This could be considered a good thing. The whole point of increasing interest rates is to lower business investment and consumer purchasing power, which is what we need to do to combat inflation (or magically fix all supply chain issues.)
https://www.africanews.com/2022/06/28/zimbabwes-key-interest...
Why am I being downvoted? All this is is a data point showing that rising interest rates don't have to bring down inflation.
That does have some relevance to the US because the federal government can borrow+spend way more than a small country with a bad credit score - but since the interest rates they borrow at are coupled to the Fed rate, rising rates should in theory slow that down.
Furthermore, most money in the USA isn't even reserves, but rather bank deposits. Theoretically bank deposits are supposedly somehow constrained by reserves, but that hasn't really been true for well over a decade. Raising rates doesn't directly impair banks ability to originate as many new loans and corresponding deposits as they care to. Conceivably, higher rates could reduce the demand for loans from credit-worthy borrowers, or even reduce the pool of credit-worthy borrowers directly, but I'm not sure it doesn't end up being a wash after accounting for inflation.
Personally I suspect most of the effects that we do see are related to hysteresis rather than a fundamental transmission mechanism from interest rates. That is to say, the shocking effects we see from rate increases aren't due to a fundamental change, but rather a lag while market participants to catch up with the new rules of the game.
Another important factor is the prestige media using all of its persuasive powers to convince market participants that Fed actions will result in a downturn. There certainly is a large psychological component to economic activity.
The public is “data structure” illiterate. They’re educated with spoken traditions coupled to vague imagery of hierarchical power structures of history and the work place. I am not sure it’s intentional, more of a Duning-Kruger thing.
As usual any sustained shift in the appropriation of agency is up to the public. Science shows us how to build things, but no theory states “we must build rockets to nowhere.” But “keep your hands off muh capitalism click clack” gets in the way of sincere discussion of fully automated logistics.
Protectionism of spoken tradition in human memory is not going away anytime soon. It’s innate to our biology.
No no no no no. It means that Congress created the Fed, and Congress can destroy the Fed. Congress can also change its charter.
But Congress is capable of creating and destroying independent agencies.
“I buy that car and fill it with gas. You drive it.”
The currency in Zimbabwe is so unreliable that barter has become the principal way of saving and storing wealth.
Zimbabwe has “cow banks.” You take your cash salary, and give it to the cow bank. The cow bank uses the cash to buy a cow.
The cow is put into a pen. You can make surprise visits to ensure the cows are alive, healthy, and not being “shared” with other customers.
Interest rates are based on the fertility rates of cattle, not central bank policies.
More like owning a pet horse.
If you own oil or soy futures, you can go get the product if you like (to everyone's inconvenience). This is not far off.
Lower wages, lower job mobility, asset deflation, consumable inflation -- YAY!
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The real problem isn't any particular position, velocity, nor even acceleration. Those can all be planned for. It's the 4th time-derivative, jerk, that messes us up.
We are intervening to make the economy smaller than if we didn't intervene. I think that qualifies as "shrinking" even if the growth is what is shrinking and not the overall economy.
Depends on what time scale we're thinking about. True in the short-term, but I think the long-term expectation is that growth will be more stable, and therefore greater, with this short-term intervention.
> I think that qualifies as "shrinking"
Yes, and no. Yes, in that oh-so-important technical, relative sense. No, in that it's not the best choice of words.
Literally nothing can be planned for. Compare the Fed dot plots at any given meeting since 2008 with actual rates a year, or three years hence. Look at the BoE and BoJ flail wildly around right now, absolutely shocked by the consequences of their own actions less than a year ago.
These people have arguably a worse predictive ability than the canonical South Park Chicken ritual.
Central Banking is the only industry I know of in which you can be catastrophically wrong, always, and retain job security. Great gig, if you can swing it.
Inflation does have the risk of getting out of hand and being even harder to control. The risk analysis is that whatever pain increasing the rates would cause it pales in comparison to having hyperinflation.
As far as the lack of a pushback: My guess is a combination of apathy and the fact that it doesn't affect the average person quite as much as inflation.
Price control doesn't fly in any economic system. Putting a legal floor or ceiling on the price anything doesn't affect what it actually costs to produce it.
The only party that can act right now is the Fed, and the only move the Fed has in increasing interest rates.
The explicit goal of expanding the money supply in 2009 was to drive inflation in order to combat deflation. It didn't work. We ended up with a decade+ long period of low/no inflation.
Even today, the USD is growing stronger relative to other currencies. So in spite of this continued money supply expansion, Americans are experiencing inflation the least of anyone in the developed world.