When historians look at this in the future I bet they’ll say there was nothing the fed could’ve done.
The fed should increase rates another 200bps, I’m sure that’ll make the winter gas prices go down.
The fed should increase rates another 200bps, I’m sure that’ll make the winter gas prices go down.
Historians should be looking at Congressional inaction, and how unified obstruction from one party and division in the other made it impossible for the federal government to enact meaningful policy initiatives that could have done anything.
We're supply side constrained.
Likewise, if people increase their savings or pay down other debts, demand isn't increased right away.
It's just not as simple to draw a line to specific government spending and say "that caused inflation".
What does this even mean? If there were no supply-side constraint, prices would dive toward zero like some post-scarcity Star Trek society. There is always a supply side constraint; when you dump a bunch of demand in on top of that, of course prices will go up.
There are pockets of supply constraints, like energy and raspberry pis, but for the most part we are overflowing with inventory.
I was able to collect unemployment as a sole proprietor due to COVID. It was needed as I’m a photographer, but we were also allowed to deduct expenses from what we made that each week. When the math lined up I absolutely bought some new equipment to offset my profits which allowed me to get unemployment that week, and other weeks my usual expenses offset my profits as well.
I then had extra money to invest. I’m sure I’m not the only one. Huge amounts of cash was injected everywhere in the economy. The fact that Biden was calling for 3 separate “once in a generation investments” after that and during “transitory inflation” should have been enough to get him absolutely destroyed in the media.
The supply chain in soda is complex, you have corn producers (whose equipment, fuel, labor, and seed costs are influenced by supply), the price for corn is increased as global farm production is hit by war, you have water costs (which, depending on region, could be increasing), you have fuel and distribution costs, labor costs, plastic bottle costs... I guarantee you can trace back increased costs to regions hit hard by pandemics.
My wife used to work for a well known food brand. Somewhat early on in the pandemic grocery stores raised their prices for that brand's products, even though they weren't paying any more for the product. Eventually the brand did raise their own prices as they decided they'd rather have that money themselves.
In both cases it was as simple as other prices being raised, consumers had the money to spend, so why not?
And the Fed enabling the Federal government to do so very cheaply, by purchasing a large amount of the newly created Treasuries.
How exactly is the fed suppose to fight the government printing presses?
The cause of inflation is an increase in the cost of goods and services.
This is a choice that individuals within companies make. It is not a natural consequence of increasing the money supply.
Price adjusters within companies are using the news of the increased money supply to gamble that customers will pay more and they've been right, so far.
There's quite a bit of tacit collusion driving this, of course, but it's also a self-fulfilling prophecy. Price adjusters within companies know that everyone believes that printing money "causes" inflation, so they take advantage of the opportunity.
If your point is simply that businesses are choosing to maximize profit, that of course is correct. It always has been unless you are a non-profit or state owned enterprise.
The salient question is what conditions changed in the economy so that they can increase prices.
It isnt like they were running as charities before.
Agreed.
> If your point is simply that businesses are choosing to maximize profit, that of course is correct.
My point is pedantic and political. I don't like humans being removed from the equation.
Framing inflation as a natural consequence of increasing the money supply is one way to do that.
The widespread thinking that "businesses exist to maximize profits" is another. (Yes, I'm aware of obligations to shareholders in corporations, but that's beside my point.)
Removing humans from the equation makes abuses just palatable enough to go down.
I would be curious to hear how you think economic interactions should work.
> it is the definition of inflation
Doesn't the definition of inflation have more to do with the decreased value of currency? There are plenty of uses for currency outside of the purchase of goods and services.
If buyers have cash piling up and companies magically decided to hold prices, the cash would just flow into whatever could be still be bought, probably housing.
In reality, the only thing that puts downward pressure on prices is if people cant afford them.
How would this decrease the value of the currency?
It would certainly reduce asset availability, but— to use your example —there's an absurd surplus of housing nationwide.
>It would certainly reduce asset availability, but— to use your example —there's an absurd surplus of housing nationwide.
I cant relate to this idea of an absurd housing surplus. It simply doesn't match m understanding of reality. Housing prices have gone through the roof almost everywhere people want to live.
Not really. Volcker did his job with dynamite just fine. You raise interest rates above prevailing inflation rates. Easy.
But the current Fed is stuck. They can't fix inflation Volcker-style (hiking to 9-10%) without destroying the bond market and kicking off a cascading debt crisis.
So they're targeting a middle-ground terminal rate of 4.5% and hoping the can will be kicked long enough that it will be someone else's problem in the medium-term future.
Good luck to them.
Can you turn off your spending on food?
Edit: from the report:
> Increases in the shelter, food, and medical care indexes were the largest of many contributors to the monthly seasonally adjusted all items increase.
Can't turn off spending for food and medical care if you want to live
I live in a high poverty city with wondrously low "unemployment" but a high number of people who don't have jobs. The answer: if you can qualify for a job, yes you can get a job, but a lot of people do not qualify for anything worthwhile, so why try?
Raising interest rates isn't going to impact companies just charging more for what they sell.
The only thing that stops companies from charging more is individuals unwilling or unable to pay the higher price.
They don't need to. Interest rates aren't intended to control prices by creating an abundance of gasoline, but by creating a scarcity of dollars.
Yes, this can bring down gasoline prices. No, it doesn't mean gasoline gets less scarce in the process. It just means that each $1 gets dearer. It means that the price looks fine but you can't afford it anyway because your pockets are empty. The gasoline is still scarce even though the price is low. That's what they can do, and what they are doing.
And it's best to understand that, when interest rates go up, the first pockets to empty are emptied by falling asset prices. Stocks, bonds, and real estate. That's why high inflation numbers are bad news for assets, even though they'd intuitively seem like inflation hedges.
There are these products that no matter how dearer $1 gets - you will absolutely buy them. You can't destroy demand on these products like what you're describing. You and your family could literally die without some of these products. And no raising of interest is going to help that.
A century ago, a loaf of bread cost only a nickel and that's not because people ate less or because food supply was more plentiful or demand more elastic.
But even setting that aside, interest rates operate on aggregate demand which is averaged across all goods, just like inflation is.