Fed to Raise Interest Rates in Attempt to Address Inflation
[guest post by JVW]
Following-up an earlier post, Fed nominee Sarah Bloom Raskin took her name out of contention yesterday in order to allow the other four nominees, including the re-nomination of Fed Chairman Jerome Powell to serve another term, to go forward with a vote. With that bit of political drama out of the way, the Fed can now openly come to grips with the whole “inflation is transitory” line of bullcrap that they and the Biden White House were peddling last spring. So here we go:
The Federal Reserve announced on Wednesday that it will raise interests rates by a quarter of a percentage point, hiking rates for the first time since December 2018 in an effort to curb rising inflation.
Following their March meeting, Fed officials said in a statement that the Federal Open Market Committee would raise the benchmark federal funds rate in order to cool an overheated economy, bringing the rate to between .25 and .5 percent.
“With appropriate firming in the stance of monetary policy, the committee expects inflation to return to its 2 percent objective and the labor market to remain strong,” the Fed said in its March statement, adding that the committee “anticipates that ongoing increases in the target range will be appropriate.”
“Appropriate firming in the stance of monetary policy” has to be this month’s best euphemism. The slick phrase was released in a statement, so there was no chance to pose questions to the Fed governors, but it would have been lots of fun to ask them their disposition on further spending initiatives by the Biden Administration and Congress in the name of “building back better” or whatever focus-grouped tag they place upon it.
Today’s Consumer Price Index is nearly eight percent higher than it was one year ago, and in an election year even Democrats have to start sweating this out. I don’t want to jinx it by making a bold prediction, but here’s hoping that the Biden/Pelosi/Schumer axis and their assorted mob is forced into some small mode of fiscal responsibility for the remainder of the year.
– JVW
Surely everyone is going to want to come to this post and discuss Fed monetary policy. Except for you of course, Rand Paul.
JVW (ee64e4) — 3/16/2022 @ 1:35 pmAll we’re missing is Starsky and Hutch… and Billy Beer, eh Joey?!
DCSCA (f4c5e5) — 3/16/2022 @ 2:56 pmPaul Volcker chocked inflation by raising interest rates. It did cause an economic downturn for a while. That is the way things work.
Fred (d257ee) — 3/16/2022 @ 5:07 pmUsually what Volker did isn’t necessary, but the combination of the guns AND butter spending in the Vietnam War era, plus feckless attempts to deal with inflation (wage & price controls, slogans, and studiously ignoring the problem) had inflation at a point where spending every right now made sense and saving was a joke.
When inflation is 10% and your savings account is maxed at 5 1/4%, it’s silly to save. Note that uncapping the savings rate led to the S&L crisis some time later.
Month by month inflation rates (over prior year’s month) Carter (1977-1980) and Reagan/Volker after that. Note that bringing down inflation took a lot of time.
Kevin M (38e250) — 3/16/2022 @ 5:32 pmMon. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
1977 05.2 05.9 06.4 07.0 06.7 06.9 06.8 06.6 06.6 06.4 06.7 06.7 06.5
1978 06.8 06.4 06.6 06.5 07.0 07.4 07.7 07.8 08.3 08.9 08.9 09.0 07.6
1979 09.3 09.9 10.1 10.5 10.9 10.9 11.3 11.8 12.2 12.1 12.6 13.3 11.3
1980 13.9 14.2 14.8 14.7 14.4 14.4 13.1 12.9 12.6 12.8 12.6 12.5 13.5
1981 11.8 11.4 10.5 10.0 09.8 09.6 10.8 10.8 11.0 10.1 09.6 08.9 10.3
1982 08.4 07.6 06.8 06.5 06.7 07.1 06.4 05.9 05.0 05.1 04.6 03.8 06.2
1983 03.7 03.5 03.6 03.9 03.5 02.6 02.5 02.6 02.9 02.9 03.3 03.8 03.2
Also worth noting: The stock market was crap until 1983, and housing wasn’t much better with interest rates in the sky.
Kevin M (38e250) — 3/16/2022 @ 5:34 pmOTOH, 1976 was a good time to have low fixed rate loans.
Kevin M (38e250) — 3/16/2022 @ 5:35 pmMy understanding is that raising interest rates has it’s own problems and may or may not have an effect on inflation, but I don’t really know enough to have a particularly educated viewpoint.
Nic (896fdf) — 3/16/2022 @ 5:36 pmThe stock market approves.
Rip Murdock (d2a2a8) — 3/16/2022 @ 5:48 pmRaising rates cools the economy and can lead to a recession if the rates go too high. It also gives an incentive to save, so inflation is damped by taking money out of the spending side. Volker actually set rates based on the money supply.
As it was, something that cost $1.00 in January 1977 cost $1.75 in January 1984. After that inflation never got anything like what it was. Until now.
Kevin M (38e250) — 3/16/2022 @ 6:36 pm@#6. Mortgage rates in 1976 were 8-9%. I bought a house then and paid 8.5%. Of course, my financial acumen led me to switch houses in 1979 and get a 11% rate.
Fred (d257ee) — 3/16/2022 @ 6:58 pmhttps://www.freddiemac.com/pmms/pmms30
“Appropriate firming in the stance of monetary policy” has to be this month’s best euphemism.
With respect, ‘appropriate firming’ is in hard competition with ‘gender affirming care’ this month.
“Gender Affirming Care” a.k.a. “Child Abuse” is specifically cited by the Texas Attorney General and Governor as
(1) sterilization through castration, vasectomy, hysterectomy,
oophorectomy, metoidioplasty, orchiectomy, penectomy,
phalloplasty, and vaginoplasty;
(2) mastectomies; and
(3) removing from children otherwise healthy or non-diseased body parts or tissue.
Euphemisms. What would the newspapers do without ’em?
pouncer (35db59) — 3/16/2022 @ 7:04 pmThere is a reason why those of us who were out on our own in the late 70’s dislike inflation. It’s a rising tide that sinks all boats.
Kevin M (38e250) — 3/16/2022 @ 7:13 pm3. Fred (d257ee) — 3/16/2022 @ 5:07 pm
He didn’t stop inflation by raising interest rates. It made it worse, He had to give up,
Inflation later subsided when oil prices dropped
That;s not the way things work,
What works is doing nothing, except expanding growth. Not contracting growth, which is what raising interest rates does, That does not result in a breakdown in inventory control any more, which is why prices used to drop in recessions. The last time that happened was in 1937.
Evwntually the supply curve overtakes the demand curve. That’s what happened in the late 1940s,
Sammy Finkelman (46ec7d) — 3/16/2022 @ 8:21 pm“(3) removing from children otherwise healthy or non-diseased body parts or tissue.”
Are they banning circumcisions in Texas?
Davethulhu (e2c7cc) — 3/16/2022 @ 9:32 pmFemale genital mutilation on girls under age 18 has been a felony in Texas since 1999.
nk (1d9030) — 3/16/2022 @ 10:04 pmHe didn’t stop inflation by raising interest rates. It made it worse, He had to give up,
Sammy, this is one of those “your own facts” things.
Kevin M (38e250) — 3/16/2022 @ 10:23 pmSammy, were you alive in 1980?
Kevin M (38e250) — 3/16/2022 @ 10:24 pmSorry, I just realized this was the inflation thread, not the weekend one.
Davethulhu (e2c7cc) — 3/16/2022 @ 10:24 pmAh, the 70’s, double digit inflation, double digit unemployment and double digit interest rates. Jimmy wasn’t senile, just stupid.
mg (8cbc69) — 3/17/2022 @ 3:37 amAre they banning circumcisions in Texas?
Yes.
If it is done without the consent of the parents. Why is this controversial? If a teenager taking showers in Jr High School gym class feels ‘different’ or gets teased by his peers and then the state employed gym teacher ‘helps’ the kid sneak away from home for penile hygenic surgery without parent’s knowledge or consent… Are you really okay with that?
Pouncer (35db59) — 3/17/2022 @ 5:59 amJVW (ee64e4) — 3/16/2022 @ 1:35 pm
Heh! I know. Thank you for this post, and I am sorry it garnered so few good comments and one unhelpful lamentation from me! I also appreciate your stepping unto the breach on Dana’s behalf. I’d say that her time off was well earned.
felipe (484255) — 3/19/2022 @ 1:26 pm