I want to know what Bullard told citi. <G>
The Phillips curve is an economic theory that inflation and unemployment have a stable and inverse relationship. Developed by William Phillips, it claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.
The U.S. economy is already hurting, but it’s about to get much more painful.
That’s what Jerome Powell, chair of the Federal Reserve, said last week after the Fed raised its key interest rate by 75 basis points. The country’s central bank plans to keep hiking the benchmark rate until it hits 4.4% by the end of the year — even if it causes a recession and a rise in unemployment.
“There will very likely be some softening of labor market conditions,” Powell said last week. “We will keep at it until we are confident the job is done.”
The Fed anticipates the unemployment rate will rise to 4.4% next year, from 3.7% today — a statistic that implies an additional 1.2 million people losing their jobs, according to Omair Sharif, the founder of research firm Inflation Insights. In recent months, major companies have announced layoffs and cutbacks, including Robinhood, Peloton, and Shopify.
What they are doing, does sound like they are following it somewhat.
The FED hates inflation, because over the long term, inflation effectively forgives long term debt. The faster the inflation the faster the debt is forgiven.
Long term debt is directly tied to mortgages. This is why there are regularly scheduled real estate crashes through some form of rapidly rising interest rates. This forces people out of their mortgages before inflation can forgive the debt.
When I bought my house, it was $50k. I think the shop labor rate was about $18 an hour at the time. When I quit the house the shop rate was $145 an hour. After 5 years the shop rate would be near $40 an hour . So my income had doubled effectively forgiving half of the 30 year mortgage debt.
See how that works. <G> |
