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Fed policy - I largely agree with Wharton's Jeremy Siegel

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MWmetalhead
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Fed policy - I largely agree with Wharton's Jeremy Siegel

Post by MWmetalhead » Sat Sep 24, 2022 10:01 am

I began saying at least four years ago that the Fed allowed interest rates to remain too low for too long and should've began raising rates gradually on an earlier and more consistent basis. I also was very critical of Trump's suggestion that the Fed should follow in the E.U.'s footsteps and allow the Fed Fund's rate to go negative. Frankly, I found that idea absurd.

Now, I think the power class in Washington, D.C. is screwing up by using sharp Fed Funds rate hikes on an almost exclusive basis to fight inflation. Inflation is happening for three primary reasons: (i) output issues caused by extended COVID lockdowns globally, (ii) output and logistical issues caused by workforce participation decline among able-bodied adults, (iii) raw material procurement issues caused by a combination of the war in Ukraine and lingering effects from COVID.

Jacking up interest rates will cool off the housing and automobile markets in particular, but it won't do a damn thing to help with manufacturing / production capacity (increased financing costs discourages industry from making new capital investment), and its ability to suppress energy prices is questionable.

What I think will ultimately happen is GDP will decline (i.e. we'll have a recession), unemployment will spike, and while prices of everyday consumer staples should begin stabilizing, I don't think we'll see any widespread decline in prices. More expensive items such as automobiles will remain in short supply. Price stabilization is good, but I'm not so sure the side effects will be particularly welcomed.

I think the federal government should be doing more to encourage imports into the U.S., encourage expansion of manufacturing domestically, and doing much more to expand LEGAL immigration to restock the proverbial cupboard when it comes to blue collar labor.

Also, the Fed, Congress, whomever need to consider imposing new regulations or laws with regard to interest yield on money market, depository, and CD accounts by institutions who participate in the Federal Reserve system. One objective of the Fed raising interest rates is to encourage savings and discourage spending. The problem is - many banks continue to pay absurdly low yields to depositors. Go to bankrate.com, and you'll see that the average rate for even 3-year and 5-year CDs is well below 1.00% APY. That's despite the fact the Fed Funds Rate is now 3% to 3.25%. When you exclude online banks from the fold, I can tell you CD yields are below 0.50% and even 0.25% in some instances! That is just pathetic.

https://www.msn.com/en-us/money/markets ... c4367c6a27



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Re: Fed policy - I largely agree with Wharton's Jeremy Siegel

Post by audiophile » Sat Sep 24, 2022 10:56 am

Good points MW.

The other honorable mentions: it dramatically increases the interest on the national debt.


Ask not what your country can do FOR you; ask what they are about to do TO YOU!!

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