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US Federal Reserve raises interest rates for the first time since 2023 (www.theguardian.com)
submitted 1 month ago by to c/economics@lemmy.world
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The US Federal Reserve voted to raise interest rates on Wednesday for the first time since 2023 as the central bank continues to fight to tamp down inflation.

The Fed’s open market committee voted unanimously to raise its benchmark interest rate by a quarter-percentage point to a range of 3.75% to 4%. This is the first time the Fed has raised rates since July 2023 and potentially sets Kevin Warsh, the current Fed chair, on a collision course with Donald Trump.

“The plain fact is that inflation is too high and has been for too long,” Warsh said on Wednesday. “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”

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[–] 5 points 1 month ago (3 children)

Oh, maybe I should address your comment from your perspective. I imagine what you're suggesting is that microeconomically taxing the poor would combat inflation because they would have less money to spend. For one, I was speaking macroeconomically, not microeconomically. Speaking from a microeconomic perspective, if you're assuming that supply is inelastic and demand is elastic, then lowering demand (by lowering the amount of free cash of people spending it) makes sense, except that the poor aren't primarily spending money discretionarily. They spend money because they have to in order to survive. So decreasing their money doesn't actually help to reduce their spending, because that demand is inelastic. You have to tax people who are making discretionary spending choices. From a "percentage of spending spent on discretionary purchases perspective", you're still taxing the rich, because at this point even the middle class is struggling.

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  • [–] 1 point 1 month ago (2 children)

    Of course it would reduce demand, poor people would just skip meals. Just because it's not discretionary doesn't mean they would still spend the money they don't have

    This has been found multiple times, giving money to poor people boosts spending more than giving it to rich people. So if you want to cut spending, doesn't it follow you take it away from poor people? You can't have it both ways

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  • [–] 2 points 1 month ago (1 child)

    I don't want to cut spending, I want to reduce the monetary supply. It is extremely well documented and effective. And no they won't cut spending, they'll just go into more debt. Seriously, stop and think about it, the reason for inflation isn't spending, it is monetary supply. That's why when a government like Zimbabwe prints money like water, they have terrible inflation. We're doing the same thing, and we CAN fix it by taxation. Taxation without imagining some stupid fantasy of "budget" that the Right (and "Left") has been lying to us about. Taxation without government spending reduces inflation by lowering monetary supply, thus strengthening the buying power of the remaining currency. The government keeps huge discretionary budget spending which (along with obscenely low bank lending requirements) is what is driving up inflation. We need to cut stop wasting money on graft and war, and spend it only on the peopkebwho actually need it and in infrastructure investment.

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  • [–] 1 point 1 month ago

    We don't print money and give it to the government directly. How do you reduce the monetary supply when the money isn't free to begin with? The government pays the money back eventually!

    So we're back to quantitative tightening and raising interest rates. Which reduces spending!

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