High interest rates, rising inflation: The economy still isn't normal

[mahatmakanejeeves]

ECONOMY
High interest rates, rising inflation: The economy still isn’t normal

The improbable picture seems to guarantee that the Federal Reserve won’t be ready to lower interest rates in the next few months

By Rachel Siegel
April 11, 2024 at 6:00 a.m. EDT



A FedEx employee sorts out parcels on a Manhattan sidewalk on Wednesday. (Charly Triballeau/AFP/Getty Images)

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The economy still isn’t behaving the way anyone expected.

The job market is growing at a blockbuster pace, even though high interest rates usually slow hiring or cause layoffs. Consumers are spending on essentials and extravagances alike, suggesting people don’t fear trouble ahead. The stock market is up, and worries of a recession have largely faded.

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But inflation, after easing remarkably in 2023, has stayed unexpectedly hot since the start of the year. And that’s confounding economists and Federal Reserve officials who are still struggling to understand the post-pandemic world.

Higher borrowing costs were widely expected to tackle inflation with full force, to bring the roaring economy crashing down — or both. Instead, things seem to be settling in a confusing spot, with price increases still above normal, but other parts of the economy holding strong, too. The result is more uncertainty for experts, consumers and businesses alike about what might happen next in an economy that is still resisting the usual rules.

“We got through some of that ‘transitory’ part,” said Diane Swonk, chief economist at KPMG, referring to more temporary sources of inflation that drove price increases in 2021 and 2022, such as supply chain problems and energy prices. “We haven’t gotten to the fundamental part — and the hard part.”

When the year started, it appeared the Fed and White House had pulled off the unthinkable: no recession, easing inflation and a still-booming job market. That momentum led Fed leaders in December to pencil in three interest rate cuts this year, projections they repeated last month.

But then January and February price data came in unexpectedly high. For a while, policymakers hoped those were bumps in the road, not a more worrisome trend. But March data, released this week by the Bureau of Labor Statistics, cemented any lingering doubts.

{snip}

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By Rachel Siegel
Rachel Siegel is an economics reporter covering the Federal Reserve. She previously covered breaking news for the Post's financial section and local politics for the Post's Metro desk. Before joining the Post in June 2017, Rachel contributed to The Marshall Project and The Dallas Morning News. Twitter https://twitter.com/rachsieg

[Fiendish Thingy]

1. Interest rates aren't "high"

Currently, the Fed rates is at the bottom end of the historical average of 5-7%.

Since the GFC of 2008, rates had been abnormally low, so current normal rates just seem high.

If you want an example of high rates, go back to the early 80’s, when inflation was 13%, and the Fed prime rate was 16.39%

[GoodRaisin]

6. Truth.

Maybe the economy is telling us that rates are where rates need to be. Perhaps Fed officials should just stop talking of “penciling in rate cuts”.

[bucolic_frolic]

2. Consumers have learned their lessons well

Home gigs and remote work have taught them that they do have choices and control and backup for their lives.

STIM has taught everyone that the government will back up the bad times. It still amazes me that households with 2 wage earners making $150K could not pay their bills and were given government stim for whatever it was - $2,000 a month plus $600 for each child? They had no plan for bad times? Congress couldn't figure this out? Oh, wait, Congress was grifting themselves PPP Loans that didn't require any payments.

Many inheritances arrived early from COVID deaths. Spend now while you're in the pink!

So yes, there is no longer any incentive to save for a rainy day. You earn you spend. You don't earn the government gives you cash and you spend, just a little more carefully. You make a lotta money you buy a bigger house and a vacation condo and one in Europe and more sports cars - they only last 100,000 miles anyway since everything is for today!

People are quite rational. And they learn well. Trumpers are rational too. They want hatred, they invest in hatred, they get hatred, and they feel good seeing others suffer. They live in the world of sin and like to see their beliefs as federal policy.

[Redleg]

3. I don't agree that people as a whole are quite rational

Wanting to see others suffer and to experience hatred toward others are by definition emotional rather than rational ends. People are "boundedly rational" or "imperfectly rational" but they are not usually "quite rational."

[bucolic_frolic]

4. They are rational to them. It's their DNA.

They might not appear rational to us, or to caring human beings, but to them it's bedrock.

[Redleg]

5. Aha, I get it

It is what I like to call "false rationality." It is akin to us wondering why people seem to vote against their own interests when they vote for Republicans.