It was the war with Russia that drove the fed to raise interest rates in 2022 - a measure that was intended to curb inflation triggered by spikes in the prices of economic inputs (gas, oil, fertilizer, etc.).
The tech layoffs started later that year.
Widespread job cuts are an intended effect of raising interest rates - more unemployed = less spending = keeps a lid on inflation.
Fully agreed, but I suspect that was written that way because the Fed was rather more worried about the fact Russia was at war and under western sanctions, than that Ukraine was busy defending itself.
Perhaps "Russia's war" would have been a better phrasing that captures both spirits (but it's not a phrase you hear said much).
Your demands of an absolute committment to maintaining the domestic establishment's war narrative while making a technical point have been noted. Slava Ukraini.
2 trillion in unnecessary Covid related spending when Covid impact was winding down was the key reason for inflation. "$2000 checks!" was the campaign slogan
People sometimes conveniently forgets that inflation historically has taken some 12-24 months to trickle through the economic system. That was the case this time, too. And the first inflationary impulses, famous for being "transitory", was actually before the Russian invasion of Eastern Europe.
We're blaming the 1000 dollar stimulus checks to the people and not the massive PPP loans that the government never bothered to collect on? It's amazing how well billionaires trained us to fight amongst one another as they ransack in broad daylight.
You have it backwards, inflation causes an increase in the money supply. When prices rise, it forces people to take on more debt causing an increase in the money supply. Those 2000 checks actually probably dampened inflation for a short while. Most people used those checks to pay down debt (which destroys money).
That's one of the factors. In Europe at least the other factor is high energy prices after the broken turbine theater and subsequent destruction of Nord Stream.
Prices and unemployment really started to rise after that. The EU buys overpriced LNG from the US, so the US is somewhat isolated from that. But the US is not isolated against the general economic downturn worldwide.
Politicians do not care. Merz, with barely 25% approval of the German population, continues the policies outlined by Hegseth during his visit to the EU. Trump still plays theater to appease his MAGA base, but Senators Rubio and Graham increasingly start holding the reins.
There was a specific and particular expectation (and even patience) for inflation to drop naturally as the supply chains again reached equilibrium after Covid.
Russia's invasion of Ukraine however caused a whole bunch of economic inputs like energy and fertilizer to spike, and central banks world wide didn't want economies to "get used to" constant high inflation rates, causing a perpetual problem.
Biden credited the inflation to Putin, claiming that 70% was due to Putin’s price hikes.
That was not entirely true.
Trump’s pandemic spending (lockdowns, vaccines…), and subsequently Biden’s, but most importantly the curiously named Inflation Reduction Act were obvious drivers. You can’t stimulate an already overheated economy to the tune of 2 trillion without getting Larry Summers a bit worked up.
Raising interest rates has nothing to do with the 2022 war. If it did, rates would have come back down. Interest rate increases don't help with supply/demand driven price spikes. They do help with money supply and aggregate demand driven inflation, which was the cause of our recent inflation (that started way before Russia invaded Ukraine). The war was a convenient excuse because it deflects responsibility.
And remember when they first said inflation was "transitory" and caused by supply chain issues from the economy reopening after covid? They didn't raise interest rates then because, like I mentioned above, interest rates don't help with supply shocks. If they did, the Fed would have raised rates then.
You are wrong, Trump's 2017 Tax cut bill had a provision that kicked in that caused the layoffs. Engineers became more expensive because now companies had to amortize their costs over 5 years instead of immediately.
There is no proof that higher interest rates lead to greater unemployment. In fact, macro employment kind of boomed during the referenced period. I'd posit that higher rates actually boosted macro employment stats . Why ? Because higher rates = higher income to rich people via interest income channel = higher fed budget deficits ( gov is net payer of interest) = higher GDP = lower unemployment ceterus paribus.
This is completely backwards. When interest rates are high, the expected returns of equity investments have to be even higher to justify the risk over risk-free fixed income assets.
And that's only the indirect effect on equity funding; debt funding just directly becomes more expensive.
Why would it have anything to do with AI? Generative AI has been widely used for two years and the drop is exactly around January 20. What happened in AI around that time?
For those outside of the US:
https://en.m.wikipedia.org/wiki/Second_inauguration_of_Donal...
Trump didnt kick off the layoffs.
It was the war with Russia that drove the fed to raise interest rates in 2022 - a measure that was intended to curb inflation triggered by spikes in the prices of economic inputs (gas, oil, fertilizer, etc.).
The tech layoffs started later that year.
Widespread job cuts are an intended effect of raising interest rates - more unemployed = less spending = keeps a lid on inflation.
AI is just cashing in on the trend.
"War with Russia" sounds like someone willingly started that war, and Russia was the target.
Of course, nothing is further from the truth. "Russian invasion of Ukraine" is what should be written there.
Fully agreed, but I suspect that was written that way because the Fed was rather more worried about the fact Russia was at war and under western sanctions, than that Ukraine was busy defending itself.
Perhaps "Russia's war" would have been a better phrasing that captures both spirits (but it's not a phrase you hear said much).
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I don't see how that follows at all. "War with x" is a factual statement with no implications of moral culpability in either direction
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Your demands of an absolute committment to maintaining the domestic establishment's war narrative while making a technical point have been noted. Slava Ukraini.
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2 trillion in unnecessary Covid related spending when Covid impact was winding down was the key reason for inflation. "$2000 checks!" was the campaign slogan
People sometimes conveniently forgets that inflation historically has taken some 12-24 months to trickle through the economic system. That was the case this time, too. And the first inflationary impulses, famous for being "transitory", was actually before the Russian invasion of Eastern Europe.
We're blaming the 1000 dollar stimulus checks to the people and not the massive PPP loans that the government never bothered to collect on? It's amazing how well billionaires trained us to fight amongst one another as they ransack in broad daylight.
6 replies →
You have it backwards, inflation causes an increase in the money supply. When prices rise, it forces people to take on more debt causing an increase in the money supply. Those 2000 checks actually probably dampened inflation for a short while. Most people used those checks to pay down debt (which destroys money).
That's one of the factors. In Europe at least the other factor is high energy prices after the broken turbine theater and subsequent destruction of Nord Stream.
Prices and unemployment really started to rise after that. The EU buys overpriced LNG from the US, so the US is somewhat isolated from that. But the US is not isolated against the general economic downturn worldwide.
Politicians do not care. Merz, with barely 25% approval of the German population, continues the policies outlined by Hegseth during his visit to the EU. Trump still plays theater to appease his MAGA base, but Senators Rubio and Graham increasingly start holding the reins.
I don’t believe the war specifically drove the Fed to raise interest rates. Inflation and asset prices have risen sharply a year prior to the war.
There was a specific and particular expectation (and even patience) for inflation to drop naturally as the supply chains again reached equilibrium after Covid.
Russia's invasion of Ukraine however caused a whole bunch of economic inputs like energy and fertilizer to spike, and central banks world wide didn't want economies to "get used to" constant high inflation rates, causing a perpetual problem.
1 reply →
Biden credited the inflation to Putin, claiming that 70% was due to Putin’s price hikes.
That was not entirely true.
Trump’s pandemic spending (lockdowns, vaccines…), and subsequently Biden’s, but most importantly the curiously named Inflation Reduction Act were obvious drivers. You can’t stimulate an already overheated economy to the tune of 2 trillion without getting Larry Summers a bit worked up.
Raising interest rates has nothing to do with the 2022 war. If it did, rates would have come back down. Interest rate increases don't help with supply/demand driven price spikes. They do help with money supply and aggregate demand driven inflation, which was the cause of our recent inflation (that started way before Russia invaded Ukraine). The war was a convenient excuse because it deflects responsibility.
And remember when they first said inflation was "transitory" and caused by supply chain issues from the economy reopening after covid? They didn't raise interest rates then because, like I mentioned above, interest rates don't help with supply shocks. If they did, the Fed would have raised rates then.
Anecdotally, I detected a cooling starting in March of 2022.
Was actively looking at this time for months prior and it went from a few recruiters a day reaching out to a few a week.
You are wrong, Trump's 2017 Tax cut bill had a provision that kicked in that caused the layoffs. Engineers became more expensive because now companies had to amortize their costs over 5 years instead of immediately.
There is no proof that higher interest rates lead to greater unemployment. In fact, macro employment kind of boomed during the referenced period. I'd posit that higher rates actually boosted macro employment stats . Why ? Because higher rates = higher income to rich people via interest income channel = higher fed budget deficits ( gov is net payer of interest) = higher GDP = lower unemployment ceterus paribus.
This is completely backwards. When interest rates are high, the expected returns of equity investments have to be even higher to justify the risk over risk-free fixed income assets.
And that's only the indirect effect on equity funding; debt funding just directly becomes more expensive.
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Why would it have anything to do with AI? Generative AI has been widely used for two years and the drop is exactly around January 20. What happened in AI around that time?
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