ECB holds key interest rate at 4%
ft.com
ft.com
Meanwhile housing prices rage out of control, many working class people can't afford rent even in peripheral cities, and there's homeless encampments in most public parks. But this is not a factor they consider when setting the rate.
And somehow the public narrative has shifted so that high interest rates (not even actually high by historic standards) are to blame for the affordability problem, and not the bubble in housing prices that was created by low interest rates (compounded by low supply) in the first place.
Seems the central banks is content with having gotten unemployment rates back up again and wage growth down, and the provincial governments are happy to sit and do really nothing about real estate regulations and serious housing construction while everybody points the finger at the (ineffective and terrible) federal government, who actually can't do much about this situation . Yay.
I do agree COVID-19 crisis response zero interest rate policy contributed to bidding up the price of housing even further.
Not sure how you got the idea I was advocating for that. I clearly pointed the finger at prov/fed gov't for that kind of thing, not the BoC.
My problem is with holding the rates. It sent the wrong message. Inflation on basic goods remains high, and the housing market has not stabilized.
In my opinion, the BoC responded to political pressure, and should not have.
Not at the source level anymore, though. Things have already crashed hard there. Retail is still working off futures contracts from last year when prices were very high, so it is expected to be still high. Nothing happens overnight. However, that is not indicative of a long-term trend. Deflation is the greater risk in the near future as those older contracts start to expire and vendors start sharpening their pencils on the much lower new contracts.
> the housing market has not stabilized
It is true that the home ownership market is still falling (now down around 20% from the peak), but that is no doubt a promising indicator in the BoC's eyes. That will eventually relieve the rental market as well. Rents are extra high currently because people are holding off buying a home until the ownership market bottoms out, which has created a situation where more people are looking to rent than usual.
> In my opinion, the BoC responded to political pressure
CPI is the last leg in a long tour. While it may still look grim, all the leading indicators are telling a different story right now. From my perspective, the BoC responded to what is going on in the economy. Their actions are directed towards managing the future, not the present.
Something known beforehand and by deign.
This is true, but tends to be overstated also. Here's a FRED graph of US data, showing median home price as a fraction of median household income:
https://fred.stlouisfed.org/graph/?g=1aHX4
The ratio was ~4 through the 90's, jumped up to ~5 over the dot com boom, dropped back to 4.5 over the financial crisis, rose back to 5 through the recovery, and is now a little above 6 in the post-covid world.
A 50% change in affordability over 30 years (or even the 19% rise since 2017) is a real effect. It's worth discussing and probably addressing. But it's not the disaster it's being presented as.
In point of fact things are great right now. The global industrial economy is growing rapidly, inflation has largely halted, unemployment is low and still dropping, wages are rising.
But no one wants to talk about that. Really the Big Story about economics news in the modern world is how shockingly disconnected public perception is from the metrics that we used to think drove it.
The problem is that wages are rising in absolute terms, but tanking or stagnating in relative ones. The rise is also very, very unevenly distributed; the top percentile are making great strides but the so-called "low skilled" are getting shafted badly.
Again, that's not true, at least not to the extent you think. It's a meme. It's something you believe because everyone else believes it.
> the top percentile are making great strides but the so-called "low skilled" are getting shafted badly.
Tell that to the UAW and the monster contract they just negotiated. Or the minimum wage laws that keep getting passed in almost every major metro area. (Again, this is all US stuff because those are the facts in my head, but this is a global phenomenon).
I mean, how about you personally: are you personally making more or less in nominal terms than you were ~6 years ago. By how much? If it's not less than the 26% rise in CPI inflation since then, you are doing better, not worse.
Again, the data doesn't support your impression. It just doesn't. And I find it absolutely fascinating that these impressions persist in the complete absence of evidence.
For the record, I currently make what I was making 6 years ago in absolute terms (pathetic, I know), but I am just about in the top 10% of wage-earners in the country I live in (UK), so it doesn't really matter.
As far as I know, the story is not particularly different across the big European countries.
Yes! Exactly! This is the disconnect right here. First: real wage growth is always a good thing. It's not always above zero, by definition. Sometimes real wages contract. This i good news you're posting.
And specifically it's historically good news: making a reasonable assumption about your age, wages are growing faster for your market right now than they have at any time in your career so far.
And... you're trying to spin that... as... "bad" news? Seriously, how?
Again, this is a meme. Someone sold you a line and you bought it. Seriously, what number do you think should be in that box to make you happy if "best in two decades" doesn't qualify?
Not good news, it's "slightly better than it could be" news.
> wages are growing faster for your market right now than they have at any time in your career so far.
Best in two decades doesn't mean "best in the postwar era", which is the usual horizon for labor conditions. And yeah, having started working in 2000, I've been blessed with real-terms wage stagnation for most of my working life. What luck! Why am I not grateful to unbridled capitalism?!?
The average over 160 years has been above 2%, and between 1950 and 2008 we've sailed close to double digits at times. This in a situation where, obviously, return from capital grew at much higher rates, increasing inequality - so hardly ideal, but decent.
> What fraction of historical workers have lived under those conditions?
The modern economy was effectively forged with Bretton Woods. Wages hit the brakes in the mid '90s, so for roughly 50 years workers had it decent - not always great, but decent. The subsequent 25 years have sucked. Here in UK we kinda papered over the cracks with an increase in public service provisions until roughly 2008, and it's been effectively "managed impoverishment" since then.
I just don't know what you want. You're doing well relative to your recent compatriots and very acceptably relative to your ancestors. You're fine. If you can't find a way to be happy with that kind of wealth, well, that's on you and not macroeconomics. There's clearly no number someone can give you that's going to make you happy.
[1] Which seems awfully cherry picked. It moves the boundary all the way back to before the industrial revolution. Surely you'd agree that the turn of the century was a huge economic outlier, no?
[2] Not 2%, I can't find that number anywhere.
HN, Reddit, twitter and Facebook are all flooded with right wing bots.
The more fascinating part is why these platforms continue to enable clear bot presence.
Hilariously, HN limited my account on the basis of replying to these bots with actual facts, so get ready for your rate limit to fire up.
Here is a chart for Canada: https://nitter.net/pic/orig/media%2FE0PIr9kXoAQvbeR.jpg unfortunately only goes up to 2020. Things got even crazier in 2021/2022 (though have leveled off this fall, but just a bit)
Now tell me again how disconnected my thinking is. In Canada it actually is a disaster. We have people unable to make their rent (because naturally landlords are passing on inflated housing prices to tenants).
I don't know if Canada has an equivalent to FRED and I'm too lazy to do your research for you, but I'm 100% convinced that if you find a measurement in the right units (c.f. "median household income" that I used -- be sure that if you find a graph that is inflation-corrected ("real median household income" in FRED-speak) that you use corrected values for both your data points!) you will find that Canada and the US look broadly the same throughout the past century or so.
I mean, come on. You guys are literally right there, we read the same media. You really think that if things were that different we wouldn't notice? You don't think americans whine about housing prices too?
It still remains the case that housing prices in Canada did not go through the downward correction that US housing prices did in 2008. That and our immigration rates are very high, so pressure from population growth has also been high.
I gotta get back to work, so can't go hunting for raw data right now. I think you'll find though that US and Canadian data don't co-relate in the way you're assuming they should.
The last time housing prices tanked was in the 1980s and it coincided with a deep recession and high unemployment. So be careful what you wish for.
>60% of people own a home - it's their largest investment & it's leveraged. They want it to go up, not down.
In Canada, you don't have fixed mortgages. If interest rates go up - they're largest expense is going to go up A LOT. They're going to vote to make sure that doesn't happen.
Nobody cares about people trying to get into the market - unfortunately.
Governments are typically in the business of protecting wealth, not destroying it.
However, recent central bank shenanigans have led them to be able to create wealth by lowering interest rates - and that is distributed highly unevenly.
They don't care. >50% of people are on the winning side of the trade, and majority rules.
Not sure about in Canada - but in the US - the winning side is doing their best to suppress the losing side from voting.
Don't fight the system. Get stronger from it.
But it's clear that in the longer term this doesn't work -- even for the majority home owners like you imply.
a) Just because your home appears to go up in value doesn't mean that your home purchasing power has, if other homes have just done the same.
b) It undermines local business because their workers increasingly cannot afford to live where they work. When rent in a 2 bedroom in an industrial town like Hamilton creeps up to $3000, we've hit crisis proportions.
c) it's not sustainable, and will eventually blow.
What it shows is that there's no leadership at the top capable of making adult decisions.
The system is pretty much designed not to make "adult decisions".
Er, no. According to this source [0], 66% of people live in owner-occupied houses. If you're a pennyless 20+ year old living with your parents, you're in that number but you're not owning anything - your boomer parents do.
So ~35% of ~25% of adults live with their parents. ~8%.
Congratulations ~58% of Canadians own their own home (worst case) instead of ~60%.
Not sure why kids living with their parents is any different than a married couple living together. Maybe the kid is going to inherit the house. Often times, the kid is living with the parents not out of necessity for the kid - but because the parents are the ones that need help.
You're seeing what you want to see, and distracting yourself from the important part - majority rules, and the majority of people own homes - and a much larger majority of voters own homes.
I'd be impressed if that ~58% doesn't become >64% when you look at voters.
Lol; because kids have no agency, of course. They didn't choose where to live and how, their name is not on the deed. They are disenfranchised from the system.
> a much larger majority of voters own homes.
I do not disagree there, but you ignore minorities at your peril. You don't need 50% of voters to create serious political turbulence; in fact, you don't even need 10%.
Congratulations ECB..Another job well done /s
Interest rate manipulation should serve one and only one purpose. Controlling inflation. It's very important goal and any politically motivated moves that are supposed to influence the economy interfere with that goal.
In a world (especially Europe) where you don't control raw material prices or (an important chunk of) energy prices, how can reducing spending by having forced high cost of money possibly work without tanking the economy as a side effect?
And if that's good or acceptable, why is not acceptable have businesses grow because of "free" lent money, especially if this helps improving life conditions for the people that work in those businesses? (which, I have to say, it's not always the case)
The whole concept is intimately related to the keynesian idea of stimulus spending. But even keynes thought that the government needed to walk things back when things were booming.
What I don't this is reasonable to say is that one is good and the other one is crazy.
Economy has to be taken into account into how given level of interest rates influences inflation, but only as an input, never an output.
The utility of keeping inflation in check is immense because it provides stable environment for the economy so that everyone can pretty much treat price as a proxy for value. If the inflation does weird things you can no longer know how much your investment is worth or will be really worth in the future.
If you keep inflation in check it's fine if prices of some resources rise because it means their value increases. If price of pretty much everything goes up it's just a sign that you printed too much money, nothing more, nothing else.
When you are using money supply to stimulate economy, sometimes you'll get benefit, sometimes you'll mess up horribly. So the only thing you are really doing is introducing more instability into the system which harms everybody.
See "Monetary transmission mechanism"
* https://en.wikipedia.org/wiki/Monetary_transmission_mechanis...
* https://www.ecb.europa.eu/mopo/intro/transmission/html/index...
* https://www.rba.gov.au/education/resources/explainers/the-tr...
* https://www.pragcap.com/monetary-policy-transmission-mechani...
Of course inflation is caused by things other than demand (e.g., supply: energy prices, food prices (thanks Russia!)).
Inflation should be managed directly by fiscal policy. Having your central bank do it is a wishful fantasy that only serves to concentrate wealth and create instability with years-long hidden feedback loops. And oh, it also serves to excuse politicians out of their responsibility.
But then, I don't see how something that only serves to make rich people richer and make excuses for politicians can ever change. So I'm not holding my breath.
Re: https://www.federalreserve.gov/monetarypolicy/monetary-polic...
I'm very sure The Fed does not have a mandate to minimize the unemployment rate, despite the stated policy. The shifting definition of "employment" being one of the primary tools, alongside the old standbys of "blaming something else" and "give it time". There's almost no historical accountability, so there's no reason to think this will change.
Any other country or even EU, doing the same thing as FED does, would be in deep trouble in less than a decade.
Wasn't the scale of QE as proportion of GDP significantly larger in the Eurozone in the 2010s?
Even now the total value of assets held by the ECB is only a bit lower than the Fed ($7.44 trillion vs 7.9). The situation before the pandemic was similar, the ECB even had more assets than the Fed throughout 2019.
If you want to compare impacts of printing you shouldn't compare it with GDP or central bank assets but with total amount of given currency already in circulation globally.
My entire point is that the monetary policy in the Eurozone has been considerably looser between 2014 and 2020 and comparable after that.
> If you want to compare impacts of printing you shouldn't compare it with GDP or central bank assets but with total amount of given currency already in circulation globally.
So the ECB "printed" considerable more if measured that way, prior to 2020 at least and they were relatively "fine" inflation wise.
But that doesn't fit current dogma.
Economies ebb and flow.. that's how things have always worked. Interest fluctuations are a mechanism to manage it. What is your problem with the ECB doing it's job exactly?
"Christine Lagarde: ‘I should have been bolder’" - https://archive.ph/47udO
“...But what we should have learned is that we cannot just rely only on textbook cases and pure models. We have to think with a broader horizon...”
Your downvotes wont help your disposable income...
"ECB core obsession raises risk of policy mistake" - https://www.reuters.com/breakingviews/ecb-core-obsession-rai...
"Fears of repeating 2011 mistake led to ECB split on latest interest rate rise" - https://www.ft.com/content/003bfc9f-3af2-4ae9-b582-7d27b75af...
"Christine Lagarde’s Gifts to Populists" - https://www.project-syndicate.org/commentary/lagarde-ecb-mis...
The process of washing their hands starting back in 2022:
"ECB issues mea culpa for poor inflation forecasts" - https://www.ft.com/content/58d45527-8d57-43c3-b2b0-d77a19d10...
"What explains recent errors in the inflation projections of Eurosystem and ECB staff?" - https://www.ecb.europa.eu/pub/economic-bulletin/focus/2022/h...
They were slow intentionally. A large subset of the population benefits from low interest rates.
They were reluctant to give up their free money they designed their lives around.
If interest rates were ever to reflect reality long-term, probably ~50% of global wealth would be wiped out. If not for the majority of the population being leveraged on real estate - the ordinary person wouldn't really care.
It's generally not fun when your largest position (your home) goes down ~50% of 5:1 leverage (the average home owner).