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As a member of finance capital's elite (career as a Republican investment banker) do you think he (like Alan Greenspan) may make decisions (here hold off interest rate cuts) to benefit Republicans/not help Democrats in November's election for President? He is not as encumbered by crass ideology as the Supreme Court, but nonetheless.....

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Absolutely not, what makes you think this at all? Trump and Powell have clashed so much as Trump has tried to mess with the Fed's independence, and Trump has literally said he wouldn't re-up Powell if elected president. Seriously, I hate these kinds of questions framed as "just asking questions" when it would take two seconds to google and figure out makes no sense, and when posting this gives other people the wrong idea.

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You don't know what you are talking about! Trump has been outspoken regarding the Fed lowering interest rates before the election; in fact, the Wall Street talking heads have been talking about the issue of lower interest rates before the election for the last several months. Powell was asked about it in yesterday's and the prior testimony before Congress. If you didn't know it was a political issue you're living in a bubble.

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What are you talking about? None of this has to do with the suggestion that Powell is making decisions to help Trump, which is undeniably stupid if you have any familiarity with their relations or how Powell operates.

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One can say things are slowing especially in the labor market and wages which we all know isn't fair to workers but the slowing in wage growth has always been the endgame for the fed. Also, this fiscal year alone, nearly 900 billion via interest expense will be paid into the private sector which that becomes someone's interest income benefitting the rich. That is insane and in my opinion that alone is a reason for the fed to cut do alleviate inflationary pressures and cut the unnecessary, unproductive spending on interest payments. I would urge many to listen to the odd lots interview featuring Warren Mosler.

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Given that much less of the labor force is insured u6 rather than headline u3 may be a better indicator. Also temporary help, is a good more leading indicator and that has been weak. The Fed has won the battle but is now fighting the wrong war. While they need to be cognizant of inflation, their greatest danger right now is the combination of a fragile economy and a credit shock. The most prudent plan would be to announce the end of QT and to announce a plan of gradual incremental interest rate reductions now. This is an ounce of prevention strategy. If inflation goes back up they can pause cutting rates. Inflation is around 2.5-3%. Fed funds at north of 5% is restrictive, especially if you cross-check rates available for consumers and small businesses.

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Your post is focused on labor, which is appropriate and correct. But I'd like to point out that another reason that interest rate cuts are important is that mortgage rates should go down--there's a great need for increased housing construction (for the sake of homelessness for one) and lower interest rates will help the construction industry. All in all, it's time to cut interest rates

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And "unemployment" of commercial real estate is high, too.

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Lower rates may end up pushing the housing prices which will hurt the buyers. And to be honest, i don't think interest rates / monetary policy is the best tool to solve the housing crisis. A more direct approach by govt is needed in housing construction especially affordable and mid segment. Surely, i support rate cut and whatever it helps increased housing construction but much more direct govt effort is needed.

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but ask yourself what will happen to housing inflation, a substantial part of the overall inflation equation, if they cut rates. lower mortgage rates will encourage additional buying pressure, and while there may be some who will give up their 3% mortgage and add to supply, unless you are suggesting that the Fed take rates back to 0%, it seems there is a real opportunity for the recent gains in reducing inflation to be eliminated, and quickly

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Except it will bring out sellers of existing homes, especially starter homes. It would also ramp up additional supply of new sf housing

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but that will take time. doesn't happen in a week or a month, takes years

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That is not a reason to wait. Many analysts miss the point that the basis has blown out on mortgage rates, car loans, credit card rates, small business loans. The spread on 30 yr conforming mortgage loans went from 150 bps over 10 yr us treasury bonds to roughly 300 bps. It's just one example. The real question is if the economy is slowing in a linear fashion, that could lead to a soft landing. Or is the slowdown poised to accelerate? That's not so good and will lead to a serious downturn and deflation. Why risk it?

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We should cut soon, and multiple times this year. Before it’s too late.

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Based on the numbers I've looked at, real wages in 2024 are below pre-pandemic levels. I find it a little troubling to blame inflation on wages when the numbers show wages are playing catch-up. The other problem I find problematic is the fact that Wall Street speculation in the housing market is off limits to it's role in the so-called sticky inflation. This is the problem with monetary policy as a means of "controlling inflation" it doesn't get to the source of the problem. It's like bombing your house to weed the flower garden....it creates big winners and big losers!".....O,----now I see why!!! During WW2, the US faced the largest threat of inflation in US history. During WW2 and several years following WW2, inflation was controlled by fiscal policy. No monetary policy (no interest rate adjustments) nonsense! Why not? Because the US Government politicians serve the interest of their large donner class on both sides of the aisle, they have pushed their job of "controlling inflation onto the Federal Reserve, which has only one tool.

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On July 9 Federal Reserve chair Jerome Powell told lawmakers that a weakening labor market is just as much a risk to the economy as high inflation. On July 11, CPI inflation fell a bit further to 3% annualized. With these trends likely to continue, an interest rate cut by the Fed prior to the election seems baked in. After many months of restraint, even a small liberalization should stimulate a lot of beneficial economic activity.

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The Fed had very little, if at all, to do with inflation coming down! Warren Mosler describing the Fed as the child in the back car seat with a steering wheel who thinks he is driving the car is more like it! At this point, Fed policy is likely contributing to the lingering inflation.

According to the talking heads on TV, Wall Street investors are setting on 6 trillion dollars of cash collecting unearned income (interest payments). These investors don't want to give up this risk-free money. This is a giant wealth transfer from the Federal Government (interest on debt) and borrowers (private sector interest payments on debt) to people who already have money.

Let us remember, "All money is created as debt!" Interest is an added cost, and given that it is income for people who already have money, it also creates spending! Those high-interest-rate loan payments on "debt" don't just turn off like a light switch when the Fed finally decides they can no longer justify hammering workers and handing out large payments to savers.

During Powell's testimony to Congress, one of the usual "deficit hawks" (right-wingers) sent to Washington to cut Government programs (shrink the size of "Government") asked Powell if he was concerned about the size of the so-called Federal Government debt. Of course, Powell said he was very concerned! Apparently, his concern is insufficient enough to lower the cost of the Federal Government's interest payments on Government debt;......i.e., income payments to people who already have money....not that "concern!" Yes, the do-nothing US Congress thinks it good policy for the Fed to increase unemployment and throw people on the street to supposedly bring down inflation. Then, to further hammer the unemployed created by junk monetary policy, the fiscal policy "deficit hawks" in Congress change their focus on the so-called out-of-control "government spending,"......i.e., cut programs that support the unemployed created by Congress and Fed policy.

At the end of the day, the use of monetary policy to "control inflation" is junk economics that gives cover to Congress and the executive branch (fiscal policy) from doing their job!!!! Congress (big Government) has far superior tools for fighting inflation than the Fed. This is the same old "trickle-down economics" that transfers wealth to the upper 1% while hammering the working class.

Apparently, the working class and small-cap businesses are not in enough trouble "yet" for the Fed to stop stuffing the already overstuffed pockets of the very few. Debts that cannot be paid will not be paid! Debt deflation caused by interest on debt at some point requires a reset of the economy—boom and bust cycles!

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Sahm isn't an MMTer, you might want to find another place to post your crank MMT stuff. You have no idea what you're talking about

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You might want to go back to school and learn something before shooting your mouth off. Orthodox economics is just repackaged classical economics that Keynes and others destroyed during the 1930s. If you want to critique MMT or anything else I wrote, get to it...otherwise keep your ignorant comments to yourself. I have no idea what Sahm's view on MMT is and don't care, but I'm pretty sure she is smart enough to know that modern money is Chartalist or State money. Today, all civilized money is, beyond the possibility of dispute, Chartalist. The whole made-up story of money coming from barter (taxpayers' money) is made-up fiction that sets at the foundation of orthodoxy. I'm willing to bet you know nothing about money......your still looking for gold coins in a fiat monetary system world....I have know doubt.

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Lol, you’re like an armchair geologist trying to convince people that igneous rocks don’t exist. Orthodox economics is classical economics repackaged? And Keynes destroyed classical economics? Have you ever actually talked to an economist, lmfao? It’s so obvious you haven’t when you make statements like these.

FYI Keynes was the founder of modern economics, not its destroyer. And mainstream economic consensus is a synthesis that involves New Keynesian economics (that obviously were a successor in some ways to Keynesian economics). So maybe talk to an economist instead of spreading crank bullshit nobody wants to hear

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You're a clueless amateur at best. Where did you get that incoherent nonsense?...Google? There's nothing Keynesian about the New Keynesians...its a fraud! Post-Keynesians are more along the lines of Keynesian economics. The dominant economic paradigm today is not Keynesian economics. It shows just how clueless you are. Keynes's, 1936 "General Theory of Employment, Interest and Money" was a complete debunking of the dominant economic paradigm at the time, what Keynes called classical economics. Anyone who has studied Keynes, as I have for years, could surely see that today, neoclassical economics is primarily repackaged classical economics, which preceded Keynesian economics. If you think you can Google your way through an economic debate with me you're fooling yourself. Go to school and learn something instead of some half-baked comment off Google. I am still waiting for a comment of substance challenging the premises of any of my comments on this substack. Calling something "crank bullshit" is a display of ignorance. You're all confused, aren't you? I've had some of the best economic professors teaching me on the plant and you, what?...talked to an economist?

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Of course the dominant economic paradigm isn't Keynesian economics, because Keynesian economics isn't an alive economic paradigm at all, just like Monetarist economics or Classical economics. Most useful things from these schools of thought have been synthesized in what economists liked to call the "New Neoclassical Synthesis" and most useless things from these schools of thought have been cast aside.

I have a degree in economics. I've talked to actual economists. No actual economist is "studying Keynes for years" because like I said, his most useful contributions are already integrated into the orthodox economics we have today. Which should be obvious, because you literally learn his models in Intermediate Macro. Your 1000 accusations of "oh you're just googling you know nothing" is so obviously projection, lmao. It's obvious you have no actual background, or if you do, it's very limited (it's really most obvious by the statements of "neoclassical economics is repackaged classical economics" and "I've been studying Keynes for years"). If you want, go send this conversation to an economist, and ask them who he/she thinks has actual background in the subject, and who's just faking it. You have no idea what you're talking about, but if this is your way of coping feel free buddy.

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I'm still waiting for something of substance from you! Your first comment claims MMT is crank economics, and I don't know what I am talking about! Foundational to MMT is an accurate description of the monetary system of a sovereign currency-issuing country like the US. So, let's hear what MMT has wrong! Put up or shut up!

I have no doubt that you cannot coherently explain how US dollars are created and destroyed. The question is simple: How do US dollars enter the economy, and how do they leave the economy? The problem orthodox economics runs into is they have the story of money completely wrong, and they end up looking like fools when asked very basic questions by people like me who have spent time studying money.

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I have several friends who are economists, both orthodox and so-called MMT economists. Most of them teach economics at a university. The orthodox economists NEVER challenge anything I print! What happens is they contact me personally to ask me where they can find more material on the subject. They quickly come to the conclusion that they lack knowledge about money, and because of that lack of knowledge on the subject, what they thought they knew was completely wrong. I have some of these Economics professors who received orthodoxy schooling sending me things to review and get my thoughts (approval) before sharing them with others. Can you imagine an economic professor thinking that Banks lend other people deposits and are shocked to find out that banks create credit (loans) out of thin air? Only a degree in orthodox economics (neoclassical economics) can make someone that stupid!

I'll stick with a heterodox form of economics where you don't have VERY LARGE MONEY interests tampering with the textbooks and regulating its teachings. Economics is the Godfather of economic elites tampering with education (the original book burners).

The economic theories you were taught, which led to your degree, are fundamentally flawed. If you had delved into Keynes' Treatise On Money V1 'The Pure Theory Of Money', you would have realized that the orthodox narrative on money is a work of fiction. The reason orthodox economics conveniently sidesteps the issue of money is that it lacks a coherent understanding of its models. It's high time for people like you to grow up and face the fact EVERY US dollar that exists comes from the US Federal Government. The "taxpayer" doesn't fund the federal government, it's the federal government that funds the taxpayer. Where did the taxpayer get the US dollars to give to the US government?

"Today all civilized money is, beyond the possibility of dispute, chartalist / State money. This right is claimed by all modern States and has been so claimed for some four thousand years at least." John M Keynes, "Treatise On Money" (1930).

I guess that key piece of Keynes's writing was left out of Orthodox economics.

Neoclassical economic textbooks are still teaching the Barter story of money (taxpayers money). It's complete garbage that anyone with half a brain should be able to see through.

CLASS IS OVER FOR YOU!... YOU'RE GETTING AN F.

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Dr Sahm, when talking about inflation, while it's always necessary to keep an eye on all metrics, the consumption data, the CPI PPI numbers, the payrolls, unemployment rate etc etc. It's also necessary to anticipate possible supply shocks and bad policies in advance. And it's job of Fed to forewarn about bad policies or any exogenous events that will derail the economy.

Right now, i am concerned about coming tariff & trade war with China and especially the Donald Trump's foolhardy proposals of blanket tariffs. These are some of the worst policy ideas and every economist predict it to be inflationary. The politicians should ask Fed chair about his honest view on these policies and the potential risks to the economy. And job of Fed chair is to give apolitical assessment and communicate with politicians where the policies will lead the country.

If a broad round of tariffs raise inflation again. What sense does it make to tackle inflation with interest rates?

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I have a contrarian view. Accepting a mild recession by refusing to cut rates or end QT soon would likely cost a few million jobs. However, in exchange, we would 1. further depress inflation and may even temporarily experience no inflation at all, 2. clear out some zombie companies, malinvestment, and bad CRE, and 3. reduce valuations on bloated overvalued large cap tech equities, and 4. further reductions in the balance sheet that remains much too large. I think we NEED a recession and should stop acting like the business cycle is a dreaded disease to be avoided at all cost. Forest fires can be cleansing when allowed to occur naturally…but when suppressed for too long, result in massive raging destructive conflagrations. Can we ever allow the economy to experience a normal recession again?!

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There's some incorrect chatter out in the Xosphere about the Sahm rule being triggered by the 4.1% unemployment rate reading announced on Friday the 5th -- e.g., Peter St. Onge of Heritage Foundation and research report from American Institute for Economic Research (AIER). They neglected to read your step by step guide to calculating the Sahm rule. Not sure if it's worth your time getting tweets corrected. I know you're not on twitter much anymore probably because of the general yuckiness. Worth contacting Dr. St. Onge and AEIR directly?

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Being sensitive to how inflation affects employment makes sense. For the _Fed_ to appear to think that employment affects inflation is deeply disturbing. Generations of economists have been trying to persuade the public that the Fed, the whole Fed, and nothing but the Fed controls inflation/deflation, employment/unemployment. Not gas prices! Not fiscal deficits! Not immigration!

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Questions:

1. Why does the Fed not push (I'm assuming it does not do it secretly) for Treasury to issue Trillionths in various tenors to create a market in NGDP expectations?

2. Similar question why does the Fed not push for more shorter tenor TIPS. Knowing what bond traders think about inflation averaged over 5 or 10 years is interesting, but wouldn't the Fed be better served by know what they think about the next 1 or 2 years?

3. Why does the Fed think it NEEDS to be "confident" about future inflation? Why can't it do what it things best now and undo it in a few weeks if data change? The perception of inertia and public speculation about its own future actions seem to undermine the idea that it is data driven.

Does Fed researchers address these issues? I don't read all the SSRR papers but I don't see them. Has the Fed ever explicitly considered the pros and cons of minimizing the number of "reversals?"

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Excellent on monetary policy, but there's a fiscal elephant in the room. Labour is holding up nicely, but with tailwinds in the form of a US Federal deficit at record "peacetime" (I guess as long as US Congress hasn't actually declared war this is peacetime, amirite?) levels in the order of 7% of GDP. If that stimulus drops, look out below ...

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Not if the Fed does its job. A decrease in the deficit ought just translate into more "expansionary" settings (lower EFFR, inter alia) to keep inflation up to target.

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<A decrease in deficits ought just translate into more "expansionary settings> How does that work? Sounds like orthodox jujitsu! "Federal Government deficits" increase non-government sector savings/spending (expansionary setting), while federal government "deficit reduction" removes money from the non-government sector (contractionary). They have everything backward.....one minute of critical thinking should allow one to see the inconsistency. If you get the money story wrong (backward), everything else is wrong. You would THINK that after the 2008 GFC and the COVID pandemic shut down people would understand where money comes from (direction of flow). So, if everyone is so worried about the size of the "Federal government debt," which is the savings of the non-government sector, which is what it is, then let us talk about whose savings need to be reduced. The Federal Government budget is nothing like a household budget.

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??? Yes, I am saying pretty orthodox things. Pulling resources away from private investment by issuing debt is a drag on growth. Government borrowing raises interest rates. Government debt is an asset for the private sector, an asset that substitutes for debt of some other part of the private sector. Public deficits => lower national saving and investment.

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Banks create credit (money) when they lend. Banks don't lend their reserves; they create credit out of thin air. There is no crowding out! Federal Government deficits crowd in, not out.

Some >90% of the money in circulation comes from loans (bank credit). When the Federal Government "net spends" (runs deficits), the US Treasury offsets the net spending with the sale of US Treasury securities (fed gov borrowing), which effectively drains (reserve drain) the net spending (deficit spending) and ends up as savings of the non-government sector. This includes the Federal Reserve and the external sector (everyone but the US Federal Government).

In what country did the federal government deficits increase interest rates? The Federal Reserve sets interest rates. In 2019, the interest rates were at zero. Did the large government deficits increase interest rates? It's all orthodox fiction! The non-government sector does not compete with the Federal for money! The majority of orthodox economists don't know anything about money....they didn't want them to.

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We have very different models of how the economy works. You think mine is wrong and vice versa. :)

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Orthodox economics has the money story backward! The Federal Government must create the US dollars before they can be used to pay taxes. Where did the non-government sector get US dollars to pay taxes? Spending comes before taxes.

According to orthodox models, like the quantity theory of money, government deficits cause inflation (increase demand). I don't know how one squares the claim that reducing Federal Government deficits stimulates economic growth. Maybe I misunderstood you...I've heard this nonsense before.

It is possible for the Federal Government to crowd out "real resources" from the private sector. But the model orthodoxy is hanging its hat on when they talk about Federal Government deficits crowding-out they are talking about the Federal Government competing with the private sector for "money," which then pushes up interest rates. This is complete nonsense!

The Federal Government is the "issuer" of the currency. Everyone else who uses US dollars is a "user" of the dollar. Federal Government spending adds to the "users" money supply and fed taxes removes them. The Federal Government's choice to issue Treasury Securities (borrow) is a political choice. The non-government sector's choice to purchase TS is a personnel choice.

What does all of this tell us? It tells us that Federal Government deficits are the savings of the non-government sector, primarily in the form of TS. When you reduce the size of the "Federal government deficit," you reduce the size of the non-government sector savings.

So, if Federal Government deficits are in the form of TS, where does all of the other money come from? "Bank-issued credit" (loans)! Money always has two sides; one side is a credit, and the other is a liability. Money is the liability of the issuer and the holder's credit. All money is issued as debt! US dollars are Federal Government debt (IOUs)! When Banks issue credit (make loans), the financial assets and liabilities net zero. Loans create bank deposits! When the loan is paid in full, the money created for the loan goes back into thin air (gone) leaving a hard asset (typically). As Powell recently said, "We will not run out of money!"

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In addition to "getting back to normal"...I would also say "find the right balance". As in everything in life...work/recreation, diets, saving/spending...the US Feds also need to find the balance. No need to keep rates so high for longer than needed. The early troubles in the economy warrant a start to cuts. We dont need to go to ZIRP tomorrow...they can take their time to monitor conditions and cut slowly over time...but overstaying on the hawkish side will be detrimental to the economy finding that much desired soft landing.

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