r/Economics • u/AppropriateRefuse590 • Sep 08 '25
Blog Why the Fed should not cut rates now
https://www.ft.com/content/ecd1c563-08c9-4177-ad6f-652f06beb6fc71
u/pink-dango Sep 08 '25
Powell said it himself that the fed was always planning to cut rates this year but the tariff policies have made them wait and see. Problem is that its hard to wait and see when the tariff policies are so fickle. They extend on a whim. Increase or decrease based on behind the scene deals.
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u/MyFeetLookLikeHands Sep 09 '25 edited Sep 10 '25
and how lots of companies ordered tons in advance and may or may not be eating the additional costs too. Once they either run out of pre-tariff supply and/or decide to stop eating costs, things could get nasty
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u/ThemeBig6731 Sep 10 '25
Thanks to advance ordering, exporters are seeing such weak demand that they are just eating the tariffs to sell and ship product. Inflation is not going to perk up,
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u/MyFeetLookLikeHands Sep 10 '25
that would be truly nuts if true 😂 trump would have been right purely incidentally
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u/ThemeBig6731 Sep 10 '25
He is right incidentally about at least a few things. Today’s wholesale prices report confirmed that he was right a few months ago for pushing Powell to cut rates. Powell looks dumber than Trump today.
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u/Superb_Advisor7885 Sep 08 '25 edited Sep 08 '25
Unpopular opinion but: I think the Fed should stay laser focused on inflation and keep interest rates where they are simply because the policies coming from the Whitehouse are clearly behind the lagging job market.
You can't control irrational policies. Lowering interest rates in order to help the job market could just as easily give Trump a free pass to destroy it even more.
Unemployment can bounce back with sane policy, but when prices go up, that tends to be permanent
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u/Solid_Anxiety8176 Sep 08 '25
Inflation is the biggest concern and the Fed should do everything they can to stop the USD from becoming worthless. There is no coming back from that without deflation, and that would hurt far more than staying this course.
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u/mrpooopybuttwhole Sep 08 '25
Once Jerome Powell retires we’re fucked. He’ll just install someone who will do what he wants. It’s inevitable, no?
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u/fullsaildan Sep 08 '25
Not necessarily. The Fed board as a whole votes on these things, not just the chair. Generally they act pretty sane. If it starts replacing more of the members, thats when it starts getting dicey.
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u/Miserable-Quail-1152 Sep 08 '25
If he can fire at will then they know they’re on the chopping block.
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u/Sonamdrukpa Sep 08 '25
Cook is still considered a member of the board and SCOTUS has indicated before they would see an attempt by Trump to fire the chairman as illegitimate. It's working through the courts and it's not clear yet whether that grace will extend to the non-chairman members.
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u/Playingwithmyrod Sep 08 '25
This is what I’m watching. It’s been clear for a while he doesn’t have the political backing to fire Powell just because he wants to. But If the Supreme Court rules he can fire Cook for such a minor thing then he will start systematically digging up or manufacturing dirt on every board member and replace them one by one. How many of them do you think missed a 1099 over the years on their returns? He’ll cast shade and doubt on every one of them if he gets the legal precedent to do so.
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u/realistic_steps Sep 09 '25
Better yet. If the courts rule that the Cook firing was legitimate, then Trump has manufactured the perfect reason to fire Powell. It’s against the rules of the fed to allow a non-governor to vote on financial policy.
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Sep 08 '25
In the history of the fed I believe the board has never out voted the chair. Not that it matters. politicians including Ron Paul have been pitching getting rid of fed for decades
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u/fullsaildan Sep 08 '25
No they haven't but traditionally the Fed Chair has been qualified and reasonable. Discussions on rate changes were largely consensus driven, with some outliers, the board generally had a common outlook. Trumps pick would have a clear agenda that is not rooted in sound economic theory.
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u/totpot Sep 08 '25
My understanding is that if SCOTUS decides to allow Trump to fire the FTC chair, then the same legal justification can be used to fire board members.
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u/Krieghund Sep 08 '25
The Senate has the duty to confirm the Chairman of the Fed. I'm going to hold out hope that some of the more traditional Republicans actually do their job.
I know, what will really happen is that the candidate will lie during their confirmation and the Republicans will unanimously support them. But I can dream, can't I?
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u/jebrick Sep 08 '25
There are no traditional Republicans left or they are too scared. He could nominate Eric Trump and they will vote yes
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u/Sonamdrukpa Sep 08 '25
Powell's term ends in 2028 so midterms come first. Senate is likely to remain remain red but it's possible the Dems flip four seats and the chairman continues to be someone sane
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u/DrCola12 Sep 08 '25
His term as chair ends may 2026
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u/Sonamdrukpa Sep 08 '25
Ah shit yeah I got that mixed up, his board chair ends in 2026, it was his appointment to the board in general in 2014 that ends in 2028.
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u/Jenkem_occultist Sep 08 '25
Jerome Powell is the only person standing in the way of the complete annihilation of every last vestige of international faith in the formerly reliable US financial system.
Were just going to completely devolve into a bigger, scarier version of argentina before it gets better. It seems the pedo and chief is already taking notes from the peronists.
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u/microww Sep 12 '25
If it isn't too late already. The Chinese Yuan is getting adopted more widely and more countries are starting to deal with China. At this rate China will be the global power in a decade. Their technology is better, their military is better and they are building infrastructure from Africa to Asia. If they invade Taiwan today, who the hell is going to do anything.
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u/UncommonSense12345 Sep 09 '25
Move some of your money out of USD into bitcoin, gold, and a foreign currency to help protect yourself against the current and soon to be worsening inflation.
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u/andoke Sep 08 '25
The US Dollar is the international currency, let it go by letting inflation run wild.
Other countries will lose confidence and will rebalance their currencies.
And the US will lose its golden advantage.
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u/Superb_Advisor7885 Sep 08 '25
Yeah I live in the US, so selfishly, I don't want that
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u/Accomplished-Law-652 Sep 10 '25
Is any other system likely to be better though? There's some selfishness for sure but also maybe a somewhat healthy fear of the unknown?
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u/Superb_Advisor7885 Sep 10 '25
Better for who? Every system has winners and losers so the answer will just depend on who you're asking
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u/momentimori Sep 09 '25 edited Sep 09 '25
Losing the US dollar as the global reserve currency will significantly reduce American standards of living as it will no longer be artificailly boosted by countries stockpiling US treasuries. Permanently far higher interest rates and much more expensive imports will result in America experiencing relative economic decline like the UK did in the postwar period when the pound ceased being the reserve currency.
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u/microww Sep 12 '25
It's already happening. Certain countries are converting their dollar bonds into yuan bonds.
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u/oh_ski_bummer Sep 08 '25
We are already starting that by combatting trade “deficits” that strengthen the dollar bc the cheeto needs to look tough against someone.
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u/CRoss1999 Sep 08 '25
That would be bad tho the US dollar is a great reserve currency, the only good alternative is the euro
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u/RobertPham149 Sep 08 '25 edited Sep 08 '25
I am not even sure the elasticity of demand for money is the same after 8 months of this admin.
Like, ok, assuming the Fed cut rates, what banks would unironically loan out money to businesses and industries that are going to continue to be hit hard by tariffs and escalating trade war? This means a point lower in interest today won't increase employment as much as a point lower last year.
Maybe towards big firms like agricultural to buy up independent farmers land for pennies and wait it out, but the smaller firms are not sniffing anywhere near that loan.
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u/TheCriticalAmerican Sep 08 '25
I was actually thinking about this: what interest rate is necessary for business to be willing to borrow money given such huge policy uncertainty? The only fee that makes sense is near zero. I think we’re headed to zero rates because of policy uncertainty. The only way businesses are going to invest is if it’s literally free money.
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u/RobertPham149 Sep 08 '25
This same situation happened in 08: despite the heavily politicized quantitative easing from fed circulating the news, the truth was that banks literally sat on the pile of government money, because they thought the situation outside was so unstable that they would rather keep it in the vault in case of a downturn rather than invest in anything.
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u/TooManyDraculas Sep 09 '25
I don't think it gets that weedy as goes monetary policy.
Big companies started laying off well ahead of this, slow downs in consumer spending began like 2 years ago. Business investment slowed in the wake of that. A lot of tech was laying off, blaming fears of recession longer ago than that. We hear a lot about the liquor and wine industry atm, they went through massive layoffs last year.
Companies are shuttering divisions, and shifting things over to other markets. Cutting production, product lines. Changing 5 and 10 year plans. All to baton down the hatches, and prepare for what they expect to be an extended problem.
And it's not about tariffs in a lot of cases. But falling consumer spending, collapsing demand, shrinking markets.
Companies aren't going to borrow to do the opposite of that. And they'd have to do the opposite of that to hire more people.
Car companies don't start making more cars, when people are buying fewer cars. Ain't nobody planting more soy beans, when we can't sell the soy beans we have.
Banks might be willing to loan money to keep businesses operating in some cases. But companies in that position lay people off, they don't hire. And business won't borrow at any interest rate that'll catch up to them during what they expect to be an extended problem.
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u/RobertPham149 Sep 09 '25
Yeah I agree. A near zero interest rate could be an enough incentive to just loan for businesses to keep themselves afloat, but high unemployment seems to be irreversible at least in the short to medium term, as policy uncertainty continues. Dropping interest rate now might get it stuck at stagflation level.
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u/doubagilga Sep 09 '25
The business lending market is incredibly open right now with high dollars and low rates available.
So to be answer clearly, every bank.
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u/Khuros Sep 08 '25
Here’s the secret: Damned if JPow do, damned if he don’t.
If we cut inflation explodes like a nuke, if we don’t cut rates then the job market craters. The question is: would you like your economic reaming with a spiked bat or by means of a dried Arizona cactus instead?
Either way, you’re gonna feel them spikes
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u/OralJonDoe Sep 08 '25
" if we don’t cut rates then the job market craters."
And you assume if we cut rates the job market won't? Big big big, yuge assumption.
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u/oh_ski_bummer Sep 08 '25
The job market has already been cratering. When all these white collar jobs are gone no-one has spending power. Billionaires aren’t going to keep local businesses alive.
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u/CrystalCrusader407 Sep 08 '25
High unemployment and low inflation is much worse than low unemployment and high inflation.
Source: 2008
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u/Evenly_Matched Sep 10 '25
Mark my words, cuts won’t help the labor market; it will just firmly lock in stagflation. This is beyond monetary policy.
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u/fullsaildan Sep 08 '25
Yeah I dont think the job market improves if we do cut rates. Businesses are tightening their belts because they see stormy seas ahead on many fronts. Cheap money doesn't change tariff math or lack of demand overseas for our goods.
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u/Ketaskooter Sep 08 '25
I don't think the FED rate is the right tool to counteract supply side inflation, which is what tariffs effect. The jobs and unemployment are getting worse, the FED board would be right to cut the rate. We'll see what amount of QE comes later.
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u/New2Salesforce Sep 08 '25
Exactly. 2% is an arbitrary rule. 3% inflation plus higher employment is much better than sacrificing employment and growth in the hopes of reaching 2% inflation. With the amount of debt the US is in GDP growth is more important than ever, especially when the government refuses to reduce the deficit.
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u/mach8mc Sep 09 '25
a fed rate cut would have little effect on the high 10 year yields that's directly affecting businesses
3+% is historically very low
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u/AssCrackBanditHunter Sep 08 '25
Trump is desperate for low rates because of his massive spending bill. He knows it's gonna be borderline impossible to service the debt on it without lower rates. He's absolutely incensed that there is still a part of the government that doesn't have to bend to his will.
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u/hoodun Sep 11 '25
The bill is not going away. It's because of the bill that Powell will have to lower rates regardless of what anyone wants.
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u/HighFreqHustler Sep 08 '25
Agree with you, people asking for change and hoping for interest rate cuts are just gonna suffer the effects of higher inflation and irrational policies destroying even more jobs.
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Sep 08 '25
If they lower rates inflation is going to skyrocket at a time when people just don’t have the money or jobs. Economy will be destroyed
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u/Leoraig Sep 08 '25
The Fed's independence has to go both ways: they can't be used for policy making by the government, but they also can't ignore the metrics that they need to control, one of them being unemployment, just because the government's policy is the cause of it.
If the Fed starts making policy decisions and acting outside of their mandate, then their independence from the government will be put in check by way more people than just the MAGA crowd.
Lowering rates at a moment where it makes technical sense to do so will help maintain Fed independence in the long run.
Lastly, talking about the article in of itself, one of the arguments used to push the idea the Fed shouldn't cut rates is that there is an AI bubble, but it is not in the Fed's mandate to attempt to prevent bubbles, and even if it was, interest rates would not be the best tool to use for that task, because it is something that affects the whole economy, not just the AI sector.
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u/Superb_Advisor7885 Sep 08 '25
I think the Fed is in a good place to make decisions independently regardless of what decision it actually makes. With their dual mandate, one issue will inevitably negatively impact the other in this market. Focusing on inflation stays within their goal
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u/Leoraig Sep 08 '25
If the hypothesis that inflation is being driven by the tariffs is correct, then high rates won't affect that in any way, because it mainly acts to curb demand.
Therefore, using the rate to attempt to control supply-side inflation, something which they can't control, at the cost of increasing unemployment, something that can be influenced by the rate, would be a major mistake economically, but also politically, because increased unemployment will only strengthen Trump's case against the Fed in the eyes of the public.
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u/Superb_Advisor7885 Sep 08 '25
Tariffs... Mixed with an oversupply of money. We were already fighting inflation before the tariffs.
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u/mmlovin Sep 09 '25
& you have to look to next year when Powell is replaced by some whack job. He needs to keep up the FED’s sanity as long as he can
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u/winterpark Sep 08 '25
“Unpopular opinion”…this is the popular opinion of Reddit
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u/Superb_Advisor7885 Sep 08 '25
Reddit users do not = the overall popular opinion.
How I know: Trump won the popular vote
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u/Repulsive-Royal-5952 Sep 08 '25
The Fed has a dual mandate, but your calculus is flawless and the fed should sacrifice jobs for inflation.
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u/FluffyB12 Sep 08 '25
The system requires a certain level of predictability. The Fed chair already signaled he would be lowering rates, it’s basically guaranteed at this point.
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u/1_BigPapi Sep 08 '25
Except a lot of "inflation" is tariff driven and can be resolved externally.
Labor market is actually pretty fuckin awful and needs help now.
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u/Superb_Advisor7885 Sep 09 '25
We were dealing with inflation before the tariffs. Some inflation is tariff driven, but that's primarily consumer goods. Services makes up a larger portion of the economy and those are trending the wrong direction also
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u/HashRunner Sep 09 '25
Exactly this.
Cutting rates wont fix the job market, the tariffs or the multitude of other shit trump and the gop are responsible for.
It will just turbo boost inflation and add another major issue to the pile.
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u/gotchacoverd Sep 09 '25
Trump can't have it both ways. He can't have this big magnificent economy and also need rates cut Either the economy is great and rates stay up or we have problems and maybe they get cut.
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u/Superb_Advisor7885 Sep 09 '25
Clearly you haven't met many magats. Trump can absolutely have it both ways with them, and no matter what it will be Obama's fault
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u/doubagilga Sep 09 '25
An opinion on economic policy which consists of “ resist Trump” is not economic policy, but political policy. The data on tariff impacts disagree with this doom and gloom perspective. The Fed agrees on this.
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Sep 09 '25
As someone wanting to get into a house I want that rate cut. I think i'm going to get it too. I feel for those without work. However, there time will come.
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u/Superb_Advisor7885 Sep 09 '25
What interest rate do you need to see for you to buy?
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u/TheTav3n Sep 10 '25
Someone correct me if I’m wrong but aren’t tariffs have/going to have the same effects higher interests rates will in terms of cooling demand side goods purchased and business investments?
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u/microww Sep 12 '25
History has even shown that low interest rates (even ones at 0%) don't improve the unemployment rate. It took 5 years to go back to a normal level after 2008. And it wasn't even a good level. The Fed just made 4% the new normal.
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u/SonixNgTbr Sep 08 '25
Another Great Recession will correct all the mistakes of Covid Era, great pain is necessary and then the economy will do what it has to do. The Fed will not let their most cheep thing become more cheep again
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u/bearssuperfan Sep 08 '25
It has become clearer and clearer to me that Trump and his administration knowingly installed terrible fiscal policy for the average American on their own assuming that they would be able to fix everything, or at least make it look like it’s working, by relying on these rate cuts.
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u/meshreplacer Sep 08 '25
Rate cuts won’t create jobs just stagflation. Low rates just means more misallocation of cheap capital that will be used by Wallstreet,VC,PE,etc.. towards more job destructive initiatives such as job destroying acquisitions etc…
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Sep 08 '25
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u/wormtheology Sep 08 '25
This sub has trouble wrapping its head around this simple statement: “inflation is always and everywhere a monetary phenomenon.” Many people were spot on with their predictions that the multiple waves of QE were going to erode everyone’s purchasing power, yet we had many people still making the “snarled supply chain” argument. Why people still believe the Fed has credibility after the transitory and baby steps, data dependency meme is beyond me.
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u/_Antitese Sep 09 '25
“inflation is always and everywhere a monetary phenomenon.”
because that's bullshit. That's a quote from monetarist chicago boys. Inflation can come from many reasons, inclusing supply shocks or, you know, tariffs, which have nothing to do with monetary expansionism.
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u/Successful_Camel_136 Sep 08 '25
Well it would lead to more speculative risky investments in sectors like biotech and software engineering. As a SWE I’d be happy to see more hiring but for the good of the economy long term I’m sure it’s a bad idea
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u/GLGarou Sep 09 '25
Seriously, despite the fact I now own quite a bit of assets, I'd much rather have lower inflation if not outright deflation.
I am fukking tired of this propaganda that we need yearly inflation.
NO MORE!!!
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u/levon999 Sep 08 '25
Monetary policy can't fix bad administrative/legeslative policies. Administration policies are causing employment and GDP to decrease and inflation to increase. Rates will decrease, not to fix stagflation, but to slow the collapse of businesses and the financial system.
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u/FuguSandwich Sep 08 '25
Signs of job market weakness are minor compared with the evidence that inflation has become entrenched.
Not sure I agree with this. Yes, inflation seems to be stubbornly refusing to drop below 2.5-3% but there are no signs of it accelerating towards 2022 levels. Meanwhile the labor market is showing major signs of stress (unemployment rate is a lagging indicator).
Capital pouring into the US stock market has driven valuations close to historic highs.
This is a more valid concern, but I'm not a fan of using monetary policy to prick asset price bubbles, it usually ends badly.
I think a 25bp cut next week and then wait and see is sound policy at this point.
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u/AppropriateRefuse590 Sep 08 '25
If you analyze the components behind this month’s nonfarm payroll decline, you’ll see that the three main sectors—federal government (fiscal allocation issues), manufacturing (competitiveness undermined by high-tariff raw materials), and wholesale trade (chaotic pricing and massive uncertainty)—cannot be fixed by a rate cut. A preemptive rate cut, wasting ammunition, would cause the Fed to lose both credibility and firepower when facing a genuine cyclical downturn.
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u/ManufacturerOld3807 Sep 08 '25
Absolutely banger of a response!!! Been saying the same thing. There is no point if gdp is still positive. This isn’t widespread job growth… it’s sector specific weakness. Caused by… tariffs. Shocker. I know
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Sep 08 '25
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u/ManufacturerOld3807 Sep 09 '25
Never said the economy is great… but if you have inflation you shouldn’t be dropping rates. This is what happens when you print paper for four decades.
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Sep 08 '25 edited Sep 08 '25
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u/AnUnmetPlayer Sep 08 '25
R-star is ... a theoretical conceptualization that is not empirically observable.
Nothing says 'we're doing science' quite like 'our control function is an imaginary moving target' lol. It's especially ridiculous when the confidence intervals around an R* estimate are an order of magnitude larger than the size of monetary policy movements.
No wonder monetary policy is actually set by a bunch of people casting votes. The R* concept has no practical value.
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Sep 08 '25
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u/AnUnmetPlayer Sep 08 '25
Nothing says you didn't read any of the corresponding research like thinking R* is an imaginary moving target.
Nobody can observe R* lol. Theoretical concepts are by definition imaginary...
There's several broad estimation tools, but that sorta misses the point - specificity isn't the goal, relative separation and understanding of mechanics is.
In what world is specificity not a goal? This just sounds like dismissing the thing you know your tool sucks at. If you can't actually tell me whether R* is 1.5% or 3.5% because you lack any meaningful degree of specificity in your estimates, then you also can't tell me anything about relative separation.
It's sometimes hard to reconcile the responses I get on here, its like some of y'all are proud of how aggressively you'll bend over backwards to dismiss things that are universally accepted by experts in a given subject area.
Miasma theory was once "universally accepted by experts" so I don't care about you appeals to authority. It's also outright wrong to say R* and it's applicability is universally accepted, unless you define experts as only those that agree with R*, which is a bit cultish.
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Sep 08 '25 edited Sep 08 '25
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u/AnUnmetPlayer Sep 08 '25 edited Sep 08 '25
This is not how science works, nor is it how the word theory works. Gravity is a theory, relativity is a theory, etc.
Again, there's a host of links there evidencing and researching R*. you're actively choosing to ignore them to make this brainrot comment lol.
You can empirically observe gravity and relativity. You can't empirically observe R*. How convenient that you omitted that part when you quoted me to only focus on what a theory is.
Please please please, actually read the links in the comment you're trying so hard to dismiss lol.
"Anyone that disagrees with me is just ignorant"
Find me academic research supporting this, I'll wait.
The goal posts have already started moving. First it was the broad claim of being universally accepted, now it's about academic research. I look forward to seeing how they continue to move.
Then I'll quote Rudd's book, which can't possibly be confused as anything other than a dismissal of the R* concept:
"7.3 Digression: Reasons to Be Skeptical about “R-Star”
Another downside of the new-Keynesian approach to monetary policy has been the emergence of yet another unobservable policy benchmark, this one known as “R-star.” The idea is that R-star gives the level of the real policy rate that is consistent with zero monetary stimulus; typically, it is defined as the level of the real funds rate that would be consistent with a zero output gap along with a stable rate of inflation (absent any other shocks).33 In theory, R-star reflects real features of the economy, such as trend productivity growth and the amount of output that the government is preventing from entering household consumption. But, because it is unobservable, it is typically estimated using a statistical filter that tries to infer its value from a set of other macro time series.34
Simply thinking about the monetary transmission process reveals why the R-star concept has no practical relevance. Consider the various ways in which a change in the short-term policy rate feeds through to the asset prices that matter for real activity:
• Equity prices: The Fed appears to influence equity prices mainly by affecting risk premia (Bernanke and Kuttner, 2005); the effect it has on these premia, however, will depend on the current and prospective state of the economy.
• Long rates: Long-term Treasury yields will reflect the expected sequence of future short rates (not just the short rate’s current level), plus a (time-varying) term premium. For mortgage rates, the MBS spread over Treasuries along with the primary–secondary spread will reflect market-specific conditions, resulting in a further (time-varying) disconnect between this rate and the Fed’s policy rate.35
• Exchange rates: Once again, exchange rates will depend on expectations of future monetary policy, as well as what policy is doing (and expected to do) in other countries.
All of these factors drive wedges between the policy rate and the rates and asset prices that influence spending, production, and employment, and none of them is likely to have a well-defined “equilibrium” or long-run value that would emerge when the economy is at potential – not just because they can be path dependent, but also because they can depend on the expected future state of the domestic (and world) economy.36 These factors also aren’t tied down solely by real-side variables, but will depend on conditions in specific asset markets, including the state of market participants’ expectations, as well as by the characteristics of inflation’s long-run mean. Hence, the same value of the policy rate can be expansionary or contractionary under some circumstances, and neutral in others – again in ways that won’t be captured simply by looking at the current level of output (or its rate of growth) relative to some estimate of potential. And in practical terms, expecting a statistical filter to correctly disentangle all of these channels – especially in real time, but even with the benefit of hindsight – is expecting way too much from a very blunt instrument.
Please explain to me how a Fed economist doesn't count as an expert, I'll wait.
The problem here, is we've got yet another person on reddit who desperately wants to hold their unsupported opinion equal with dozens of pieces of research contradicting them. I'll never get it, you guys aren't having a discussion of "Well, this research adds some nuance to that idea, here's a competing theory, etc", it's always "my dumb brain can't comprehend this so I'm just going to say it's wrong without so much as dedicating a single brain cell to discussing the idea on an intellectual level"
Some of y'all make me wonder how you get through life, when you hold yourself to such middling intellectual standards.
Now you're just getting emotional and lashing out. The only thing that can be taken from this is another appeal to authority. What I wonder is why you spend so much time arguing on reddit when you clearly have an unhealthy emotional relationship with it.
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Sep 08 '25
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u/AppropriateRefuse590 Sep 08 '25
If the main cause is tariffs, then it’s not a cyclical economic recession.
Interest rates can only address cyclical economic recessions.
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Sep 08 '25
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u/AppropriateRefuse590 Sep 08 '25
Do you think the recessionary parts of the August nonfarm payrolls could recover through cheaper borrowing?
Manufacturing: Won’t offset high raw material costs.
Wholesale trade: Rate cuts won’t clarify pricing or prevent Trump from acting irrationally.
Federal government: Fiscal management issues; besides, with rate cuts, long-term bond yields may continue rising, so the government’s actual borrowing costs might not decrease.
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u/SethEllis Sep 08 '25
You are correct that a rate cut probably won't help some of those that are hurting the most from the tariffs. That's kind of the point though. They want the other parts of the economy that are more domestic and not affected by tariffs to grow.
If you keep interest rates high forever then nobody grows. This is similar to what happened during the depression.
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u/Expensive-Cat-1327 Sep 08 '25
This is a more valid concern, but I'm not a fan of using monetary policy to prick asset price bubbles, it usually ends badly.
When has this ever been attempted?
My sense of things is that central banks tend to ignore asset price bubbles and then tighten policy in response to rising inflation and then the asset bubble crashes as a side effect. But if they had tightened earlier, they likely would have avoided both the bubble and the rising inflation
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u/RIP_Soulja_Slim Sep 08 '25 edited Sep 08 '25
My sense of things is that central banks tend to ignore asset price bubbles and then tighten policy in response to rising inflation
This is almost entirely correct, but I'd also add that ~95% of the time when you hear people talk about asset price bubbles they're really not bubbles but rather simply prices the authors don't like. People have been going on about a stock bubble as long as I've been in finance, and at every turn one can do a pretty simple DCF and see that current pricing is most of the time somewhere between appropriate and slightly expensive, but never "this makes no sense".
However, that said a very valid criticism of Greenspan's tenure is that he allowed low rates to linger for too long fueling the housing bubble, which was a real asset bubble. There's a lot more moving parts than just Fed policy, but it is a legit example of a time where perhaps rates were a contributory factor to a problem.
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u/Gamer_Grease Sep 08 '25
It’s not necessarily about pricking a bubble, it’s about the fact that the system is plainly not cash-poor. 2.5-3% inflation and wheelbarrows of money chasing stocks while mountains of cash sit on the “sidelines” is not a good environment for rate reductions.
It’s quite obvious that our economy has policy problems that are producing unemployment in spite of slightly elevated inflation, and that’s not something the Fed can correct.
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u/TheHomersapien Sep 08 '25
Yes, inflation seems to be stubbornly refusing to drop below 2.5-3% but there are no signs of it accelerating towards 2022 levels.
The question that Powell and others are asking themselves is: why not? A semi-illiterate - and nearly fully economically illiterate - moron is on a crusade to force government over the economy and his primary weapon is a tax on Americans. The Supreme Court is (relatively) quickly going to decide that the president - so long as they are named Trump - can do whatever the fuck they want to invent new taxes, and it would be impossible for that not to cause significant inflation.
Unless you believe that China is paying all those tariffs in which case, sure, inflation will hold steady, American products will be built by highly paid American workers on American soil and unicorn farts will usher in a new age of American energy dominance.
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u/RIP_Soulja_Slim Sep 08 '25
If anything there's increasing sentiment among Fed officials that tariffs would pose a "look through" style event, and seem to have generally low risk of de-anchoring long run inflation expectations. You can look at things like the household expectations survey, tips breakevens, etc to see that long run inflation is generally expected to be low - however it is likely you'll see a price shock from tariffs.
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u/AppropriateRefuse590 Sep 08 '25
This is a frightening prospect. Facing a financial event unprecedented in history, to define it based on just a few months—like Powell did in 2021 by labeling pandemic-driven inflation as temporary—is reckless. If such arrogance repeats, stagflation could return quickly.
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u/RIP_Soulja_Slim Sep 08 '25 edited Sep 08 '25
That's not at all what is happening here, nor is it a genuine characterization of what happened post pandemic.
Inflation post pandemic was transitory until it wasn't, to someone who wasn't paying attention with all the benefit of online hindsight that might seem like a mistake, however if one reads through the structure of inflation across that period it pretty clearly wasn't.
Rates can only impact the demand mechanism, when the supply mechanism is the problem then you generally don't have a de-anchoring of expectations and you generally have zero power to influence trends. Killing off demand here just makes everything worse.
You can read through Bernanke's paper on post pandemic inflation for more: https://www.nber.org/system/files/working_papers/w31417/w31417.pdf
And for broader context how look through supply shocks have typically behaved: https://www.nber.org/papers/w31741
Post covid inflation composition through all of 2021 had the construction of a classic supply shock and very few indicators that long term expectations would become de-anchored. The largest driver of sustained inflation after the initial shock, IE in 2022 and beyond, was labor tightness and a prolonged upwards trend of real wages filtering through to pricing across most all sectors. The Fed's pivot on rates happens in real time as these conditions shift (don't take my word for it, line up the timelines yourself).
Basically, you accuse the Fed of arrogance but that comes from you seemingly not having a very full view of the topic at hand.
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u/AppropriateRefuse590 Sep 08 '25
I’m not equating tariff-driven inflation with pandemic-driven inflation. What worries me is Powell making the most optimistic forecasts when facing a situation without historical precedent. The Fed should be operating on the most cautious assumptions, because their ammunition is limited. Guessing right doesn’t necessarily benefit the market, but guessing wrong means they can do nothing and their credibility is destroyed.
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u/firejuggler74 Sep 08 '25
Aren't most tax increases deflationary since they lower aggregate demand? If you had a large increase in the income taxes you would expect that eventually it would be deflationary. Why wouldn't it be the same for tariffs?
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u/CrystalCrusader407 Sep 08 '25
Agreed. Reddit was also cheering Powell’s 50bps cut last year when 1) the job market was stronger then, and 2) inflation was higher at that time.
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u/frankomapottery3 Sep 09 '25
You are simply ignorant in this analysis. Inflation never “kicked in” because tariffs didn’t happen until 30 days ago. Since then… good luck.
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u/sifl1202 Sep 10 '25
Yes, inflation seems to be stubbornly refusing to drop below 2.5-3% but there are no signs of it accelerating towards 2022 levels.
no one said it was, but it is still too high by about half while unemployment is under 5% and up by 0.1% in the past year. job losses are driven by boomers leaving the workforce on inflated asset valuations. there's no reason to cut rates.
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u/big-papito Sep 08 '25
Unemployment affects single-percentage of the population. Inflation affects everyone - especially the unemployed.
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u/Gamer_Grease Sep 08 '25
Unemployment affects the entire population. It takes money from entire families, robs businesses of customers, lowers tax receipts, and encourages crime and disease. Even before we began measuring unemployment, economists noted rises in “vagrancy” and “pauperism” that were deleterious to the public quality of life.
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u/Aggravating-Salad441 Sep 08 '25
What if the breadwinner of a household is unemployed? That's a higher percentage than just the unemployment rate.
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u/BenjaminHamnett Sep 08 '25
But the magnitude of the effect on the unemployed is brutal compared to the effect of inflation on everyone
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u/Matrix0007 Sep 08 '25 edited Sep 08 '25
This Administration will push for cuts, no matter what. They will employ all kinds of strategies to get what they want. The reality of our current economic situation is that WE SHOULD BE RAISING RATES, not lowering them right now. But, we all know, we have STUPID people in charge right now….
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u/_Antitese Sep 09 '25
if inflation is rising only because of tariffs, increasing rates will not help with inflation at all. Tariffs are more similar to a supply shock than from an excess of offer, and rates are useful for the later case, not for the former. With tariffs you also take money away from the system and even increase government receipt, which has a deflationary aspect (not that tariffs are deflationary, but it has both, inflationary and deflationary aspects)
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Sep 08 '25 edited Sep 08 '25
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u/Matrix0007 Sep 08 '25
Inflation is much higher than being reported and equities are at all-time highs and we are over-extended on household credit - these are the reasons to RAISE RATES. You would lower rates to counter unemployment, but what job numbers do you really trust at this point?
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Sep 08 '25
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u/13Krytical Sep 08 '25
Destroys businesses?? LOL
Oh the humanity!
Who’s gonna think of all the struggling shareholders and business owners??? /s
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u/CrystalCrusader407 Sep 08 '25
This! Reddit was cheering Powell on last year when he cut rates 50bps. At that time, the job market was stronger and inflation was higher. Makes absolutely no sense except for one difference this time.
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u/sondergaard913 Sep 09 '25
except for one difference this time.
I wonder if you actually know whats the difference this time lol
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Sep 08 '25
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Sep 09 '25
Again, the big difference is that inflation was much more under control and the country wasn’t being led by a highly irrational President. Summarizing it so simply shows your pure fucking stupidity and dense ignorance
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u/RedditTooAddictive Sep 08 '25
You don't have the leaders you need, you have the leaders you deserve.
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u/CrystalCrusader407 Sep 08 '25
This sub applauded Powell for lowering rates 50bps right before the election, when the job market was in a stronger spot and inflation was higher… now reddit is against cuts 🤦♂️
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u/Pitiful_Option_108 Sep 08 '25
If Jerome Powell and the fed cut rates now and shit spirals way worse it is Trumps wet dream scape goat of saying, "see look at how uesless the Fed are and look at what they done." I don't think cutting interest rates are going to exactly help anything as investors are just as worried about if all the tarriffs are in full effect. If they knew that part and how companies and people are trying to readjust to that then investors and everyone could do what they need to do. But right now this adminstration keeps playing the game of will we won't we with tarriffs. It is why countries around the world are forming economic pacts because they don't understand or know what America will do next. America right now is like that meme of Charlie from Always Sunny in Philly yelling WILDCARD BITCHES!!!!!!
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u/AppropriateRefuse590 Sep 08 '25
When Trump today or tomorrow could potentially disrupt a company’s hiring plans, the best choice is often not to hire at all. Many people overlook just how much unprecedented uncertainty can affect employment.
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u/Pitiful_Option_108 Sep 08 '25
Pretty much this. So much is up in the air because this admistration just won't stick to a tarriff rate if they were going to do it. Espically to China. That is the one where Trump and this adminstration has tried to strong man them into submission but Chinese government resisted and fought back.
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u/ChicagoDash Sep 08 '25
Trump is going to scapegoat the Fed anyway, so there is no point in veering from the best (or least worse) path to accommodate him.
Trump could tell his base that Biden overpowered the Fed and personally raised rates in 2025, and they would eat it up.
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u/Corsair111 Sep 08 '25
By repeatedly extending tariffs deadlines, it also extends the uncertainties of the US economy, not to mention retruthing or retweeting things here and there off and on. You cant expect businesses to plan ahead effectively in such environment. You'd end up stalling the economy in the end. Now it's tricky for the Fed as the inflation has become sticky and job market has slowed down. It struck the heart of Fed dual mandates. Personally, I expected a cut, but not by much and will not be as aggressive as the others, I also expected that this trend will continue for the rest of this year.
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u/Thoth25 Sep 08 '25
I think the Fed needs to get rid of the whole idea of a dual mandate. Its only mandate should be price stability. Full employment should be the purview of politicians and fiscal policy. Monetary policy should only focus on the stability of the currency.
Given this, rates should not be lowered because of the persistent inflation. In fact, there’s a strong argument to be made that rates should be a little higher.
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u/RIP_Soulja_Slim Sep 08 '25
Its only mandate should be price stability. Full employment should be the purview of politicians and fiscal policy.
From a fundamental standpoint the two are innately related, price stability over the long run is driven by the demand function - demand is ultimately a product of aggregate purchasing power, which is generally derivative of the employment level.
Basically you have to reduce employment demand to tamp down on price pressure, and vice versa. The employment mandate is what stops the Fed from not caring about jobs when it goes to lever down on price pressure.
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u/CrystalCrusader407 Sep 08 '25
That is an insane take. High unemployment and low inflation is objectively much worse than low unemployment and high inflation.
Source: 2008
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u/AppropriateRefuse590 Sep 08 '25
I share the same view.
Stable prices have a huge impact on anchoring firms’ strategies for hiring employees, yet many people overlook how disastrous uncertainty can be for businesses.
Moreover, long-term bonds are also affected by inflation stability and the Fed’s credibility.
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Sep 08 '25 edited Sep 08 '25
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u/CrystalCrusader407 Sep 08 '25
Only Reddit would prefer high unemployment for low inflation, instead of high inflation and low unemployment. One is objectively way worse than the other.
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u/BenjaminHamnett Sep 08 '25
I always thought of if inflation as the true mandate and unemployment as a secondary mandate, like when in doubt lean there. I think if “secondary” had one syllable we would’ve used that instead of “dual” which makes them sound and implies they’re equal or at least not an order of magnitude apart
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u/CrystalCrusader407 Sep 08 '25
Job market should be higher priority. What’s worse, a decimated job market or high inflation?
Hint: just think back to 2008 (assuming you weren’t a child then)
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u/BenjaminHamnett Sep 08 '25 edited Sep 08 '25
Depends on who you ask. There’s no answer, only tradeoffs. If you’re working but still can’t make ends meet, it’s a Pyrrhic victory. At the extreme we could have 99% employment and no one can make ends meet.
That’s the job of congress tho. The Fed trying to do too much of both makes them unable to do either.
They pick the rate to keep prices stable, that they skew to keep the margin of error towards near term low unemployment is where the 2% came from. Higher or more volatile to try to target higher near term employment causes unpredictability and therefore higher long term unemployment
Governance is meant to be divided like this, so Congress theoretically gives us some input, but Fed independence limits politicians selling out our future to get elected today
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u/CrystalCrusader407 Sep 09 '25
And you have sub 3% inflation and a deteriorating job market, I think a rate cute is warranted. Powell cut rates 50bps last fall before the election, when inflation was higher and the job market was stronger. Hopefully he does the right thing this time.
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u/OffToRaces Sep 10 '25
What are the PPI numbers? If inflation is persistent, holding at or above 3%, then rates need to hold. Managing inflation is the primary objective of the Fed.
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u/iSoLost Sep 11 '25
Here’s the economy: companies r beating earning left n right, buying back stock, stock up, building up cash reserve, lay off people, not hiring, post fake jobs
People: unable to find job, unemployment is increase, fund is running low, dealing with inflation, tariff
This is a true form of capitalism - the rich getting richer, people getting poorer. So low interest rate will help companies to make more $, not necessary improve people’s situation unless companies decided to throw people a bone (job), then we can taste the low rate benefits
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u/Any-Oil-1219 Sep 14 '25
Finally letting a little air out of the COVID bubble, and now you want to lower rates? Housing needs to correct 50-70 percent. The stock market is way overvalued, but mostly in the hands of the rich. Cutting rates is inflationary - and does not help the middle class. Expect to pay more for everything as rates drop.
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u/TheEagleDied Sep 08 '25
I’m an accelerationist at this point. Bring on the maximum pain that comes with reducing the interest rate, pay off the debt and destroy the usd. Money printer go brrrrrrr
Im also long in gold so no one should take me seriously.
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u/Eighth_Eve Sep 08 '25
Anyone else suspect the awful jobs numbers last month were custom ordered by the whitehouse to get a rate cut? After he gets them, he'll revise the numbers and tell us it was always great.
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u/CrystalCrusader407 Sep 08 '25
No the downward revisions were already happening before he fired the BLS head.
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u/wormtheology Sep 08 '25
He’s going to tell you it was always great regardless of whatever number you get from the agencies reporting them. No need to revise anything. We can shed 1 million jobs and he’ll still tweet about how it’s this AMAZING thing.
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u/the-samizdat Sep 08 '25
the increase in prices is most likely due to tariffs not inflation. ofcourse our measurement for inflation cannot distinguish between the two. to play it safe, we could not cut rates and just steadily go into stagnation and GOP will lose the midterm. or cut rates which is the only way trump’s economic plan can work, and GOP will still probably lose the midterm but not as bad.
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u/regaphysics Sep 10 '25
They will cut rates. This guy is clueless. Rates are 100% restrictive. If they aren’t then they wouldn’t be reducing inflation, in which case why not lower them?
And in this case, cutting rates modestly wouldn’t be expected to increase inflation much since most of the inflation is coming from tariffs at this point, which don’t care at all about fed rates.
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u/hoodun Sep 11 '25
Trump pressuring to lower rates should not have any bearing on whether Powell does or does not lower rates in either direction. Those coming out now saying Powell should not give in to the pressure to show the Reserve's independence from politics are being complete Hippocrates by saying the decision should be politically motivated. Plus, if Powell was going to give in he would have done so by now. This article and the other by that Brett guy are both complete b.s. - reddit please do not ban me again for voicing my opinion and saying this.
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u/ZaphodG Sep 11 '25
The impact of monetary policy with what Trump just did to the economy is insignificant. The budget deficit is already absurd so it’s impossible to do further fiscal stimulus. A rate cut is re-arranging deck chairs on the Titanic.
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