Top Fed Official: Fed Will “Keep At This” Until Your Savings Accounts Are Drained (theintercept.com)
“We see today that there is a bit of a savings buffer still sitting for households, that may allow them to continue to spend in a way that keeps demand strong,” she said. “That suggests we may have to keep at this for a while.”
In other words, the problem today as seen by the Fed is that regular Americans have too much money. And the Fed is going to keep bludgeoning the economy until this is no longer the case.
The Party is not over yet!
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The beatings will continue until morale improves.
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As I suspected, Ms. George’s remarks are being taken slightly out of context and/or given the spin a reader of her remarks is hearing.
Her remarks can be found here: https://www.kansascityfed.org/Speeches/documents/9244/2022-George-EnergyConference-11-10.pdf
On page 5 of the PDF, we get this:
One factor complicating the determination of how high rates will have to go is the large
stock of liquid savings on household balance sheets. During the pandemic, fiscal policy
transferred a tremendous amount of balance sheet capacity from the government to households
and business. The government’s borrowing was the private sector’s saving. How households
treat this accumulation of saving will be important for shaping the outlook for output, inflation,
and interest rates. It could very well require a higher interest rate for some time to convince
households to hold onto this saving rather than to spend it down and add to the inflationary
impulse.
She notes the transfer of “balance sheet capacity” (which I believe is Fed-speak for money) to households and business. That’s all of the various stimulus programs that came about due to the pandemic. But she importantly notes that what households do with that money is what will impact future interest rates. She basically says that rates need to rise to encourage households to save the money rather than spend it. The alternative is for households to spend it all, which will (in theory, but probably not in practice due to borrowing) stop the spending and reduce inflationary pressures.
So no, she is not saying that the rate increases will continue until savings are drained. If you choose to stop spending those savings and actually SAVE them, that will help reduce inflation and allow the Fed to stop increasing rates.
–Peter
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Actually, her comments could be taken either way: inflation will abate if people run out of money, or they are adequately incentivized to save it.
That article is dated today. I notice the market futures this evening are not showing any follow-through from today’s stampede to the upside.
If these comments make the rounds of the Street, the lemmings will probably stampede to the downside, yet again.
Steve
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