> "Corporations are people, my friend. Of course they are. Everything corporations earn ultimately goes to people. Where do you think it goes? Whose pockets? Whose pockets? People's pockets. Human beings, my friend."
No they're completely in accord with what they say. You see, if Dupont has a chemical spill who'll suffer the consequences? The people! Human beings /s
Presumably the concern is that the profits are not fairly distributed among the people in that company - instead corporations are usually a mechanism for wealth accumulation.
Don't corporate profits depend on the 99% (the poors) spending? If the consumers fail, and stop spending, how long before the corporations feel mildly inconvenienced?
I'm not sure about the 99%, but I think we've established in the last few years that the economy can keep humming along quite nicely in the short term with only 10% of the population increasing their spending significantly in real terms. I doubt it would work with 0.1%. 1% might be enough.
I'm unsure why people still believe we need the middle class to lead consumption for our economy to be "good"? At this point I feel like there is a lot of evidence out there directly contradicting that belief.
Do I think that's good for the nation? Not at all.
But I think fixing the fact that such an economy is terrible for the nation should be a separate discussion. Obviously we need to do something to support the 90%, and I support doing something in service of that goal. We should do it as soon as possible.
But I think people like Kashkari are thinking only about the economy itself. Which is kind of his job. It's the job of our elected officials to fix issues arising from the inability of the 90% to take advantage of the economy as well as they had historically.
Historically, yeah. In a "k-shape" economy, one where the upper end of the economic scale does most of the buying and selling and the lower end is struggling, that's not true. Gross inequality has serious knock-ons in longer term outcomes around stuff like public safety, average quality of life, probably innovation too but not all consumers factor equally into to the great big rollup of behavior and incentive the Fed tracks.
> Don't corporate profits depend on the 99% (the poors) spending? If the consumers fail, and stop spending, how long before the corporations feel mildly inconvenienced?
50% of consumer spending is by the top 10%, and that trend is getting more extreme as wealth concentrates further. Is there a breaking point? Sure. But capital is willing to see how far it can push this before it breaks.
Well, actually they have a new model. I call it the "Apple" model. Low volume sales on high value items where you can charge more.
Even NVidia has moved to this model: make your money from selling high-end GPUs for Data Centers and forget the low-profit margin (GeForce) GPUs for gamers/consumers.
The whole economy is moving to that model for many things.
In comparison. Android phones (in total) outsell iPhones because they are cheaper/more affordable. Sure Macs and iPhones may sell more than an individual non Apple brand, but collectively all together, the non-apple brands outsell Apple.
But it is certainly true that making high quality products doesn't necessarily mean low sales.
Could you point to some evidence that we are not? Or at least an anecdote or an opinion on what the issue is or anything at all of substance rather than a provocative question and a bit of snark? What am I supposed to take away from this- I don't even know whether 'we' refers to the consumer or participants in the labor market
It was a bit of a surprise they didn't already do it. Most people expect rates to go up at the next FOMC. Inflation is moving up, mostly due to the Iran War related oil crisis.
Rates up, rates down, I'm so confused. Too much liquidity supposedly means inflation, too little liquidity means deflation. Would not lower rates mean more consumer spending, thereby injecting more spending and fluidity in the system?
I can't help but shake the feeling that the federal reserve is here for the wealthy, the bankers, and not for the rest of us, and anything they do is ultimately not for our benefit, but for theirs.
> Would not lower rates mean more consumer spending
> the feeling that the federal reserve is here for the wealthy
In a sense, the disconnect between these two things is also the explanation. The behavior of consumers is not directly coupled to the fed rate. What you or I do with our money won't change if the rate goes up or down a percent, because we just don't have enough money for it to make a difference to our daily life.
But it often takes a loan to start a business. And when the bank is considering who to make loans to, higher fed rates mean they need to charge more interest, which means riskier business proposals don't get funded. Conversely, if the fed rate is low, then the only way for banks to make money is by making loans, so there's more money available, which tends to both increase inflation and decrease unemployment.
The fed has two jobs (keep inflation at ~2%, and unemployment no higher than 5%) and one lever to accomplish both. It's not so much that they only care about the wealthy, but rather that their only tool needs to percolate through the wealthy before it affects us.
The behavior of consumers is directly coupled in a few ways. However most of what consumers buy is things they would anyway. I'm going to buy a new house this year if I can help it - I locked in my low interest rate several years ago - but if something happens I might be forced to. Most of my spending is no going to change. I'm going to eat, and that comes from my paycheck not from a loan. So long as the cost doesn't go up by more than my raises I'll keep paying for my kid's violin lesson.
Most of the changes from high interest rates are indirect to me. Because rates are up my company is selling less product - our customers have to pay for loans and in turn that means some of them decide to keep/maintain an old product that they would replace if the cost (mostly interest rates, but we can also play with our price) was a little less. In turn this means that my cost of living raise this year was pretty bad (didn't meet inflation), so I've been forced to cut something small (or take from savings).
Now I do have friends who were laid off because of the economy and having trouble finding a job. As always things are worse for those people.
> I can't help but shake the feeling that the federal reserve is here for the wealthy, the bankers, and not for the rest of us, and anything they do is ultimately not for our benefit, but for theirs.
Because that is what's happening. Our economy is fractured after years of catering to the wealthy at the expense of the working class (anyone who finances their life via their labor.)
Yes. If costs are up AND profits are up or steady, it implies that the squeeze is being felt by consumers rather than by the large companies seeing profits. To me that implies the issue is a lack of competition, itself largely due to failure to enforce existing antitrust laws. It's hard to fix monopolization with interest rates.
The problem is interest rates are the only large lever they have, but changing this lever changes a lot of things at the same time. Some of those changes are good, other bad - they need to figure out the best compromise, but there is always good and bad with every position of this lever. Most of the things that happen as a result of the lever (including leaving it in the same place) take time - sometimes years - to work out.
Lower rates does increase spending. However it does this by adding money: inflation - which in turns makes prices go up. So in the long run this makes things worse despite the short term gain. This is just one part of the full consideration, there are lots of other effects from any interest rate that they need to work out.
I think you've got the cause and effect backwards.
If X dollars buys 1.2 times more stuff in the future (deflation) you will hoard your dollars and deprive the economy of them.
If X dollars buys 0.8 times more stuff in the future (inflation) you will buy things now and make investments.
The Fed isn't optimizing for people wanting mortgages today, it does controlled burns to try and prevent medium-term calamity. Look up the Volker shock, where rates were hiked beyond 20% to trigger recessions because inflation was above 10%.
You're making a lot of strong assertions for someone who acknowledges they don't understand pretty basic concepts in macroeconomics.
> Would not lower rates mean more consumer spending, thereby injecting more spending and fluidity in the system?
If managing the economics of a country was as simple as recognizing a relationship like, "when we move this number up, then things get better," then we'd be living in a utopia.
If you want to assert that the Fed isn't helping the average citizen, then go ahead and join the large group of people who have been suggesting this the whole time. But if your basis for such an assertion is that you can't comprehend why a decision like raising or lowering interest rates isn't simple, then do yourself a favor and just step away from even trying to understand what is happening here.
> I can't help but shake the feeling that the federal reserve is here for the wealthy, the bankers, and not for the rest of us
Kashkari was part of the minority opinion. The Fed voted to keep rates steady, so I guess that means that the Fed is against the wealthy, bankers, and for the rest us?
It turns out that having lots of money is useful, including at taking advantage of the macroeconomic landscape. In a high interest rate environment, you get free money from yields. In a low interest rate environment, you get free money from leverage.
The Federal Reserve is one of the last competent parts of government. You don't blame the ER doctor for atrophy caused by being hooked to a ventilator after getting a heart attack caused by consuming only fast food. The ER's job is to keep the patient alive by making sure that oxygen is circulating well enough for the body alive. Likewise, the Federal Reserve's job is to make sure that money circulates in a way that keeps the economy alive. It's not their fault if the voters vote for politicians who enact terrible policy.
Yen carry trade unwind, inflation in Japan, hit to the NASDAQ, AI bubble pops, Japanese investors pull money back home and Treasuries lose its largest foreign creditor. Who knows what happens next.
What happens next is that US Treasury yields go to the moon, making previously bought treasuries nearly worthless. Most bank deposits in the US are instantly used to buy treasuries, so severe devaluation of those less-than-mature bonds on the secondary markets means that money held by banks is not really there. Should there be a larger than average number of people making withdrawals, bonds would be dumped on the secondary for pennies on the dollar. Bank runs, complete financial collapse, etc. Enjoy.
BTW, this is exactly what happened to Silicon Valley Bank in 2023 on a smaller scale.
The problem for mortgages is that the headline rate (30 year fixed) was historically low for almost the entire period 2009-2020, as the economy slowly struggled out of the Great Recession and then the rates went absurdly low during the Covid recession. That meant that a lot of people locked in mortgage rates that are impossibly low (including me) and going back to more "normal" rates- the current rates are a little lower than what was available in the period 1993-2008- feels high to people. And so many people locked in those low rates (either purchase or re-fi), can't get those low rates on a new house, and so feel locked into their current home, which is serving as an anchor on the entire real estate market.
> Corporate earnings are through the roof. They’re doing great. The consumer is hanging in there. The labor market is hanging in there.
Are we though?
Thank god corporate profits are ok...
> "Corporations are people, my friend. Of course they are. Everything corporations earn ultimately goes to people. Where do you think it goes? Whose pockets? Whose pockets? People's pockets. Human beings, my friend."
- US Presidential candidate, Mitt Romney, 2011
It's strange how they agree with that statement until it comes time for legal culpability or personal responsibility of any kind.
My friend.
No they're completely in accord with what they say. You see, if Dupont has a chemical spill who'll suffer the consequences? The people! Human beings /s
Presumably the concern is that the profits are not fairly distributed among the people in that company - instead corporations are usually a mechanism for wealth accumulation.
[dead]
Don't corporate profits depend on the 99% (the poors) spending? If the consumers fail, and stop spending, how long before the corporations feel mildly inconvenienced?
I'm not sure about the 99%, but I think we've established in the last few years that the economy can keep humming along quite nicely in the short term with only 10% of the population increasing their spending significantly in real terms. I doubt it would work with 0.1%. 1% might be enough.
This.
I'm unsure why people still believe we need the middle class to lead consumption for our economy to be "good"? At this point I feel like there is a lot of evidence out there directly contradicting that belief.
Do I think that's good for the nation? Not at all.
But I think fixing the fact that such an economy is terrible for the nation should be a separate discussion. Obviously we need to do something to support the 90%, and I support doing something in service of that goal. We should do it as soon as possible.
But I think people like Kashkari are thinking only about the economy itself. Which is kind of his job. It's the job of our elected officials to fix issues arising from the inability of the 90% to take advantage of the economy as well as they had historically.
Historically, yeah. In a "k-shape" economy, one where the upper end of the economic scale does most of the buying and selling and the lower end is struggling, that's not true. Gross inequality has serious knock-ons in longer term outcomes around stuff like public safety, average quality of life, probably innovation too but not all consumers factor equally into to the great big rollup of behavior and incentive the Fed tracks.
> Don't corporate profits depend on the 99% (the poors) spending? If the consumers fail, and stop spending, how long before the corporations feel mildly inconvenienced?
50% of consumer spending is by the top 10%, and that trend is getting more extreme as wealth concentrates further. Is there a breaking point? Sure. But capital is willing to see how far it can push this before it breaks.
Well, actually they have a new model. I call it the "Apple" model. Low volume sales on high value items where you can charge more.
Even NVidia has moved to this model: make your money from selling high-end GPUs for Data Centers and forget the low-profit margin (GeForce) GPUs for gamers/consumers.
The whole economy is moving to that model for many things.
Auto sales, airline ticket prices (notice the expansion of 1st, business, and comfort class seats), etc.
Apple has low volume sales? You might have picked the wrong company for that example. Nvidia in the consumer market might fit, I would agree there.
>Apple has low volume sales?
In comparison. Android phones (in total) outsell iPhones because they are cheaper/more affordable. Sure Macs and iPhones may sell more than an individual non Apple brand, but collectively all together, the non-apple brands outsell Apple.
But it is certainly true that making high quality products doesn't necessarily mean low sales.
Apple has 70% of sales share and 80% of usage share in the US. Your comment is true world-wide, but this thread is about the US.
Not this quarter, and this quarter matters for bonuses! What happens with the next quarter is a "then-problem".
Same for politicians, 4/5 years matter, if the world collapses after, it's the next governments problem.
And in financial terms, those are really long periods, at least compared to HFT.
Could you point to some evidence that we are not? Or at least an anecdote or an opinion on what the issue is or anything at all of substance rather than a provocative question and a bit of snark? What am I supposed to take away from this- I don't even know whether 'we' refers to the consumer or participants in the labor market
[dead]
It was a bit of a surprise they didn't already do it. Most people expect rates to go up at the next FOMC. Inflation is moving up, mostly due to the Iran War related oil crisis.
Rates up, rates down, I'm so confused. Too much liquidity supposedly means inflation, too little liquidity means deflation. Would not lower rates mean more consumer spending, thereby injecting more spending and fluidity in the system?
I can't help but shake the feeling that the federal reserve is here for the wealthy, the bankers, and not for the rest of us, and anything they do is ultimately not for our benefit, but for theirs.
> Would not lower rates mean more consumer spending
> the feeling that the federal reserve is here for the wealthy
In a sense, the disconnect between these two things is also the explanation. The behavior of consumers is not directly coupled to the fed rate. What you or I do with our money won't change if the rate goes up or down a percent, because we just don't have enough money for it to make a difference to our daily life.
But it often takes a loan to start a business. And when the bank is considering who to make loans to, higher fed rates mean they need to charge more interest, which means riskier business proposals don't get funded. Conversely, if the fed rate is low, then the only way for banks to make money is by making loans, so there's more money available, which tends to both increase inflation and decrease unemployment.
The fed has two jobs (keep inflation at ~2%, and unemployment no higher than 5%) and one lever to accomplish both. It's not so much that they only care about the wealthy, but rather that their only tool needs to percolate through the wealthy before it affects us.
The behavior of consumers is directly coupled in a few ways. However most of what consumers buy is things they would anyway. I'm going to buy a new house this year if I can help it - I locked in my low interest rate several years ago - but if something happens I might be forced to. Most of my spending is no going to change. I'm going to eat, and that comes from my paycheck not from a loan. So long as the cost doesn't go up by more than my raises I'll keep paying for my kid's violin lesson.
Most of the changes from high interest rates are indirect to me. Because rates are up my company is selling less product - our customers have to pay for loans and in turn that means some of them decide to keep/maintain an old product that they would replace if the cost (mostly interest rates, but we can also play with our price) was a little less. In turn this means that my cost of living raise this year was pretty bad (didn't meet inflation), so I've been forced to cut something small (or take from savings).
Now I do have friends who were laid off because of the economy and having trouble finding a job. As always things are worse for those people.
> I can't help but shake the feeling that the federal reserve is here for the wealthy, the bankers, and not for the rest of us, and anything they do is ultimately not for our benefit, but for theirs.
Because that is what's happening. Our economy is fractured after years of catering to the wealthy at the expense of the working class (anyone who finances their life via their labor.)
Yes. If costs are up AND profits are up or steady, it implies that the squeeze is being felt by consumers rather than by the large companies seeing profits. To me that implies the issue is a lack of competition, itself largely due to failure to enforce existing antitrust laws. It's hard to fix monopolization with interest rates.
Inflation is bad, we have high inflation due to the energy crisis, the treatment for high inflation is increasing interest rates.
[dead]
The problem is interest rates are the only large lever they have, but changing this lever changes a lot of things at the same time. Some of those changes are good, other bad - they need to figure out the best compromise, but there is always good and bad with every position of this lever. Most of the things that happen as a result of the lever (including leaving it in the same place) take time - sometimes years - to work out.
Lower rates does increase spending. However it does this by adding money: inflation - which in turns makes prices go up. So in the long run this makes things worse despite the short term gain. This is just one part of the full consideration, there are lots of other effects from any interest rate that they need to work out.
I think you've got the cause and effect backwards.
If X dollars buys 1.2 times more stuff in the future (deflation) you will hoard your dollars and deprive the economy of them.
If X dollars buys 0.8 times more stuff in the future (inflation) you will buy things now and make investments.
The Fed isn't optimizing for people wanting mortgages today, it does controlled burns to try and prevent medium-term calamity. Look up the Volker shock, where rates were hiked beyond 20% to trigger recessions because inflation was above 10%.
> Rates up, rates down, I'm so confused.
You're making a lot of strong assertions for someone who acknowledges they don't understand pretty basic concepts in macroeconomics.
> Would not lower rates mean more consumer spending, thereby injecting more spending and fluidity in the system?
If managing the economics of a country was as simple as recognizing a relationship like, "when we move this number up, then things get better," then we'd be living in a utopia.
If you want to assert that the Fed isn't helping the average citizen, then go ahead and join the large group of people who have been suggesting this the whole time. But if your basis for such an assertion is that you can't comprehend why a decision like raising or lowering interest rates isn't simple, then do yourself a favor and just step away from even trying to understand what is happening here.
This is just rude, the poster clearly is asking for more information and isn't claiming to be an expert.
> I can't help but shake the feeling that the federal reserve is here for the wealthy, the bankers, and not for the rest of us
Kashkari was part of the minority opinion. The Fed voted to keep rates steady, so I guess that means that the Fed is against the wealthy, bankers, and for the rest us?
It turns out that having lots of money is useful, including at taking advantage of the macroeconomic landscape. In a high interest rate environment, you get free money from yields. In a low interest rate environment, you get free money from leverage.
The Federal Reserve is one of the last competent parts of government. You don't blame the ER doctor for atrophy caused by being hooked to a ventilator after getting a heart attack caused by consuming only fast food. The ER's job is to keep the patient alive by making sure that oxygen is circulating well enough for the body alive. Likewise, the Federal Reserve's job is to make sure that money circulates in a way that keeps the economy alive. It's not their fault if the voters vote for politicians who enact terrible policy.
[dead]
Yen carry trade unwind, inflation in Japan, hit to the NASDAQ, AI bubble pops, Japanese investors pull money back home and Treasuries lose its largest foreign creditor. Who knows what happens next.
US Treasury just bought about $10 billion worth of Yen
Praise FSM. Without circular investments we'd all be broke.
Because otherwise Japan would have sold Treasuries to plug its financial gaps and defend the Yen, which would have increases US bond yields.
Is the US Treasury now on the hook every time Japan feels a bit antsy about its finances?
Finally a new type of circular financing to talk about!
Using Euro's apparently.
What happens next is that US Treasury yields go to the moon, making previously bought treasuries nearly worthless. Most bank deposits in the US are instantly used to buy treasuries, so severe devaluation of those less-than-mature bonds on the secondary markets means that money held by banks is not really there. Should there be a larger than average number of people making withdrawals, bonds would be dumped on the secondary for pennies on the dollar. Bank runs, complete financial collapse, etc. Enjoy.
BTW, this is exactly what happened to Silicon Valley Bank in 2023 on a smaller scale.
You write as if nobody has ever raised interest rates before and this is some unprecedented event that no bank could be prepared for.
Isn't that when the Fed stepped into the reverse repo market in order to allow the banks to extend and pretend?
[dead]
I feel the mortgage rates are a bit too high now. Anyone else?
The problem for mortgages is that the headline rate (30 year fixed) was historically low for almost the entire period 2009-2020, as the economy slowly struggled out of the Great Recession and then the rates went absurdly low during the Covid recession. That meant that a lot of people locked in mortgage rates that are impossibly low (including me) and going back to more "normal" rates- the current rates are a little lower than what was available in the period 1993-2008- feels high to people. And so many people locked in those low rates (either purchase or re-fi), can't get those low rates on a new house, and so feel locked into their current home, which is serving as an anchor on the entire real estate market.
But you can see this pattern here in FRED: https://fred.stlouisfed.org/series/MORTGAGE30US
In comparison to what? Buyers usually want this to be lower. Historically quite low still.
I'm saying renting is way cheaper than buying in most metros
My parents bought their house when rates were about 12-14%... "High" is relative.
Lazy, regurgitated take. House prices then were also 1/10 of what they are today.
Houses were cheap even with inflation though