Tornado Alley (PROG)

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"Inflation Is High. How Will Rate Increases Fix That?"

As you know, it's long been the tool of central bankers worldwide in an effort to find the delicate balance between tamping inflation relatively quickly and easing to avoid a recession. So i just gotta accept it seems to be the best tool macroeconomists have for the circumstances which under our economic systems seems to be a relatively cyclical event. Course it's much dicier this time around thanks to years (decades some say of over stimulating, though most all say those were right for those times), the viruses (covid and omicron), Putin's f*ing war and OPEC and others profiteering et al et al et al. So for me it's either feeling they know best and trusting them. Or considering it's a worldwide conspiracy which wise QAnon people 'KNOW 'more about than i do. They are always among the certainty group as you know too. That thought down, a little one just grabbed:

Inflation Is High. How Will Rate Increases Fix That?

The Federal Reserve is raising interest rates to fight inflation. Some economists want more; some politicians want less. What’s the logic?

By Jeanna Smialek

Sept. 21, 2022

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The Federal Reserve has been raising interest rates as it races to tamp down rapid inflation. These moves have a lot of people wondering why rate increases — which raise the cost of borrowing money — are America’s main tool for cooling down prices.

Inflation right now is being driven by an economic mismatch. Consumer demand for goods and services has been chugging along, supply has not kept up as transportation snarls and factory shutdowns combine with labor shortages to slow production, and the clash has allowed companies to charge more for the products they sell.

The Fed’s tools are blunt, and they can work on only one side of that equation: Demand. Central bankers cannot fix roiled supply chains. But their higher interest rates can slow down the economy enough that businesses and households feel the pinch, which should in theory translate into slower wage growth, less spending and lower prices.

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Inflation F.A.Q.

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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.

Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.

How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
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That process is obviously a painful one. So why is the Fed doing this?

America’s central bank has for decades been what Paul Volcker, its chair in the 1980s, called “the only game in town” when it comes to fighting inflation. While there are things that elected leaders can do to combat rising prices — raising taxes to curb consumption, spending more on education and infrastructure to improve productivity, helping flailing industries — those targeted policies tend to take time. The things that Congress and the White House can do quickly help mainly around the edges.

But time is of the essence when it comes to controlling inflation. If price increases run fast for months or years on end, people could start to adjust their lives accordingly. Workers might ask for higher wages to cover their climbing expenses, pushing up labor costs and prompting businesses to charge more. Companies might begin to believe that consumers will accept price increases, making them less vigilant about avoiding them.

By making money more expensive to borrow, the Fed’s rate moves work relatively quickly to temper demand. As buying a house or a car or expanding a business becomes pricier, people pull back from doing those things. With fewer consumers and companies competing for the available supply of goods and services, price gains are able to moderate.

The risk is that the Fed’s process could come at a hefty cost given today’s dynamics. The supply of goods, while improving somewhat, remains constrained — cars are still hard to find because of semiconductor shortages, furniture remains on back order .. https://www.fool.com/earnings/call-transcripts/2022/08/24/williams-sonoma-wsm-q2-2022-earnings-call-transcri/ , and jobs are more plentiful .. https://fred.stlouisfed.org/series/JTSJOL .. than laborers. Bringing the economy back into balance could therefore require a big decline in demand. Slowing the economy that meaningfully could tip off a recession, leaving workers unemployed and families with lower incomes.
Understand Inflation and How It Affects You

Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.

Tax Rates: The I.R.S. has made inflation adjustments for 2023, which could push many people into a lower tax bracket and reduce tax bills.

Your Paycheck: Inflation is taking a bigger and bigger bite out of your wallet. Now, it’s going to affect the size of your paycheck next year.

Cost of Living: As food prices rise, eating is becoming increasingly expensive. We took a close look at five New Yorkers’ food and drink habits to see where the effects are most felt.

Jerome H. Powell, the Fed chair, acknowledged that the path ahead could be fraught.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said in a recent speech.

But central bankers believe that even if the risks are difficult to bear, they are necessary. A downturn that pushes unemployment higher would undoubtedly be painful, but inflation is also a major impediment for many families today. Getting it under control is critical to putting the economy back on a sustainable path, officials argue.

“A failure to restore price stability would mean far greater pain,” Mr. Powell said last month, later adding that “we will keep at it until we are confident the job is done.”

Jeanna Smialek writes about the Federal Reserve and the economy for The Times. She previously covered economics at Bloomberg News. @jeannasmialek

https://www.nytimes.com/2022/09/21/business/interest-rates-inflation.html

The only criticism i''ve heard here of your central bank is an opinion they moved to slowly on raising the rates. Only heard one say it.

LOL That last thought you included --

"Or, as they used to say in Brooklyn, back in the day (and I never actually lived in Brooklyn
back in the day) "the wisest guys are the ones who know that their wisdom is worth nothing.""

-- sounds like it could make life easier for a lot of people if we all could understand it.

PS: Just over-steamed some vegetables. Forgot it was left on high and only understood on hearing the poor overheated pot pop. Almost fell asleep here just earlier too, so about time to pack it in for the day. It's beautiful outside for a change, and the last day before a friend and her fiancee head to Britain to see his parents and grandmother. He writes software, she's great at the bar and enjoys looking at that word games of the SMH. . So -- yeah -- been here about 8h. Enough.