"As [Fed Chair] Jerome Powell and his colleagues continue to judge the job market as hot, that stays on the side of the ledger compelling them to continue to raise interest rates," he said.
Layperson Translation:
A hot jobs market means that demand for labor is high, which drives wages growth, which drives inflation, so the Fed’s going to keep raising interest rates until inflation cools down, and unfortunately that means possibly tanking a hot jobs market amid a possible recession1.
Mean Translation:
Instead of taking the W, the Fed’s going to make sure people don’t get too many jobs, because they might get uppity and keep demanding higher wages to keep up with inflation. Once again, the rich get richer while everyone else suffers!
The downside risk is that we take this good news and ignore the risk of stagflation — which pairs the current situation of “inflation drowns out GDP into the negative” with high unemployment. Unemployment’s low now, but if the jobs market tanks, splat, we go straight into stagflation.
The upside is that maybe we pull out of the GDP dip if inflation gets under control. Out of all the recent, rapidly-rotating cast of drivers of inflation, wage growth dropped off the radar a long time ago (last year). Wages have in fact been lamented as lagging inflation! (That’s what the “Mean Translation” captured)
The point is, there isn’t as strong a case for keeping “high but not astronomical jobs numbers” on the hawk side of the ledger. If jobs are growing, nominal GDP is growing, and wages aren’t driving inflation, then that’s a reason to hope that with some more modest rate increases (but nothing insane like raising them to 8%, as some hawks want to), we can still manage just about the first-ever “soft landing” in the entire history of the economics profession.
So here's the question, at what point does the increase in interest rate equal a decrease in inflation? I mean specifically what triggers that? I understand the broad strokes, that rates going up result in loans becoming more expensive which slows growth and slows demand. We are hoping for slowed demand but not too slow that jobs crash. Honestly though jobs have grown so fast for so long I don't see how they don't suffer some once inflation bottoms out.
P.S. - im both not surprised but very frustrated and angry at the GOP/Fox News response to the massive drop in gas prices.......freaking crickets
P.S.S. - From what ive seen, the gas price drop hasnt led to a drop in inflation, and many seem to not equate the few. One would think that a near doubling of gas prices over a a few months would be one main reason for larger inflation.
>>I understand the broad strokes, that rates going up result in loans becoming more expensive which slows growth and slows demand.
I mean, that's basically it. The Fed appears to think that slowing demand by raising interest rates will bring down inflation back in line with nominal growth.
>> We are hoping for slowed demand but not too slow that jobs crash. Honestly though jobs have grown so fast for so long I don't see how they don't suffer some once inflation bottoms out.
And this is what I'm so concerned about.
If the Fed raises interest rates by a LOT -- 4-6% -- then we probably have a full-on recession, but then inflation gets back under control, and we have a modest bounce-back into something like the post-Great-Recession economy, because the recession will kill off the job market's current strength.
If the Fed doesn't raise them enough, we have a K-shaped economy: inflation stays high, killing wage gains and straining the middle class despite job growth. Within a year -- most likely less -- the job growth goes negative, inflation isn't solved, and we end up in a stagflation scenario. The only silver lining is that, like the 80's, after it's all done a decade later, most household debt has been inflated down, thus resolving the student loan and housing crises without need for government intervention.
If the Fed keeps things juuuuust right, then the jobs boom still eventually peters out, but we reduce inflation before that happens, and go back to modestly positive real GDP growth, with the added benefit of unusually low unemployment. Wage growth probably starts catching up, and ideally the Fed keeps interest rates modestly high to tamp down the inflatory impact of wage growth.
So here's the question, at what point does the increase in interest rate equal a decrease in inflation? I mean specifically what triggers that? I understand the broad strokes, that rates going up result in loans becoming more expensive which slows growth and slows demand. We are hoping for slowed demand but not too slow that jobs crash. Honestly though jobs have grown so fast for so long I don't see how they don't suffer some once inflation bottoms out.
P.S. - im both not surprised but very frustrated and angry at the GOP/Fox News response to the massive drop in gas prices.......freaking crickets
P.S.S. - From what ive seen, the gas price drop hasnt led to a drop in inflation, and many seem to not equate the few. One would think that a near doubling of gas prices over a a few months would be one main reason for larger inflation.
>>I understand the broad strokes, that rates going up result in loans becoming more expensive which slows growth and slows demand.
I mean, that's basically it. The Fed appears to think that slowing demand by raising interest rates will bring down inflation back in line with nominal growth.
>> We are hoping for slowed demand but not too slow that jobs crash. Honestly though jobs have grown so fast for so long I don't see how they don't suffer some once inflation bottoms out.
And this is what I'm so concerned about.
If the Fed raises interest rates by a LOT -- 4-6% -- then we probably have a full-on recession, but then inflation gets back under control, and we have a modest bounce-back into something like the post-Great-Recession economy, because the recession will kill off the job market's current strength.
If the Fed doesn't raise them enough, we have a K-shaped economy: inflation stays high, killing wage gains and straining the middle class despite job growth. Within a year -- most likely less -- the job growth goes negative, inflation isn't solved, and we end up in a stagflation scenario. The only silver lining is that, like the 80's, after it's all done a decade later, most household debt has been inflated down, thus resolving the student loan and housing crises without need for government intervention.
If the Fed keeps things juuuuust right, then the jobs boom still eventually peters out, but we reduce inflation before that happens, and go back to modestly positive real GDP growth, with the added benefit of unusually low unemployment. Wage growth probably starts catching up, and ideally the Fed keeps interest rates modestly high to tamp down the inflatory impact of wage growth.