'Is monetary policy even working?'
1–10 of 67 posts
Re: 'Is monetary policy even working?'
#2Re: 'Is monetary policy even working?'
#3The core point from the article (because no one will actually read it):
"Higher interest rates have proved a lot less destructive than investors feared in 2022, when the world’s central banks embarked on one of the most aggressive episodes of monetary tightening in history. Nothing has “broken”, contrary to the prevailing view two years ago; and this has even sparked a lively debate about why mainstream macro exaggerated the dangers of higher rates."
Basically, a lot of people assumed (high interest rates = slowing economy), but the current status quo reflects otherwise. Personally, I'm happy that it has now re-incentivized saving, and a much more mercenary and productivity driven outlook.
Re: 'Is monetary policy even working?'
#4>> Central bankers have long argued that changes in interest rates affect global economies with “long and variable lags”.
Which is another way of saying if there's a link it is very weak, and those not very useful for driving anything behind long-term strategic direction, certainly not day-to-day policy.
Re: 'Is monetary policy even working?'
#5What bothers me is that in Europe it was expected to affect the real estate prices. The higher the interest, the lower the prices, which sounds logical but...the prices kept increasing.
So what's going to happen when Lagarde decides to lower them? The demand is way to high and the offer is almost non existent.
And it seems that it didn't affect the inflation either. Bad years for everybody who's not getting a 10% raise every year.
Re: 'Is monetary policy even working?'
#6The core point from the article (because no one will actually read it): "Higher interest rates have proved a lot less destructive than investors feared in 2022, when the world’s central banks embarked on one of the most aggressive episodes of monetary tightening in history. Nothing has “broken”, contrary to the prevailing view two years ago; and this has even sparked a lively debate about why mainstream macro exagger…
Usually, it does equal a slowing economy. But IMO there's a difference this time in that a lot of economic "growth" was being carried out by businesses that couldn't exist in a reasonable interest rate environment (which is exactly what Jerry Powell's environment is) and honestly just wanted to cash out.
Think of how many startups only existed to set money on fire until they completely captured a market, or how many got bought by the likes of FAANG+MS just to only kind-of have an integration into products/services that were made.
This has just been a return to the normal rules of business: you need to be able to create a return on investment in a reasonable amount of time, and with a reasonable amount of resources.
Re: 'Is monetary policy even working?'
#7The core point from the article (because no one will actually read it): "Higher interest rates have proved a lot less destructive than investors feared in 2022, when the world’s central banks embarked on one of the most aggressive episodes of monetary tightening in history. Nothing has “broken”, contrary to the prevailing view two years ago; and this has even sparked a lively debate about why mainstream macro exagger…
This wasn't "one of the most aggressive episodes". This was nothing compared to Volcker in 1979-1981.
And the fact that nothing has broken indicates that they didn't go overly aggressive. They stopped inflation from getting worse without driving the country into a recession. That's a pretty decent balancing act.
Re: 'Is monetary policy even working?'
#8The core point from the article (because no one will actually read it): "Higher interest rates have proved a lot less destructive than investors feared in 2022, when the world’s central banks embarked on one of the most aggressive episodes of monetary tightening in history. Nothing has “broken”, contrary to the prevailing view two years ago; and this has even sparked a lively debate about why mainstream macro exagger…
Usually, it does equal a slowing economy. But IMO there's a difference this time in that a lot of economic "growth" was being carried out by businesses that couldn't exist in a reasonable interest rate environment (which is exactly what Jerry Powell's environment is) and honestly just wanted to cash out. Think of how many startups only existed to set money on fire until they completely captured a market, or how many…
Largely it's this point below from the article:
"The obvious one is fiscal policy, with governments everywhere using budgetary stimulus more actively since the pandemic. The impact of higher interest rates has been dampened in two ways. First, consumers had high levels of liquid assets (sometimes called “excess savings”) left over from the pandemic, which provided a financial cushion that protected their spending power. Second, governments have been deploying additional funds since COVID-19, such as the large energy support programmes in Europe and Bidenomics in the US (big tax subsidies that encouraged US companies to invest heavily in green energies). These funds have supported incomes and employment, even as monetary policy engineered a squeeze"
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People on here are overstating the impact of a handful of software companies and buzzwords on the larger economy.
Re: 'Is monetary policy even working?'
#9Isn't effective tightening for global multinationals a function of tightening the lowest global interest rate? Which refers to Japan, and Japan only just a few weeks ago exited negative territory and has not tightened meaningfully at all.
Re: 'Is monetary policy even working?'
#10The core point from the article (because no one will actually read it): "Higher interest rates have proved a lot less destructive than investors feared in 2022, when the world’s central banks embarked on one of the most aggressive episodes of monetary tightening in history. Nothing has “broken”, contrary to the prevailing view two years ago; and this has even sparked a lively debate about why mainstream macro exagger…
They did slow it down ( including the form of couple banks going under and Summers begging for a bailout ). It just so happens that federal government also managed to pass some corporate stimulus in the form of 'green new deal' or whatever they ended up calling it and war of Ukraine, which helps domestic warmachine ( billions from misnamed foreign aid ).
edit: Oh, and the Summeers did manage to scare enough people to rescue SVB so that impact was absorbed, amusingly, by other banks via extraordinary FDIC fee ( most banks have it listed now on their quarterly statement in case you are inclined to check ).