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Government The Almighty Buck United States

Fed Chair Says Interest Rates Should Have Gone Up Sooner (washingtonpost.com) 97

Posted by msmash from the closer-look dept.
Federal Reserve Chair Jerome H. Powell acknowledged in an interview with Marketplace on Thursday that the central bank could have moved faster to raise interest rates and cut inflation, as the central bank comes under increasing scrutiny over whether it waited too long to act on prices. From a report: "If you had perfect hindsight you'd go back, and it probably would have been better for us to have raised rates a little sooner," Powell said in an interview released Thursday with Marketplace's Kai Ryssdal. "I'm not sure how much difference it would have made, but we have to make decisions in real time, based on what we know then, and we did the best we could."

Powell's comments mark a sharper sentiment of regret than his past remarks when it comes to whether the Fed should have stepped in sooner. The Fed has faced criticism, primarily from Republicans and some prominent economists, such as Lawrence H. Summers, for delaying interest rate hikes and ending stimulus-era financial supports, which work together to cool off the economy and bring inflation down. Powell, who was confirmed by the Senate for a second term as Fed chair earlier Thursday, lost a handful of votes from lawmakers who said their constituents were suffering too much from high prices on his watch. For much of the last year, the Fed stuck to its message that rising inflation would be "transitory," or temporary, and more limited to pockets of the economy hit hard by the coronavirus pandemic and related shutdowns and supply chain disruptions. At WSJ conference on Tuesday, Powell emphasized his resolve to get inflation down, saying he won't hesitate to back interest rate increases until prices start falling back toward a healthy level. "We'll go to that point. There won't be any hesitation about that," he added.
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Fed Chair Says Interest Rates Should Have Gone Up Sooner More

Fed Chair Says Interest Rates Should Have Gone Up Sooner

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  • Duh! (Score:2, Insightful)

    by koko ( 66015 )

    Classic understatement. Must. Appease. Wall. Street. Interest rates go up, stocks go down. Always has. Always will.

    • Hindsight is 20/20

      Any one of the factors that had caused inflation, would quickly resolve itself, however as one issue begin to get better, a new one kicked in.

      • Re:Duh! (Score:5, Insightful)

        by Tony Isaac ( 1301187 ) on Tuesday May 17, 2022 @03:39PM (#62543832) Homepage

        No, not hindsight. Oversight is what caused this.

        The Fed kept interest rates at near zero for a decade, even though for many of those years the economy was humming along nicely. They couldn't figure out why the low interest rate wasn't causing overheating, but it wasn't, so they didn't raise rates. What they forgot is that "near zero" is an unprecedented level of support for the economy. An unprecedented measure is not appropriate during a time when things are going OK and you just don't know why the low rate isn't causing damage. Once we were no longer in recession, it was time to start raising rates slowly. They didn't, and here we are.

        • Once we were no longer in recession, it was time to start raising rates slowly. They didn't, and here we are.

          They did raise rates slowly, perhaps so slowly that you didn't notice. (or in other words, where it was at slightly less close to zero is maybe what you still define as "near zero") But look at the history of rates the Fed was charging, there was an upward movement for about the year prior to Covid. (Your point would have been stronger if you'd said something like "As it was, they raised so late and so little it was basically still where it'd been")

          What I interpret as your underlying point is completely val

          • Re: (Score:2)

            by Rob Y. ( 110975 )

            They raised rates a tiny amount, and when the stock market noticed and had a single down week, they promised to stop - and the market went back to its "there's no place else to invest" bull phase.

            The fact that the market was 'doing well' while prices on a specific set of commodities seemed stable is not an indication of no inflation. Housing costs, in particular continued to rise the whole time. So did health care costs. And a market that rises just because there's nowhere else to invest is hardly a sign

      • A main issue with inflation is that what it's calculated on is just a few select areas. Those gives a false value. "The most commonly used inflation indexes are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI)." https://www.investopedia.com/t... [investopedia.com]

        If property prices were included we would have seen some different figures

    • Classic understatement. Must. Appease. Wall. Street. Interest rates go up, stocks go down. Always has. Always will.

      Sure, that plus inflation is actually profit-taking. Not for you and me, but for the companies that suddenly have inflated prices. Because they can.

  • Looks like the Chair does not know what Table has.

  • I get these guys are smart and have the best economists in the world to figure this out. But really? Just follow the government spending pattern; you know what bills are going through Congress. The Biden administration spent $6.8B in 2021 alone; for perspective in 2020 the government spent $3.1 trillion and in 2019 government spending was $984B; 2021 is more than 50% up from 2019 and 2020 combined.

    I get it; public sector fell during the pandemic, government spending propped up a lot, etc. etc. But t

    • Re: (Score:2)

      by tekram ( 8023518 )
      Inflation has little to do with government spending, just look at the data for the last 40 years. Inflation usually comes about from commodity disruption, including oil and food and industrial metals and the world was hit with a double wammy of disruption, first the pandemic, still on going and then the largest European warfare in 80 years.

      • I think more accurate it's government deficit.

        It's the deficit that creates extra money.

        Unfunded tax cuts create inflation as much as unfunded spending, a balanced budget shouldn't create much inflation.

      • Re: (Score:2)

        by Hodr ( 219920 )

        Laughable.

        The government never spent this much before, you have no basis for comparison. It's like saying humanity has little to do with global warming, because for 99.99 percent of human existance this has been true. But there's something a bit different about the last couple hundreds years than the previous 199,800. Just like there's something a bit difference about creating an extra few trillion dollars.

    • Increase our countries GDP. That's how you "pay" for things.

    • Re:Oh really? (Score:5, Insightful)

      by hierofalcon ( 1233282 ) on Tuesday May 17, 2022 @03:38PM (#62543826)

      Congress spends money and makes laws for taxes. The Executive Branch submits budget requests that are ignored. About all Presidents do that affects the balance of money in/out are go to war without Congressional approval (which Republicans have done a lot of lately) and screw with tariffs. Your numbers seem a bit off. The first year in office, Presidents live with the budget from the last President due to when the budget year now starts.

      This is a good reference The American Presidency Project [ucsb.edu]. As a percent of GDP, Biden's actual and projected budgets are better than Trump's last two years in office - which again had pandemic issues causing them to be worse than any under Obama who had to deal with the last financial meltdown. The Trump years were also plagued with some stupid tariff issues that can be laid at his door. Before that, Clinton, the last Democrat before Obama, actually ran a surplus for several years before the Republicans got back in office and initiated more giveaways to the wealthy.

  • Understandable (Score:5, Insightful)

    by RobinH ( 124750 ) on Tuesday May 17, 2022 @03:23PM (#62543758) Homepage
    I was talking to an economist in June of 2021, and specifically about the rising rate of inflation at the time. I was asking why the central banks weren't already raising interest rates, and he said the general sentiment among economists was that the inflation would probably be temporary, but he acknowledged that it might not be. His point was that they need to get unemployment back down as far as possible before raising interest rates, otherwise it looks like you're working against an economic recovery. He basically said it was better to let inflation go high for a little bit than to risk stalling the recovery. But he also stressed that if inflation didn't go back down, the central banks will certainly start raising interest rates in 2022 to get it under control. So this is just central banks doing their job, choosing the lesser of two evils. What's unfortunate is that even small increases in interest rates are going to make a lot of barely profitable companies close down (not the worst thing) and will also hit leveraged speculators really hard. Lots of people borrowed money to buy extra real estate, or put a bunch of money into bitcoin, all because it kept going up in value, believing it would never go back down. Those types of "investors" are quick to panic when prices start going down, and it causes a vicious feedback loop. The good thing is that the more profitable companies who are finding it hard to grow because they can't hire fast enough will be able to hire those people laid off by the unprofitable companies, so after a year or two we'll come out of this poised for more economic growth.

    • Re: (Score:2)

      by Halo1 ( 136547 )

      Here's another economist arguing why central banks raising interest is not going to help [taxresearch.org.uk], and in fact only going to make things worse.

      The main point is that the current inflation is not there because people have too much money to spend. And raising interest rates is not going to address any of the actual causes of inflation, while it is indeed going to result in a world of hurt. Not just for bitcoin gamblers, but also for people that used to get by only just, and now are at the limit of their spending becau

      • The main point is that the current inflation is not there because people have too much money to spend.

        While this is true, big businesses have a LOT of money to spend. Shortages didn't raise their costs for the most part. It just raised their profit margin - and any cost increases that existed were more than made up for. They sold less and made more money. And with low interest rates and high inflation, you don't want your money to disappear to inflation - so you spend it.

        • Re: (Score:2)

          by Halo1 ( 136547 )

          While this is true, big businesses have a LOT of money to spend.

          Agreed.

          And with low interest rates and high inflation, you don't want your money to disappear to inflation - so you spend it.

          But the main drivers of the inflation right now are energy and food costs. Those costs are not rising because profiteering companies are buying up tons of those. Speculation does play a big part here, but that's more the area of the financial industry. Which is an industry whose profits will grow even further when hiking interest rates, in fact.

          There's also the supply chain that's still not running smoothly and random China lockdowns hampering production, but again those are unrelated to big business

        • There are still a lot of natural monopolies to buy up.

          If there's no growth, you can always grow your neofeudal kingdom. Rent is small ROI, but it's something.

        • Re: (Score:2)

          by RobinH ( 124750 )
          While you're right that companies spent money, this did raise their costs. While I believe you're right for companies selling to consumers, like grocery stores, etc., that is most certainly not true of the B2B segment. Pricing contracts are much longer, and only some contracts have price increase provisions for material inputs. When supply chains were strained, all businesses ordered *more* inventory to try to reduce risk, which just made the problem worse. So companies were going out of their way to pa

      • It will help the US though, if the world isn't pushed entirely off the brink.

        For a short time at least this is going to be a new extreme of American exceptionalism. The US can and will keep up government spending (because everyone is fleeing into the dollar) while the rest of the world goes into a depression, the world wide depression eases supply side issues by decreasing consumption everywhere except the US. So it will solve inflation in the US to a certain extent.

        If the world isn't pushed entirely off th

      • Found the Turkish president.

    • Re:Understandable (Score:5, Insightful)

      by Tony Isaac ( 1301187 ) on Tuesday May 17, 2022 @03:44PM (#62543842) Homepage

      Only understandable if you believe the "historically low" rates were still appropriate before the pandemic.

      "Historically low" is what you do when you have a huge problem to correct. The economy had been good for years before inflation came back, but it wasn't quite perfect. That scenario doesn't call for "historically low" rates. It calls for slow return to normal.

      Before 2008, interest rates of 2-4% were considered "normal" for "normal times." Zero was barely on the list of possibilities.

      The zero rate caused people to change their behavior. They stopped saving because they would get no reward, and instead borrowed like crazy because it was cheap, and invested in the stock market because it was the only place to make your money grow.

      The Fed missed the boat LONG before the pandemic.

      • Re: (Score:2)

        by RobinH ( 124750 )
        I still think the housing bubble is the real story here though, and I'm biased because the housing bubble here in Canada is 5 times bigger than in the US. We never had a housing price correction in 2008 like you did down there. My house has more than tripled in price in 2006. So for years now there's been speculators buying more and more properties, renting them out, and borrowing against those and buying more, etc. Those people are about to dump a whole bunch of properties on the market in the next yea
      • It gets worse. Most of that borrowed money is at variable interest rates. So as interest rates go up, a larger percentage of income goes to repaying debt. Honestly, I suspect that's the reason the Fed kept interest rates so low. The Federal government has amassed $30 trillion in debt, most of it in the last 15 years. Low interest rates helped keep the cost of that debt low. Interest on debt in FY2021 was $392 billion, or 5.7% of the budget. If interest rates increase by [crfb.org]:
        • 0.5% (which has already happened),

        • To be clear, the Fed interest rate everyone watches, is the interest rate it charges banks for overnight loans. https://www.bankrate.com/banki... [bankrate.com]. In that sense, it is variable and increases immediately.

          This rate has an indirect effect on other major interest rates. US Treasury bonds, the notes that comprise the vast majority of the US national debt, are fixed rate. Once the bonds mature, new debt is issued at the new going rate.

          Mortgage rates are typically based on LIBOR, not the Fed Funds rate. LIBOR is a

    • Re:Understandable (Score:5, Insightful)

      by coop247 ( 974899 ) on Tuesday May 17, 2022 @04:16PM (#62543944)
      Forget 2021, they should have been raising rates before the pandemic began, economy of 2018/9 could have handled it.

      Had they done so, they would have had the ability to drop rates during the lockdown and maybe print less cash. Instead it was just all "create more money and give it away."

  • I've been yelling that for some few years now. (Score:5, Insightful)

    by mmell ( 832646 ) on Tuesday May 17, 2022 @03:25PM (#62543774)

    Somebody decided it made good sense to run the US economy at full-throttle, believing there would be no obstacles to growth. They forgot that the cliff's edge doesn't look like an obstacle until you go over it.

    The worst part is, there has always been a good reason the Federal Reserve Board (the "Fed") generally doesn't go full-throttle on our economy. It'd be really cool to have some leeway to work with right now - you know, that COVID-19 thing and all. We don't have any. We spent it all about five years ago; the rich in the stock market got even more obscenely rich. Income taxes were low (for them), the Prime was low, it was a time for Empires to be forged in America!

    We don't need no stinking cryptocoin to ruin our economy. It might help, but I doubt it - accountants will stop calling it red ink and start calling it orange ink.

    • I'd give you mod points if I could. The "historically low" rate near zero was held way, way too long. They seemed to want to get the economy "just right" before they stopped this unprecedented intervention. Unprecedented interventions aren't useful for getting things "just right," they are best for emergencies. Five years ago, the US economy was NOT in emergency mode, but the Fed kept pretending it was.

  • There is no Crystal Ball Variant. (Score:3)

    by Tablizer ( 95088 ) on Tuesday May 17, 2022 @03:28PM (#62543784) Journal

    We already had this discussion on [slashdot.org]

    I disagree starting it earlier was an obvious choice. For example, early in the year the Omicron variant was flaring up and nobody knew how high the death/illness toll would ultimately go up at the time. If we had needed a big lockdown to prevent swamping the hospitals, then a rate hike would have been the wrong choice and the hikers would have egg on their faces, or Covid.

    We still might be in for a nasty spike of a killer variant. It ain't necessarily over. Evolution plays dice with the universe.

    • No. The "obvious" choice occurred years before the pandemic, when the economy returned to something like normal. Emergency measures are no longer appropriate when the economy is doing "pretty well." The Fed should have ended its emergency measures several years before the pandemic.

    • You may have already had that discussion; but I guess whatever is at that link is totally invalid it seems since your conclusion is wrong.

      The pandemic had NOTHING to do with the inflation we are seeing, all of what is happening now was inevitable. Maybe on a slightly different timeframe but all this inflation is from decades of pushing cans down a road and there are now too many cans and no more road.

      There were many people warning about inflation before the pandemic...

      • Re: (Score:2)

        by mmell ( 832646 )

        Actually, some amount of inflation is desirable. Think of a real economy as a huge variation on the Ponzi scheme. The nice part is that new players are born directly into the system, so there really is more stuff there for everyone to share. It's Ponzi, perfected.

        Hyperinflation is the last warning before the economy stalls. High inflation will somewhat gradually but ultimately grind the economy to a halt. Low inflation (to match increasing population and GNP growth) is the holy grail, the definition

        • Actually, some amount of inflation is desirable

          Actually that was never true and has always been a fever dream of modern monetary theory. In real life people prefer things to get cheaper not more expensive. But all of the "smartest minds" think inflation is great, so they breed the dragon and then have no idea later why everything is perishing in flames.

          The utter stupidity of thinking inflation is a force you can tame and manage so it should be encouraged has got us exactly where we are now, and the super

      • Re: (Score:1)

        by Tablizer ( 95088 )

        > There were many people warning about inflation before the pandemic...

        There were always people warning about inflation ever since I was old enough to read the news many many moons ago. Economists don't really fully understand inflation, in large part because it's based on aggregate human expectations of future prices, and that's really hard to predict and change.

  • Everybody in DC and Wall St. knew this. Powell was confirmed to a second term in an 80-19 vote on May 12, 2022. Following President Biden's renomination of Powell, the Fed Chairman indicated a reduction in Quantitative easing (QE) and Mortgage-backed security (MBS) purchases due to high inflation, with the CPI reading in November 2021 having reached 6.8% according to the Bureau of Labor Statistics, the highest level in 40 years.

  • I mentioned it once, but I think I got away with it.

  • We always punish working Americans (Score:5, Insightful)

    by rsilvergun ( 571051 ) on Tuesday May 17, 2022 @05:34PM (#62544168)
    for inflation.

    Go to YouTube and search for a video from "Some More News" about inflation. It's moderately funny, not their best work, but it makes an incredible point I never once considered:

    If the fundamental problem with inflation is too much money, why do we always take money away from working Americans? Never the 1%.

    There's a laundry list of things we could do besides jacking interest rates up, most obviously taxing corporations and wealthy. But that's not what we're doing. Instead, we're setting it up to force companies to do layoffs so that wages go down in the hopes that cheap labor will mean cheap prices.

    Of course that's not working this time, because there's no competition. We've had 4 decades of mega mergers. Prices don't need to go down. Who are you gonna buy from? There's 3 or 4 mega corps that own everything.

    It's like an MMO in reverse. In an MMO like World of Warcraft the way you control money supply is top down. You have an expensive mount for the richest players to buy in order to absorb money.

    Now imagine if instead of 1000 Gold for that sweet mount that mount was 300 gold, still too much for your run of the mill player but not enough to fix inflation, so to fix inflation Blizzard shut down all the dungeons and cleared out the mobs and we all had to sit around until the price of healing herbs went down.

    That's how the US economy works.

  • Thank you Captain Obvious (Score:3)

    by TomGreenhaw ( 929233 ) on Tuesday May 17, 2022 @05:55PM (#62544230)
    Why Powell has been given a second term is utterly beyond me. And Janet Yellen helped set the stage for inflation as well, and as a reward for her failure we made her Treasury Secretary. At least we don't have the Mnuchin, Navarro, Trump clown show. God help us if they get a second chance at finishing off our economy.

    There are a lot more ways to slow inflation besides making it more expensive to borrow money.v v Why is nobody talking about repealing tariffs? I understand that Biden is beholden to unions but you would think other people would be raising this issue.v
    And how about oil prices? We are in a full blown oil shock and there has been no discussion about using wartime powers to compel oil companies to restore production to pre-pandemic levels or threatening to cancel defense contracts with OPEC members unless they too restore production to pre-pandemic levels. I understand that corrupt politicians need oil money to get elected, but why isn't anybody raising this issue as well?

    And what the hell is the deal with not allowing migrant workers to come into the US to pick our food. Doesn't anybody realize this drives up the cost of food?

    I know it's not popular, but we have to stop giving away money. We need a system where everyone works. It is insane that we refuse to require a living minimum wage condemning a whole class of people to need free handouts to survive. The whole unemployment statistic is a huge lie and it should be forgotten and replaced with the job participation rate. We cannot afford razzle-dazzle to confuse voters.

    • Tariffs have become the go to for US Administrations since at least Obama, and Trump threw up his own. It's not about unions, it's about protectionism, about trying to prop up domestic industries that can't adequately compete. Up here in Canada, for instance, we have marketing boards for agricultural sectors, first constructed in the Depression to solve a very particularly problem at the time, but now so entrenched that to even challenge them is to literally attack one of my country's most sacred cows (pun

  • Yes, 100% the should have (Score:3)

    by EzInKy ( 115248 ) on Tuesday May 17, 2022 @06:15PM (#62544284)

    The economy was flourishing just a few years ago and the rates should have been raised then. Now we are in a barn door after the horse is loose situation.

  • There was too much government spending and interest rates were very low for a long time. The third leg of the inflation problem was quantitative easing (QE). The Federal Reserve printed money and bought securities. This amounted to a doubling of the money supply on everything they bought. The Federal Reserve still has a massive inventory of these securities to unload. This will lead to massive negative effects on the markets. The Federal Reserve has continued doing QE. This must be reversed. Selling the inv

  • hindsight (Score:3)

    by groobly ( 6155920 ) on Wednesday May 18, 2022 @12:40PM (#62546248)

    Hindsight is 20-20. However, in this case many many people had the foresight. Unfortunately, none of the were Democrats, therefore they were wrong by definition.

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