We recently raised a range of possibilities for why rate hikes aren't packing the same punch they have historically. Our readers responded with a lot of ideas of their own. Here's a look at a few. 👇
, despite the Federal Reserve's best efforts to slow demand and bring down inflation with aggressive interest rate hikes.for why rate hikes aren't packing the same punch they have historically. That includes the shifting structure of the economy, the mechanics of financial markets, and higher wealth inequality.Readers had lots of ideas of their own. Now we look at some of your theories on why tighter money isn't really translating into a slower economy .
Yes, absolutely. Monetary policy famously does work with long and variable lags, just as Brad describes. It is entirely possible that rate hikes will start to pinch more as 2023 progresses, and this whole question will be moot.points to those lags getting shorter given the ways the Fed now communicates its future intentions. And by that measure, this tightening campaign began in November 2021, a whopping 17 months ago."I've wondered whether the seeming ineffectiveness of U.S.
"The federal government is spending a lot of money on infrastructure, which offers stability — in the form of lucrative government contracts — to a lot of different kinds of businesses for the coming years," she says. There was indeed massive federal pandemic relief in 2021 that could still be influencing the economy; consumers with pent-up savings from that era, for example, and state and local governments still flush with federal grants.
At a minimum, the government is not implementing any kind of austerity agenda that might bring inflation down."I suspect that the Fed's actions have the desired long-term effect while having the opposite of the desired effect in the short term. Buyers want to buy before prices increase even more. For sellers, making the sale now outweighs getting a slightly higher price later."argues that they were too slow.
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