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by RspecMAuthortah 1368 days ago
OK so what happens if the chip shortage lasts longer (due to war and commodity prices)and with plummeting sales and corporate earning (which will reduce tax receipts as well) the economy will enter recession? So then what is the game? Do Fed keep the economy in recession? Or do they start QE again?
2 comments
dragontamer 1368 days ago
> Or do they start QE again?

Why would they start QE? Fed rate is at 4% right now, there's more than enough room to drop rates if an issue occurs.

Given the data however, its unlikely to happen. We're currently at record employment levels. The expectation is for the rate to keep going up to maybe 4.5% next year, and finally that's when inflation is quelled, and we taper off rates sometime next year.

Of course, we need to keep up with economic data and see if these rate hikes have the desired effects.

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RspecMAuthortah 1368 days ago
> Why would they start QE? Fed rate is at 4% right now, there's more than enough room to drop rates if an issue occurs.

Right but that will also increase demand and induce more inflation, no? So Fed will be perpetually stuck, in theory at least, to find a balance in their dual mandates.

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dragontamer 1368 days ago
Its like monetary policy is only a tiny piece of overall policy.

The big guns is Congress, not the Fed. Possibly the President if you consider things like averting the big Railroad Union strike last week (which would have certainly caused more inflation as shipping costs could have gone up).

Lots of little fires happening around the country. The fed has one lever: interest rates. Congress / President has the other levers.

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Still though: we watch the Fed because the prime rate has a large effect on the value of investments, especially in the question of stocks vs bonds. Its important for the individual investor to follow.

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karatinversion 1368 days ago
The fed has to keep adjusting rates as economic conditions change, yes.
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randomdata 1368 days ago
The goal is equalize the demand with the supply. Keeping with the example, the hope is to see just as many iPhones sold, already limited by how many chips are available, but not with people fighting over them outbidding each other with higher and higher offers to obtain one.

A recession will occur if they overshoot, however.

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