Comment by willcipriano
2 years ago
Powell explicitly wants higher unemployment.
The feds actions show they want high asset prices relative to wages.
The plan is exactly as you describe. "Asset inflation good, wage inflation bad" is government policy at this point.
If you print a trillion dollars and give it to the lower and middle class, they'd spend a good chunk of it in a few days to a year(see covid checks and unemployment bonuses) eventually resulting in inflation that disproportionately affects the low income folks, so it's temporary relief which is great during things like pandemics. If the same money is given(or flows) to the super rich folks, they either save it or buy appreciable assets, since they already pretty much already have everything they need.
So the fed doesn't have any other good options. They cannot raise taxes on the rich or institute a wealth tax or 'take' the rich's assets. That's up to Congress. Blaming the Fed I think is unproductive because they seem to be doing their job trying to balance low inflation and a low unemployment rate as much as they can, within the limitations of only being able to change interest rates and quantitative tightening/easing(not to mention things like the war in Ukraine increasing energy prices which affect prices of almost everything). If you had the choice between high(or run away) inflation and slightly higher unemployment(which was historically low), what would you choose? Wage increases are eaten up by inflation.
Asset inflation at this point is a runaway process caused by companies raising prices to cover increased costs and adding a margin for safety because of volatility. Companies in one area raising prices has a downstream effect, both in raising costs for other producers, and in allowing other producers to raise prices because of people's expectation of "inflation."
> Asset inflation at this point is a runaway process caused by companies raising prices to cover increased costs and adding a margin for safety because of volatility
Aka profit inflation, instead of wage inflation.
https://www.youtube.com/watch?app=desktop&v=tU3rGFyN5uQ
You could use the same exact reasons to justify wage inflation while suppressing asset inflation lol. Of course, we know who has the power to get what they want. It's called capitalism for a reason.
> The feds actions show they want high asset prices relative to wages.
It’s an economic axiom that high interest rates mean lower asset prices.
So can you explain what you mean?
Also - as far as I know every us city except for Miami has had a decline in real estate prices - so again - where are you and everyone in this thread getting information? Anecdotes?
Asset prices have been skyrocking for decades. Interest rates remained low.
Wages finally start to creep up after decades of lagging behind productivity, panic, need to raise rates aggressively.
When home prices double in a decade there was no concern, when a burger king employee asks for a 10% raise its a crisis.
It’s an economic axiom that high interest rates mean lower asset prices.
If that is the case, why is housing so expensive?
To be precise, high real rates generally means lower asset prices. We came in at 0.4% Month over month CPI. Overnight rates are 5.5%, so we still have a historically low real rate (5.5-4.8=0.7% CPI, 5.5-3.6=1.9% Core CPI).
The Fed hasn't really squeezed hard. They're looking for a soft landing. We went from super loose negative real rates to just loose policy, but to hear Jay Powell say it, we're already tight and restrictive. We probably need to get up to 3%+ real rate (maybe 6%+ overnight rate) to get a good washout and some forced selling.
Because interest rates have been artificially low since 2001. And then we got money printing too after 2008.
Housing prices have nothing to do with 2023 interest rates. Well they do, the fact that they are stalling/falling is very much to do with the higher interest rates.
You can't look at 20+ years of loose monetary policy, take the 1 year of high interest rates, and blame that on high asset prices.
Btw, have you looked at stocks and bonds in the last 1 year? PE ratios? They've collapsed. Because asset prices collapse with high interest rates, and stocks and bonds are much faster at responding than real estate.
But still, real estate prices have fallen in every major city bar one.
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The Fed keeping rates too low for too long caused the asset inflation. That’s in the past though, what is the Fed doing now to cause asset inflation?
Seems like they're trying to balance out the other end of the equation by punishing labor through very high interest rates. My personal pet theory is that the fed wanted to raise rates enough so that the static interest rates on student loan debt didn't look so absurd when student loan payments came back online. Otherwise people would be demanding student loan debt relief. That ~7% doesn't seem so silly now, it's about inline with mortgage rates. But when mortgages were approaching 2%, that same 7% looked usurious.
He may want that but it’s going to be difficult to support with current demographics. Too many boomers left the work force and need services