Inflation? Nah, Rate cut

[Akita Suggagaki]

https://apnews.com/article/interest-rates-inflation-prices-federal-reserve-economy-0283bc6f92e9f9920094b78d821df227

 

[Hazelelponi]

So much for an independent Fed.

Democratic Senators Call on Fed to Cut Rates by 75 Basis Points

Three Democratic senators urged Federal Reserve Chair Jerome Powell and fellow policymakers to aggressively cut the central bank’s benchmark interest rate, including by 75 basis points this week, to protect the US economy from potential harm.

www.bloomberg.com

Wanting a rate cut during voting season in a highly contested election - and getting one.

Very interesting, and not in the least bit politically independent.

 

[Bradskii]

So much for an independent Fed.
Very interesting, and not in the least bit politically independent.

Seems that our Reserve Bank is hoping for some Australians to somehow vote Labor as well. from here: Interest rates are about to be cut: 'RBA to eat humble pie'

'Investors are preparing for a series of interest rate cuts in Australia.'

Ah, sorry. My bad. It's not likely because they want us to vote for the incumbent party. It's something to do with some weird financial reason:

'While the first rate cut in this cycle is unlikely at the Reserve Bank of Australia (RBA) meeting next week, the weakness domestically, in the global economy and the certainty that inflation is under control means that the oppressive interest rates will soon be reversed.'

But you don't have inflation under control. Oh wait...from here:

'The annual inflation rate in the US slowed for a 5th consecutive month to 2.5% in August, the lowest since February 2021.'

Glad I was able to help.

 

[bèlla]

We're supposed to get another to end the year on a high note. After that things will be rocky due to cuts in government spending.

~bella

 

[Vambram]

Well, let us remember that when the Federal Government has annual budget deficits in the trillions then that also is one of the factors which caused inflation.

 

[Bradskii]

Well, let us remember that when the Federal Government has annual budget deficits in the trillions then that also is one of the factors which caused inflation.

So you have a large deficit. So you must have high inflation. Hmm. Seems not to be the case.

OK, but there must be some evidence that it affects inflation.

From here: Do Budget Deficits Cause Inflation?

'The data show that some countries — usually less developed nations — with high inflation also have large budget deficits. Developed countries, however, show little evidence of a tie between deficit spending and inflation.'

Hmm. Again, it seems not to be the case.

 

[Vambram]

So you have a large deficit. So you must have high inflation. Hmm. Seems not to be the case.

OK, but there must be some evidence that it affects inflation.

From here: Do Budget Deficits Cause Inflation?

'The data show that some countries — usually less developed nations — with high inflation also have large budget deficits. Developed countries, however, show little evidence of a tie between deficit spending and inflation.'

Hmm. Again, it seems not to be the case.

I posted that trillion dollar deficits are one of the factors which caused inflation. The article you posted is from 2005. The USA National Debt AND the annual deficits of the Federal budget have become much, much higher than what we had in 2005.

 

[Bradskii]

I posted that trillion dollar deficits are one of the factors which caused inflation. The article you posted is from 2005. The USA National Debt AND the annual deficits of the Federal budget have become much, much higher than what we had in 2005.

The article was talking not of specific amounts or years, or even countries, but concepts. Sorry, I should have pointed that out.

 

[Richard T]

So you have a large deficit. So you must have high inflation. Hmm. Seems not to be the case.

OK, but there must be some evidence that it affects inflation.

From here: Do Budget Deficits Cause Inflation?

'The data show that some countries — usually less developed nations — with high inflation also have large budget deficits. Developed countries, however, show little evidence of a tie between deficit spending and inflation.'

Hmm. Again, it seems not to be the case.

Your repeating what VP Cheney said that deficits do not cause inflation. At lower levels 2% inflation can be handled. Once you start in on higher deficits though the results can get worse and worse.
Also, the Federal Reserve has been taking money out of the economy for about 2 years now. That is the other side of the equation that is helping dampen inflation. https://www.reuters.com/markets/us/...drawdown-continues-amid-rate-cuts-2024-09-18/

 

[Bradskii]

Your repeating what VP Cheney said that deficits do not cause inflation. At lower levels 2% inflation can be handled. Once you start in on higher deficits though the results can get worse and worse.

Me? I don't have a degree in economics. So when something economical comes up I look for an expert who can help explain the situation for me. If Cheney said what my guy said then I now have two experts (well, one expert and one guy who should know what he's talking about). If you want to look for someone who says something else we can play 'cut 'n' snip the link' until one of us gets bored. Which will probably be me.

 

[Richard T]

Me? I don't have a degree in economics. So when something economical comes up I look for an expert who can help explain the situation for me. If Cheney said what my guy said then I now have two experts (well, one expert and one guy who should know what he's talking about). If you want to look for someone who says something else we can play 'cut 'n' snip the link' until one of us gets bored. Which will probably be me.

No problem on not having a econ degree. There are different theories on whether deficits cause inflation. Monetarism is the strictest. They use the equation MV=PQ to suggest that the
Monetary base (M) times the speed that money turns over (Velocity)
must equal the Price times the (Q) Quantity of goods and services.
So there are moving parts in this equation that go beyond just cutting or lowering the interest rates.

Monetarist Theory: Economic Theory of Money Supply

The monetarist theory is a concept that contends that changes in money supply are the most significant determinants of the rate of economic growth.

www.investopedia.com

MMT is what Cortez and a few others espouse. They say spend as much as you want because deficits do not matter. Just print the money you need. That is exactly what Zimbabwe did, when inflation hit so hard they added 000000 to a single dollar bill. It did not last though and they went to US dollars for a time and issued a new currency later. That currency too is failing. "The central idea of modern monetary theory (MMT) is that governments with a fiat currency system under their control can and should print—or create with a few keystrokes in today’s digital age—as much money as they need to spend because they cannot go broke or be insolvent unless a political decision to do so is taken.? Modern Monetary Theory (MMT): Definition, History, and Principles

Keynesian's have their own theory "Keynes concludes that the sole objective of the monetary authority should be to use its influence over the interest rate to dislodge the economy from its long-period equilibrium position that is characterized by unemployment and propel it toward a long-period equilibrium position that is characterized by full employment." Keynes's Theory of Monetary Policy: An Essay In Historical Reconstruction
All that means is there is a tradeoff between interest rates and unemployment. When unemployment is the problem, lower rates. When it is too low, you raise rates. The Federal Reserve has a dual mandate by law. Low inflation and full employment. It is hard to achieve both especially if the USA is printing money.

Another often ignored issue that might be a serious problem is that as the Federal Reserve is not buying as much of the U.S. debt that is rolling over from the past and the new debt for the present. So who will buy all that debt? Lots of potential implications on this but basically as they say in econ, there is no free lunch. Deficits matter but you have to put it all in context of everything else including do people have faith in the US Dollar.

I am shocked by this myself. The US Treasury sold $22 trillion in government bonds last year, but Treasury auctions recently have seen weak demand, suggesting that investors could soon have difficulty absorbing the huge rush of new bond issuance." At lower rates will people still buy debt? We are about to find out? Here's why economists are so worried about soaring US debt levels

Sorry for the long answer. Obviously I have too much time on my hands. God bless!

 

[Laodicean60]

Another often ignored issue that might be a serious problem is that as the Federal Reserve is not buying as much of the U.S. debt that is rolling over from the past and the new debt for the present. So who will buy all that debt? Lots of potential implications on this but basically as they say in econ, there is no free lunch. Deficits matter but you have to put it all in context of everything else including do people have faith in the US Dollar.

Not only the FED but countries worldwide have slowed in loaning us money by purchasing T Bills. We are using borrowed money to pay the interest on our debt, pure stupidity. When USA's credit rating went down last year it opened a lot of eyes around the world. The treasury can't afford not to borrow/ sell treasuries and when people quit buying interest rates will rise again.

I too had faith in the government (pure ignorance) and thought they knew what they were doing with fiscal policy. Whenever I hear politicians giving money away in campaign speeches (giving/ tax cuts) makes me sick because they don't understand the consequences of soaring debt levels. Besides Harris giving money away I haven't heard Trump mention anything about reducing spending for his tax cuts. The ones that will be hurt by it are the 99%. We need to stop spending and budget like any sensible household does and pay down debt but some say we are at a point of no return. When interest rates rise the government won't be able to service the interest on the debt without cutting entitlements.

I've heard if interest rates get as high as 7% it will send us into a debt spiral. What's your take?

 

[Laodicean60]

https://apnews.com/article/interest-rates-inflation-prices-federal-reserve-economy-0283bc6f92e9f9920094b78d821df227

Stimulus checks caused inflation but people are paying higher prices for food, insurance, and even property taxes and all this is causing demand to slow which will lower inflation.

 

[Bradskii]

Sorry for the long answer. Obviously I have too much time on my hands. God bless!

I think that I now know who to go to if there's something financial in a thread I don't understand.

Thanks.

 

[comana]

Stimulus checks caused inflation but people are paying higher prices for food, insurance, and even property taxes and all this is causing demand to slow which will lower inflation.

Corporate greed isn’t helping.

 

[Richard T]

I think that I now know who to go to if there's something financial in a thread I don't understand.

Thanks.

Well there is lots of disagreement on economics, policies and all that stuff. Lots of room for improvement for everyone. Glad I could review some theory. The big worry coming up (besides war) is what if inflation ticks up slightly and growth slows down. Stagflation can be real.