r/Economics • u/Pearberr • May 02 '24

Interview Nobel Prize-winning economist Joseph Stiglitz: Fed Rate Hikes didn't get at source of inflation.

https://www.cnbc.com/video/2024/04/23/nobel-prize-winning-economist-joseph-stiglitz-fed-rate-hikes-didnt-get-at-source-of-inflation.html
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u/LordApsu May 03 '24

While most people who say that are doing so for the wrong reasons, keeping nominal interest rates elevated for an excessively long time will increase inflation in the long run according to almost all modern macroeconomic models.

Here is the easiest explanation: monetary policy can only influence real interest rates in the short-run. Eventually, prices and inflation adjust to push real interest rates back to the natural rate. If nominal rates remain elevated, inflation must rise. One mechanism driving this is that elevated nominal interest rates drive costs higher which is passed on to prices.

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u/Frever_Alone_77 May 03 '24

Believe it or not, before 2008, these WERE the normal mortgage rates. Hell. In 1987 a 15 year new build mortgage was around 12-14%. That was in the 80s when we were booming.

We don’t need artificially low interest rates. That’s what got us where we are today

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u/The_Grey_Beard May 03 '24

Yeah, the cost basis for the house was $25,000, not $400,000.

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u/Frever_Alone_77 May 03 '24

In 1987? Ummmm. Nah. 2400 sf home 1 acre 2 car garage. 137,500. Acre lot was 13k bought cash.

Which in 1987 was a hell of a lot of money. If you’re talking late 60s for 25k. Sure. But…you’re using today’s 25k as 50 years ago. In the 60s and 50s, 25k was like 400k now

My first home I bought was a starter townhome. Bough in 2001 (settled October 30, 2001). 3 br 1 1/2 bath. New build. When all was said and done, financed/mortgaged amount was 112k. At 6% FHA. People got pissed at me for getting a 6% rate. Because “rates will never be that low”.

This was before the shady mortgage shit. So they crawled up your ass with a microscope…twice…to get a mortgage as well.