KEY POINTS
- Fed Chair Jerome Powell said Wednesday that the central bank could find itself in a dilemma between controlling inflation and supporting economic growth.
- “If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close,” he said for a speech in Chicago.
- Powell gave no indication on where he sees interest rates headed, but noted that, “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”
immutable@lemm.ee 1 week ago
The fed controls interest rates. That controls how cheap or expensive it is to borrow money.
Lower interest rates are a great tool if you’ve got people sitting on capital. You lower the interest rates, borrowing becomes cheaper, and capital takes advantage of this to start more enterprises and the economy heats up.
Higher interest rates help fight inflation, there’s too much money in the system, higher rates make getting more money to pump into the system more expensive cooling it down.
Now what a keen observer might notice is that there no direction to move the interest rates which counteract nonsense trade policies.
You can cut rates to 0, flood the market with cheap credit, and if your inputs are tariffed and you can’t turn a profit… it doesn’t change shit.
This is where stagflation thrives. The cheap money floods the economy to try to spur economic growth, but the thing holding back growth isn’t access to borrowing, it’s the disaster out trade policies. So the market flooded with cheap money just becomes inflationary.
You get little economic development, high inflation, this is a classic stagflation trap. And trump and his advisors are going to apply maximum pressure to cut rates to “save the economy” from their terrible trade policies and all that will do is sink us deeper into this hole.