Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Future of Economy and Inflation
Old 05-04-2022, 05:15 AM   #1
Thinks s/he gets paid by the post
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 1,597
Future of Economy and Inflation

So I've been thinking about the current economy and inflation.

Several problems have been involved to bring us to where we are today and where the economy will go from here. We have all the financial responses to Covid which have increased the money floating around (used to be M2); we have supply chain problems which include current closures in Asia; we have the war in Ukraine; we have a worker shortage; we have inflation and Fed raising rates and reducing it's bond holdings to fight inflation.
So what happens if the Fed tightens to address inflation but the underlying issues are still there ? I can't see how the Covid in Asia, the war, supply line problems, or worker shortages being resolved soon.
1) Does this make the Fed efforts ineffective ?
2) Does this make a recession more likely or cause the Fed to raise rates higher for inflation to fall ?

I'm curious what the body here thinks will come from this. How will the lingering problems affect the Fed's efforts and where this will leave the economy and inflation. I don't see the Fed backing off from fighting inflation after all the investment of influence and reputation. To pause and restart would not be a good response.

Where does this leave the economy and inflation ? This is purely a academic question to me. While economic conditions will affect investments I have no plan to change my investments but to stick to my AA and funds.

Thanks
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
RetireBy90 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-04-2022, 05:28 AM   #2
Thinks s/he gets paid by the post
frayne's Avatar
 
Join Date: Oct 2002
Location: Chattanooga
Posts: 3,871
My crystal ball is a bit hazy this morning but I would comment, the more things change, the more things stay the same. We've seen these circumstances before and the best plan is as before, have a diversified portfolio and don't panic, we will be just fine. That's my story and I'm sticking to it.
__________________
Earning money is an action, saving money is a behavior, growing money takes a well diversified portfolio and the discipline to ignore market swings.
frayne is offline   Reply With Quote
Old 05-04-2022, 06:02 AM   #3
Thinks s/he gets paid by the post
njhowie's Avatar
 
Join Date: Mar 2012
Posts: 3,925
Quote:
Originally Posted by RetireBy90 View Post
I'm curious what the body here thinks will come from this. How will the lingering problems affect the Fed's efforts and where this will leave the economy and inflation. I don't see the Fed backing off from fighting inflation after all the investment of influence and reputation. To pause and restart would not be a good response.

Where does this leave the economy and inflation ? This is purely a academic question to me. While economic conditions will affect investments I have no plan to change my investments but to stick to my AA and funds.
Thanks
My guess is as good as anyone else's. With that said...

The Fed is caught between a rock and a hard place and something will have to give. I believe that when push comes to shove, the Fed will revert to its old ways under Powell - easing.

I do not believe that Fed will have to go very far to see signs of inflation coming down. Remember, inflation coming down does not mean prices go lower (overall), just that the rate of increase is slower. Most can see a recession coming. Who believes that we'll continue to see high inflation through a recession? If so, that makes the Fed's job that much more difficult. How can you get through a recession and continue raising interest rates? You may just push the entire economy into depression.

My belief has always been that in light of this, and that the folks at the Fed are well aware of it, they are going lift rates as quickly as they can get away with, because something is going to break and they will be forced to back off at that point.
njhowie is offline   Reply With Quote
Old 05-04-2022, 06:56 AM   #4
Thinks s/he gets paid by the post
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 1,597
Quote:
Originally Posted by njhowie View Post
My guess is as good as anyone else's. With that said...

The Fed is caught between a rock and a hard place and something will have to give. I believe that when push comes to shove, the Fed will revert to its old ways under Powell - easing.

I do not believe that Fed will have to go very far to see signs of inflation coming down. Remember, inflation coming down does not mean prices go lower (overall), just that the rate of increase is slower. Most can see a recession coming. Who believes that we'll continue to see high inflation through a recession? If so, that makes the Fed's job that much more difficult. How can you get through a recession and continue raising interest rates? You may just push the entire economy into depression.

My belief has always been that in light of this, and that the folks at the Fed are well aware of it, they are going lift rates as quickly as they can get away with, because something is going to break and they will be forced to back off at that point.

I hadn't really considered raising rates in the midst of a recession. My concern is that raising rates to impact demand will work but that is only a part of the problem. I don't see the war ending soon, China and Covid and supply chain won't be fixed soon, while a recession will ease demand on workers we don't have any way to quickly add 10M new workers. More jobs overseas ?
This is an interesting problem we have created here.
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
RetireBy90 is offline   Reply With Quote
Old 05-04-2022, 07:13 AM   #5
Recycles dryer sheets
 
Join Date: Jun 2019
Location: Denver
Posts: 160
They are putting us in recession on purpose. Taking away the money they gave out. Real estate can’t keep going up with 5.50% mortgage rates and they have said they want to reduce investment values.
Rocky mtn high is offline   Reply With Quote
Old 05-04-2022, 07:35 AM   #6
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 47,467
Quote:
Originally Posted by frayne View Post
My crystal ball is a bit hazy this morning but I would comment, the more things change, the more things stay the same. We've seen these circumstances before and the best plan is as before, have a diversified portfolio and don't panic, we will be just fine. That's my story and I'm sticking to it.
+1000 Great answer to the question.

As Frank says to me each time the market slips further, "We live in interesting times." A recession may be inevitable but we have been there (2008), done that, got the t-shirt, and we are fine.

We plan to do nothing, which is what we did then. We'll watch and wait. Luckily we are in a position to do that, since we are retired with no mortgages or other debt, and we both have mini-pensions and Social Security. My portfolio is diversified and has an AA that I can live with. I don't plan to take anything out of it for a while, though; my SS will be sufficient for now.

This too shall pass, eventually. Meanwhile it's a great time to brush up on our LBYM skills in order to cope with the inflation we are experiencing, and enjoy retired life despite all that is going on!
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.

Happily retired since 2009, at age 61. Best years of my life by far!
W2R is offline   Reply With Quote
Old 05-04-2022, 07:38 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Jun 2017
Location: Western NC
Posts: 4,600
Last WSJ article I read said supply chain problems will slowly resolve, but the cost will be lower efficiency and higher prices.

Basically, businesses are moving back to stockpiling what they need instead of relying on a just-in-time inventory model so they don't have to shut down their production lines.
ncbill is offline   Reply With Quote
Old 05-04-2022, 08:08 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 7,863
Quote:
Originally Posted by RetireBy90 View Post
So I've been thinking about the current economy and inflation.

Several problems have been involved to bring us to where we are today and where the economy will go from here. We have all the financial responses to Covid which have increased the money floating around (used to be M2); we have supply chain problems which include current closures in Asia; we have the war in Ukraine; we have a worker shortage; we have inflation and Fed raising rates and reducing it's bond holdings to fight inflation.
So what happens if the Fed tightens to address inflation but the underlying issues are still there ? I can't see how the Covid in Asia, the war, supply line problems, or worker shortages being resolved soon.
1) Does this make the Fed efforts ineffective ?
2) Does this make a recession more likely or cause the Fed to raise rates higher for inflation to fall ?

I'm curious what the body here thinks will come from this. How will the lingering problems affect the Fed's efforts and where this will leave the economy and inflation. I don't see the Fed backing off from fighting inflation after all the investment of influence and reputation. To pause and restart would not be a good response.

Where does this leave the economy and inflation ? This is purely a academic question to me. While economic conditions will affect investments I have no plan to change my investments but to stick to my AA and funds.

Thanks
I'm not an economist. I'm a relentless optimist. My 2.2 cents (<- heh, see what I did there?):

I think inflation is always a problem of too much money chasing too few goods and services. So I do have very high confidence that the Fed's actions with interest rates and QT will work to address inflation.

I think it's possible to likely that the Fed will tighten for too long (I think they've done this in recent history both on the tightening and loosening stages) and we'll enter a modest recession. Not the worst thing in the world, especially for me since I don't need a job and my house and car are paid off.

I hope that COVID fiscal stimulus is mostly over; if so it's effects on inflation will dissipate over time.

Fed officials have said that they are monitoring supply chain issues and the war in Ukraine and taking the effect of those two things into consideration when setting their policy.

The worker shortage puzzles me and continues to puzzle me. I'm retired and don't need the money and *I'm* tempted by these entry level jobs paying $14 to $17 an hour around here, so it would seem that a younger person who has bills to pay and stuff to buy would even be more motivated to take those jobs.

I guess with unemployment down around 3.5% (I think 3.6% was the latest number?) perhaps we are getting close to or past full employment. I was taught that there was always a small percentage of people who are considered unemployed at any given time when they're really just in transition - either they're switching to a new job, or not really looking, or something.

But the Fed's dual mandate is for full employment and stable low inflation, so logically as long as we have full employment and high inflation, they're going to raise rates. I guess if we enter a recession and unemployment increases then they'll have to shift stances.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 05-04-2022, 09:00 AM   #9
Recycles dryer sheets
HarryHawk's Avatar
 
Join Date: Dec 2021
Posts: 131
I personally think the world runs on energy and as energy prices continue to rise, the cost for everything else will follow. Releasing oil from the U.S. Strategic Petroleum Reserve has done nothing but dig the hole a bit deeper since hopefully someday it will be replaced in case we ever REALLY need it.

Green energy sounds great, so do flying cars. Unfortunately the technology is not currently available to currently be practical. Buying energy from our enemies emboldens and enables them.

Too bad there is not another solution.
__________________
Some say nothing is impossible, I do nothing every day.
HarryHawk is offline   Reply With Quote
Old 05-04-2022, 09:46 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 9,358
My guess is that a recession will happen and, especially in California, there will be a housing bust. To fight 8.5% inflation, historically interest rates would have to go pretty high. So I think housing prices, bond prices and stocks have a long way yet to fall. I am looking forward to bond yields and real interest rates going up. I've already mentally built in and braced for a 50% loss on our stocks. We only own individual bonds now we will hold to maturity so those aren't really impacted by a drop in day to day prices since they will be held to maturity.

In the meantime, I try to continue to lower our overhead and personal inflation rate and optimize the portfolio. Some of our planned projects for this year include moving the HSA account to where we can get a higher yield, getting the Am Ex card with 6% back on groceries, researching getting a heat pump, playing the credit card reward points games again, getting rid of the lawn and a bunch more. If there is a recession I'm going to use that time to do all our house upgrades when there is less price competition for contractor work.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 05-04-2022, 11:43 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2011
Posts: 8,332
Quote:
Originally Posted by RetireBy90 View Post
So I've been thinking about the current economy and inflation.

Several problems have been involved to bring us to where we are today and where the economy will go from here. We have all the financial responses to Covid which have increased the money floating around (used to be M2); we have supply chain problems which include current closures in Asia; we have the war in Ukraine; we have a worker shortage; we have inflation and Fed raising rates and reducing it's bond holdings to fight inflation.
So what happens if the Fed tightens to address inflation but the underlying issues are still there ? I can't see how the Covid in Asia, the war, supply line problems, or worker shortages being resolved soon.
For a moment I thought we were talking about the gloomy late 1970's. SSDD IMO, YMMV (LMNOP)

Seriously though, we seem to go through these critical periods where nothing seems to be working.

I believe that there is an "equilibrium" of sorts (financial, social, environmental) that sometimes just gets out of whack before the gravitational forces bring things back into line. Even the Dow has a short term overshoot/undershoot property to it but when viewed from a distance is a fairly straight line.

We've been hit with a couple good shots over the past few years, but I do think in times like these all we can do is close the hatch and ride the storm out. The sun will return.
marko is offline   Reply With Quote
Old 05-04-2022, 02:28 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 5,633
When I worry about inflation and the economy too much, I just have to start thinking about my grandkids and my mood improves immediately.
I’m not planning to make any serious changes to my asset allocation. What happens, happens. I believe we’re well set and trying to ensure the kids will be too.
Dash man is offline   Reply With Quote
Old 05-04-2022, 02:52 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 5,633
Here’s a good 4-minute video explaining why the economy is still going strong.

https://youtu.be/L_8OpVQQphs
Dash man is offline   Reply With Quote
Old 05-04-2022, 10:34 PM   #14
Recycles dryer sheets
 
Join Date: Jul 2020
Posts: 116
With all the head winds you mentioned I believe the Feds will have a hard time reigning in inflation without being aggressive so I wouldn't count out the Fed's making another pivot later in the year of additional rate hike or increasing to .75. Q2 inflation numbers will continue to rise (gasoline price increase, continued supply chain crunch, china shutdowns) and I believe if the Feds can't reign in inflation to a reasonable number by the end of the year they would lose all credibility.
milford is offline   Reply With Quote
Old 05-04-2022, 10:41 PM   #15
Thinks s/he gets paid by the post
ownyourfuture's Avatar
 
Join Date: Jun 2013
Posts: 1,548
It probably won't be popular, but here's my 2 cents. My concern. (not for me, but for future generations)



If debt compounds at the same rate over the next 41 years, it would stand @ around 900 trillion by 2064.
Hopefully MMT (modern monetary theory) turns out to be accurate.

KEY TAKEAWAYS
Modern Monetary Theory (MMT) challenges conventional beliefs about how the government interacts with the economy, the nature of money, the use of taxes, and the significance of budget deficits.

These beliefs, critics say, are a hangover from the gold standard era and are no longer accurate, useful, or necessary.

MMT is used in policy debates to argue for such progressive legislation as universal healthcare and other public programs for which governments claim to not have enough money to fund.

Put simply, such governments do not rely on taxes or borrowing for spending since they can print as much as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt.

https://www.investopedia.com/modern-...ry-mmt-4588060

Personally, I'd apply an old adage.
“if it sounds too good to be true, it probably is”
__________________
"No beast so fierce but knows some touch of pity, but I know none, therefore am no beast"
Shown @ The End Of The Movie 'Runaway Train'
ownyourfuture is offline   Reply With Quote
Old 05-04-2022, 10:45 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Aug 2013
Posts: 1,962
The economy is very strong. Consumer demand is strong. Inflation would have tapered off sooner - but we got the Ukraine-Russian war that pop out of no where and that's not in anyone's economic model .. It is causing Global inflation, oil shortage, supply chain problems. We've got Sanctions and geo-political maneuvering. It's going to resolve at some point.
__________________
No to consumerism, Living a simple life, enjoying the experience - not the material stuff
cyber888 is online now   Reply With Quote
Old 05-04-2022, 10:50 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 16,972
Quote:
Originally Posted by HarryHawk View Post
I personally think the world runs on energy and as energy prices continue to rise, the cost for everything else will follow. Releasing oil from the U.S. Strategic Petroleum Reserve has done nothing but dig the hole a bit deeper since hopefully someday it will be replaced in case we ever REALLY need it.

Green energy sounds great, so do flying cars. Unfortunately the technology is not currently available to currently be practical. Buying energy from our enemies emboldens and enables them.

Too bad there is not another solution.
Actually releasing some oil from the U.S. Strategic Petroleum Reserve does put downward pressure on the price of gas and oil meaning less inflation.

There is lots there, and it will be replaced in a year or two or three when prices are LOWER again... So it's like buy low and sell high.

Totally agree buying oil from others makes us dependent upon them, just like having China manufacture everything or lots of parts of our stuff makes us dependent upon them. ..
Could we make a fighter jet if China stopped exporting to us
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 05-05-2022, 06:07 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2011
Posts: 8,332
Just about everything we do and buy has a petroleum connection and cost associated with it.

IMO, We need cheaper oil more than more expensive loans in order to bring down the cost of goods and services.

The Fed is helping but addressing the oil shortage would do a lot more, faster.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 05-05-2022, 06:34 AM   #19
Thinks s/he gets paid by the post
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 1,597
Just heard Judy Shelton, former Fed nominee, stating the real problem with inflation is too much money for the goods available. She raised possibility of govt handing out more money which increases supply without offsetting increase in production thus more inflation. Interesting to think about our current economy in these terms. Fed can't do much if govt increases money supply.
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
RetireBy90 is offline   Reply With Quote
Old 05-05-2022, 07:24 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Car-Guy's Avatar
 
Join Date: Aug 2013
Location: Texas
Posts: 10,836
I can't claim (although I have a layman's opinion) that I really understand how all of this works but when I think about what "fiat money is" along with runaway government spending, to name a few things, it scares the bejeebers out of me. The ultimate house of cards IMO. I've listened to Jay Powell pretty close for the past few years and I have very little confidence that he and his team really understand it either.
__________________
20's "something" mind, trapped in a 70's "something" body
Car-Guy is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Question about the economy, stock market, and near future LOL! FIRE and Money 47 12-10-2018 03:21 PM
What's got people excited about the future of the economy? mrWinter Active Investing, Market Strategies & Alternative Assets 43 01-05-2018 12:57 PM
Vanguard: "Inflation Risk for Global Economy" Retire Soon FIRE and Money 26 01-11-2015 10:00 AM
3-D Printing and its future Impact on Manufacturing and Economy eytonxav Other topics 14 05-23-2013 08:27 AM

» Quick Links

 
All times are GMT -6. The time now is 09:04 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.