| Right now the economy is fine, but there's a huuuuge likelihood of a recession. Why? We just had a rate cut and in the past 30 years a recession happened after max. 2 quarters after the that. If you see news from 2006 you will see people saying that the economy looks strong despite some structural issues, the economy is a huge machine and takes time to both take speed and stop, like a giant car. Imagine the FED raising rates as pushing the brakes, the car won't stop suddenly, it needs time. The same happens with economic activity. Now that the FED had to almost call an urgent meeting to cut .5, it's a clear sign that it could be that the car/economy was actually stopped. It isn't clear because everybody is working, but every cent that goes out of a central bank has an expectation of returns, if the expectations are that there will be negative returns, money will stop, it won't be invested, products won't get sold, houses won't be bought, everyone's plan will be delayed to the future. And on Today's economy, you can't just stop or delay. Things need to be bought. A construction company needs to sell their real estate stock to pay back the bank and so on. Money need to change hands, if it changes hands too slowly you get a recession and negative economic growth, if it changes too quickly you generate inflation. |
Starting in 2010, the FED started quantitative easing. This marked the abandonment of the sound dollar policy. The economic fallout we face today are the natural consequences of money printing and the economic dynamics that worsen it.
You fail to realize the scope of the issue. In 2020/2021 the Saudi's abandoned the petrodollar agreement. This dramatically reduced the demand for our printed currency which our country has used to fund its deficit spending, and export debt to the nations who had to hold it. With the abandonment, the entire pool of printed money that nations had to hold to purchase goods like Fuel shrunk dramatically. At the same time, we had the pandemic, where we printed even more money which caused inflation and had to raise our rates to slow that down (rates don't stop inflation, it just slows down or speeds up the mixing).
Today we are faced with high rates, and high inflation. They will need to cut rates to encourage growth, but inflation will become hyper-inflation when it does.
The chaotic warblings of the market have caused shortage in non-discretionary goods. If one has been paying attention, you'll have seen the warning signs like frozen foods being consistently out, eggs increasing to almost a dollar per egg, and fast food now costing double for a single serving. There are still shortages too despite this.
Illiquidity in the debt market is all well and good in terms of velocity of money, but at the point where shortages occur and persist beyond 30 days, you've missed the mark dramatically.
You fundamentally misunderstand inflation and how interest rates affect it.