[HN Gopher] The Federal Reserve Is About to Give US Workers the ...
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       The Federal Reserve Is About to Give US Workers the Shaft
        
       Author : heavyset_go
       Score  : 14 points
       Date   : 2022-02-07 21:32 UTC (1 hours ago)
        
 (HTM) web link (www.commondreams.org)
 (TXT) w3m dump (www.commondreams.org)
        
       | zozbot234 wrote:
       | This rate adjustment was arguably overdue. People always complain
       | about rising rates, but the alternative is prices spiraling
       | upwards even further and an even harsher corrective move down the
       | road. To be sure, good fiscal discipline from the government
       | could also help avoid spikes in bond rates.
        
       | akeck wrote:
       | I have this non-scientific intuition that interest rates should
       | generally be slightly above the dividend payment rate of the S&P
       | 500 (or maybe Russell 2K). That way there's less of a clear
       | choice between equities, bonds, and other assets.
        
         | csense wrote:
         | You have the right idea, but the wrong direction.
         | 
         | In theory, interest rate on government debt should be slightly
         | _below_ dividend payments of equity (stocks of private
         | companies). That 's because the dividends are more risky, so
         | investors demand a higher yield.
         | 
         | If interest rates on government debt go up, then people should,
         | in theory, sell some of their stocks and buy government bonds.
         | 
         | Think of it this way, if there is (in your words) "a clear
         | choice between equities [and] bonds", then people will sell
         | whichever one is less desirable and buy whichever one is more
         | desirable. This will make the less desirable asset cheaper and
         | the more desirable asset more expensive, and this process will
         | continue until you reach a market equilibrium where investors
         | as a whole are indifferent between stocks and bonds.
        
       | say_it_as_it_is wrote:
       | Prices haven't risen because of wages. They rose because business
       | owners know to not let any good crisis go to waste. Businesses
       | blame Covid. They blame supply chains. They blame wage increases.
       | Lo and behold, YoY financial performance indicates recording-
       | breaking rise in profits. Give the shareholders a bonus!
        
       | mikece wrote:
       | As if screwing our buying power through inflation wasn't bad
       | enough: now we get higher interests rates? Are they _trying_ to
       | crash things?
        
         | tylerhou wrote:
         | Higher interest rates reduce the money supply and generally
         | slow inflation. So if you don't like inflation, you should
         | support higher interest rates.
        
         | uejfiweun wrote:
         | I feel like a crash would be a good thing for workers though? I
         | mean pretty much nobody will ever be able to buy a house unless
         | there's a major asset price crash.
        
           | xxpor wrote:
           | Sure, if your only expense in life is buying a house.
        
             | quantified wrote:
             | If it's not the biggest, you have attained a measure of
             | wealth, good on you.
        
         | xxpor wrote:
         | Unironically yes. But the point is the crash will bring down
         | inflation. Some bank last week estimated that to get to 2%
         | inflation would require 10% unemployment though. I'm skeptical
         | of Phillips curve arguments, but even if that's remotely true
         | it would be a complete disaster.
        
       | Jeema101 wrote:
       | He seems to be admitting that inflation is high, and yet saying
       | we should do nothing.
       | 
       | This is precisely what was said by policymakers in the early
       | 1970s who were saying pretty much the same thing back then: we
       | can't act on inflation because it will hurt the labor market.
       | 
       | This of course resulted in inflation becoming more and more
       | firmly entrenched until their WAS a wage-price spiral that was
       | very hard to break. It then look the new Federal Reserve chairman
       | more than a decade of trying to get it under control, and
       | ultimately, it was only done through sky-high interest rates that
       | caused 2 bad recessions. Most of that pain could have been
       | avoided had they just acted more decisively in the early 70s.
       | 
       | And now here we are again decades later with the worst inflation
       | in 40 years and some people saying we should just 'let it ride
       | and see what happens'! Well we already know what happens if
       | history is any indication.
        
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       (page generated 2022-02-07 23:02 UTC)