Could interest rate hikes be keeping inflation high?

[mystery-ak]

 Could interest rate hikes be keeping inflation high?
by Tobias Burns - 04/23/24 6:00 AM ET

The stickiness of the post-pandemic inflation is raising questions about how effective high interest rates are at bringing down price increases – and if they could be fueling the problem.

Standard economic thinking says that higher interest rates should bring down prices by squeezing the labor market and lessening the demand for goods and services. Lower demand then forces companies to cut their prices.

Inflation began a rapid descent in the middle of 2022 but has remained above 3 percent for nearly a year, ticking up to 3.5 percent in March. Some experts are now questioning the logic behind rate hikes and asking if they may even be stimulating the economy toward further growth rather than slowing it down.

For that to work, the extra money made in the form of interest income from higher rates would need to be making its way back into the economy through consumer spending, thereby adding more fuel to price increases.

Investors and wealth managers say they’re seeing the signs.

“It’s people who have piles of cash that are generating more cash faster than they can spend it,” Ritholtz Wealth Management CEO Josh Brown said on the CNBC television network last week.

“I work in wealth management … I’m telling you, this segment of the population is not only not pulling back because rates are higher, but in many cases they feel like they’re doing better than ever.”

The Fed is poised to keep rates at the current baseline range of 5.25 to 5.5 percent at its next policy meeting in May after several hot employment and inflation reports. Fed Chair Jerome Powell said last week that the central bank has yet to see desired “progress” in its inflation fight and is prepared to keep rates higher for longer.

more
https://thehill.com/business/4612114-could-interest-rate-hikes-be-keeping-inflation-high/

[LMAO]

It’s record-breaking deficits and printing money that’s keeping inflation high

[Bigun]

It’s record-breaking deficits and printing money that’s keeping inflation high

 

[Fishrrman]

Judging from the title, it sounds like Mr. Burns is trying hard to turn the laws of economics inside out...

[DB]

Judging from the title, it sounds like Mr. Burns is trying hard to turn the laws of economics inside out...

You have to deny the obvious to tow the party line.

[Free Vulcan]

Sorry, I think they're reaching...hard.

Doubly funny, rich people making money and injecting it into the economy sounds alot like old Reagan style supply-side 'trickle down' economic, which I thought was heresy.

[Hoodat]

Could interest rate hikes be keeping inflation high?

No, no, no, and no.

[Smokin Joe]

It’s record-breaking deficits and printing money that’s keeping inflation high

Combined with increasing fuel costs (Biden energy policies) which make transporting most everything more expensive, which makes most everything more expensive.

[catfish1957]

And the ugly underbelly of this article is not that inflation will perpetuate, but Fedzilla is going to have to fund it's bond habit by floating 5-6% treasuries for 30 years, instead of 2-4%.

That little corner our criminal legislators have painted ourselves  in, is shrinking by the day. 

[DB]

And the ugly underbelly of this article is not that inflation will perpetuate, but Fedzilla is going to have to fund it's bond habit by floating 5-6% treasuries for 30 years, instead of 2-4%.

That little corner our criminal legislators have painted ourselves  in, is shrinking by the day.

Almost... They can also do "quantitative easing" which is just creating money out of thin air with no need to borrow it via treasury notes. THAT, devalues the money and makes everything cost more in terms of dollars. And they've been doing that with reckless abandon and we've been living the consequences.

[massadvj]

It is a myth known as "modern monetary theory" that a central bank can control inflation by tweaking interest rates. While inflation is the result of increases in the money supply, those increases come about as a result of big government deficits, and the Fed then buying Treasury debt, which finds its way into the economy when the government spends the money. Politicians and their sycophants in the media will seek to blame all sorts of other boogeymen, but the bottom line is very simple to understand: inflation is a tax, one of the most regressive taxes there is.

[Hoodat]

Almost... They can also do "quantitative easing" which is just creating money out of thin air with no need to borrow it via treasury notes.

We are now in our fifteenth consecutive year of 'quantitative easing'.

[Hoodat]

And the ugly underbelly of this article is not that inflation will perpetuate, but Fedzilla is going to have to fund it's bond habit by floating 5-6% treasuries for 30 years, instead of 2-4%.

Five percent is what they are paying other people who buy treasuries.  The Fed won't be charging the US government a dime on the fantasy money it prints up for them.  Nor will that money ever be paid back.

[massadvj]

Five percent is what they are paying other people who buy treasuries.  The Fed won't be charging the US government a dime on the fantasy money it prints up for them.  Nor will that money ever be paid back.

It is theoretically possible for the Fed to monetize the entire federal debt by buying back all Treasury bonds and then just forgiving the debt the Treasury would owe the Fed.

[Bigun]

It is a myth known as "modern monetary theory" that a central bank can control inflation by tweaking interest rates. While inflation is the result of increases in the money supply, those increases come about as a result of big government deficits, and the Fed then buying Treasury debt, which finds its way into the economy when the government spends the money. Politicians and their sycophants in the media will seek to blame all sorts of other boogeymen, but the bottom line is very simple to understand: inflation is a tax, one of the most regressive taxes there is.

 

[Hoodat]

It is a myth known as "modern monetary theory" that a central bank can control inflation by tweaking interest rates.

A theory invented by government for the benefit of government.

[Hoodat]

It is theoretically possible for the Fed to monetize the entire federal debt by buying back all Treasury bonds and then just forgiving the debt the Treasury would owe the Fed.

Essentially no different than what the Weimar Republic did to pay off its WWI debt.

[massadvj]

Essentially no different than what the Weimar Republic did to pay off its WWI debt.

Indeed. It would trigger hyperinflation by throwing $29 trillion or so into the economy over a very short period. But I think at some point they will have no choice. Politicians are not going to deal with the underlying problem.

[Fishrrman]

Catfish leaps with:
"...Fedzilla is going to have to fund it's bond habit by floating 5-6% treasuries for 30 years, instead of 2-4%."

I've recently started buying t-bills, with the shortest term (4 weeks). Return seems to be right around 5.35% for the past few months.

A $100k bill will pay about $412 every 4 weeks (less whatever you wish paid directly the IRS for taxes).

You can set them to "re-invest" as many terms as you want (up to 2 years). You can also "bail out" at any time (by changing the number of terms of re-investment).

I've bought several, so that I get "a payoff" every Tuesday. I had to create a spreadsheet on the Mac to keep up with it all...!

Having said that, a friend just sent me an article (from CNN, sigh) that says the treasury is considering issuing a run of ONE-DAY t-bills, to cover a shortage of cash:
https://www.cnn.com/2023/06/01/business/treasury-bill-auction/index.html

[DefiantMassRINO]

Interest Rates will make servicing the Government debt more expensive.

In theory, higher interest rates lower demand and sop up cash to reduce cash supply and lower the velocity of money through the economy.

But, the stickiness of inflation is due to bad Government housing policy, bad Government energy policy, lack of Government anti-trust enforcement, and things beyond the Government's control, such as bird flu.

Even if higher rates reduce demand, as intended, there is still insufficient supply (housing) to meet demand and Global Climate Change Policies are inflationary because they distort market supply and increase energy prices.

In a truly free competitive energy market, we'd be getting more electricity from lower-cost coal, natural gas, and possibly newer, safer thorium nuclear power plants - lower costs of production; lower prices.