1. I'm not sure you replied to to the right comment as I mostly just shared data regarding the claim that the current rate is high.
2. I'm really not sure it's a consensus but I think it's a question of no landing (ongoing inflation) vs hard landing (recession) - as far as I know (though I'm really not well educated when it comes to economy), in the entire Fed's history, inflation has never just disappeared by itself without restrictive financial conditions. I think it wouldn't be hard to argue why a no landing scenario could be worse than recession.
Rising prices are supply not meeting demand. It feels like improving productivity would be an equally powerful tool with less human cost. Granted that is a harder thing to control quarter over quarter.
Consider this analysis that intetest rates may in some cases raise prices. https://economicsfromthetopdown.com/2023/02/04/do-high-inter...
And more links along that line from the pluralistic blog. https://pluralistic.net/2023/02/04/if-i-was-a-horse/#friedma...
Does anybody else hear talk of productivity in talk of inflation?
The mainstream economists are wringing their hands over full employment and rising wages, the first time in decades that we might see the middle class grow, because production isn't sufficiently meeting demand.
We should be producing more stuff - especially housing - instead of trying to keep people from earning more.
Housing costs thus increase to suck all income.
It’s a great way to return to feudalism.
If you have a bankrupt government that can't afford interest payments, then raising interest rates will just lead to borrowing more money to pay the interest in a vicious cycle until hyperinflation sets in.
If you can limit borrowing and speed up payback of debts through any means other than raising interest rates you achieve the same effect much sooner.
Their ability to fight inflation is tied up in market participants believing they will do what it takes to do so even in the face of harsh costs. If that reputation comes into doubt, we could end up with the worst of both worlds.
No one had a normal economic life for several years. It’s a miracle that these levers have been adjusted to the point that everyone is like “well no one going to work for three years had no impact! What over-reactionaries!”
Where did this happen?
Anecdotes and economics get kinda blurry here. It’s like how Austrian economists must feel 110% of the the time.
This is one of many of my associates in the service industry that had employment challenges.
If you had regular job, you were eligible for unemployment there was also PUP enabled due to pandemic, so if you were self employed you could request unemployment under that. In addition there were also short periods of time where you could get extra $600/week (as it is impossible to survive for long on the usual unemployment amount)
They tend to work as contractors on a limited term contract and intercalation maritime labor laws are unlikely to require it. Note also the country of registry for the ships may have more lax labor laws too.
We were all subject to one master. But under a different punishment.
This may have been your experience but it was nowhere near mine. I think talking about “tech” as a whole is generalizing too broadly.
Nobody has a magic crystal ball for what's next.
People will be in between any of the above situation simultaneously, but between having to get fired and seeing costs go up a little at a time, I imagine most people will defer the gut punch and take the erosion of spending power.
Inflation shrinks the present value of that debt, without requiring the government to cut spending to pay it down, which would have serious economic consequences (see: austerity).
holding cash is paying something for the first time in more than a decade
Park your cash in a 5% instrument for a year and you can still afford 3-4% less stuff than you could at the beginning of the year.
That's fine for me with a mortgage, but less retirement headroom for many older people.
I personally have a hard time going out to a restaurant and getting a 2 person meal for less than say 30-40$. Car market is absolutely through the roof. Housing market, although cooling slightly, is still through the roof. Our base rent went up 15% last year. Gas is now double in my area.
So if you have 6% inflation, and the return on e.g. the 1 year t bill is 4.75%, you have -1.25% "real" interest rates, because your money at the end of your year of investment will be worth ~1.23% less than it was at the beginning of the year.
I'm not sure I completely agree that the result is actually as bad as that, since stuffing your money in the mattress would put you -5.5% in the hole by comparison, but still.
this is just about making a prediction of the future.
if you believe that inflation will decrease then your guaranteed rate of return from interest rates is great.
if you believe that inflation will increase or stay the same, then yes we have "negative interest rates"
I don't think it's reasonable to call it a "real" interest rate, because I can't buy T bills against it and it has no guarantees
If it came up red they would be telling me they were a financial genius who had unlocked the secret to riches.
I feel that people taking out variable loans at 1% and hoping it won’t go to 4% aren’t as reckless as a gambler, and in hindsight it’s pretty easy to lecture them, but I don’t take any joy in it.
I’ve seen online estimates recently 3 or 4x what you’ve stated and it wouldn’t surprise me if those were correct but we’ll never know.
Allowing ownership of houses as an investment is just wrong. (The usual response to this is that you need investors or housing won't be built. The idea no-one would pay for a house to be built is silly, but we also have not-for profit housing associations.)
(And it’s of note that dealing with renting a SFH is possibly a worse experience than renting from a complex. Large enough complexes have maintenance staff and professional management. Someone renting a SFH might well have just that unit to rent - amateur hour. Or they could be a corporation but because you’re just one unit in probably a more spread out population of properties the renter might well experience lowered services from the property management.)
I do agree the investment activity we’ve seen in simply hoarding up SFH properties for investment is deeply problematic. There are all sorts of ways to push the market back towards owner occupiers.
It’d also be nice if it was a standard thing for working people to be able to make it to public local government meetings. Those tend to be timed when working people are at work. That could help something’s, but there’s probably still be a lot of NIMBYism…
It's harder for both to purchase, but investors are also heavily leveraged and fighting investment alternatives in a higher-rate environment.
Because high interest rates can reduce demand, in a vacuum you would also see a reduction in the price of the property, making them more affordable. Of course this price is also impacted by countless other things, builder velocity being one of them, so in the real world it takes time to sort out.
The 70s, 80s, 90s had relatively stable home ownership rates despite very high interest rates. In 2016 the US reached a bottom in home ownership at 62.9 despite historically low rates.
BTW I was not referring to rich people living in their homes that they got with high interest rates, the comment was specifically towards investment property. Definitely agree that hoarding properties is out of hand.
Rent-seeking is an activity where the perpetrator creates legal barriers that result in them collecting money without providing anything of value.
Many people hate on landlords, but unless they’re also actively restricting new supply, they’re not rent-seeking as the term is defined.
But I agree with your point.
- prevent corporations from owning residential property
- tax property rental income at a substantially higher rate than income and exempt it from other deductions
- tax residential property which is empty for more than de minimis periods at an eye-watering rate (perhaps 5-6x standard property taxes).
None of this requires higher interest rates, but it will result in a transfer of wealth away from aging boomers and corporations, which apparently must be avoided at all costs.
As we have seen the asset markets have adapted to low rates by increasing assets prices. Thus an increase in interest rates to what historically has been low does not offer a great way to analyze its effect.
The question we should rather answer is by how much the assets will lose in value and what are the options of people depending on this value (retirement, disability funds etc...) and for people indebted, did they forecast and are they able to stomach an increase in interest spending of roughly an order of magnitude?
We're at 4.50–4.75, no?
That's not low, but it's not high either. https://en.m.wikipedia.org/wiki/Federal_funds_rate#Historica...