For the first time since 2009-2010, when I (mistakenly) believed that Bernanke at the Fed & Obama & the center of gravity of his advisors understood the seriousness of the situation & were about to...
What I want to know is how Jamie Dimon was suggesting we might have a return to 8% interest rates, and why he said this? Where did the implied inflation come from? Or was it increased defaults as risks increased?
As best I can tell, interest rates have never been about inflation except insofar as fighting inflation provides a mechanism for crushing the hopes and dreams of those who have to work for a living.
Where has inflation been high of recently (Q3-Q4 in PCE)? Shelter, insurance (life, auto, & house), auto repair, dental services, and nursery school. Will interest rates rise induce us to consume less of any of these? Probably not and often hopefully not. Although higher interest rates have reduced housing construction permits, thereby constraining the supply of shelter which is already in shortage, in which case rate cuts may exacerbate shelter inflation. Should the Fed raise interest rates to combat the cost of climate change on property insurance or the pandemic on life insurance?
Rate hikes seem best aimed at slowing bank credit growth that has stimulated consumption & investment faster than capacity. But both total bank credit and C&I have been flat for over 18 months. Meanwhile, private credit is flooding businesses. Does the Fed influence private credit through rate hikes, or do their hikes redirect credit growth to shadow banking which has a long and unknown lag?
Oh, so it's *plastromancy* now, is it? Old-fashioned augury not good enough for you, you need your powers of divination imported from the orient? What has become of mos maiorum?!
The breadth of his knowledge, and his ability to remember it, are amazing.
I could work out the etymology of plastromancy for myself, but I had to look it up to learn that it was a specifically Chinese practice, and that it is lumped together with ox scapulae in the category of "oracle bones". Although apparently "scapulimancy" has currency as the specific case for scapulae, the counterpart of plastromancy, and that would have tipped me off.
Nor did I know that "reading the bones" involved heating! So both plastromancy and scapulimancy lie in the category of pyromancy.
Real rates (2.12 pct for ten years) seem to be flashing yellow, not quite red. And even that level could be in part a response to increasing supply rather than a pure risk premium. My not at all sought after opinion is that it will go higher...
"But the Federal Reserve does not dare start to end this post-soft landing touchdown period of reverse thrust until it sees signs of reduced forward employment groundspeed, and signs that inflation moderation is still in progress."
We need a more daring FMOC. And if it had reduced EFFR by quarter of a point or two in DEcember and January, it could raise it now.
It should have been clear by late 2008 that the Fed was not pulling out all the stops. EFFR was not zero and QE had not begun. [When did IOR begin and WHY?] There was never a statement that the Fed would not let inflation slip below target. Indeed, given the size of the shock (though smaller than COVID), an announcement that there would be period of above-target inflation was in order.
This obviously points to endogenous variables. My best guess? You and the market are underpricing MMT-at this point the Fed is driving inflation by keeping interest rates high.
What I want to know is how Jamie Dimon was suggesting we might have a return to 8% interest rates, and why he said this? Where did the implied inflation come from? Or was it increased defaults as risks increased?
As best I can tell, interest rates have never been about inflation except insofar as fighting inflation provides a mechanism for crushing the hopes and dreams of those who have to work for a living.
Where has inflation been high of recently (Q3-Q4 in PCE)? Shelter, insurance (life, auto, & house), auto repair, dental services, and nursery school. Will interest rates rise induce us to consume less of any of these? Probably not and often hopefully not. Although higher interest rates have reduced housing construction permits, thereby constraining the supply of shelter which is already in shortage, in which case rate cuts may exacerbate shelter inflation. Should the Fed raise interest rates to combat the cost of climate change on property insurance or the pandemic on life insurance?
Rate hikes seem best aimed at slowing bank credit growth that has stimulated consumption & investment faster than capacity. But both total bank credit and C&I have been flat for over 18 months. Meanwhile, private credit is flooding businesses. Does the Fed influence private credit through rate hikes, or do their hikes redirect credit growth to shadow banking which has a long and unknown lag?
Brad, the commodity futures modernization act was signed into law by Bill Clinton. Facts do not care about our feelings.
Oh, so it's *plastromancy* now, is it? Old-fashioned augury not good enough for you, you need your powers of divination imported from the orient? What has become of mos maiorum?!
plastromancy <nod> I'm going to have upgrade my dictionary
From plastron + manteia = "turtle shell prophecy"
<nod> a form of divination - reading the 'bones' ... I do enjoy following professor Delong
The breadth of his knowledge, and his ability to remember it, are amazing.
I could work out the etymology of plastromancy for myself, but I had to look it up to learn that it was a specifically Chinese practice, and that it is lumped together with ox scapulae in the category of "oracle bones". Although apparently "scapulimancy" has currency as the specific case for scapulae, the counterpart of plastromancy, and that would have tipped me off.
Nor did I know that "reading the bones" involved heating! So both plastromancy and scapulimancy lie in the category of pyromancy.
Real rates (2.12 pct for ten years) seem to be flashing yellow, not quite red. And even that level could be in part a response to increasing supply rather than a pure risk premium. My not at all sought after opinion is that it will go higher...
"But where is the legislative coalition for such a move?" Was there a "coalition" for the Reagan/GWB/Ryan tax cuts?
Trump causes the US to launch a renewed batch of trade wars which it will again lose (not, mind you, that those we wage them against will win).
All trade wars are lose-lose. That is why they are called "wars" and not "trade liberalization agreements."
"But the Federal Reserve does not dare start to end this post-soft landing touchdown period of reverse thrust until it sees signs of reduced forward employment groundspeed, and signs that inflation moderation is still in progress."
We need a more daring FMOC. And if it had reduced EFFR by quarter of a point or two in DEcember and January, it could raise it now.
It should have been clear by late 2008 that the Fed was not pulling out all the stops. EFFR was not zero and QE had not begun. [When did IOR begin and WHY?] There was never a statement that the Fed would not let inflation slip below target. Indeed, given the size of the shock (though smaller than COVID), an announcement that there would be period of above-target inflation was in order.
This obviously points to endogenous variables. My best guess? You and the market are underpricing MMT-at this point the Fed is driving inflation by keeping interest rates high.