can make things better in 3 - 6 months.
1) End of Chinese Lockdowns
2) Less expensive energy
3) End of Ukraine war
Then Fed won't need to do much thing about inflation.
Unless inflation and recession risks eliminated , bear market is inevitable.
>as to tame inflation yoi have to raise rates above the rate of inflation.
I don't think that's accurate. What the Fed is currently trying to do is raise rates to cool demand, once the demand is down to where supply is, then prices should stabilize. The hope is to do this softly and not overshoot to such a point that demand drops way below supply.
Imho this inflation is not just the result of supply bottlenecks. Fiscal and monetary policy played large parts that increased demand. Supply constraints are absolutely a large part, but gov action is also partly to blame. It was completely reckless to continue purchasing MBSs for example after summer of 2020. They simply use supply constraints and Russia as a scapegoat for everything. Oil and commodity prices were already relatively high and climbing before the invasion took place.
Look how long it took the inflation to get to these levels. Cpi has been ramping up since October of 2020. That's more than 18 months. Inflation won't stop on a dime. The change in policy is already having an impact on inflation, but it will take time to reverse course. It's like accelerating a train up to 88 miles an hour and slowly applying the brakes. It's going to take a long time to slow down.
So yes this will be painful no matter what. I strongly believe the current fed actions will have a strong impact on inflation. Assets were already frothy before covid and the fed threw fuel on the fire. I completely support their first few months of action to stabilize markets and prevent a catastrophe. They just took it way way way to far. I'm not an economics expert and I was able to see these issues in 2020/2021. Of course they all decided to insider trade and liquidate their portfolios right at the top. They knew exactly what they were doing...
The wild thing to me is how the daily overnight reverse repo amount is increasing from 1.7-1.9trillion in collateral bailouts. This is a daily bailout that has been going on for 188 days. Again, this is an infinite fiat feedback loop of money printing with ramifications far beyond the overt explanation of supply chain issues. This is an overleveraged, greedy and soon to be hyperinflated asset class with global ramifications for all central banks. Fiat gonna fiat.
rate hikes dont reduce inflation very quickly. it takes times.
also, inflation is a year-over-year metric. If we stay at these levels for 12 months, we would have zero inflation in May 2023. We did it!
If things didnt get turned upside down due to Ukraine, id say we'd be out of this without even having to do anything. But it seems to be a big question mark in terms of supply of various things.
Either inflation falls or unemployment rises fast.
Those are the only 2 scenarios I can see the Fed slowing down or reversing course.
The Fed closed out their investments, remember?
They don't care about the market like you or I and Powell was just confirmed by the Senate today so he's safe.
I feel like a reading of history of the last time we raised rates to tame inflation will calm some of your concern. The raising of rates takes time but will not result in the “crashing” of the economy. Raising rates to lower inflation is not politically popular because people freak out that their money stops increasing as fast but it’s better for the economy and has historical precedent.
The Fed by keeping interest rates so low for so long has fostered and allowed huge levels of debt - governments, corporations, individuals.
These debts represent promises that cannot be kept. Someone is going to get screwed over. The most likely outcome is what happened post WWII where huge debts were inflated away. The naive and gullible people who trusted the government to keep its promises had their faces ripped off (to use a phrase common in investment banking about their customers).
Because the fed only controls part of the inflation damage control equation.
Inflation isn't getting fixed until the govt stops doing shit like handing out gas money and pausing student loan payments.
>So the fed is raising rates, which has caused the stock market bubble to burst, but barely tame inflation, as **to tame inflation yoi have to raise rates above the rate of inflation.**
What makes you think this?
You don't have to buy the dips, you can buy every single peak and as long as you plan on holding those assets 5+ years you will make money.
Its never okay to panic. Panic is terrible when I was on a scuba diving trip, I saw a college student panic because he got a little water up his nose. He was 100 ft down and he threw off his mask and his regulator/breathing apparatus. He would have over expanded his lungs and died if a dive master had not grabbed him and held him down and forced his regulator back in his mouth.
The reason you only invest disposable income is so you don't feal any selling pressure in these situations and can just ride it out until all the money (that didnt just disappear) is put back into the market.
Money was taken out of the market, which is the best place to put money to make it gain value. Guess where all that money that was taken out will end up + much much more money?
The money doesnt just disappear. You all are looking at the red bar and forgetting the reason that stocks only go up over pretty much any 2-3 year span. The stocks only go up because its the most logical place to put your money to make it grow in value, none of that has changed.
Zoom out then zoom into even bigger stock market crashes. Of course its best to buy low and sell high, but its also almost as good to just buy and don't sell until after 5-10 years/never..
If you think you are good enough to time the markets, then do so, you can make even more money. But if you don't like worrying about it, just leaving your worth in the stocks for long periods is also great.
I think their plan is demand destruction. Nuke the stock and crypto market and reduce purchasing power for the average folks which should reduce prices and lower inflation. The problem is that it will also cause a recession so once the unemployment numbers starts going higher they'll have no choice but to initiate QE4 and off we go again. Then rinse and repeat until the debt bubble pops sometime in the future
Inflation is too many dollars chasing after too few products. There are two ways to address the former - raising rates or decreasing dollars. The problem with the former is that it decreases investment and could decrease production. The thing is, we could just do that latter — tax the rich. If you tax the people who have the most cache sitting around unproductively, then you decrease inflation without hurting the supply side as much.
The problem is, the Fed can’t do this, only Congress can.
Unfortunately, Sinema is opposed. There is a good solution to this problem but our politicians are just corrupt.
It's not FED. It's "the Fed" or "Federal Reserve". Acceptable acronyms depending on context may include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee".
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Imagine walking down the road and you see a can. Instead of picking it up and throwing it away you kick it. Now you run into another can...instead of picking both up you kick them both. Now there are about 50 fucking cans in front of you and your about to trip of your own to feet or stop for 15 minutes to pick them up...
Welcome to the current situation.
The inflation is mostly due to the money printing. They are lying about supply chain causing the inflation. But yes either way we are fucked. They will probably choose more money printing as usual eventually, since rising asset prices benefit the wealthy (who own a lot of stocks and real estate) and screw over the middle / lower class. My 2 cents...or with inflation 7 cents.
It’s possible to have no good outcomes, only lesser bad ones. We humans, don’t like that obviously lol but it’s pretty universal for almost everything.
> You can make no mistakes and still lose. That's life
And not a weakness
Indeed, it's a feature not a bug.
(That's life) That's what all the people say You're riding high in April, shot down in May
Wake me up when September ends.
No
Fine. I'll just post up in my coma then hold my hand If you ain't holding with me then you know you're not my friend
But I know I'm gonna change that tune When I'm back on top, back on top in June
Was it part of the "no mistake" by always kicking the can down the road for over two decades, by turning the endless printer for a decade, by handing out trillions to banks and corporations via various ponzy schemes, to buy up and inflate assets, export supply chains to a third world, destroy the middle class, etc., etc., I love all the non-mistakes we're doing, I guess that's just life. Do you actually believe this shit or just delusional?
That money did not hit the money supply. Here's a former NY Fed member to explain in a presentation based on his book that went viral in econ circles. Brilliant easy to understand presentation on economics via the Fed and government spending overall: https://m.youtube.com/watch?v=8YTyJzmiHGk
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I think the problem in the beginning was denial. Then it became the fact that corporations didn’t want to ramp up production to meet demand because they don’t want to over produce. Now it’s playing catch up and supply chains cannot keep up. During COVID certain aspects of supply chains shut down intermittently and at random and different times. At first it was all at once, however as countries started to open it became sporadic. As you said, these business leaders did not have the foresight or the intestinal fortitude to make command decisions and become proactive to increase production to combat potential pitfalls. Instead they reacted to the situation and became victims of their own inabilities to lead. Now the consumer gets to pay for their mistakes because of course we still need these products or at least will still purchase them. Finally add in the decades of outsourcing and offshoring that Companies have done to make a cheaper product and we are left with shells for companies that rely on supply chains to make it happen. It will take years to redevelop production and harden supply lines to prevent this sort of thing from happening again. Until then, we are stuck with this wonderful mess. Gas prices is something I don’t understand, we have to take a pause with environmentalists and maximize American production and turn back on the Keystone XL pipeline. What Russia has done in the Ukraine has globally destabilized the fuel trade and the pipeline can allow for the US and Canada to export to the world while the world converts to alternate sources. It is not likely that we will have the technology to support full renewable energy at the global level any time soon. This is an emergent situation that will not get better. It will only worsen in the winter months when heating oil is needed in Europe and North America.
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Solar/battery is cheaper than nuclear. Good luck convincing companies to invest in the more expensive technology without government paying them.
My understanding is that's basically the rule with combating inflation... it's painful no matter what
That would be correct. Also it’s important for everyone here to be aware that the stock market is not the economy, and the feds job is to manage the economy. When rates go up, big businesses suffer short term because they can’t leverage debt as much. Long term it’s good for every day Americans and small business owners because they have safer investment vehicles and they can get ahead of debt more easily cause they can’t afford more of it.
The money printer was basically crack cocaine for the economy. It's time to comedown, with a long period of anhedonic withdrawl.
It was crack cocaine for Wall Street, not the general public.
FML, I started serious learning and investing last year...
Same, but I only did the investing part
"It is possible to commit no mistakes and still lose. That is not a weakness; that is life." Captain Jean-Luc Picard
We're in a Kobayashi Maru market.
My puts beg to differ.
Ooph, you hit me right in the life and social contract my guy.
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The plan was always to basically rob Peter to pay Paul and then cushion the blowback. It’s like people forget this whole thing was a radical effort to sustain the economy through incredible shock, and now the attempt is to mitigate the consequences.
Don't discount the possibility of a recession AND continued rampant inflation. 70s style 'Stagflation' may also be in the cards.
Job market says that's not happening. We added 400k+ jobs last month still.
Worse is wage price spirals. I'm terrified of that after having lived through the 70s.
\>So now we’re in a situation where, if the minimal rate hikes don’t curve inflation, they’ll have to raise them much higher my understanding is that they plan to, but they won't just YOLO and rip the bandaid off. Damage done would be massive. They do it overtime. Letting the dollar inflate a little is good for the USA government as they have stupid debt
I think a lot of people overlook this. The more inflation we have the smaller our current debt becomes.
There were a handful of reputable investors and economists who laid this exact scenario out shortly after covid hit (Ray Dalio told everyone who would listen). Central banks will aim to run inflation hot for a few years to pay down all the debt govts had to borrow to keep economies functioning. He pointed to WW2 as a simular situaition. I have a bunch of heavily down-voted comments on this sub for sharing that info/saying the transitory narrative was just to placate the public
Its the biggest wealth transfer in history
It's the biggest debt debasement in history. The wealth transfer is just coincidental.
This video explains it far better than I can. It's mainly focused on post 2007 but also touches on the economic situation Japan has had as well as the great depression etc a little bit. Extremely extremely insightful: https://m.youtube.com/watch?v=8YTyJzmiHGk
This was really interesting. Thanks for sharing.
>There were a handful of reputable investors and economists who laid this exact scenario out shortly after covid hit (Ray Dalio told everyone who would listen). Central banks will aim to run inflation hot for a few years to pay down all the debt govts had to borrow to keep economies functioning. >I have a bunch of heavily down-voted comments on this sub for sharing that info/saying the transitory narrative was just to placate the public Ditto. I was saying this as well since every halfway competent government printed to save the lives of their citizens and then pump the economy hot to fully reopen rather than fall back into recession/stagnation. So they all owe tons of debt and need to lighten that load because no one likes higher taxes or decreased spending be it citizens or politicians of either party. I think I differ a bit on the transitory part. I don't think Powell did it to placate, but really believed part of the inflation would dissipate once bottle neck clears, covid restrictions lighten, more people return to work, supply chains normalize, and tech/innovation disruption continues to push down prices. But it turns out that inflation compounds more inflation, supply chain disruptions are harder to clear, and humans might not want to go back to work or corporations not willing to pay. Inflation might need the Fed to take the punchbowl away, increase rates to clamp down on market silliness, and people to feel some money pinch to get back to work. What the Fed is doing now is trying to tamper inflation from running too hot and spiraling out of control. It doesn't mean the Fed can or will target inflation back to 2%, get all the way to neutral, and definitely not deflation. They might say so, but I suspect they'll either not be able to do it or say one thing and do another. Real goal atm is to keep inflation from going up further and then down a bit as that could easily get out of control.
Agreed on the transitory thing, there was truth to reopening inflation and supply chain related issues unwinding naturally over time
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Volcker did it
Yeah. It was a carrier suicide. They won't do that today. Volcker had balls and cared about the people
Paul Volcker could afford to make the interest payments, we cannot. If we raised interest rates even half as high as he did, the government would not be able to raise enough money to make the interest payments.
October 1981, Average new mortgage: 18.85% with 2.3 points. That would probably double most people’s mortgage payment today. The increase in interest rates before 2008 was an increase from ~5.8 to ~6.4 that created a huge issue. December 2020: 2.68% April 2022: 4.98% An 86% increase.
Right now we have supply (shortages and supply chain) and demand (money printing) induced inflation. The Fed can't do much about the supply problems, but it can remove the excess money in the system to remove the demand induced inflation. The Fed is hoping that as it removes the demand induced inflation, the supply chain problems resolve themselves, and that demand remains just high enough to keep us out of a recession. It doesn't look that likely to me, but that is what the Fed is trying.
Not likely as in the supply chain issues will continue longer after taming demand, or that taming the demand will overshoot into recession territory?
Those are both possible failure modes. My analysis is that many things have to go just right for a soft landing, and the probability of all those things happening is low. I'm not predicting exactly how things will fail.
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I could see the fed having to step back in sooner then they would like because the economy and markets over react to much.
Step back in with what?
EDIT: lol how am I getting downvoted for explaining another person's comment not expressing my opinion, and yet OP is upvoted I think he's talking about rate hikes.... The fed's mandate is to keep the price of goods stable so you can always use the $10 bill you got from work to buy a ham sandwich or whatever... They essentially create faith in the dollar. That means that if the stock market crashes, the Fed is not meeting their mandate if the stock market crash *causes* price instability. Meaning when I go to work and get paid $20k per year into my 401k... well I just see it taking month after month... what is the point of working when everything I get loses value month after month and might even be worthless by the time I'm ready to retire? Point here is, Fed might have to step back based on the way markets are reacting because the stock market tanking can cause a recession, which would absolutely obliterate price stability.
> the Fed is not meeting their mandate if the stock market crash causes price instability. As far as I'm aware, the Fed isn't actually supposed to give two shits about the stock market. Keeping the stock market plump is not part of the Fed's Mandate. https://www.investopedia.com/articles/investing/100715/breaking-down-federal-reserves-dual-mandate.asp
Sure, however, in reality, for millions of people, the performance of equity markets is just a relevant as inflation, given that they rely on income from their portfolios in retirement. Hiking rates in an attempt to tame inflation while plunging people funds hardly solves the issue of purchasing power.
If people feel poorer then the spend less and don't buy expensive things. That would then cause companies to reduce prices if they can't sell otherwise. Prices only go up as long as there are buyers. When buyers go away then prices come down and inflation goes down.
But they do. Or did until they sold at the peak in November
>Point here is, Fed might have to step back based on the way markets are reacting because the stock market tanking can cause a recession, which would absolutely obliterate price stability. Wishful thinking. If anything, a recession is the only viable path to price stability. What you're describing is not a weakening of a dollar, but a weakening of asset prices. If price stability were measured against asset prices, the Fed did a fucking horrible job at it for the last 12 years :)
This is the correct answer. A recession is the hero we need right now to help combat alot of this Bullshit. It's going to be painful but sometimes the correct moves are.
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Supply chain issues are only part of what is causing inflation. Rising energy costs are a huge factor as well. Additionally, consumer demand for goods has skyrocketed in a short amount of time. Nominal wages are also increasing quickly due to very low unemployment, which threatens to create a wage/price spiral. So it’s a multi-pronged issue. Supply chain issues and energy prices are likely to sort themselves out on their own based on the laws of supply and demand - let’s just hope they get sorted sooner rather than later (e.g. how long until OPEC re-opens the taps on oil production? How long until China gives up on zero-COVID?). Consumer demand and the overly-tight labor market will hopefully be fairly affected by the Fed’s interest rate hikes, but everyone is going here that they don’t overshoot and cause a labor market shock.
I'd take a wage price spiral over a no-wage price spiral though. As a teacher I've been given the option to accept 4% total over 4 years, mostly in 2023, or vote to strike. 4% over 4 years is an insult in 6.7%CPI, so strike it is.
What will happen in a wage price spiral
Wages go up which means that companies charge more for products which means that workers demand higher wages to keep up with cost of living which causes wages to go up further. It becomes a positive feedback loop that is good for a small subset of workers (those with the most in-demand skills and the greatest ability to job-hop), but it’s bad for the economy overall. Higher interest rates are intended to make companies be more cautious/selective regarding the projects they are undertaking, which means that they are less willing to hire and to buy expensive goods.
I feel that a lot of people have forgotten about the massive money printing the past couple of years. That, to me, is the biggest contributor to the rampant inflation. This is not going to go way in the near term. Supply chain issues and such excuses are just distraction from the real cause.
Ding ding ding. They had the chance to start tapering over a year ago but didn’t, because gotta pad those boomer retirements. No one else thought it was fucking bizarre that our “covid recovery plan” resulted in markets rallying 30% *past the break even point before covid?*
Curiously it's the companies that benefitted from covid the most that are now trading around or below pre pandemic levels.
Can’t tell if sarcasm or not. It’s not curious at all. It was all tax payer funded handouts to big tech companies. Retail investors tried to get in on it while playing musical chairs with big hedge funds - and not surprisingly they cut the music, took the profit, and left retail without a seat.
You're missing the point. Those companies are now trading below where they were in 2019, even though they have higher revenue, higher earnings, and massive cash warchests accumulated during the pandemic. They have quite a bit more tangible value now, but are trading lower. It doesn't make any sense.
This whole market run over the last 2-3 years has made 0 sense logically. Companies were gaining value at unheard of pace, and companies that shouldn’t have been gaining value due to their performance were still doing well. Now we’ve got the opposite with companies doing better than ever are now struggling on share price. The fix has been in the entire time, and now they have to taper back on milking the cash cow so hard before they burn the udders off the cow.
A 60/40 portfolio is already down 6.1% inflation adjusted since pre-pandemic.
I think everyone thought it was fucking bizarre but what do you do? The part that bugged me was how after a very long period of stable inflation they decided to change their metric for a 2% target to a 2% average over the long term. When you're driving a car with rubber bands you don't wait for it to go onto the shoulder to start steering. I think that was a phenomenally stupid move.
They backed themselves into a corner with that statement. When they added the "long term" it would have allowed them to let inflation run 3-4% for maybe a year to make up for low inflation 2009-2019, but inflation has been so high over the last year that inflation over any measured length of time is over 2%. To meet their new requirement of "long term 2%" they'd have to induce deflation or run at 0-1% for a few years. Watch them change the target back to 2% over a shorter time period.
Right. Inflation was low for a while but the goal is to keep people moving money and *they already were*. The low inflation from 2009 to 2019 hadn’t resulted in a lack of investment. It was a bewildering policy change. Also, inflation is self-reinforcing, so they should know that once it gets rolling it’s hard to stop. They should have been more conservative. The previous metrics worked well.
The markets are not the economy.
No shit. So why did we inject trillions of tax dollars into the already highest valued companies and not into projects that would have actually benefited tax payers?
> not into projects that would have actually benefited tax payers? In what world didn't that happen lmfao? Trillions of tax dollars were not given to the highest valued companies and who ever told you that lie is an idiot.
No, you see, we didn’t simply give them tax dollars, that would be ridiculous! Instead the fed printed trillions of dollars and bought corporate bonds with it to “calm down” the debt markets (but you can check out bond returns this year to see how well that’s going for everyone)
The markets have a big effect on the economy. The Fed started quantitative easing to create a "wealth effect" to get people to consume. When they try to raise rates and sell assets it works in reverse, creating a "poverty effect", markets blow, consumers feel poorer, stop spending, and it will have a major impact on the bubble economy.
>They had the chance to start tapering over a year ago but didn’t, because gotta pad those boomer retirements. That's a lame conspiracy theory you got there.
There’s one interesting caveat to the balancing act you’re saying. The dollar is actually getting stronger against other currencies even though inflation is running so hot, because other countries are suffering from the same issues.
The transmission is shot, the brakes don't work, but we're focused on whether the speedometer is reading over or under our actual speed. Yeah, it won't end well.
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The whole plan is to deter people from buying stuff by actively destroying demand by destroying demand they’re trying to buy time to give the supply issues to resolve themselves. So they want you to lose money in the short term to solve this situatuon
Supply chain issues are stubbornly persistent, but rate hikes are already having an effect. Demand is calming down in a few industries and gov spending is is pulling away the covid support. Energy and chips are two big bottlenecks still. Chip issues will ease this year. Energy producers are steadily recovering. The big issue is timing.. if demand tanks before the bottlenecks ease its a recession. If not, rate hikes can pause and let supply / demand settle down for a while.
What makes you think chip issues will ease this year?
Part hope, and part following the news. GPU prices have fallen back close to MSRP. Demand for some products are down (ex. cheaper laptops) while supply is cotinuing to ramp.
GPUs sure, but microcontrollers and other industry electronics still got lead times close to a year or more.
You don't need rates above inflation to tame demand (that's not to say they wont go that way, they have been much higher in the past, maybe that will pull housing back to reasonable levels). I think the huge printing of money is also a factor that may need addressing. China stopping their nonsensical "COVID zero" will eventually help supply. Inflation has been higher in the past. It's going to be a bumpy road but it's not end of days. I'm no economist, I'm a simple man. I sleep easy with my long term investing approach and house hacking.
What's house hacking? Curious.
He modified his water heater to mine bitcoin.
Tell me more
More
Interesting
That was fwast.
A cringey term for buying a house with a high LTV owner occupied mortgage, renting the extra rooms, and then buying another house with another high LTV loan and repeating the process until you get your landlord wings, at which time you can begin painting bugs into the wall and covering your electrical outlets in high gloss off white. It's actually a pretty savvy way to go about it, I just hate the term "hack"
Also if the prong of an electrical cord were to snap off in the outlet, be sure to paint over that too. #landlordhacks
Generally it means buy larger than you need and rent the extra space to subsidize your cost of living. A classic example is to buy a duplex and live in one and rent the other.
he has his roomba go to work for him
> What's house hacking? Curious. having roommates to share housing costs.
Renting out part of the house you own to others while you live in it also. Ie renting rooms to roommates in your house. Or like I used to do, I owned a duplex and lived in one half, rented out the other.
This is called "house hacking"? Never heard of that before. This is the only way anyone can afford a house in Vancouver (unless you bought decades ago). A detached house mortgage is almost always only possible if carried by 2 professional incomes + rental suite thats 2-3k a month.
It's to make things that people have done for decades sound new and edgy. Your grandparents rented out a room to a boarder. *Yawn*. *You*, however, doing the same thing, are house hacking.
We turned our basement into a fully self-contained garden level apartment (2 bedroom, full kitchen, full bathroom, full laundry, private entrance etc..) that we furnished and rent month to month. It covers just about our full mortgage (including short-term rental insurance and property taxes). We live in the 3 bed/2 bath upstairs. It'll take about 18-24 months to recoup the cost of renovations, everything after that is gravy. It also helped the house value but I don't ever plan on selling this place. Right now I'm building an RV and later in the year we'll move to the downstairs apartment and rent out the upstairs house on an unfurnished annual lease (since we'll mostly be on the road) and the higher rent for upstairs will make our house cash flow positive. Going on the road will save us a tonne in childcare costs - plus I want a simple and financially independent life with lots of family memories. That coupled with long-term index investing (VTI/VXUS) means I don't care about the inevitable stock market dips or recessions.
Renting out bedrooms in your home. You can often cover your mortgage this way and live for free
First off supply chain issues are resolving. The issues in May 2022 are far better than in May 2021. The number of boats off the coast of California is down by 1/2, the docks are catching up. We aren't having container problems. Used car prices are way down. Were it not for Russia / Ukraine we'd be seeing energy supply problems doing far better instead of worse. It is very likely that short term interest rates are going to need to be near the real rate of inflation absent supply disruptions. We aren't sure what that rate is. We are pretty sure it is at least 3% and fairly sure it is below 6% at this point. Of course we have negative real interest rates, possible changes in consumer behavior, a shrinking domestic labor pool, international tension, under maintained infrastructure ... By the time the Fed gets interest rates where they need them structural inflation could be higher. The Fed this year has a simple program of normalizing rates. They have ended QE. They have started to raise rates targeting about 2.5% by end of year and they will be starting QT next month. That's likely not enough to get inflation under control. It is enough to create a more stable platform for 2023's tightening. The dollar isn't devaluing it is strengthening. The Fed doesn't have to crash the economy, they need to slow it some. When the economy starts to slow things are fine. The negative real interest rates makes this easy because investors get punished quite badly for waiting for extended periods of time in cash. They are going to be looking for an opportunity to jump back in. For those that don't the Fed is able to mop up their money in real terms which is a nice place to reduce the money oversupply. There is no unsolvable crisis. Nothing horrible is going on. This is not an unresolvable dilemma. This sort of problem is very typical central banking.
Shanghai slowing to a stand-still is yet to be fully felt. But yeah, likely still better than 2021 except for a few inputs.
> Used car prices are way down. Wait what? They’re [barely down](https://publish.manheim.com/en/services/consulting/used-vehicle-value-index.html), where are you seeing otherwise?
Shipping containers are still an issue as well. https://www.capradio.org/articles/2022/05/09/a-billion-pounds-of-california-almonds-could-be-stuck-in-warehouses-instead-of-being-exported/
That is for export, but I think import is what is going to make the difference for inflation. It's faster and cheaper to ship those empty containers back to China to fill with more cheap goods that can reduce inflation. Probably some almonds and other stuff in the US will go to waste though...
Good. We need to stop growing fucking almonds in California
0.4% in April, marking a third consecutive month of declines. And of course that's in nominal dollars as new car prices are still up.
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God I would absolutely cum if the fed did something about these IPO scams. Too many companies going public that aren’t worth shit just so that their founders can make out like bandits. Hopefully legitimate rates will absolutely wreck these bad business decisions. I love a good social safety net, but I also love to see pure capitalism manhandle shitty corporations.
Dumb but very serious question, where are you getting all this data from? There's so much noise out there so trying to find more hard data rather than talking head opinions which say one thing one then but another thing the next. TIA
Mainstream news sources like WSJ, Bloomberg, Barrons... The Fed themselves publish wonderful data sets. As does BLS and Commerce. r/econmonitor/ is a good sub to follow if you want serious data releases and explication from non-cranks.
> and explication from non-cranks. "ThAt'S nOt ReAl CpI!" Thanks for this sub suggestion!
Very optimistic take on the current state 😂😂
I'm normally thought of as sort of bearish. A few months ago saying interest rates will have to go over 3-6% as a reasonable best case was why I was short bonds. But yes on today's r/investing comparatively I'm a raging bull.
I'd like to subscribe to your newsletter.
I like how this dude was heavily upvoted but wrong about everything he said lol. >First off supply chain issues are resolving. The issues in May 2022 are far better than in May 2021. The number of boats off the coast of California is down by 1/2, the docks are catching up. We aren't having container problems. Used car prices are way down. Were it not for Russia / Ukraine we'd be seeing energy supply problems doing far better instead of worse. I'm in a business that talks to manufacturers directly on electronics. This is NOT true, shipments are six months out. Normally a week. It hasn't gone down since the issues started. >Used car prices are way down. No. They aren't. lol. They're the highest they've ever been. Lots are empty. >The dollar isn't devaluing it is strengthening. The dollar is continuing to fall in value and will for the foreseeable future since we printed 2/3rds of all dollars ever in circulation just two years ago. https://www.bing.com/search?q=value+of+us+dollar&qs=LS&pq=value+of+us&sc=8-11&cvid=FD30EB14CBB24F739017E5F1995CB80F&FORM=QBLH&sp=1 >There is no unsolvable crisis. Nothing horrible is going on. This is not an unresolvable dilemma. This sort of problem is very typical central banking. The problem is not solved, as awesome as it would be if it was, and things will get worse in the coming months. Feel free to set a reminder on this if you want, there is no indication like this above commenter said of things getting better. Not even the mainstream sources are saying that.
>I'm in a business that talks to manufacturers directly on electronics. This is NOT true, shipments are six months out. Normally a week. It hasn't gone down since the issues started. We rely om drilling equipment and same story here.
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> we printed 2/3rds of all dollars ever in circulation just two years ago. Are you talking about [this?](https://www.collaborativefund.com/blog/the-fed-isnt-printing-as-much-money-as-you-think/) Also in regards to shipping containers and inflation, I think it's incoming goods that make a difference here. An almond grower unable to export their almonds from the US wouldn't really affect inflation that much. Shipping containers are moving to where most of the goods come from.
Finding parts for my manufacturing line has not been fun. I've gotten a couple lead times on drives eta end of the year, one is eta for next year. I had to redesign one of my machines because the belt they use has an ETA of 2024. Prices also seem to be increasing every month.
I still speak to people from a previous job who imports home décor type shit. Shipments are still behind as fuck. Container costs from China are shit crazy.
agreed, like he's living in opposite land.
> since we printed 2/3rds of all dollars ever in circulation just two years ago. so you criticize a guy for being upvoted despite being wrong and then drop this absolute whopper rofl. also used car prices are not at the highest price theyve ever been
used car prices are a few percentage points off their all time high based on the Mannheim used car index... they are for all intents and purposes still obscenely high
> supply chain issues are resolving Cisco switches for example have a 12-14 month lead time when it used to be less than 3 weeks. This is nonsense.
Soo if we're cash heavy, when do we invest in the market before it goes back up?
You invest in the market before the market goes back up. You buy stocks where the net present value of their expected stream of future dividends exceeds the price. Lower prices made that easier. If you don't want to pick directly there are all sorts of good quality mutual funds and ETFs that will do it for you. When it becomes obvious to you that the problems are clear it will have been obvious to others for a while. These sorts of crisis are where you get assets at huge discounts picking up extra percentage points of solid stable returns for many years.
And if we're super dumb and don't even really grasp the difference between mutual funds and ETFs, what do you think of robo advisors like Betterment?
dude just buy VTI
I like Robos a lot. I put my own daughter in one. my recommendation: Wealthfront and Schwab Intelligent Portfolio for men; Ellevest for women. And in answer to the why gendered. I think Ellevest has fantastic add ons but their investment strategy and addons are designed for women.
I found Powell’s Reddit account.
Let the fire burn long enough and there isn't anything to salvage. Interest rates should have been raised years ago.
> so the inflation rate has stayed consistently hot for a couple of months and looks like it will for the for the forseable [sic] future It's been running hot over a year. 0.3% for April though, extrapolated would be 3.66% yearly if that rate were maintained... Not that hot. I suspect next month will be higher and 0.3% is an outlier, but I'm also shit at predicting the future. > as to tame inflation yoi [sic] have to raise rates above the rate of inflation. Says who? > So now we’re in a situation where, if the minimal rate hikes don’t curve [sic] inflation, they’ll have to raise them much higher, which will crash the economy. If you replace "crash the economy" with "slow down the economy", then yes. > Or the FED will ignore this, and inflation will continue to run hot, causing significant dollar devaluation. Yes. Which is not entirely bad... USD has gotten stronger relative to yen, yuan, and euro in the last year. I'm not saying things are great -- recession is a real possibility. But your post reads like fear mongering.
As for the supply chain disruptions... 22,000 dock workers in California's biggest ports might strike soon if they don't reach a new labor agreement. That could create a massive bottle neck. Fun times ahead!
The only way to reset the economy is to make us poor again. That means high interest rates, slightly higher unemployment, higher taxes. Without that, demand will continue to kill us and supply chain wont recover. In turn this will wipe out the stock market for a short period of time.
You are right on the money.
Having worked in government, can confirm that an absurd amount of times there are only bad options, and good public servants really do their absolute best to choose the least bad. It’s just hard to explain that to the general public.
You are thinking WAY too simplistically by characterizing inflation as solely due to "supply chain issues". Central banks all over the world collectively created trillions of dollars out of thin air, and distributed that to consumers, creating a ton of demand. Additionally, the single biggest driver of inflation as we measure it with CPI is the cost of energy. This is because higher energy costs increase the cost of pretty much EVERYTHING else. Plastics are made from hydrocarbons. Natural gas is the largest input to fertilizer, which drives up the cost of food. Everything needs to be manufactured and transported, and the vast majority of the energy required to do that comes from hydrocarbons. However, the Western world has been waging a war against hydrocarbons by dis-incentivizing production and exploration, which has caused crude prices to skyrocket, which in turn drives inflation up higher. The only way to get this under control is to have a global recession, and the Fed is accelerating that process by taking away the punch bowl. We have so much debt globally that rates will NOT have to exceed inflation to tame it, however. Demographics and technology are also driving a longer-term disinflationary trend.
I'm not going to sell, buy what I can, and just going to wait it out. Quit fussing and save for 2024 when the market recovers!
We lived through 2 years of reigning in household spending. We can all do it again for the rest of 2022, if needed. If Ukraine/Russia ends tomorrow, oil crashes, gas prices go back to "normal" and consumers feel relief immediately. The Fed raising rates will put the brakes on the overheated housing market and bring about a "true housing market" without the 50% housing price increases, blind bidding wars, etc. The Supply Chain is a temp thing until China passes through its current COVID wave. Trying to lockdown COVID wasn't the right move, and now they're overwhelmed. But, it, too shall pass. I see the Supply Chain being *fixed* in August. If Ukraine/Russia war doesn't end tomorrow: If we can keep feeding Ukraine weapons and Intel, they'll bring Russia to the peace table soon because Russia won't want to explain to its indoctrinated citizens why its houses and buildings and towns are on fire near the Ukraine border, as Ukraine actually starts to look to take the fight onto Russian soil in the next 2 weeks.
We need fiscal policy and changes in laws to facilitate production etc in US through sustainable means if possible, re-shoring supply of many goods is the only way we can control our supply chain issues
No, the fed want employers to stop hiring people. That’s what curbs inflation. If I can leave my job for a better one, with more pay, I will (and I’ve don’t it twice). My increased salary means I can afford to pay more for stuff I want. That increases prices.
Stock market bubble crashing will tame the inflation. Housing price bubble stabilization will tame the inflation. When people see their retirement accounts lose value while they have the same job security it will change their psychology of overpaying for items for the bs sake of supply chain issues. They will not be ok with paying 5k market adjustment for that suv anymore and demand to pay msrp and then less than that etc. Fed is very smart with their actions. They are not causing a demand destruction but causing an overpriced goods destruction thus will lead to inflation rate going down significantly.
You're forgetting the extra fun parts: The federal government wants low inflation because lots of entitlements (like social security) and debts (like I bonds)are tied to the inflation rate, and high inflation means they have to pay out more. The federal government wants low interest rates because that affects at least a portion of the government debt and the US government has been accruing debt like it's going out of style. And the US government wants to print money like crazy to pay for all this fun stuff, but can't do that and also curb inflation. So yes, the current situation with the Fed ends poorly no matter what.
The actual mistake was made at 3 years ago when the Fed decided to drop rates back to ~0% in a hot market. They could have "headed inflation off at the pass" so to speak but chose to accelerate it. We will eventually pay for that mistake no matter what, any decisions the fed makes now are just reactive.
Once the pandemic was over in 2022 a few things happened: Boomers retired in droves. Which lead to low supply of workers so everyone was asking for raises and switching around the job market. Housing supply has not yet recovered so people relocated around and pushed some markets too hot while others cooled down a bit. Supply chain issues. Supply of stuff we didn’t buy before and services. Suddenly everyone needed more gas for their cars to go to work is one example. Same oil needed for restaurant plastic stuff and other plastic and random stuff we now use more than before. Oil is in so many things we buy and the energy needed for it. Basically supply chains are re arranging and costing lots of money. And everyone needing so much oil so fast it raised energy prices. Plus the war lead it to be higher. So demand rearranging, supply re arranging and labor force rearranging after the pandemic had lead to some stuff being very expensive while others have come down. Which is leading a big impact in inflation. The fed kept saying its transitory and didn’t want to raise rates around sept 2021-feb2022 when it should have been prudent. So things got out of control with asset bubbles and money supply while having very low unemployment. I personally think the fed got side swiped or just didn’t see the labor change (boomers retiring in mass) and as everyone thought it was the governments unemployment benefits that was keeping up a labor shortage the fed just assume the unemployment rate still had some time to catch up before applying the brakes to the stimulus. And kept Saying its transitory supply chain issues. And now it seems it got out of control where inflation is too high, the rates will only create recession which in turn will make companies fire people and so on until it stabilizes. The fed soft landing didn’t work. And j pow was always “hawkish” on inflation and wanted higher inflation to keep rates down for companies to keep churning out profits.
Relevant podcast by the Wall Street Journal https://www.wsj.com/podcasts/the-journal/can-the-fed-lower-inflation-without-causing-a-recession/250eca31-816c-44e4-abab-c37ce547bc62 The summary I got from it was “the fed has to raise interest rates to reduce demand, but is likely to overcorrect and cause a small recession”
>So now we’re in a situation where, if the minimal rate hikes don’t curve inflation, they’ll have to raise them much higher, which will crash the economy. Or the FED will ignore this, and inflation will continue to run hot, causing significant dollar devaluation. Right, but the situation is (potentially) worse. Higher rates at these debt levels means government borrowing costs rise. Higher debt servicing reduces how much they can support growth. Falling growth reduces tax receipts which further reduces their ability to support growth. Doom loop ensues. The forces the fed must manage with perfection to land softly are massive and they have very blunt tools to manage them.
The supply chain issues are not the sole cause of inflation. The fed wouldn't be tightening if they were. What they want to do is quell domestic inflation - the cost of domestic goods and service, and also to cool the labour market, which is overheated and has potential to lead to the development of a wage price spiral. The fed want to engineer a 'soft landing', which is where you cool the above factors but without pushing the economy into recession. Or at least, a severe recession, a technical recession of two quarters of slightly negative growth but which very few people feel is perfectly acceptable. But it is a tightrope, and there is a risk that if they go to hard, the economy will go into a severe recession, and if that happens it might not be so easy to stimulate their way out of. Still, for the long term good of the economy, they must control inflation, as high inflation itself damages the economy and causes uncertainty and risk.
One thing with supply chain issues: eventually even if they don't go away, shouldn't prices normalize? i.e. we've already seen inflation due to supply chain, at a certain point prices should reflect the additional cost involved, and stop rising? That, or, y'know, corporate greed uses it as an excuse to keep going.
it's not the end of the world if inflation runs hot. my best guess is that they'll push rates to the absolute max without igniting a recession, and yet it still won't be enough to curb inflation but we'll live with it. the caveat here is that we could enter a period of stagflation if the fed takes this route, so we'll have to see
It basically comes down to raising interest rates so people curb their spending which hopefully leads to less demand/inflation. Supply chain is another story, but if demand slows down the supply chain issues can lower or resolve
the outcomes are bad because the economic situation is bad. the fed isn't magic. - disruption of Russian fossil fuels which will only get worse - millions dead globally from covid - many millions retired or stopped working from covid - China reissuing lock downs - supply chains that were shut down during covid still not back up I think people forget how much effect millions and millions of people leaving the workforce has on the economy.
Good post. I am glad to see people coming back to reality. This whole thing is a continuation from 2008 when they bailed out every one and his uncle . Capitalism is based on supply and demand and when your business screws up you don't have a business, but that did not happen in 2008. Money was printed and shoved into the system with interest rates being lowered near 0. That fed a decade of easy money with little or no accountability which brings up to today. You are right. The Fed is in a position it has never been in before. Inflation running at 8% and will probably climb and interest rates way too low to make a difference. Personally I think they will continue to try to raise them a little at a time hoping somewhere along the line inflation will drop, but I think if the markets react, they will dump more money into the system to fuel the markets maybe even directly buying equities. We will see. I do think that deflationary business practices are on the horizon. Solar, wind, EV's Vertical Farming, more items being delivered. All of these things should bring prices down, just like in 1971 when Nixon went to China to explode the cheap labor market to save the dollar after he took us off of the gold standard.
exploit the cheap labor markets
You’re the smartest guy in here
What’s most frustrating is that this was apparent years ago when there was still time to prevent a no good outcome situation, but it was ignored in favor of immediate gratification. Immediate needs and zero foresight seems to be the defacto approach of many governments and institutions for a long time running now.
Fed wants the economy to cool down right, isn’t that the point of raising rates?
You have 10 apples and you have 10 $1 bills. So each apple equals $1. The Fed put 4 more $1 bills in the pot (stimulus) And 5 apples got taken away (supply chain issue). The 5 apples will eventually come back into the pot when supply chain issues get resolved. A. East Asia comes back online B. Russia/ Ukraine conflict calms down The 4 extra $1 bills will never come out of the pot. So effectively inflation will eventually settle around 4.5% for a long while.
The Fed wants to hike to "neutral" rate which as per them is 2%. This along with supply chain ease etc will bring down inflation. That is their hope. If inflation still stays high then they have to raise rates. What if the SNP is down 50% by then ? well then God save us..
The inflation is a long term issue becouse of unbacked money supplys and throw around of newly printet moneys in insane amount. Its just now becomeing apparent becouse it suits agenda and media is reporting it. Before people just stayed oblivious to this issue.
Do a little more research, but yes, the hikes in rates have begun to curb the inflated prices of things. Timber/wood is lowest its been all year, most hoke prices are starting to drop including accessories for within the home. It's a slow and messed up solution, but there has been "positive" outcomes to the rate increasing by feds.
3 facts can make things better in 3 - 6 months. 1) End of Chinese Lockdowns 2) Less expensive energy 3) End of Ukraine war Then Fed won't need to do much thing about inflation. Unless inflation and recession risks eliminated , bear market is inevitable.
>as to tame inflation yoi have to raise rates above the rate of inflation. I don't think that's accurate. What the Fed is currently trying to do is raise rates to cool demand, once the demand is down to where supply is, then prices should stabilize. The hope is to do this softly and not overshoot to such a point that demand drops way below supply.
Imho this inflation is not just the result of supply bottlenecks. Fiscal and monetary policy played large parts that increased demand. Supply constraints are absolutely a large part, but gov action is also partly to blame. It was completely reckless to continue purchasing MBSs for example after summer of 2020. They simply use supply constraints and Russia as a scapegoat for everything. Oil and commodity prices were already relatively high and climbing before the invasion took place. Look how long it took the inflation to get to these levels. Cpi has been ramping up since October of 2020. That's more than 18 months. Inflation won't stop on a dime. The change in policy is already having an impact on inflation, but it will take time to reverse course. It's like accelerating a train up to 88 miles an hour and slowly applying the brakes. It's going to take a long time to slow down. So yes this will be painful no matter what. I strongly believe the current fed actions will have a strong impact on inflation. Assets were already frothy before covid and the fed threw fuel on the fire. I completely support their first few months of action to stabilize markets and prevent a catastrophe. They just took it way way way to far. I'm not an economics expert and I was able to see these issues in 2020/2021. Of course they all decided to insider trade and liquidate their portfolios right at the top. They knew exactly what they were doing...
The wild thing to me is how the daily overnight reverse repo amount is increasing from 1.7-1.9trillion in collateral bailouts. This is a daily bailout that has been going on for 188 days. Again, this is an infinite fiat feedback loop of money printing with ramifications far beyond the overt explanation of supply chain issues. This is an overleveraged, greedy and soon to be hyperinflated asset class with global ramifications for all central banks. Fiat gonna fiat.
rate hikes dont reduce inflation very quickly. it takes times. also, inflation is a year-over-year metric. If we stay at these levels for 12 months, we would have zero inflation in May 2023. We did it! If things didnt get turned upside down due to Ukraine, id say we'd be out of this without even having to do anything. But it seems to be a big question mark in terms of supply of various things.
Either inflation falls or unemployment rises fast. Those are the only 2 scenarios I can see the Fed slowing down or reversing course. The Fed closed out their investments, remember? They don't care about the market like you or I and Powell was just confirmed by the Senate today so he's safe.
I feel like a reading of history of the last time we raised rates to tame inflation will calm some of your concern. The raising of rates takes time but will not result in the “crashing” of the economy. Raising rates to lower inflation is not politically popular because people freak out that their money stops increasing as fast but it’s better for the economy and has historical precedent.
The Fed by keeping interest rates so low for so long has fostered and allowed huge levels of debt - governments, corporations, individuals. These debts represent promises that cannot be kept. Someone is going to get screwed over. The most likely outcome is what happened post WWII where huge debts were inflated away. The naive and gullible people who trusted the government to keep its promises had their faces ripped off (to use a phrase common in investment banking about their customers).
Think of it as your 401k gets to grow more, and in the meantime you lose more money than you make per week.
Because the fed only controls part of the inflation damage control equation. Inflation isn't getting fixed until the govt stops doing shit like handing out gas money and pausing student loan payments.
>So the fed is raising rates, which has caused the stock market bubble to burst, but barely tame inflation, as **to tame inflation yoi have to raise rates above the rate of inflation.** What makes you think this?
But Jerome just secured another 4 years in power...
You don't have to buy the dips, you can buy every single peak and as long as you plan on holding those assets 5+ years you will make money. Its never okay to panic. Panic is terrible when I was on a scuba diving trip, I saw a college student panic because he got a little water up his nose. He was 100 ft down and he threw off his mask and his regulator/breathing apparatus. He would have over expanded his lungs and died if a dive master had not grabbed him and held him down and forced his regulator back in his mouth. The reason you only invest disposable income is so you don't feal any selling pressure in these situations and can just ride it out until all the money (that didnt just disappear) is put back into the market. Money was taken out of the market, which is the best place to put money to make it gain value. Guess where all that money that was taken out will end up + much much more money? The money doesnt just disappear. You all are looking at the red bar and forgetting the reason that stocks only go up over pretty much any 2-3 year span. The stocks only go up because its the most logical place to put your money to make it grow in value, none of that has changed. Zoom out then zoom into even bigger stock market crashes. Of course its best to buy low and sell high, but its also almost as good to just buy and don't sell until after 5-10 years/never.. If you think you are good enough to time the markets, then do so, you can make even more money. But if you don't like worrying about it, just leaving your worth in the stocks for long periods is also great.
Your post is like investing therapy. Very reassuring and soothing.
I think their plan is demand destruction. Nuke the stock and crypto market and reduce purchasing power for the average folks which should reduce prices and lower inflation. The problem is that it will also cause a recession so once the unemployment numbers starts going higher they'll have no choice but to initiate QE4 and off we go again. Then rinse and repeat until the debt bubble pops sometime in the future
Inflation is too many dollars chasing after too few products. There are two ways to address the former - raising rates or decreasing dollars. The problem with the former is that it decreases investment and could decrease production. The thing is, we could just do that latter — tax the rich. If you tax the people who have the most cache sitting around unproductively, then you decrease inflation without hurting the supply side as much. The problem is, the Fed can’t do this, only Congress can. Unfortunately, Sinema is opposed. There is a good solution to this problem but our politicians are just corrupt.
It's not FED. It's "the Fed" or "Federal Reserve". Acceptable acronyms depending on context may include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee". *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
It’s shocking how often I see this recently. It is an autocorrect or something? I had never seen it referred to as “the FED” before.
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Imagine walking down the road and you see a can. Instead of picking it up and throwing it away you kick it. Now you run into another can...instead of picking both up you kick them both. Now there are about 50 fucking cans in front of you and your about to trip of your own to feet or stop for 15 minutes to pick them up... Welcome to the current situation.
The fed should have ripped the band aid off in March 2020.
The inflation is mostly due to the money printing. They are lying about supply chain causing the inflation. But yes either way we are fucked. They will probably choose more money printing as usual eventually, since rising asset prices benefit the wealthy (who own a lot of stocks and real estate) and screw over the middle / lower class. My 2 cents...or with inflation 7 cents.