Comment by tzhenghao | Hacker News Reader

Comment by tzhenghao | Hacker News Reader

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Oh yes, for sure! Speaking specifically about the US: Every POTUS (from both parties) during my lifetime has favored lower interest rates, cause jobs, "economy is strong" arguments - all means to look good during their term.

The Fed is now stuck in a really hard place - raise too much too fast and you get many more SVBs going belly up, posing a larger systemic risk, assuming we even "make it out of the woods". Pause / raise slowly, and you risk inflation running red hot, and people who are technically employed, live paycheck to paycheck start to rely on food banks to cover the rapid raise in cost of living - a tax on everybody.

The Fed is also fighting other dynamics like supply consequences of the Ukraine war, or energy crises, some of which are transitory, some are not. Still lots of uncertainty.

All this on top of a tug of (policy) war between an administration that favors handing out more packages, and the Fed's duty in achieving pricing stability. Can't see this ending well.

> Pause / raise slowly, and you risk inflation running red hot

The federal funds rate is such a blunt instrument. It's not clear to me that raising the rate is particularly effective in stopping inflation, which tends to be a complex phenomenon with multiple causes. As you say, there are "other dynamics".

> people who are technically employed, live paycheck to paycheck start to rely on food banks to cover the rapid raise in cost of living - a tax on everybody.

On the other hand, there are also people who lose their paychecks entirely due to rising interest rates. The Fed has been very public about the fact that they want to stop wage inflation in particular (which tends to lag behind inflation of other goods).

It's never been clear to me why it's a good idea to continually adjust the rate, as opposed to picking an ideal target rate and trying to keep it relatively stable permanently. It seems almost inevitable that the economy will go on a roller coaster with the fed turning the volume knob up and down. Chicken and egg problem, to mix my metaphors.

> It's never been clear to me why it's a good idea to continually adjust the rate, as opposed to picking an ideal target rate and trying to keep it relatively stable permanently.

That target rate depends on many things in the economy that the FED has no control over, so they adjust the knob as best they can predict, to stear the economy to their dual mandate.

They need to keep inflation low (around 2%) and employment high, but they don't control what the government does in terms of raising/cutting taxes, what world events do to supply, and production.

But you're right, it's a blunt knob to adjust when there are so many variables at play.

> to stear the economy to their dual mandate.

To be clear, I was implicitly questioning this. Expecting the Fed to control inflation or employment seems unrealistic, even silly.

It’s very simple. Fed needs to stop printing / creating money. High inflation has painful solutions. Pain from inflation is worse than basically any of the benefits from the extra spending government has done the last many years.

The answer is the Fed does its job when it can (stoking aggregate demand with cheap money, destroying it when credit expansion velocity exceeds certain metrics), and Congress enacts fiscal policy instead of being useless.

If you leave it all to the Fed, everything is a nail, with the hammer being the benchmark rate. Creating too much money is not great, but poorly targeted or no government fiscal policy is equally disastrous. No one party is at fault, the system requires fixing.

https://pca.st/episode/453fe02e-922c-4d78-af1a-ba109d436337 (First 7 min)

Could the potus “lock” prices for things required for life? (Food, housing, energy..)

Price controls are an excellent way to quickly damage the economy in very visible ways, which makes it politically dangerous. Price controls don't happen in a vacuum and they tend to have adverse consequences.

The US healthcare system, as an example, was a direct unintended consequence of US government price controls. That was 80 years ago and the affects are still with us.

If you'd (somehow) lock the price for housing, there's less incentive for new housing to be built. If you put price controls on food there's a chance certain foods may become unprofitable to produce, leading to food shortages.

Price controls lead to shortages and subsidies lead to price increases. It's usually best just to leave stuff alone and let the market take care of it.

But does the market not also focus on profit and continuous expansion/consolidation? Clearly based on things like drug prices, egg prices, etc… profit is a “driving” factor, not “will this product sell.”

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