Is the Fed’s action lowering the price of anything other than stocks?
Is the Fed’s action lowering the price of anything other than stocks?
When the media was pushing it’s “shortage” hysteria a few months ago, lunch at any of my favorite places would about kill a $10 bill. Some ran over $10. I had a ham and swiss sandwich, chips and medium coke at Tim’s for $7.57 today.
I was paying $5.29/gallon for gas a couple months ago. Gassed up Sunday at $3.59.
Bachelor chow went to $3.89 during the “shortage” hysteria, and they never went on sale. Today, I bought the same item, on special for $3.00, with a $4.00 off coupon for future purchase for buying 10 of them.
How is that for deflation?
Steve
5 Likes
Is the Fed’s action lowering the price of anything
No, it is not.
It is attempting to stop the continuing increase in prices.
Frankly, they are deliberately causing a recession to curb demand, giving more time for supply to increase and meet demand. They can’t actually do anything about supply, but they can quell demand to keep in in line with available supply, thereby preventing inflation.
That is exactly what their mandate calls for them to do. It is why the Fed exists - to keep inflation under control.
But they are also mandated to keep employment high. So they are trying to keep the recession as small as possible so as not to cause too much unemployment. So far, employment hasn’t been a problem. Unemployment remains unusually low in spite of the interest rate increases.
This has been discussed many times here. Is there something about this that you don’t understand? Please keep asking questions if needed.
–Peter
10 Likes
Lumber is one that seems to be responding.
https://www.nasdaq.com/market-activity/commodities/lbs
Maybe along with oil and other commodities.
Rising interest rates will impact new home sales and presumably building materials. Also new car sales and many commodities that go into their production.
Slowing economy caused by rising costs should cause shifts in demand and slow increases in prices.
1 Like
Yes some commodities are much softer or lower in price because the dollar appreciated.
That will have a mixed follow through effect because the global recession is now reducing demand. The cuts in oil put are not a big deal. There are big cuts in oil demand.
NG is not so lucky.
1 Like
The Fed acts by lending money to banks. The banks may or may not lend to consumers but they certainly impact the asset markets. (Stocks, bonds, real estate, etc.)
Consumer price inflation accelerates when the demand for consumer goods and services grows faster than the supply of consumer goods and services. Let’s take a look at the readily spendable cash available to consumers and also their borrowing.
Nominal M1 money supply didn’t grow for the past month. Real (inflation adjusted M1) money supply decreased sharply
https://fred.stlouisfed.org/series/M1SL
https://fred.stlouisfed.org/series/M1REAL
Consumer loans are still growing but the Fed can impact this by raising interest rates to the banks, which then raise interest rates to consumers.
https://fred.stlouisfed.org/series/CONSUMER
Commodity prices are responding in different ways.
https://stockcharts.com/freecharts/candleglance.html?$GOLD,$…
As Peter wrote, the Fed is trying to slow demand without inducing a recession. That will take a while because their impact on consumer prices is indirect. As opposed to the Fed’s impact on asset prices which is direct.
Wendy
I think he wrote that the Fed is intentionally causing a recession to decrease demand.
2 Likes
Fed Chair Powell said that the Fed’s top priority is to bring inflation to their target of 2%. Hopefully without a recession but the Fed will not change course even if a recession results.
Wendy
2 Likes
I think he wrote that the Fed is intentionally causing a recession to decrease demand.
Yes, I did. If I were a bit more circumspect, I might say they are risking a recession to reduce demand. But I really think they are expecting to cause one. Not that they want to, but it is necessary to control inflation at this time.
–Peter
3 Likes
https://fortune.com/2022/08/30/stock-market-pain-jerome-powe…
The stock market has tanked since Jerome Powell’s Jackson Hole speech. That’s how the Fed wants it
Investors finally realize Powell is serious this time.
Perhaps Powell is in part going for his legacy. To be remember as the second Paul Volcker rather the second Arthur Burns (Fed chairman 1970-78)
<Perhaps Powell is in part going for his legacy. To be remember as the second Paul Volcker rather the second Arthur Burns (Fed chairman 1970-78) >
I agree with you.
The famous leaders are remembered because they did the right (or wrong) thing during a time of crisis. Few remember the leaders who officiate during peaceful, predictable times.
Think of our coins: Lincoln (penny), Roosevelt (dime), Washington (quarter).
For Fed chairs, the ones who will be written about in economic history books are Volcker, Greenspan, Bernanke and Powell. Few will remember Janet Yellen because she presided over a calm time and didn’t have to deal with a crisis.
Yes, Powell wants to leave an honorable legacy, not to have his name dragged through the mud for decades to come.
Wendy
1 Like
Greenspan wont count in history.