Are we though?
Thank god corporate profits are ok...
- US Presidential candidate, Mitt Romney, 2011
50% of consumer spending is by the top 10%, and that trend is getting more extreme as wealth concentrates further. Is there a breaking point? Sure. But capital is willing to see how far it can push this before it breaks.
Even NVidia has moved to this model: make your money from selling high-end GPUs for Data Centers and forget the low-profit margin (GeForce) GPUs for gamers/consumers.
The whole economy is moving to that model for many things.
Same for politicians, 4/5 years matter, if the world collapses after, it's the next governments problem.
And in financial terms, those are really long periods, at least compared to HFT.
I can't help but shake the feeling that the federal reserve is here for the wealthy, the bankers, and not for the rest of us, and anything they do is ultimately not for our benefit, but for theirs.
Is the US Treasury now on the hook every time Japan feels a bit antsy about its finances?
BTW, this is exactly what happened to Silicon Valley Bank in 2023 on a smaller scale.
But you can see this pattern here in FRED: https://fred.stlouisfed.org/series/MORTGAGE30US
> the feeling that the federal reserve is here for the wealthy
In a sense, the disconnect between these two things is also the explanation. The behavior of consumers is not directly coupled to the fed rate. What you or I do with our money won't change if the rate goes up or down a percent, because we just don't have enough money for it to make a difference to our daily life.
But it often takes a loan to start a business. And when the bank is considering who to make loans to, higher fed rates mean they need to charge more interest, which means riskier business proposals don't get funded. Conversely, if the fed rate is low, then the only way for banks to make money is by making loans, so there's more money available, which tends to both increase inflation and decrease unemployment.
The fed has two jobs (keep inflation at ~2%, and unemployment no higher than 5%) and one lever to accomplish both. It's not so much that they only care about the wealthy, but rather that their only tool needs to percolate through the wealthy before it affects us.
Most of the changes from high interest rates are indirect to me. Because rates are up my company is selling less product - our customers have to pay for loans and in turn that means some of them decide to keep/maintain an old product that they would replace if the cost (mostly interest rates, but we can also play with our price) was a little less. In turn this means that my cost of living raise this year was pretty bad (didn't meet inflation), so I've been forced to cut something small (or take from savings).
Now I do have friends who were laid off because of the economy and having trouble finding a job. As always things are worse for those people.
You're making a lot of strong assertions for someone who acknowledges they don't understand pretty basic concepts in macroeconomics.
> Would not lower rates mean more consumer spending, thereby injecting more spending and fluidity in the system?
If managing the economics of a country was as simple as recognizing a relationship like, "when we move this number up, then things get better," then we'd be living in a utopia.
If you want to assert that the Fed isn't helping the average citizen, then go ahead and join the large group of people who have been suggesting this the whole time. But if your basis for such an assertion is that you can't comprehend why a decision like raising or lowering interest rates isn't simple, then do yourself a favor and just step away from even trying to understand what is happening here.
Lower rates does increase spending. However it does this by adding money: inflation - which in turns makes prices go up. So in the long run this makes things worse despite the short term gain. This is just one part of the full consideration, there are lots of other effects from any interest rate that they need to work out.
If X dollars buys 1.2 times more stuff in the future (deflation) you will hoard your dollars and deprive the economy of them.
If X dollars buys 0.8 times more stuff in the future (inflation) you will buy things now and make investments.
The Fed isn't optimizing for people wanting mortgages today, it does controlled burns to try and prevent medium-term calamity. Look up the Volker shock, where rates were hiked beyond 20% to trigger recessions because inflation was above 10%.
Because that is what's happening. Our economy is fractured after years of catering to the wealthy at the expense of the working class (anyone who finances their life via their labor.)
Kashkari was part of the minority opinion. The Fed voted to keep rates steady, so I guess that means that the Fed is against the wealthy, bankers, and for the rest us?
It turns out that having lots of money is useful, including at taking advantage of the macroeconomic landscape. In a high interest rate environment, you get free money from yields. In a low interest rate environment, you get free money from leverage.
The Federal Reserve is one of the last competent parts of government. You don't blame the ER doctor for atrophy caused by being hooked to a ventilator after getting a heart attack caused by consuming only fast food. The ER's job is to keep the patient alive by making sure that oxygen is circulating well enough for the body alive. Likewise, the Federal Reserve's job is to make sure that money circulates in a way that keeps the economy alive. It's not their fault if the voters vote for politicians who enact terrible policy.
In comparison. Android phones (in total) outsell iPhones because they are cheaper/more affordable. Sure Macs and iPhones may sell more than an individual non Apple brand, but collectively all together, the non-apple brands outsell Apple.
But it is certainly true that making high quality products doesn't necessarily mean low sales.