Federal Reserve to increase interest rates by 75 basis points

Supply is low due to a global pandemic disrupting trade (and far too many companies relying on 'just-in-time' logistics).

"Massively [cutting] corporate taxes" won't do anything but bolster already soaring corporate profits. A significant amount of that money won't go back into the local economy. It also won't go to improving infrastructure, processes, employee salaries or anything that can improve resiliency or longevity; they've been penny-pinching for decades, and this is the result of it.

Furthermore, 'inflation' of many necessities like grocery, gas, and rent is obviously driven by blatant profiteering.

Why would we ever, ever need to cut corporate taxes? If a company re-invensts in equipment, it's workforce, research, or anything at all, they pay no tax. Tax is only applied when they transfer the money to shareholders.

How will enabling corporations to transfer more money to already wealthy shareholders help the economy?

How much additional productive work do we realistically expect people to be able to supply, from age 67 to age 70?

However I feel like forward looking legislators could have passed gradual increases on future generations. If we know life expectancy is gradually going upwards, why not increase the retirement age incrementally based on cohort?

The actual maximum benefit retirement age for Social Security is already 70.

The misleadingly named “full retirement age” is 67, but I don't think squeezing three more years out of the non-disabled elderly is going to do as much good for the industries where demand exists as you think.

EDIT: Also, proposing an immediate increase to the retirement age is probably the easiest way to lose one’s next election in most US constituencies; there's a reason why the increases adopted in 1983 had a phase in starting 17 years after they were passed.

Easiest way to solve that problem is to increase capital gain taxes significantly.

I think it's incredibly cruel that they have to work at all at their age. If my mom hadn't planned her retirement well and people tried to put her back to full-time work, I would eat the cost of taking care of her needs if the state didn't. I mean she was really struggling to do her job at the end.

Or to send kids back into coalmines.

You want a non-sadistic solution? Healthcare increases labour supply - or reduces labour supply that is sick or disabled.

Actually do we need to increase labour supply? the past couple of decades had little growth in salary becauae labour had no bargaining power. Now corporate profits are record high. A big renegotiation is about to happen and it will be good for labour

If you do mean that people already retired but not yet 70 have their benefits cut off until they reach 70 there are a couple problems with that.

1. It would be political suicide.

2. It would be very hard to deal with the logistics. First, a large number of the people who it forces to un-retire will no longer be living where the jobs are. Your plan will tank the market for housing in retirement communities making it impossible for many to sell their houses to move back to where the jobs are.

Second, a large number of them won't be capable of doing the jobs they did before, due to age or due to their skills being out of date. Many will need retraining, or will have to take jobs in fields they have no experience with.

Dealing with all that would be a lot of work, with many reluctant to put in that effort when the workers that you do manage to get are just going to be temporary.

Rapid population decline. The coronavirus helped in this regard.

citation needed? genuinely curious - are there studies about long-term returns from housing vs. other asset classes (namely public equities)?

When housing becomes a bad investment, very few people will spend their money and time building new ones.

The demand for housing depends on demographics, it has nothing to do with it being a good or bad investment. But whether it is a good or bad investment has a lot to do with demand for housing.

With the population numbers in decline in the west (especially Europe), will there be enough demand in the medium and long-term for housing?

I long ago concluded that the only way to escape high housing costs is to leave high cost of living places. No reform large enough to make a real dent is politically feasible, and in some overpriced cities the sheer amount of construction that would be required to ease demand is itself problematic.

My generation (late gen-X / early gen-Y) was all about moving to cool cities and living where you want, but I don't think this works anymore. If you move to a place like New York or San Francisco without the move bringing with it a job that pays more than the real estate cost increase, you will never be able to accumulate wealth. Much of your surplus will be eaten by rent and you'll never be able to get on the ownership side where you can accumulate home equity because the rent won't let you gather a large enough down payment or buffer. (The prices are so high even a 5% down payment can be pretty sizable and you won't get a loan on decent terms for less than that.)

When these hipster urbanism trends got going the market was very different. It was right after the great urban crime wave of the early 1990s. Urban real estate was underpriced and going urban was seen as very contrarian, even bizarre and frightening. Going downtown meant affordable housing with nearby walkable stuff, cool old architecture (including those old school warehouse lofts... try getting one now!), and cool people. The underpriced real estate and semi-abandoned old buildings also provided a ton of "marginal space" for wild parties, underground performances, art, and all kinds of cool stuff.

Then the prices went absolutely crazy starting in the early 2000s and exploding after the re-inflation of the housing market post-2008. The core problem is that price signals didn't work. There should have been an urban building boom as more people urbanized, but a combination of NIMBYism and bad zoning largely prevented it. Demand went up and supply did not and grade school economics tells you the rest.

Personally I think the value proposition is gone now. Not only are the prices nuts but the cool stuff that provided a big part of the draw is all priced out. If I were 20 I would stay away from inflated real estate markets.

The only exception might be moving to one of them for a short while to build your career and then leaving. That may still make sense. But don't plan to settle there unless you land a massively high paying job. E.g. I would not stay in the SF Bay Area for less than $350k/year. If you're not in a field with high earning potential just forget about those places.

I'm seeing a quiet trend these days of artists and other creators working in areas that don't pay as handsomely as tech moving to small towns, and not even necessarily the "hot" cool ones. There are a few small towns in the Appalachian region that have become little artist havens.

Housing might be the topic that dooms U.S. may way way down the road. But the GDP damage and opportunity cost lost annually is substantial.

There should be a form of buy in from the government at some point -- kind of keep your house and get tax credit and we are moving on.

Or we reach the point of a literal revolution on the topic, where people ask for houses instead of bread.

And confiscating hard currency and implementing capital controls.

https://news.yahoo.com/news/blogs/lookout/fed-official-heckl...

This is the current view of most people I talk to but I’m skeptical that rising wages is the cause here given what prices we are seeing rise the fastest. If rising wages were the cause, I’d expect to see a different mix than what we are seeing. For example, costs of groceries are rising faster than going out to eat even though eating out requires lots of labor. There are lots of these examples, but to me the prices that are rising don’t seem to line up with past examples of wage fueled inflation. It seems supply is still an important issue and a lot of the supply constrained resources are going to be difficult to suppress demand for.

I’m worried about this narrative that inflation goes into some unstoppable cycle and the only way to stop it is to intentionally cause a recession. If rising wages isn’t the main cause it will take a lot of damage to successfully curb inflation, but people will justify the suffering as necessary to prevent a greater evil.

I don’t think there is great evidence that inflation leads to some unstoppable cycle. The only historical examples of hyperinflation are ones that were caused by deep underlying issues in a country’s economic viability or cases where a country owed an extraordinary amount of debt in a currency they did not control. Yet somehow it seems many are under the impression that we are doomed to the same fate despite sharing none of those same characteristics. This believe will be used to justify killing labor power, which means the burden is on the lower rungs of society yet again. A shame, especially since we haven’t seen strong labor power in quite a long time and were just starting to.

You may be confusing money supply with inflation. Inflation measures price levels. We haven’t had “ridiculous inflation” since 2008. (In the early parts of the crisis we actually deflated.) CPI is a good measure of inflation, albeit one among many.

This is how numbers work? Also, the statistic is a price index. Inflation is calculated off those indices. And most contracts considering inflation link to price levels, not their deltas.

To the degree there is fuckery it’s in how the media reports inflation. One or two arcane statistics are taken as a barometer of reality in every state, for every product, across income levels.

Inflation is a measure of year-over-year price increases. How else would you measure it?

> Well, we’ll have to wait and see. The good news is that policymakers appear willing to do just that. From my point of view, the most encouraging aspect of the Fed’s statement on Wednesday was the paragraph declaring that the committee setting monetary policy is prepared to be flexible, that it “will continue to monitor the implications of incoming information” and “would be prepared to adjust the stance of monetary policy as appropriate.” That’s a not-too-subtle rejection of demands from inflation hawks that the Fed commit itself now now now to a long period of extremely tight money.

https://www.nytimes.com/2022/07/28/opinion/recession-inflati...

My reading of that language, on the other hand, is that its pretty tepid and just what would be expected, and that the Fed not actually coming out with the most hard-line language possible is not worth much. It still suggests that they'll stick to their guns until they see a considerable amount of change in the data. I'm drawn more to the single blunt sentences which are "The Committee is highly attentive to inflation risks" and "The Committee is strongly committed to returning inflation to its 2 percent objective" which are two pretty harsh statements that they terminated paragraphs with that I think signal their overriding concerns.

Given that I think that they'll wait until they see clear changes in the data, and given that I think that the foundations of the economy are vulnerable to shocks and I'm expecting at least a commercial real estate implosion to go off once everything gets "stress tested" by higher rates, I am not anywhere near as hopeful as Krugman.

The fact that people can get such wildly different takes out of the Fed language is a feature, not a bug.

I'm over here building a nuclear fallout shelter, Krugman is in la-la land thinking its all coming up roses, we're both reading the same announcement, yet nothing in the Fed announcement is wrong or false.

* restate the fed's mandate to keep to full employment

* say that the fed will consult many sources when it makes its verdicts (I should hope so!!)

* say that their verdict might change if they get new input or new guidance

Surely even a true dissident on monetary matters would still acknowledge that the fed's mandate says what it says?

US society has failed the "knowingly and intentionally" side of that, and also mostly the "trade" side of that (vaccines being the exception -- we actually did succeed at trading a pretty small amount of money for much-better-than-baseline outcomes there). But the problem wasn't that we chose to trade life for money, the problem was that we failed to have and act upon coherent priorities at all.

Or remove the barriers, like regulation/licensing/taxation.

While it is definitively a free market, it isn't in practicality.

As Tesla likes to point out, they are one of 2 car companies formed in the last century.

The free market is not free. It's a myth. It's a lie.

(And before you say Tesla or some other electric car, remember that they are a luxury and priced as such, not to mention that most Americans can't even charge them at home.)

We don't have a free market.

I don't see it that way at all. Over the last couple years, we've seen an explosion in private capital investments, NFT and crypto fads (questionable, but I would argue that these were large enough to be considered structural), greatly increasing home prices, supply chain disruptions, the war in ukraine (and all its knock-on effects). Things are a bit topsy-turvy, and I am hesitant to write off all of these things as "not structural".

We are in a recession now, what are you talking about? Lets revisit this comment tomorrow.

Not anymore!

When people complain about printing money, this is what they are complaining about. It absolutely causes asset inflation (very easy to observe with some DCF modeling or checking P/E ratios). I would also argue it is a strong contributor to increasingly binary wealth stratification. It's a legitimate complaint and pedantically pointing out that the Treasury literally prints money is either ill-informed or arguing in bad faith.

Some of the mechanisms at play here overlap with cryptocurrencies, but a lot of them don't. Cryptocurrencies have no maturity value or coupon payments, so the yield on holding them is entirely determined by capital gains. Nothing else. This isn't the same thing as an "interest rate" in the sense that it means with bonds. The Fed is decreasing the interest rate of new Treasury offerings, but also increasing the capital gains of current owners of Treasuries. So the interest rate decrease is a bad thing for people who want to buy new debt, but a good thing for holders of current debt.

No, as the word “continue” implies, it has been, and plans to go on with, keeping the prices artificially low via Quantitative Tightening. QE ended a while back.

I don't endorse everything this guy is saying but it is an interesting article

https://www.axios.com/2022/05/18/fed-mortgage-portfolio

Maybe the production of useful goods and services lead to wealth, not policies formed by comittee.

Inflation is outpacing wage increases so effective wages are actually lower in terms of buying power.

Housing is getting more expensive at a faster rate than wages are increasing.

If you are pro-labor you want the fed to aggressively raise rates because that makes life harder for business.

The whole point of an independent central bank is that the fiscal authority (Congress) cannot print money out of thin air to monetize spending, either; monetary policy is based on macroeconomic conditions, not fiscal demands.

OTOH, the federal government inherently has a much lower cost of borrowing than the states, and California, like many (almost all, I think, though the details vary) has a State Constitutional requirement for a balanced operating budget and effectively relies on federal deficit spending for countercyclical spending.

> If they’re giving out stimulus, they must be getting it from tax payers, right?

Yes, the inflation relief tax rebate is paid out of current tax revenue (in fact, it is a plan to fulfill a constitutional mandate to return surplus tax revenue beyond a certain spending limit if not spent on education and infrastructure) and is not characterized as “stimulus”, contrary to the upthread misrepresentation. It's redistribution which probably has a very slight stimulative (and thus inflationary) effect because it goes to people with a higher propensity to spend in the domestic economy, per marginal dollar, than those it comes from, in order to relieve more of the impacts of inflation at the lower end of the income distribution.

Yeah, quit their jobs to save money on the commute.

Not last time I checked. I work at a FANG and am definitely not low income yet my wife and I will be getting a few hundred.