The dual mandate of the Federal Reserve is to maintain maximum employment consistent with controlling inflation. The so-called “neutral” fed funds rate neither stimulates nor restricts demand. The Fed has said that it wants to return to a neutral rate after its current cycle of restrictive rates succeeds in bringing inflation back to its target of 2%.
A ‘New Normal’ for Rates? Not So Fast, Says New Fed Research
‘There is no evidence that the era of very low natural rates of interest has ended,’ says New York Fed President John Williams
By Nick Timiraos, The Wall Street Journal, May 19, 2023
…
Between the 2008 financial crisis and the 2020 pandemic, Fed officials and economists had concluded the neutral rate of interest, or the level that balances supply and demand when the economy is operating at full strength, had declined sharply. That, together with weak growth following the crisis, ushered in a period of historically low interest rates…
If estimates of the neutral rate of interest shifted higher, officials could conclude that the rates needed to slow inflation would be considerably higher. If those estimates haven’t changed, then the fed-funds rate might be expected to return to less than 3% if the Fed succeeds in bringing inflation down to its 2% target over the next few years.
The model shows the inflation-adjusted neutral rate stood around 0.7% at the end of last year and has declined over the past year, though the degree of uncertainty over those estimates is large. Inflation was 4.2% in March, using the Fed’s preferred gauge, the personal-consumption expenditures price index. That would suggest a nominal neutral rate that is below 5%…[end quote]
Historically, the neutral rate was about 2%. The Fed has brought the real (inflation-adjusted) fed funds rate to negative over extended periods in the past 20 years. This artificially stimulated the asset markets more than the economy.
The Fed has massively intervened in the Macro economy and the asset markets by manipulating the cost of money and pumping vast amounts of Quantitative Easing by buying bonds.
If the Fed actually does move back to the low neutral rate of 0.7% the markets will be relieved. If this is too low then inflation will resurge as it did in the 1970s.
Inflation has been moderating over the last several months, but it is not yet down to the Fed’s 2% target. The major concern I have with the prospects for future inflation is the employment rate. Unemployment has been exceptionally low recently. That typically is an inflationary pressure. Few unemployed workers means that business have to compete for workers, which tends to drive wages up. Alternatively, businesses need to attract people who are currently out of the work force to rejoin it. Again, that probably means offering higher wages to attract those potential workers.
Either way, that’s an upward pressure on wages, which will cycle through the economy increase costs and pushing prices higher to cover those increased costs.
I was speaking with a contractor yesterday. I was mentioning that I was thinking of working to 70 but that the calendar to 70 seemed to be running slower than my health wind down to 70. He said “Yep, and it gets real fast after 80, the last two years have been tough.”
The Friends of the Governor Stone was given a boat. The gentleman and I motored it over from Niceville to Panama City , about a 10 hour run. We had time to talk, he is thinking of winding up his construction business early, at 78.
We had a meeting with our Florida Department of Emergency Management team, part of the scheduling ritual was getting a time when everybody was out of the hospital and not in a doctors visit. This is due to the advanced ages of most involved.
I expect wages to remain under pressure until generalized robotics can be brought online.
I have posted about robotics before and they were featured in the Tesla investor day. This is and AI are growing so fast and are so transformative that I believe that Tesla, Nvidia and Hyundai investor days should all be watched each year. Hyundai owns 80 percent of Boston Dynamics.
The demographic transformation that
is now well underway in all countries outside Sub-Saharan Africa this not some future thing, it is well past Japan, Europe, and Russia and has made in roads in the places like Mexico and India. (Yes India)
Right now low unemployment levels add to consumption, savings and GDP growth. Placing demand on goods will add to US factory output for the foreseeable future.
Qaz, just my unasked for opinion, just giving a pov:
Of course, You have to do You, but you do not get back those years from whatever your age is now until you’re 70. If you luv your job, then work away. If you’re still a power tech, I did that exact same job for the same company, and I was very happy to step away, even though I liked the job and was fairly good at it, I have a lot of interests and have no trouble enjoyably filling up my days.
Sounds like you have a ton of outside-of-work interests,too.
There is no right or wrong answer, it’s your life, you do what is best for you. Best of luck to you.
The evening network “news” had a touchy-feely thing about a grave digger in a little town in Indiana, who is 89, and still digging graves. Personally, I think it’s sad that someone can’t find a more interesting way to fill their days than work for someone else. My calendar is full of places to go and things to see, every summer. Things I could not do all those years I was working, because I was required to work all day, every weekday. During the winter, I read and learn new things. Here is an example. For years, I have wondered how the magazines on a Vickers multiple 2 pounder worked. Finally found a bit that explained it, and that 2 watt bulb lit in understanding. Will it solve world hunger? No. But it was a very satisfying moment, much more satisfying than being beat on by a “JC” to do more work in less time.
I am only sixty now. Working for the corporation is much less interesting than working for myself.
The NFTs are facing their last technical hurdle. I have tried about five times to do this. The last obstacle I am over coming right now.
Then I have choices. I can work a bit. I can semi retire. I can go into game development. I can make a different NFT project. Those things I fully control. The less controllable thing is a much bigger bet with partners. The CEO just has it on the drawing board. Now is not the time for a new business venture in corporate America.
I was a power tech several years ago, now I am a Network Technical Specialist. I protect the backbone fiber. I generally tell people I do very little when they ask what I do. When they press me I say, “I watch people work and scowl a lot.” I live a beautiful place, have an office my manager is jealous of, drive a nice truck, and have relationships with most of the larger contractors. A hard day cuts into my yoga and workout, it gets really tough when I end up with a doctor’s appointment, Yoga and a F.O.G.S. meeting on the same day. I find it most annoying when I get so busy that I can’t sit at the park over looking the little lake and study Spanish.
So, my knees hurt more and the heat when I am marking cable in the summer can be unpleasant, but really, retire? Not until I make more retired than working.
I wanted to run an experiment, but needed a couple adapters. Since RS put itself out of business, I started a search for another likely source. Found one only about 3 miles away.
Yes, the store had the adapters I needed (1/8", mono, phone jack, to RCA plug), ironically, NOS RS parts. Also picked up a couple RCA plugs so I could make up a 3’ composite video patch cord using some nice 8mm cable that came into my hands somewhere along the way.
The experiment was a failure. Seems 100k ohm provides too much attenuation for a 2V signal. What irks me is the notice on the receipt “no returns or exchanges”, so my bit of knowledge obtained from the experiment smoked $12.
My 30 year old CD player started skipping. Cracked it open, on the off chance that it is only a matter of the lube on the mechanism drying out. Found the rail the laser head runs on, and the bearing for the pinion that drives the laser head, were in plain sight. I whipped out my RS “precision oiler” and put a little drip on each. It remains to be seen whether that cures the problem. In any event, thrift store rescue players are dirt cheap, so I have no intention of seeking “professional service” for the old thing.
That was my week, so far. (expensive) bit of knowledge gained, CD player possibly salvaged, patch cord made, laundry and dishes done, so the day is clear tomorrow to head across the state for an event.
Little or none of this would have been possible, if I had a “JC” on my back, bellowing “shut up and work”.
We have yet to find a way to stop the clock so we have to find the way to live with the clock ticking. The problem with most ways of making a living are the dependencies. One depends on clients, employers, employees, partners, contractors, suppliers, public services, and maybe more such as competitors who want to do you in. As we age it gets harder and harder to service or to fend off all these interest groups. The solution is to find a way of making a living that does or depend on all these interlopers.
The solution I have found for my own use is selling covered calls which one can do online from the comfort of one’s bed without having to deal with a host of conflicting interests. Just find a reliable trading broker.
Years ago I created a website for a client that allowed him to run his business poolside in Florida instead of battling Winters in Chicago. He drop shipped customized UBS pen drives from China. The website ran on an iPhone or laptop.
I have to travel to Biloxi for a VA appointment Monday. We had one person off already Monday so the computer would not let me off. I called my boss and told him my problem he checked around and got someone to cover for me. No problem.
The whole shut up and work is not a thing here. At least for me. Now my old compadre in Sioux Falls is putting in 60
hours a week, but he is young and thinks that not having 60k in the banks is too little to start a family. (He lives in a 500k house with 150k in equity) His boss sees him 4 times a year. He asked if I wanted his job when he transfers, I said, “I really like South Dakota and Sioux Falls, but it sounds like I might have to work, so no.”
Cheers
Qazulight (Generally check
my morning tickets on my Ipad to the sunrise while drinking my morning coffee)
Union member? I was summoned for jury duty, while working in the Office Depot store. I wondered to the boss, who would cover my job (packing delivery orders and preparing the paperwork). My normal work day was 11am to 8pm. The boss said “you will probably be out by 2 or 3 in the afternoon, so you can come in then and do all your work yourself” (ie, cram 8 hours of work into 4). Working at Workplace Integrators (Steelcase dealership), I was ordered to drive to Grand Rapids and spend 2 days at a workshop Steelcase was having to improve their product recall process. My first question to the boss “who will cover for me?” Boss said “don’t worry, everything will be covered”. I got back into the office to find their idea of “coverage” was have someone take phone messages and print out e-mails, and pile everything up on my desk for me to deal with when I got back.
What is this “coverage” of which you speak?
/sarcasm
No, actually,. My tickets are caught up until Tuesday. All my compadre needs to do is cover hot tickets on Monday and that is likely to be nothing. The standard tickets that come in Monday will be due Wednesday and I will tske care of them.
Talked to a 22 year old student working with us. She says this is across the country. She is right. It is part of why the anti Woke movement is so powerful. Questioning your crazy uncle will get you a response.
"What is this “coverage” of which you speak?
/sarcasm
Steve"
the first 10 years of my adult working life was non union, and I totally get what you’re saying, the worker has no leverage. I quit a good paying non union job with a large chemical manufacturer to go hire in as as CWA member with Ma Bell and it was a huge upgrade, no comparison at all. In 30+ years with them, never filed a single grievance, management treated me pretty darn good, I expected to work everyday so never played any games with them to see what I could get away with, but as employees we did have some leverage, hence the getting treated pretty good. Whatever I paid in union dues, I made multiples on in pay and benefits.
In spite of RS’ poor reputation with the BBB, I could have returned the adapters to their store, as I always keep receipts and original packaging. I got blindsided on this one. Didn’t expect the “no returns” thing until I got home and looked at the receipt.
Similar adapters are available from Amazon, for half the price: $6/pair, plus shipping. Wonder how much the shipping would be? Probably $5. Apparently I can’t find out what the shipping is unless I buy them. And they would only be returnable in new, unused, condition, which they aren’t.
