Fear of US recession rattles global markets as tech shares fall
theguardian.com
theguardian.com
We’d be better off pursuing other means to kick start growth. Rather than top down incentives (which is what rate cuts are, really) we should look at bottom up ones.
Incentivize manufacturing on US soil, invest in infrastructure projects etc. they could tie subsidies to actual materialized job growth on US soil as well. There is an awful lot of government money that gets spent on subsidies that aren’t tied to things that would help boost the lower and middle class, which increases their spending power
I’d rather see the US raise taxes appropriately to pay for such things rather than make it cheap to borrow money again.
There is more ways out of a slump than simply rate cuts
The Inflation Reduction Act has appropriated the funding for the financial policy you describe, and Congress is in no way functional enough to deliver on additional fiscal policy prior to November's election. If workers want better wages, they must unionize. Wages won't magically go up, and the evidence is robust enterprises are willing to hack, slash, and outsource to maintain profits, share buybacks, etc.
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch...
https://www.axios.com/2024/08/02/interest-rates-are-already-...
https://thehill.com/business/4807717-warren-criticizes-powel... (“Warren hammers Powell over jobs report: ‘Cut rates now’”)
https://www.axios.com/2024/08/02/jobs-economy-unemployment-f... (“New jobs numbers raise alarm bells on recession risk”)
I am in a tl;dr way arguing that it shouldn’t cut rates though. We should re-prioritize government spending (especially subsidies) instead, raising taxes appropriately as required.
The reality is inflation hit the median household really hard and continues to do so while also getting squeezed on housing costs and other necessities.
Without addressing these issues on some level you aren’t really setting the economy up for long term success.
I know the reality is we have a deadlocked congress and a lot of state houses aren’t in much better shape either, being just as divided.
> Without addressing these issues on some level you aren’t really setting the economy up for long term success.
This will take numerous election cycles over decades. Unionization will take time (Gen Z is the most pro union generation alive, but only ~900k workers 55+ in the labor participation force with older anti union mental models age out every year). Understand what actions are short term tactical, and what are long term strategic. Cutting the target funds rate now spins the economy back up over 6-18 months [1]. Rents are coming down because there is a historical amount of rental units coming online [2]. Housing (purchase) will not come down until housing starts remain elevated (which cost of capital is a component of).
[1] https://www.journals.uchicago.edu/doi/abs/10.1086/258396 ("Friedman on the Lag in Effect of Monetary Policy")
[2] https://www.cbsnews.com/news/rent-inflation-federal-reserve-...
The current administration can restructure subsidies already passed by congress. The executive branch has a lot of leeway in how they can qualify spending for example, or what those subsidies can be tied to. There’s billions of dollars in subsidies that can short term be prioritized better by the respective departments without a signal vote in congress needed. For example, they could change how the USDA pays out farming subsidies to prioritize small family farmers. Another thing they could do is tie public school food subsidies to having schools be supplied, whenever possible, by local family farms instead of major conglomerates[0]
[0]: if you’re wondering why I’m talking about Agriculture a lot it’s because I finished an in depth study recently of how agricultural subsidies money is allocated and who gets it. Simply it’s freshest in my memory
Each time they tease a future rate cut it just leads to more people holding out buying/selling. When the rate cuts come housing costs will soar as the buying frenzy kicks in. People rushing to buy before they are "priced out" again.
It seems like nothing will really be fixed. The rate cut will help smooth over the economy for several months. Oh jee, I guess it's just a coincidence that it's done right before a major election cycle.