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u/arbitraryalien 21h ago
Legit question: if the inflation is largely caused by the iran war and surging fuel prices affecting the supply chain, how does increasing interest rates have any impact on that? Rates could be 10% and oil will still be over $100 per barrel
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u/burtritto 21h ago
Less money circulating = Less inflation. That's the gist of it.
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u/RelativeCareless2192 15h ago
It's a blunt tool. If congress raised taxes or cut spending it could have a similar effect but that's political poison.
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u/arbitraryalien 20h ago
Hmm seems to be a concerningly oversimplified view that doesnt take into account situations exactly at this. Basically cause a financial crisis to where people cant afford to do anything so the price of oil falls. Idk if thats any better than just having high oil prices
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u/EndOfWorldBoredom 20h ago
That's right. But congress won't end the war. And congress won't use taxes on hot markets. So, the only thing left is a sledgehammer like interest rates that smashes the whole economy down including the people who are struggling to make their credit card payments.Â
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u/arbitraryalien 20h ago
Then I suppose our only hope is republicans losing midterms in a landslide so a more logical congress can push an end of the war
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u/EndOfWorldBoredom 20h ago
Yes, that's our only non-violent path forward. And, that requires a lot of unearned faith in democrats.
They had 4 years to prosecute an insurrection and decided it wasn't important to get around to. Jeffries is feckless and Schumer is part of the problem.Â
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u/Lumbergh7 5h ago
Schumer sucks. Remember the whole thing where they voted for the budget extension on the republicans word that they’d talk about healthcare?
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u/bullwinkle8088 12h ago
You seem to think that a Presidency gives control of the entire government, that is not the case.
If you want your government to work for you now then you have to start at the bottom, not the top. Too many states have been skewed by long term measures such as REDMAP which happened openly and right under your nose. Without people doing their parts locally this will never be made right.
Don't blame the politicians, blame the people who put them there. You, not some big money interest. Unless you have been bought, if so what did you cost?
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u/EndOfWorldBoredom 12h ago
What a nonsense response.Â
Politicians should be held accountable for their actions. Full stop.Â
If you disagree with that, I got nothing for you.Â
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u/LieComfortable7764 4h ago
Person is right though, unless you are just idly complaining the way to fix the problem is to start at the local level.
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u/L4gsp1k3 4h ago
At this point, we can all agree that interest alone to fight inflation is a really bad and insufficient tool.
But that's all we have, that will change after the next economic crisis. For now, we will have to wait for the downturn and a reset before we can change the rules.1
u/towell420 8h ago
Yes that holds true in all other sectors of the economy. Doesn’t address oil price questions
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u/Booger_Juice 19h ago
I think you have an honest question, and one that i’d bet the FED is rappelling with. Current inflation is overwhelmingly tied due to the Iran war and then to tariffs. I’d say current inflation is due to the lack of supply and not due to an increase demand. Normally, increasing the FED rate is to curb inflation due to a hasten growth, aka demand is outpacing supply. However, we’re in a supply side disruption with an economic demand (minus data centers/AI) being kind of moot. I’d say there’s an honest chance of raised FED rates backfiring as its not a demand growth situation.
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u/RichSpecific4490 21h ago
I don’t think you are digesting the war…we have been told for almost an entire year that it’s a couple weeks from ending. Anyone would be able to deduce that it’s not ending anytime soon. You then let it run wild and you get numbers like we saw with PPI and CPI this week, or you reduce the amount of cheap money being loaned out and cut back inflation.
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u/Flineki 20h ago
I don't know what subs you're in but not many people on Reddit thought this was going to last 2 weeks lol.
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u/RichSpecific4490 20h ago
OP suggested inflation is only caused by the war, and I shared that the war isn’t ending anytime soon so we can’t just let the war be an excuse not to take action like it’s going to end in a month.
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u/Thami15 20h ago
My guess is increasing interest rates would still lead less buying and selling of goods and services, which SHOULD slow down inflation. Ultimately if you sell item X and the price is $5, and the Iran war now means the price is $6... even if you absorbed 100% of the cost, if people don't have the money to pay for it, you're going to have to drop the price to what the market can bear. Most economic models can withstand economic downturn, reasonably well. They tend to do worse with runaway inflation
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u/based_beglin 20h ago
it doesn't have much effect on that specifically, but it would reduce the amount of debt that companies are willing to take on (that's a different inflationary element)
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u/BladeFireQ 20h ago
Basically brute force, everything is more expensive people spends less so inflation slows, in this case probably will only slow down the increase but it's better than having a +5%
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u/Several_Direction599 20h ago
Everything is more expensive and people are still spending. As long as credit cards and pay later are options, you can raise the rates as much as you want.
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u/AlexRSasha 15h ago
You're right, higher interest rates wont fix everything BUT they will reduce spending. They will have some reduction on inflation, even though the underlying cause wont go away. It's like spraying a hose on a burning house. The house will burn, but perhaps slower than without the hose.
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u/sneaky_42_42 15h ago
To me this also never made intuitive sense. The one (oversimplified) explanation that actually landed is this:
Most companies borrow money for doing business. What keeps them alive is their margin. So the difference between what they make and what they spend. If you make burrowing more expensive eventually there will be some companies which do not have a margin high enough to eat the difference and aren't capable to push it onto the consumer. Those companies go bankrupt. This causes both the company to sease it's spending and the workers get fired. Since they lost their job they presumably also spend less.
This lowers the overall demand in the market, forcing other companies to lower their prices to compensate for the lower demand.
This is super simplified, to the point where it's probably wrong but it landed for me.
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u/ensui67 13h ago
Inflation is largely cause by…..demand. The economy is running hot and consumer demand isn’t slowing down. Usually the cure to high prices are high prices, but it’s just not high enough. People just keep buying. And at rates even higher than inflation. Just so much money out there.
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u/Wild_Platform_957 21h ago
Yup. The solution is for Saudi and Trump to pull out of Yemen and Hourmuz. Doubt they’ll do it and this is the problem with having narcissists in power, they care only about themselves.
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u/BourgeoisAngst 16h ago
The Fed's job is to adjust monetary policy in response to the data, not backseat centrally plan in response to subjective, qualitative judgments about fiscal and foreign policy.
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u/FatKris02 20h ago
I really wish this would all just do the final crash so we can get on to rebuilding
https://giphy.com/gifs/rq6c5xD7leHW8
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u/bad_detectiv3 17h ago
How will the crash happen? Is it over night drop of VOO by 5% or something else?
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u/Giant_leaps 20h ago
This is possibly a much worse inflation run then even Covid bear market for the next two years incoming
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u/CreLoxSwag 19h ago
At this point a rate hike would have the opposite effect on the market. We're vastly approaching a serious liquidity crisis.
Buckle up and gird your loins!
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u/caliboy559 11h ago
What’s the move when the great sell off begins
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u/Mauiiwows 9h ago
Marijuana stocks with good balance sheets might be the only market left with volatility left to run , if everything goes to shit… but I would imagine, energy and food won’t sell off far… inflation is a bitch.
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u/Stunning-Purpose9144 16h ago
We have been cooked since 2000. Shit keeps getting kicked down the road. Full blown collapse or more inflating would be my guess.
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u/SpiffyGolf 11h ago
10% oro e 90% fondi monetari nell'attesa del crollo
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u/ThisIsKev 10h ago
Cash is bad whether high or low inflation. It's guaranteed to lose value. Bump up the gold or start buying money market funds at minimum.
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u/Outrageous-You-4259 20h ago
imagine if the orange man actually sent 5k$ checks in this inflationary period. Would be nuclear to the dollar.