How can you cut rates when inflation is high and well over the fed target of 2%? In the 70s they cut rates with high inflation and inflation became supercharged. At these prices, if rates say above 7 for as long as they did between 1970 and 1981, the average consumer and spending would suffer horribly. Not saying it won't happen, but it may have a negative ripple.
Great question! It's true that the Fed is in a challenging position with inflation still above their 2% target. Historically, the 1970s taught us the dangers of cutting rates too soon, which indeed led to runaway inflation. However, the current economic environment is different in several ways. Firstly, the Fed has shown a strong commitment to fighting inflation, and recent data suggests their efforts are starting to pay off. For instance, the PCE - Personal Consumption Expenditures report shows a slowdown in inflation, indicating that the measures in place are having the intended effect. While keeping rates high for an extended period, as seen between 1970 and 1981, could have negative effects on consumer spending and the broader economy, the Fed’s approach today is more data-driven and responsive to real-time economic indicators. They are likely to balance rate adjustments carefully to avoid both reigniting inflation and causing undue economic hardship. That said, it’s crucial to stay informed and agile in these times. Engaging with clients and helping them understand these dynamics can make a big difference. If rates do remain high, advising clients on strategic moves like buying now and refinancing later when rates potentially drop can mitigate some of the negative impacts. Thanks for your thoughtful comment! It’s an important discussion as we navigate these economic challenges together.
How can you cut rates when inflation is high and well over the fed target of 2%? In the 70s they cut rates with high inflation and inflation became supercharged. At these prices, if rates say above 7 for as long as they did between 1970 and 1981, the average consumer and spending would suffer horribly. Not saying it won't happen, but it may have a negative ripple.
Great question! It's true that the Fed is in a challenging position with inflation still above their 2% target. Historically, the 1970s taught us the dangers of cutting rates too soon, which indeed led to runaway inflation. However, the current economic environment is different in several ways.
Firstly, the Fed has shown a strong commitment to fighting inflation, and recent data suggests their efforts are starting to pay off. For instance, the PCE - Personal Consumption Expenditures report shows a slowdown in inflation, indicating that the measures in place are having the intended effect.
While keeping rates high for an extended period, as seen between 1970 and 1981, could have negative effects on consumer spending and the broader economy, the Fed’s approach today is more data-driven and responsive to real-time economic indicators. They are likely to balance rate adjustments carefully to avoid both reigniting inflation and causing undue economic hardship.
That said, it’s crucial to stay informed and agile in these times. Engaging with clients and helping them understand these dynamics can make a big difference. If rates do remain high, advising clients on strategic moves like buying now and refinancing later when rates potentially drop can mitigate some of the negative impacts.
Thanks for your thoughtful comment! It’s an important discussion as we navigate these economic challenges together.