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Thursday, July 27, 2023

Fear of a Good Economy



The following is one of the posts where I don't actually know anything about the subject matter, but I'm going to exercise my God-given right as an internet-denizen to opine anyway.

The Fed raised interest rates again yesterday, putting rates at their highest level in decades. It also left the door open for yet another hike later in the year. The rationale is that there is a continued need to combat inflation. But inflation rates are down significantly. The Fed's stated inflation target of 2% would be quite low by historical standards -- not absurdly low, but well below average. And on the whole, it feels like we were already at mission accomplished.

So why did we need another rate hike? I can't help but feel as if the Fed's rate decisions aren't directly about inflation, but about fear that the economy is running better than expected. Now to be clear, I don't mean this in some sort of conspiratorial "the rabble are getting too much of the pie and as guardians of capital we can't have that" sort of way. Rather, it seems as if the Fed simply won't believe it's truly gotten inflation under control unless we see significant slackening of economic growth. Inflation has been lowered, but the Fed doesn't trust the resilience of that accomplishment unless and until there's an economic downturn to "confirm" the effect.

It doesn't strike me as a good thing that "the economy is still purring along" gets translated as "whelp, better crank those rates higher." Even if the Fed eventually starts believing its own lyin' eyes on inflation, the lagging effects of potentially gratuitous rate hates could end up doing significant unnecessary damage a year from now. That would be very much not good, for a host of reasons (not the least of which being "badly timed economic slide + likely fascist on the ballot" has not augured well for democracy, historically speaking).

But again -- I actually don't know anything about this, so this is me talking completely out of my own behind. Buyer beware.

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