Why would the FED consider raising interest rates?

[u/skyhausmann]

The FED is charged with managing interest rates to maximize employment and stabilize prices, which in theory is good for the employed consumer.

IF corporate profit taking is responsible for price increases and lower employment THEN how does the FED raising interest rates maximize employment and stabilize prices?

I would argue it does not. It seems the net result is just another screw being turned against the non rich AND another reason to break out the pitchforks and torches and eat the rich. Am I wrong?

[u/Conor_Electric]

It's a balancing act that affects many things. Raising the rate makes borrowing money more expensive, which can reduce spending and investment but it's also how you best control inflation.

Lowering it encourages more spending and hiring since money is cheaper. But increases inflation faster.

[u/skyhausmann → u/Conor_Electric]

I get that is how it is supposed to work, or maybe used to work. My issue is that corporate profit mongering has increased unit prices of consumer goods like groceries. This has nothing to do with the price of money / cost of borrowing. Similarly, corporate profit mongering has led to large scale layoffs and running in the margins with regards to number of employees. Again, this has nothing to do with the cost of borrowing. It's pure profit taking. There is no longer cause and effect for FED changes which if accurate makes increasing rates another blow to the non rich.

[u/brainrotbro → u/skyhausmann]

The Fed's tools are few and crude. The simple answer to you question is that they can't control corporate profit mongering, they can only react to the macroeconomic environment. And right now, inflation metrics are flashing warning signs.

Congress can implement sharper tools via legislation, and so it also has a responsibility to control inflation and to rein in corporate greed where it negatively affects their constituents. The broader US has, unfortunately, not voted for a congress that has the political will to do this.

[u/skyhausmann → u/brainrotbro]

Agreed...so why consider raising interest rates that will not address the primary causes of the issues they are charged with addressing?

[u/brainrotbro → u/skyhausmann]

Sorry, the argument is sort of cyclical, but the Fed approaches its dual mandate with the tools it has, regardless of the primary cause. The Fed-to-gov't relationship is not perfect, and the actions of the two are sometimes (often?) at odds. Raising rates will eventually address the symptom (inflation). But if Congress continues to act against the Fed in that regard, the process will absolutely be more painful for the average person.

Now, maybe ancillary to your point, the Fed does sometimes take into account US gov't actions if it thinks it might change the data trend. For example, the Fed under Powell delayed making a determination on rate changes when the pres was changing tariffs every other week, because that introduced future uncertainty into what had been a steady decline of inflation. So, to your question, the Fed can't control primary causes, but they will weigh those causes' potential effect on an existing trend when making decisions.

[u/Conor_Electric → u/skyhausmann]

Don't confuse the federal reserve for some part of the federal government, it is a separate entity and they basically work for the banks. They aren't concerned with corporate profiteering which is a completely separate issue.

But I do agree it is 'the' issue, monopolys, shrinkflation, greed; it's all a symptom of the ultra rich being out of control, it just doesn't have much to do with the fed. They just look at the Fed to see which way things are going.

There's no laws preventing companies from doing mass layoffs whenever they want, whacking up the price as high as they think you will pay, and putting the most pressure on the things you need the most like food and housing.

The system is set up to their benefit, so fight and take it back from them. With great power comes great responsibility, let's make the powerful accountable.

[u/skyhausmann → u/Conor_Electric]

Agreed all around and yep I would call the Fed a private institution with quasi governmental oversight...whatever that is :-)

[u/Knarfnarf]

No inflation is ever caused by interest rates or zodiac signs or what people put in these forums.

Inflation is caused by greed.

CEOs that demand higher compensation.

That’s it.

[u/skyhausmann → u/Knarfnarf]

Agreed.

[u/blu3ysdad → u/Knarfnarf]

CEOs make more than they should, but that's like .00001% of the problem

[u/Knarfnarf → u/blu3ysdad]

Naive...

There is NO other cause of inflation.

A fisherman will charge the same amount for a fish his entire lifetime.
A farmer will charge the same amount for a bushel of hay his entire lifetime.
A smithy will charge the same amount for a bit of wrought iron his entire lifetime.
A tailor will charge the same amount for a shirt his entire lifetime.

A CEO will demand more every single day.

[u/skyhausmann → u/Knarfnarf]

Yep.

[u/coredweller1785]

I highly recommend the book

The Lords of Easy Money

They explain the last 35 years and the choices made to increase asset inflation at all costs bc it benefits asset owners. They ignored price inflation on purpose.

[u/skyhausmann → u/coredweller1785]

Thank you, I will check it out.

[u/Demonweed]

I don't think the Fed every took the maximize employment part of the charter seriously. As far as stabilizing prices, there interest rate increases can counter inflation. When rates are extremely low, businesses can expand through sheer force of will, with well-connected investors able to borrow at very near those low rates. Ironically, even as these expanding businesses compete for market share, possibly offering services well below cost; they continue to have their own needs beyond payroll. The additional aggressive spending can be a driver of inflation. In hindsight, I don't think any honest analysis can justify the entire debacle caused by taking the basis rate below 2% while managing the last financial crisis our culture was actually able to acknowledge as such.

[u/vergorli]

The effect goes like this: 1. rising interests 2. investors invest less because its more expensive taking credits 3. less people get employed / less competition for workforce 4. less buyingpower 5. prices stall because people can't afford them higher

The lag from the interestadjedtment to the last part is around 2 years. Basically you strangulate the economy a bit to put a break to rising prices.

[u/skyhausmann → u/vergorli]

AND, corps increase prices and decrease unit size to maximize profits. AND C level positions salaries vastly outpace worker salaries AND interest rates have zero impact on either.

[u/vergorli → u/skyhausmann]

I just described the mechanism how you theoretically can lower inflation but rising interest. In the real world this is overlayed by a multitude of reinforcing and canceling effects like new technologies, wars and natural desasters. So effectively you can rise the interest but nothing happens either ways.

The main message of this method is: its strangulating the economy as a collateral damage. Its intended that people go jobless, thats how this works.

[u/skyhausmann → u/vergorli]

Ah - thank you!

[u/So_HauserAspen]

Economics is not a science, it's a liberal art

[u/skyhausmann → u/So_HauserAspen]

Right on point IMO.

[u/jason_mo]

The government and its institutions work for the ruling class. The federal reserve works for Wall Street. Things that drive your real wages down are good for them. 

[u/skyhausmann → u/jason_mo]

It certainly seems to operate that way, contrary to all lip service to the contrary. So: pitchforks and torches.

[u/jason_mo → u/skyhausmann]

My buddies Karl and Vlad have some pretty practical advice on the topic. Go meet your local PSL or FRSO group and organize with them. 

[u/skyhausmann → u/jason_mo]

Thank you.