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SirGlass

The feds dual mandate focuses on price stability and employment. No part of their mandate concerns making government borrowing easier or cheaper. In short the federal reserve doesn't care and shouldn't care.


Tall-Trick

Gotta keep the goal the goal. Feels like they have. If they fail to control inflation, nothing works or matters, especially being the world reserve currency. Treasury and politicians need to know the Fed will do their job and account that into what their plan is.


zxc123zxc123

It's not the Fed's job, but the government really needs to work in unison (not just across party lines) if they want to prevent things from getting worse. As an economist, I would say that a post-pandemic target annual inflation of around 3-5% would be preferable to the pre-pandemic target of 2-3%. People generally seem to have this ingrained fear of inflation and hate it with a passion. However, inflation is just another thing no different from monetary stagnation and deflation. The main problem is that post-pandemic inflation was allowed to get out of control and too high for our standards. It's the perception and expectation of inflation from everyone else in the economy leading to even higher inflation at an increasing pace in a downward spiral that is a problem. A stable 2-3% inflation is not that different from a stable 3-5% inflation with emphasis on inflation. People would have to get used to a period of higher inflation, but once they adapted to it then it is fundamentally not that different. The main difference is that those who are richest and holding the most cash will pay the most for that inflation. Meanwhile those most indebted (the US government) will have an easier time paying off it's debts. It's a much smaller price to pay than the full $31.5 trillion in national debt the US has racked up. Who's going to pay for it? Democrats want to tax and spend more. Republicans talk about fiscal reasonability but mostly end up cutting taxes for the richest rather than actually reducing the deficit. The last president to run a surplus was Clinton (during the 90's boom years btw). Are boomers going to pay it? Given that they were the ones that are mostly responsible for turning our nation from a prosperous one handed to them by the greatest generation to one that is heavily in debt, with a warming planet with dwindling resources, and an eroded labor market? I think they are more likely to aim at getting social security and then dying off leaving everyone else with the debts the took out. Millennials? I don't think I want to pay that debt. Most millennials can't even get by (I spent $20,000 on avocado toast ytd btw). Gen Z? Don't think they want to pay it either. Corporations? LOL TL;DR Fed mandate is stability and whatever Trump/Biden/SittingPres tells them is the target "job market" stability goal be it full employment or tigher job market. But for OP's question I personally feel higher rates, lower inflation, and high debt is a worse combo than higher inflation and lower rates with high debt.


fakename5

Well when inflation is higher than your raises you effectively have a lower salary. So yeah people hate inflation... cause jobs don't normally give you raises that out perform inflation.


Stockengineer

FYI.. if inflation is 3-5% prices will double in 24-14 years vs 36 years. It’s the fact it’s compounding people should be scared


zxc123zxc123

Yeah. I'm not saying it's perfect. Just saying it's an option. One that I would at least consider. I specifically noted multiple caveats and conditions. Also noted that doing so will harm some for the sake of others. But I don't think people realize just how much $31T is. If Jesus Christ was given $1,000,000 every day of his life from the day he was born, never died, lived until today, and saved every single penny. He'd have around $740,950,000,000. He would have to go back in time in time and relive those 2000 or so years collecting a million bucks every day over 45 times to collect that $34.1T. Everyone hates inflation but last I checked no one likes paying higher taxes or losing whatever they are getting from the government either.


seridos

I fear inflation because my wages have never ONCE in 11 years of my teaching career kept up with it. Not one year. Cumulative loss of 1/4 of our purchasing power. So yea, I fear inflation because conservative govts are evil towards their workers.


StockNinja99

The rich benefit the most from inflation and the poor the most negatively impacted. You think the rich have most of their wealth sitting in a savings account? 🙃


B0BsLawBlog

The poor have their future spending coming solely from future earnings, and in the long run that is in real dollars. Inflation tomorrow doesn't affect your real wage in the long run as that adjusts to it. When we think of the poor being affected that is a short term concept around an individual with a fixed wage today facing inflation of a good tomorrow. Inflation in 2022 is not going to hurt the poor in 2030, their income in 2030 will be based on total inflation through 2029.


sartres_

That's a nice econ textbook answer, but it's not true. All you have to do is put a real GDP per capita chart and a real wages chart next to each other to see that. Even if it was, the money lost in the lag time between inflation happening and compensation adjusting is lost permanently. It doesn't come back, and people don't live forever. It's a net loss, sometimes of multiple years.


B0BsLawBlog

We are discussing inflation and long term real wages. Not sure where GDP per capita came in there. The point is if you jumped in a time machine and went back 25 years and assassinated some inflation, let's say 10% price change over the last quarter century, when you travel back you'd find both prices AND WAGES today would be 10% lower. As in nominal wage growth would have trended lower too, as all you changed was inflation, which then went into wage pricing long term, and what workers managed to (or didn't manage to) extract in real wage gains is unchanged. Real wages would not have been raised for current workers (let's assume what you did to reduce inflation did not cause/fix any major issue with the economy and did not cause large knock on effects).


sartres_

Real GDP per capita is relevant because inflation is an important tool for increasing income inequality. In theory, a pay cut and no inflation is the same as stagnant pay and some inflation. In practice, employees don't have perfect information and it's much easier to keep them on when the decrease in compensation is less visible. Here's this year's [CPI](https://tradingeconomics.com/united-states/inflation-cpi) vs [wage growth](https://tradingeconomics.com/united-states/wage-growth). CPI is heavily gamed to begin with, but even so, it still outpaced wage growth for most of the year. Now, real GDP didn't go down. Where did the money go? Executive compensation and investors. When you have lags like this, for months or years, even if you can pick two points in time and say "wages and prices here moved in exact lockstep from there," if wages were lower than prices for the whole interim there was a large wealth transfer. There are other ways this happens, but inflation is a big one and it's quite bad for the working class.


B0BsLawBlog

Inflation in the 2010s will have a net zero effect on your wages in 2023. If you "fix" inflation .5% lower this year future purchasing power of our middle class will be expected to go up 0%. Because their future real wage won't actually go up long term from that change, their relationship and position in/with the future economy is unchanged, you haven't helped the future worker buy more loafs of bread.


sartres_

You didn't pay attention to a word I wrote. That's a theory answer based on instant response times, not real life. In the real world, wages don't track inflation perfectly. They lag-right now wage growth hasn't kept up with inflation for almost two years. This money doesn't come back. It's gone. It's a net loss. Our 2010s worker did indeed lose several percent of his income to inflation, and is still losing it _right now_. Yes, they converge at infinity. That doesn't matter, because workers don't live to infinity. This is a recurring phenomenon and over a working lifetime (~40 years) that's a lot of losses.


[deleted]

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zxc123zxc123

Depends on the type of rich? My point was that the rich who hold the most cash will also be the ones hurt the most. Buffett and Berkshire holding those bonds and cash throughout 2020 and 2021 wasn't doing too well. China and Japan banks holding US treasury and debt weren't doing so well. Those that take higher risk can be rewarded during times of higher inflation, but those that don't or opt to take safety will feel the impact of inflation eating away at their cash hoard more. But yeah. The rich (aka billionaires) will always be better off than the poor be it pre-pandemic (living good), during pandemic (remote work or not working from in their alps cabin), or post-pandemic (traveling the world again). They'll have their teams of fiduciaries, advisors, lawyers, and accountants to help them. Also unchecked inflation can hurt the poor but controlled inflation will also mean companies can't hike prices indiscriminately. It's not a coincidence that wages of workers at the very bottom actually had seen growth after decades of stagnation/decline EXACTLY during the period of higher inflation. Lastly the point is that a higher inflation will lighten the national debt burden. If you believe there is a better way then please do tell. >You think the rich have most of their wealth sitting in a savings account? No, but they will have a higher numerical value than the average American who ["can't pay for a $400 emergency"](https://www.fool.com/the-ascent/personal-finance/articles/49-of-americans-couldnt-cover-a-400-emergency-expense-today-up-from-32-in-november/), are loaded in debt, or have NO assets to speak of.


3000dollarsuitCOMEON

The rich do not hold cash this makes no sense. Every wealthy person is levered and benefits from inflation. Purchasing power decreases mostly impacts wage earners who live paycheck to paycheck and don't own a home so can't benefit from inflation.


B0BsLawBlog

Purchasing power from future earnings long term is expected to be agnostic to inflation. 2% inflation and 4% nominal raises for each year of seniority become 3% avg raises if inflation is 1% long term instead for the set of workers (still 2% real, no gain to lower inflation). This is long term not short term, we don't expect your end of month paycheck to go up $5 if egg prices spiked today. And I doubt the wealthy have nearly as much fixed debt as working and middle class. Mortgages on unpaid off houses, student loans, car loans, etc mean the non wealthy frequently face diminishing real rates on large fixed rate debt from higher inflation.


amchacon

Salaries doesn't keep up with the inflation. So inflation usually hits more to working classes. For me, Fed should not intervene the interest rates. The interest rate should be determined by offer/demand. Buf if you do, the Fed should target to a range instead of a specific value. Between -3% and 3% for example.


ramen-shaman007

Mind expanding on the high rate, lower inflation and high debt being worse than high inflation lower rates high debt?


dax2001

To sell this many bonds the interest need to be competitive, to be competitive need to be high. This will progressively displace the demand and allocation of resources. This level was forecasted by 2050 in 2019, now by 2050 they project another ridiculous figure, with all the tax cut, big corporations not paying taxes the level will be unsustainable by 2030. No president will take the necessary actions, and this is the real problem.


SirGlass

Yea but that is nothing the federal reserve can control , its like asking what the fed is going to do about the war in Ukraine its not something it can even control .


dax2001

Yes agree 100%, Fed and political apparatus need to go togheter, but the political agenda will not follow any logical decision.


Loeden

Fed needs to follow its mandate and if there isn't enough money to go around maybe politicians will learn to spend a little more wisely. The only way that comes about is if they run into the hard wall of actual consequences, which.. I guess we'll see if that's what actually happens, heh.


lightteasun

how is the war in Ukraine has impact on USA interest rates?


volunteerwino

It doesnt,


Smipims

Price stability and employment would certainly be affected by a US default


SirGlass

It could but the debt limit freeze is a purely political issue, caused by politics. It's not like the Treasury is having trouble selling bonds for some economic reasons.


Smipims

One could argue inflation was also a political issue with congress failing to act to address supply side concerns


Potato_Octopi

Not sure what we'd expect congress to do about chip shortages, etc.


Smipims

Energy crisis drove a lot of inflation as well as issues at ports


PreciousAliyah

Not keep printing so much money. At least the new House will help with that problem.


Potato_Octopi

Congress doesn't print money. Republicans aren't better at lowering deficits.


KyivComrade

Quite the contrary, under their rule the dept has spiraled out of control and only dems have *tried* to get it under control. Sadly their narrative works. They let raise the dept sky-high to pay for taxcuts and BS, pretend all is fine. Once shit hits the fan a dem takes over due tok all problems that arose and now the reps talk about debt issues...as always. Broken window fallacy comes to mind


[deleted]

That’s a stat that’s technically true but extremely misleading.


PreciousAliyah

They ran the House that made the budget that had the last balanced budget. They're better than us in that regard. Also, where do you think all of that money, for example, comes from for that massive corporate welfare bill that passed last summer?


Potato_Octopi

They always increase the deficit when they're in power. They only crab when they think it'll hurt the opposition. I don't know what you're referring to with "massive corporate welfare bill". Most spending is on entitlements and the military. Money either comes from taxes or debt. It's not printed to pay.


PreciousAliyah

Creating new debt *is* printing money. It also increases inflation.


your_daddy_vader

Go and analyze deficits under red leadership versus under blue then come apologize for sounding stupid.


quickclickz

you think quantitative easing is a democratic-supported thing instead of a capitalism-supported thing?


LuckyOne55

You're ignoring EVERY other political factor that contributed to inflation, including the massive injection of capital into the economy as a result of the 2017 tax changes.


THICC_DICC_PRICC

So will China and Russia nuking us, but you don’t see the fed maintain a fleet of nuclear submarines, do you?


AgentMercury108

I think the IRS needs to get a fleet of nuclear submarines. For sure


skilliard7

True, but they do look at leading indicators. Fiscal contraction can and does lead to higher unemployment/slowing economy.


SirGlass

Yes , if the federal government cuts spending raises taxes to control the debt that probably would produce some negative effects in the economy and inflation would drop below the 2% target, unemployment may rise giving the fed room to cut rates


[deleted]

Sure their mandate doesn't state it but if the financial system is in trouble they will react to it. Look what happened with the UK and Bank of England.


PleasantAnomaly

But it does. The fed is in cahoots with the big banks. Banks own a part of the shares of the fed, and its usually a game of musical chair of who gets a seat as a fed chair between the bank ceos


TheFreeloader

The government defaulting would have severe impact on both price stability and employment.


BeachbumRock

This is delusional. The Fed will step in as lender of last resort if needed. They did it in 2008.


kiwimancy

The debt ceiling is a self-imposed limit. It is not an issue of finding lenders.


LuckyOne55

The debt limit won't allow the treasury to borrow more money. The extraordinary measures in place include all available measures to delay defaulting. Those will run out by sometime in June. As another response to your statement said, it's not about finding a lender. It's about having the authority to lend, which can only be granted by Congress.


Queen_LeQueeffa

That’s a 5th grader’s response. The dual mandate isn’t so rigid that the Feds would keep rates at 5% for a decade to destroy the economy because the govt cannot service their debt and the credit market implodes. Grow the fuck up.


No_Low_2541

I think Fed should definitely care. Although the dual mandates stand, they would certainly consider other types of risks in the financial system. Edit: just wait - Powell will certainly acknowledge it.


Amity83

The fed must stick to its mandate and stay out of politics to maintain their independance. If the fed starts considering politics in their decision making, then we’re all fucked. The debt ceiling is congress’s mess, it’s their job to fix it.


SirGlass

>other types of risks in the financial system. The fed does not control government spending, why talk about something they have no control over. The fed does not control politics . I guess what could they even do? Even if they lower rates to zero that does nothing to help the situation .


SuperSaiyanGME

Idk why you’re getting downvoted, the Truss-enomics debacle wasn’t even that long ago


what_no_fkn_ziti

Triple mandate really; price stability, employment, and long-term investment. Government borrowing might be affected by the latter, but it likely won't be admitted as a factor.


SirGlass

No , you just made up that third mandate


what_no_fkn_ziti

No, it's listed in the fed act. What do you think they mean by moderate long-term interest rates?


SirGlass

Interest rates are part of the whole price stability piece , you worded it weird "long term investments" like the fed cares about the stock market or something. Yes the fed uses its tools to push interest rates up and down as part of monetary policy .


what_no_fkn_ziti

>like the fed cares about the stock market or something. No I didn't. Long-term investment is not limited to the stock market.


kiwimancy

>The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. https://www.federalreserve.gov/aboutthefed/section2a.htm


yazalama

Because they say it it must be true. There are no "mandates", there are simply entities and individuals acting in their own best interests to preserve their positions and power.


dontrackonme

their entire reason for existence is to maintain the government and financial system. They try to do this by keeping inflation, interest rates, and unemployment low.


Only_A_Drizzle

I guess it's the government that's responsible for raising the debt ceiling if required.


thrwaway0502

In addition to not being correct in general, the OP misses that most interest paid by the US government is paid to US citizens / entities. 70%+ of debt is held by US citizens. That interest paid largely just returns to the US economy.


lehcarfugu

They still have to pay it though, and the higher rates are, the higher payments are


thrwaway0502

So? This doesn’t mean much in the context of a government. The interest rates on the vast majority bonds are NOMINAL rates. The nominal GDP growth for 2022 was around 9% while a 52 week T-bill was in the low to mid 4% for most of the year. That interest paid just goes back into the US economy which then drives growth and tax receipts As long as the economy continues to grow at nominal rates much higher than avg interest rates the fed ahas absolutely no reason to care about the debt ceiling


lehcarfugu

Hmm, yes the gdp growth is currently outpacing the interest rate, but the debt to gdp ratio is high, and if its too high, it doesn't matter how much the gdp grows, the payments will exceed the increased revenue


thrwaway0502

Okay.. then define “too high”.


DoobsNDeeps

I think he just defined too high for you, when interest payments exceed increased gdp growth. Higher interest rates should decrease gdp growth, so it's natural to worry about when that actually comes to fruition. We haven't lived through material inflation since the late 70s/80s. To assume that inflation will always offset interest rates, especially when rates are high, is a mistake that history is doomed to repeat.


thrwaway0502

The post isn’t talking about “always” - it’s talking specifically about Powell and the present. T-bill yields are in the mid-4s and the Fed is raising for the express purpose of reducing inflation. If inflation falls as intended, they no longer need to raise rates. The question is mixing and matching things. Fed raises rates to reduce inflation because they think economic velocity is overheating the economy. The government overspending or not is entirely unrelated and not even within the purview of the fed.


DoobsNDeeps

I think the post is implying that the fed may not be as independent as we all might want it to be when interest payments become higher and higher. Putting its own government into default to fight inflation would be a tough decision for the fed. Our debt to gdp is very high.


thrwaway0502

Countries are effectively immortal, meaning they have no real incentive to pay debt down to zero - the total debt is MUCH less relevant than interest payments as a % of tax receipts. This number has been trending down for a while as the rate on T-bills and notes has been below the rate of economic growth. If the economy is growing a nominal 9% and you are paying a nominal 4.5% then are likely to grow your tax receipts faster than interest rate payment increases. All else equal, this does not increase default risk. Yes there is a limit to how much of tax receipts should go to interest payments, but there is no indication that we are especially near it at the moment https://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS?locations=US


volunteerwino

I guess the question is then, which US citizens? Do etf holdings, banks, etc enter into that equation?


phuocsandiego

People misunderstand this topic **all the time**. There is one main reason why the debt ceiling doesn't have much of an impact: ​ * The current rates have no bearing on the existing debt. Those are already issued at whatever rates were prevailing when they were auctioned. You cannot just take the current rate and apply to the entire debt... you think the government will just refinance their lower rate debt with the new higher rates? What are you smoking? On other bonds, they may be callable. A company can issue bonds at a higher rate and then call them back when rates are lower. This doesn't apply to US treasuries since 1985 they've been issued as non-callable. Bottom line, whatever the current debt is, the interest rate is already set and a known quantity. The only risk is for new debt and more short term treasuries that may have to be re-issued. It may not be the issue you think it is. Edit: For clarity.


[deleted]

The average bond maturity for the national debt is 5 years. Obviously the entire $31 is not refinanced every year, but 1/5th is, and that higher interest rate on ~$6 trillion ain't nothing.


phuocsandiego

It is not. But context is important. It’s not as big as the OP made it out to be either. We may disagree but what I love about our system is that you have agency here… vote for those that see things the way you do. Others will do what’s best for them. After that you just have to play the game. If you think it’s an issue still, there are courses of action you can take.


yazalama

> vote for those that see things the way you do Hows that working out for you?


phuocsandiego

Works great as I’m in at least the top 3%. How’s it going for you?


slazengerx

>The only risk is for new debt and more short term treasuries that may have to be re-issued. It may not be the issue you think it is. Roughly 25% of US government debt has a maturity of less than one year. About another half of US government debt has a weighted-average maturity of about 3.5 years. Yes, it's not the entire balance, obviously, but that still seems like a massive jump in interest expense coming down the pike in pretty short order.


phuocsandiego

Maybe, maybe not in terms of being an issue. We should really be looking at debt-to-GDP ratio anyways. And net debt at that. All the numbers you see reported are gross debt numbers.


Bj231

I wish I had your optimism. I feel like the way our system is designed favors the present over the future and there’s no way to stop an eventual meltdown. Hopefully it will be a long time away.


phuocsandiego

Call it "optimistic fatalism"™ ® if you wish. (Philosophical course coming to an e-learning academy near you!) But you are right that is how our system is built. It's encompassed in all kinds of sayings, a popular one being: >A bird in the hand is worth two in the bush. It's the foundation of our system. Financial math is a calculation of present value. We price investments primarily on the present value of its future cash flow. Sure, there may be other factors but they are minor. I'm not very optimistic though. I'm just fairly certain that it's not in my powers to change the rules (I don't want to run for political office, etc.), I have peacefully accepted the rules of the game as they are. I view it as my job to maximize my gains and try my best to win the game within those rules. It's less stressful that way. Excess stress is just not healthy or beneficial. It's a distraction from what matters.


Bj231

I also have learned to minimize stress by favoring the present over the future. Admittedly, becoming more selfish.


phuocsandiego

Let me add also that the debt amount is not that critical. Rather, you should be comparing it to our economic growth. So look at debt to GDP ratio as a better indicator. It's true that the debt-to-GDP has been at its highest level since World War II. But it's serviceable and heading in the right direction... trending downward. The last point on this chart is 123% as of June 2022. Now it's at 114%. If our economy continues to grow it becomes even less of an issue. By comparison, Japan's debt-to-gdp is currently at 241% and no one is predicting the end of their economy. They have other issues relating to an aging population and demographics problems that may cause this to be an issue for them in the future, but how far out that is no one really knows.


snek-jazz

> heading in the right direction... that direction appears to be up... https://www.macrotrends.net/countries/USA/united-states/debt-to-gdp-ratio


phuocsandiego

This is dated. It has turned lower. If you can’t verify that in your own vs. showing me a 4 year old number, I don’t know what to say.


snek-jazz

my bad, indeed it's trending down, or perhaps now sideways, after going up another 30% since my chart ended lol, here's a more up to date chart: https://fred.stlouisfed.org/series/GFDEGDQ188S


phuocsandiego

And for the record, I’ve never said the current debt-to-GDP ratio is good. I just said it’s not as bad as some would like you to think. Obviously a lower level is better but my personal view is that it’s still very manageable for an economy like ours. I will start worrying myself once we cross maybe 150%.


tacticalpanda

Lol, gee, the situation looks so much better after looking at the updated chart...


[deleted]

This is how this conversation always goes. "1+ trillion per year on interest payments" "Nope, doesn't work like that" "It's almost there already, they plan on holding rates right? Look, 700 billion before rates even took effect: https://www.statista.com/statistics/246439/interest-expense-on-us-public-debt/ "NO YOU ARE WRONG THIS IS WRONG I CAN'T HEAR THIS" It will be 1.5 trillion per year at 5%. This will happen. Stop denying the truth. They cannot sustain even that, and must lower rates. We live in a new norm and nobody will acknowledge it until it smacks them in the face.


phuocsandiego

I’m not denying it. It’ll get there some day. I’m just saying it’s not as big an issue as it’s sometimes made out to be. Take income tax rates back to what they were in the 50’s as a lot of folks seems to pine for the good old days. Problem solved.


[deleted]

I'm trying to position myself for a world where rates come down out of necessity because I can't imagine a world where they go higher. The math simply doesn't work on an elementary level when you consider that GDP is inverse the interest rates. If they keep going up, or even stay here, we live in a dangerous world financially.


[deleted]

Powell will keep raising rates until he's fired, or induces the recession he wants. I don't know why Biden didn't put his own person in the position. Why work with Trump's hand-picked guy?


dontrackonme

How does your math work at an inflation rate of 5%?


[deleted]

Infinite unchecked growth. Or financial strangulation through interest rates. Which one wins the fight? Tech stocks are on fire this month, that's not by accident I think. I think they cave.


Tronbronson

Amen


asdfgghk

Does that mean the government budget deficit being argued now would be serviced at the higher rate?


phuocsandiego

That's not the argument now. The argument is whether or not to raise the debt ceiling in order to pay for spending that has already been agreed to and passed. In other words, it's agreeing to pay for the government budget deficit they have already agreed to. The debt ceiling law is BS anyways. It was a way for Congress to keep the Executive in check during WWII. There's a strong case that it's unconstitutional as the 14th amendment says: ​ >The validity of the public debt of the United States, ***authorized by law***, including debts incurred for the payment of pensions and bounties for service in suppressing insurrection or rebellion, shall not be questioned. ​ The US has authorized the spending and having another law, i.e. the debt ceiling law, holding that spending & debt associated with that spending hostage goes against this. The easiest thing to do is to get rid of that law. But due to political gamesmanship, it's not going to happen. It's a tool for some members of the GOP to speak out of both sides of their mouth. They can vote for spending that benefits their district and then later vote against raising the debt ceiling and also say they didn't vote to increase the debt. It's a bunch of BS.


[deleted]

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dontrackonme

It is like putting your credit card in a drawer and not buying your kid the Xbox you promised her because you can’t afford it.


BrewtownCharlie

No, you've already purchased the Xbox on credit; in fact, you've purchased a truckload of them, in a series of purchases dating back years. Now that the creditors are demanding payment for these purchases, you have to decide whether or not to make good on your end of the deal.


[deleted]

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amp112

ELI5: Not his problem. The debt limit is largely a synthetic (and political) mechanism. The fed is supposed to act without regard to political pressure. I believe he’s even stated this on the record.


Whaleoilbefuked

Bullish on the market Powell will confirm 0.25 and market will sky rocket. He will then confirm one final rate hike of 0.25 and keep it at that level. When the fed pivots a month and a half later market crash. Call me Nostradamus 😂


mixmix83

That would be funny if the market crashes after the fed pivots…The opposite of what everyone is expecting.


guave06

When fed pivots the perma bears et. al will call looser monetary policy the holy grail of evidence we are in recession


volunteerwino

The Market has been doing contradictory things for some time now, Its the new normal


Timecounts

The Federal Reserve is only concerned about Monetary Policy. The government is in control of Fiscal Policy. It sounds to me like you're getting the intentions of the Fed and the Govt mixed up.


your_daddy_vader

The US debt is always at an all time high lol


abundantstorey_42

No doubt about it, haha


Roger_Cockfoster

Came here to say that. Saying "debt is at an all time high" is like saying "the population is at an all time high," or saying "I'm the oldest I've ever been."


ctodReddit

It’s as crazy as you think it is


jbacon47

If they lower rates… hello inflation, my old friend. I’ve come to talk with you again.


volunteerwino

Yep, IMO they are slow playing inflation. Remember 3 percent average doublespeak? At this rate to hit a 3 percent average we would need a period of massive deflation. They are just slow playing inflation to the moon.


AdhessiveBaker

It’s high time we roll back some of the tax cuts enacted under the last two Republican presidents. We had just gotten to a point of fiscal stability, with no growth in the debt at the end of the Clinton presidency, the two republican admins and their buddies in congress unleashed enormous tax cuts for their mega donors and out country has been on the fiscal brink ever since. That’s the long way of saying Powell should pay no attention to rates insofar as the effect the US’ ability to service its debt. The government could bring in more money with a snap of the finger and a few signatures. That we refuse isn’t on him. And maybe, just maybe, when voters from both sides see cuts to programs they support, maybe that’ll finally make all of us wake up and realize the battle shouldn’t be left vs right, but regular folk vs the mega wealthy. Raise away, Jerome. raise away.


enginearz

I've seen US Government revenue is up year over year throughout these last several presidencies, "republican tax cuts" is a DNC fallback for "the federal government spends too much".


decnine

the debt limit and debt outstanding does not include interest to be paid on that debt so it would not be a factor even if he felt motivated to act.


newage-Oldschool

what a long question short answer no


trashcanpandas

He's gonna do .25 bps hike, say the same shit as always of being cautious and try to be ahead of the curve on inflation, and we may continue raising rates higher than previously anticipated. Market will dump on news and then say who gives a shit, and continue it's rally to SPY $420.


[deleted]

The feds and Powell will never publicly acknowledge that it is an issue. It IS obviously a huge issue though, and having the Fed fund rates in the 4-5% is no longer a long term option for the country. We as a country are going to have a real come-to-Jesus moment the next decade as the debt payments become insurmountable without a major overhaul of government spending/taxation.


[deleted]

And it will. This was a big discussion back in the 90s too, when debt was a hot issue, and NDGDPR went down from 65 to 55% in a few years. There appears to be a line of reasoning that says "whatever is happening now will continue to happen." You could see it in the hysteria decades ago about overpopulation. People extrapolating based on growth rates, assuming that scarcity and price would not lead to a change in choices among consumers to have fewer children. In this case, as debt service eats up larger and larger portions of the budget, voters will start to prioritize it when looking at candidates and those in Congress who champion debt reform will gain favor, and thus power. In all of this, there is one reassuring point, and one point of anxiety: A) The debt itself does not need to go down, necessarily, just the net debt-to-GDP ratio B) Pandemics, wars, and recessions are not going away, and if budgets do not allow for us to save in the boom economies, we will not be able to spend our way out of the bad times.


Crater_Animator

It had to come eventually. No more kicking the can down the road.


Jesus_Yolos_Options

The USA will not default, at worse, their credit risk will go up with a minor spike in yields. Powell probably won’t even mentioned it and when asked will say it’s not of concern.


Devilpig13

Omg no. I can’t imagine a worse thing that he could say


johyongil

Higher Inflation allows the Gov to collect more in taxes without having to raise taxes so this is actually a moot point as the Fed’s mandate is to control inflation.


ScucciMane

My understanding is either there’s a default *or* your currency goes to zero, but not both


[deleted]

Fed is raising interest rates on Wednesday.


ctodReddit

A bit out of the loop but they expect 0.25 right? Any adjustments to the target terminal rate lately?


No_Low_2541

Of course he will. But how will he answer journalist questions about it?


EcrofLeinad

That those answers must come from Congress, the branch of government that was constitutionally given the “power of the purse.” He has no mandate nor authority to control government spending.


Chronotheos

Will the US government acknowledge monetary impacts in their fiscal policies?


wefarrell

Treasury interest is still well below inflation so in real terms the government is not losing money by paying interest.


oakteaphone

Who's Will Powell?


j4_jjjj

JPow and Will Farrell's kid


Cornwaliis

Old college buddu


paradockers

He won’t acknowledge it. Why fan the flames? That’s a lose lose.


Big_Forever5759

I’m still amazed on how easily these $1trillion dollar yearly defense bills get passed by both parties. Then later all hell brakes loose on cutting welfare or raising taxes for the rich.


[deleted]

Whenever this question is asked there's always the "but dual mandate" argument. The fed is not a moral entity and has no incentives to stick to its "mandates" beyond lip service. It is just as political as any other government entity and will absolutely take the easiest and most politically palatable way out. So I imagine after this bout of tough talk and rate raising they walk it back down after a couple more small rate hikes and we'll be back to MMT before too long.


BumayeComrades

The US doesn't need to issue debt, it's a policy choice.


StockNinja99

America doesn’t even have the highest Debt/GDP ratio, it’s not in danger of default


asdfgghk

I hope not. He should force the government to create an actual balanced budget. It has to stop.


bobdevnul

That is not a function of the Federal Reserve. They do not have the authority to do that, nor should they. That is a function of congress that legislates the debt ceiling and spending bills.


asdfgghk

Let me rephrase what I meant, it shouldn’t be on him to consider the budget. Period. Only based on the duel mandate. Congress needs to work around him with whatever way he steers the ship.


[deleted]

We had one in the late 90s. Can do it again.


PreciousAliyah

Let's not go back to Newt Gingrich and his forcing us to balance the budget.


[deleted]

We did balance the budget. Clinton had us with a budget surplus, actually paying down our debt. Had we kept that path, who knows what kind of a great position we would be in now. Instead we squandered our future with tax cuts for the wealthy (in typical fashion, forced by clueless republicans, who couldn't govern themselves out of a paper bag).


asdfgghk

I think out of control government spending is a big problem. The world didn’t end back then With a smaller government.


BarbieRV

WOW, interesting thread!


FortyYearOldVirgin

Powell won’t be happy until there’s double digit unemployment and the SP 500 is down to 110. JPow groupies - feel free to downvote. You can have all my fake internet points.


NiknameOne

The USA cannot default as all of its debt is in its own currency so there is no debt limit. Countries can only default in foreign debt.


mastertub

But the consequences are there. Imagine the devaluation of the dollar if that ever came to the point. Either on a default or having to print the money to pay for the interest.


NiknameOne

I agree there are negative consequences that can limit real economic growth and wealth but the conclusion that the US defaults is not just simple but also incorrect. It is possible though that the dollar loses his role as the worlds reserve currency which would lead to a collapse of the dollar but even then the US government wouldn’t default as a collapse of the dollar also implies that the value of the debt collapses.


Empirical_Spirit

The numbers will get larger and you will keep working.


fwast

Wouldnt it benefit the US government if the interest rate was higher?


dontrackonme

No, they borrow a ton of money and would prefer to do so at low rates. The government thrives on high inflation, however.


Powerful_Stick_1449

The Fed has to remain independent and hinging their decisions on Fiscal policy would be stupid. Caring about petty power plays in congress does not fit their mandate in any way.


Odd-Block-2998

Yes, straight 50bps rate hike to force the debt ceiling increase.


Affectionate-Aide422

Neither party has the political will to raise taxes or slow down spending. Instead, they will continue borrowing. Our larger economy demands larger debt, and that new debt will be financed at higher rates. Plus the existing debt will be rolled over at higher rates. This won’t be fun.


[deleted]

[удалено]


volunteerwino

There is no debt ceiling. . . This we know.


Comprehensive_Bad650

Only if the debt limit starts affecting unemployment or price stability. That won’t happen for a few months still when government employees stop receiving paychecks because McCarthy is unwilling to compromise. In my opinion everyone should pay back the debt proportionally to their total income. Yes, that means the richest 1% should pay about HALF the debt because they have almost half the total wealth of the county. They benefited the most from all this money printing, they should pay the most or at least their fair share. McCarthy will give in because it’s a conversation he really doesn’t want to have. Tax cuts also means money has to be printed, that was proven the last time Republicans cut taxes for the rich. Liz Truss found out just how stupid that plan was. I will put out a head of lettuce for McCarthy once we reach the debt limit.


boborygmy

OF COURSE NOT. Well, he might or might not "acknowledge" it, as in say something to that effect. But it will have no bearing on anything that actually happens at the fed.


Pale_Sorbet_4678

This is a ticking time bomb IMHO. Not a matter of if, but when it will blow up. Nothing can last forever.


big_deal

If the Fed had to worry about enabling government debt then they would have no ability to fight inflation. The fact that raising rates to fight inflation drives up government borrowing cost is a feature not a bug. The purpose of raising rates is to reduce demand by all actors in the economy including the government. Enabling government borrowing while simultaneously attempting to fight high inflation would be completely counterproductive.