The Fed's anti-inflation fight is only making slow progress, causing a surge of criticism of the industry. In response to COVID, the Fed flooded the US economy with large amounts of stimulus and liquidity to keep it afloat but did not focus on carefully reducing that money supply over time. The M2 supply of money, a broad measure of money supply that includes cash and deposits, has been growing by double digits in the past three years. Now the growth of the M2 money supply is slowing too rapidly and that could send the economy into a recession.
The Fed is supposed to be the best source as to what is going on in the economy. It is supposed to have all the information and has no political reason to hide certain information. Right now, the Fed is just as blind as everyone else as to why our economy is the way it is now. This is an economy that the world has never experienced before. Snarled supply chains. Global food and fuel prices are through the roof due to Russia's invasion. The unpredicted pandemic caused an unprecedented amount of factory shutdowns, and now inflation is at rates we haven't seen in years. The Fed does not expect annual inflation to return to its 2-percent price-stability target before 2025.
The Fed also released some of the top officials' quarterly forecasts specified down to 1/10 of a percentage point to clear some of the fog among analytics. The Fed is known for predicting where the economy will be in the future very poorly. For example, the median projection for the Fed's preferred inflation called for a raise of 2.6 percent, instead, the latest estimate now calls for inflation to be 5.4 percent. All Powell is trying to do is show that the evolution of the economy is changing and that almost everything is uncertain.
The Fed has plans to fight consumer price inflation of 8.3 percent. They plan to raise interest rates until the economy slows. This has already caused the housing market to a steep decline, meaning if we want to beat inflation, we will have to suffer in other categories. With weakness in the economy, employers will begin laying off workers. The Fed expects unemployment to raise to 4.4 percent from 3.7 percent. Since interest rates started rising, global stock markets have lost $12 trillion in value.
I always wonder why they are changing what has always been the rule about a recession, and I wonder if it is to make the exectutive branch look better because as you say we dont know if we will fall into a recession, I have seen tons of debates about how we have always classified a recession as two quarters having negative gdp but since we have done that, for the first time since 2009 the white house is saying we are not in a recession even though thats the standard we have always gone by. I feel as the economy has been in a tough place with having to shut down the entire country and then still supply people with money and so getting out of that the fed is put in a tough spot to try and rectify the situation. I believe by increasing the intrest rates will slowly decrease the situatution over time but how long it will take is something they cant answer.
ReplyDeleteI give the Federal Reserve credit for being honest with the American people regarding the uncertainty about the economy. Not just the country, but the world in general has gone through some very rough times in the past few years from COVID, global conflicts, and a supply chain crisis. Economic conditions are always uncertain, but I hope the Fed can have a good long-term plan to bring back stability in the economy.
ReplyDeleteThe Fed is normally a credible source and the place that people look to for information, so this uncertainty they are showing probably makes things seem worse. If the people who are supposed to have the best understanding of the economy are stumped and unsure of what to do, then everyday people must be feeling a whole lot more confused. While the Fed is uncertain, they are at least being honest with what's going on. Cause all they can do is tell the truth so that people can make economic decisions based on what's happening. If they were to lie then the economy would be worse off as people would make decisions they might not normally make. I think that the biggest uncertainty that scares people is the question of how long. As we can only run on faith and belief in the Fed for so long until we need to see an actual change.
ReplyDeleteWhen covid first hit, the massive uncertainty that came with it was frightening to many people. This is alarming that even the Federal Reserve is unsure of what is going on in our economy. It is expected to not be able to understand the full dynamics of the economy, but the Federal Reserve is meant to be a source of information and have a general understanding of what's going on. This uncertainty the Fed has could cause them to fall into a negative light. I do think it's good that the Fed is being honest and open with the people, but their openness about the uncertainty could be frightening to the people.
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