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Comment by kortilla

2 months ago

The federal reserve literally just got through a monetary tightening policy that paid zero regard to the stock market.

The fed will juice to keep employment up and tighten to keep inflation down. They will not support stocks at the expense of those mandates

5 comments

kortilla

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roenxi  2 months ago

We're dealing with people who interpret the words "price stability" to mean "prices should increase exponentially, we'd consider it a serious problem if they stayed level". It seems a bit of a stretch to go from that to believing that their mandate constrains them somehow. Their mandate can be interpreted to mean whatever they want it to mean. They're a political beast, they're going to do whatever they can get away with politically while making life comfortable for the banks.

And I'd imagine the stock market is still fairly confident that rates are going back down. If we look at a chart of fed interest rates [0] the statistical evidence suggests we're going to see low rates in the near future. It'd be nice to buck the trend and have the US stay focused on prosperity but there isn't much evidence of it yet. The basic plan of high debt then inflating the debt away hasn't changed.

[0] https://fred.stlouisfed.org/series/fedfunds

  • snowwrestler  2 months ago

    It’s impossible to keep prices perfectly steady, the Fed could not possibly be that precise. If they tried, we would bounce back and forth between inflation and deflation, which would be incredibly destabilizing to long-term investment… and therefore destabilizing to job growth and capital improvement, innovation, etc.

    So instead the Fed aims for a small amount of inflation. That way when they miss a bit, we still stay out of deflation. It is much better to bounce between 2% and 3% than between -1% and 1%.

    If the goal was actually to inflate the debt away, they would be aiming higher. Proof: the debt has been growing in real terms, not shrinking.

    • rrrrrrrrrrrryan  2 months ago

      The Fed has stated that one benefit of a small amount of inflation is that it provides employers with a mechanism to effectively revise wages downward without employees quitting (by denying them an annual raise), but yes - they have never stated that they are trying to inflate the debt away.