Should the Fed Stop Now?

Below is a quick belt out of information and opinion before I head off with the family on a last-of-summer vacation. Don’t bother letting me know about other links, grammatical errors, or the like. I’ll go back to normal when I get back next week.

Should the Fed stop raising interest rates now? Even the staid financial press is starting to ask the question that obsequious interest rate hawks insisted was off the table, is it time to stop raising interest rates?

Inflation Is Down

In the carefully written narrative of the Federal Reserve fighting inflation, the Fed bank must raise interest rates, longer, and more painfully than the lesser economic hawks can stomach. Only then can inflation be brought under control by the tough love of inflation hawks. But, as they like to say, a funny thing happened on the way to the forum.

It seems that if the economy were overstimulated into inflation by various temporary economic measures such as government checks from a larger child tax credit, and student loan borrowers unleashed temporarily from their burdensome payments, then the boost to inflation was temporary as well. The result is that with a tap on the brakes in 2022, the Fed broke the runaway inflation train, and the economy has slowly dropped back toward normal, without the weeping and gnashing of teeth that the Fed was supposed to force on a weak and unwilling country.

Fed Won’t Stop Until It Hurts

Unfortunately, Chairman Powell and his wing of the Fed insist on breaking the U.S. economy before they stop. With a rising stock market, and an employment market that remains tight but without rising salaries, the economy might just gently land in the so-called soft landing. If that happens, the inflation hawks can’t take credit for being the adults in the room, and they can’t have that. So, instead of waiting to see what the effect of the restarting of student loans, the tens of thousands laid off from the tech sector, and the already 20-year high interest rates, Powell will lecture the county on the 2% inflation goal and continue to boost rates.

When will the Fed stop raising interest rates? When unemployment runs rampant, the stock and housing markets collapse, and the pain affects everyone except men in suits with comfy government job appointments. Then, they can tell you it was the only way before they start cutting rates again back to where they should have stayed in the first place.

grumpy fed economy
Midjourney in response to my prompt for grumpy financial wizards while outside things are sunny and great.

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