The Fed is trying to slow down economic activity, says Judy Shelton

CNBC Television
14 May 202403:52

TLDRJudy Shelton, a Senior Fellow at the Independent Institute, discusses the Federal Reserve's current monetary policy. She suggests that the Fed's restrictive rates are intended to slow down economic activity, which is at odds with the fiscal policy of the federal government and the Biden administration. Shelton points out that while the Fed's actions may be hindering private lending and expansion, the government's spending on large projects is creating jobs and increasing demand, thereby putting pressure on prices. She also touches on the Fed's decision to keep commercial banks' deposit rate high, which discourages banks from lending money to their customers, potentially leading to businesses not expanding and people not being hired.

Takeaways

  • 📉 The Federal Reserve is concerned about the recent economic data and is reconsidering its stance on cutting interest rates.
  • 🚫 Chair Powell prefers to cut rates rather than maintain the status quo and is defensive about the possibility of stagflation.
  • 🔄 Since December, there has been a significant shift in the Fed's outlook, with inflation dropping and growth not declining as expected.
  • 📉 The Federal Open Market Committee (FOMC) views the current interest rate as restrictive, impacting private lending but not public borrowing.
  • 💰 Fiscal policy, particularly from the federal government and the Biden administration, is working at cross purposes with the Fed's monetary policy.
  • 🏗️ Large government projects and investments are creating jobs and increasing demand, which is contrary to the Fed's aim of reducing demand to control inflation.
  • 💵 The Fed's restrictive monetary policy is not effectively countering the inflationary pressures caused by fiscal spending.
  • 📈 The Fed's approach to raising interest rates, such as paying commercial banks to keep money in Fed accounts, reduces the availability of funds for lending to customers.
  • 🚫 Higher borrowing costs can hinder small companies from expanding, leading to shelved plans, reduced hiring, and potential layoffs.
  • 🛑 The Fed's deliberate actions aim to slow down economic activity, which contrasts with the government's efforts to stimulate growth and employment.
  • 🤔 There is a debate on whether the Fed should focus on spurring private sector activity rather than constraining public sector initiatives.

Q & A

  • What is the current stance of the Federal Reserve regarding economic activity?

    -The Federal Reserve is trying to slow down economic activity by implementing restrictive monetary policies.

  • What is the concern raised by Chair Powell about the current economic situation?

    -Chair Powell is concerned about the potential for stagflation and is more inclined towards cutting rates rather than maintaining the status quo.

  • How has the situation changed since December?

    -Since December, the Federal Reserve has observed a significant change in inflation and growth rates, with inflation coming down dramatically while growth has not declined, leading to a reconsideration of the cut policy.

  • What is the impact of the current interest rates on private lending?

    -The current interest rates are considered restrictive for private lending, potentially leading to higher borrowing costs for small companies and affecting their expansion plans.

  • How does the fiscal policy of the Federal Government and the Biden Administration contrast with the Federal Reserve's monetary policy?

    -The fiscal policy is working at cross purposes with the Federal Reserve's monetary policy, as the government is investing in large projects and creating more jobs, which is the opposite of reducing demand and puts pressure on prices.

  • What is the effect of the Fed's decision to keep commercial banks' deposit rate at 5.4%?

    -By keeping the deposit rate high, banks are less likely to lend money to their customers at a lower rate, which can hinder small businesses from getting loans and affect hiring and expansion plans.

  • Why is the Fed's restrictive monetary policy not effectively controlling the current economic situation?

    -The Fed's restrictive monetary policy is not controlling the situation effectively because the government's fiscal policy is stimulating the economy, which is creating a counteracting effect.

  • What is the implication of the Fed's actions on small businesses?

    -Small businesses may struggle to absorb higher borrowing costs, potentially leading to difficulties in obtaining loans, shelving expansion plans, and even job losses.

  • How does the Fed's policy on interest rates affect the availability of money for businesses?

    -The Fed's policy of maintaining a high interest rate for banks' deposits reduces the likelihood of banks making funds available for lending to businesses, which can impact business growth.

  • What is the role of the Federal Open Market Committee (FOMC) in the current economic situation?

    -The FOMC is in a serious position as they consider the current rate restrictive. They are responsible for making decisions regarding interest rates and monetary policy to influence economic activity.

  • What is the current debate regarding the Federal Reserve's ability to manage inflation and growth?

    -The debate centers around whether the Federal Reserve's restrictive monetary policy can effectively manage inflation and growth, given the contrasting fiscal policies of the government and the Biden Administration.

Outlines

00:00

📉 Fed's Dilemma: Rate Cuts and Economic Growth

The first paragraph discusses the Federal Reserve's (the Fed) current stance on interest rates and its impact on the economy. Judy Shelton, a Senior Fellow at the Independent Institute, is mentioned as joining the discussion. The recent economic report is expected to make the Fed reconsider its monetary policy, particularly regarding rate cuts. Chair Powell is noted to prefer cutting rates over maintaining the status quo, even in the face of concerns about stagflation. The narrative highlights a shift from December, where the Fed was pleased with the drop in inflation and the absence of a decline in growth. However, the current situation calls the appropriateness of a rate cut into question. The Fed considers the current rate as restrictive, especially for private lending, but it isn't deterring public borrowing. There's a noted conflict between the Fed's aim to slow down economic activity and the fiscal policy's promotion of spending on large projects, which could increase demand and pressure on prices. The paragraph concludes by questioning the effectiveness of restrictive monetary policy in the face of such opposing fiscal measures.

Mindmap

Keywords

💡Economic Activity

Economic activity refers to the production, distribution, and consumption of goods and services within an economy. In the context of the video, Judy Shelton discusses how the Federal Reserve (the Fed) is attempting to slow down economic activity, which is a measure often taken to control inflation or prevent an overheated economy.

💡Federal Reserve (the Fed)

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States. It plays a critical role in setting monetary policy, including interest rates, to influence the economy. In the transcript, it is mentioned that the Fed is trying to slow down economic activity, which is a key part of their strategy to manage inflation and growth.

💡Interest Rates

Interest rates are the cost of borrowing money or the return on saving and investing money. The Fed has the power to set the federal funds rate, which influences other interest rates throughout the economy. The transcript discusses how the Fed raises interest rates to slow down economic activity, making it more expensive for banks to lend money.

💡Inflation

Inflation is the rate at which the price of goods and services increases over time. It is a key economic indicator that can affect purchasing power and economic stability. Judy Shelton talks about how the Fed was pleased with the decrease in inflation in December, but the current situation has changed, and the discussion around cutting rates seems inappropriate.

💡Growth

Economic growth refers to an increase in the production of goods and services in an economy over a period of time. It is typically measured by the increase in gross domestic product (GDP). The transcript mentions that despite inflation coming down, growth had not declined, indicating a healthy economy.

💡Unemployment

Unemployment is the percentage of the labor force that is without jobs and actively seeking work. Low unemployment is generally seen as a positive sign for the economy. The transcript notes that unemployment was low, suggesting a strong job market at the time.

💡Fiscal Policy

Fiscal policy refers to government spending and taxation policies, which are used to influence the economy. In the video, it is mentioned that fiscal policy is working at cross purposes with the Fed's monetary policy, as the government is spending on big projects, which could stimulate demand and potentially counteract the Fed's efforts to slow down the economy.

💡Monetary Policy

Monetary policy is the policy adopted by a nation's government or central bank to control the supply of money in circulation, interest rates, and inflation. The transcript discusses how the Fed's restrictive monetary policy is aimed at slowing down economic activity, but this is in contrast with the government's fiscal policy.

💡Stagflation

Stagflation is a situation in which the economy experiences both stagnation (slow growth and high unemployment) and a rise in inflation. In the transcript, Chair Powell is quoted as dismissing the possibility of stagflation, indicating a belief that the economy is not facing this particular challenge.

💡Federal Government Spending

Federal government spending refers to the expenditure by the national government on various programs and services. The transcript mentions that the federal government, along with the Biden administration, is spending money on big projects, which is seen as an effort to stimulate the economy and create jobs, contrasting with the Fed's goal of slowing down economic activity.

💡Borrowing Costs

Borrowing costs refer to the interest and other fees that must be paid by a borrower to a lender. In the context of the video, higher borrowing costs are a result of the Fed's actions to raise interest rates, which can make it more difficult for businesses to obtain loans and can lead to shelved expansion plans and potential job losses.

Highlights

Judy Shelton, a Senior Fellow at the Independent Institute, discusses the Federal Reserve's actions on economic activity.

Shelton suggests that the Federal Reserve is currently considering whether they have stopped easing monetary policy too soon.

Chair Powell's preference for cutting rates rather than maintaining the status quo is highlighted.

The Federal Reserve is seen as being very sobered by today's economic report.

A shift from December's economic conditions is noted, with inflation down and growth not yet declined.

The Federal Open Market Committee (FOMC) is in a serious position regarding the current restrictive rate.

The rate has come down significantly, which is restrictive for private lending but not for public borrowing.

Fiscal policy is working at cross purposes with the Fed's attempts to slow down economic activity.

The Federal Government and the Biden Administration are investing in big projects, which contrasts with the Fed's restrictive policy.

Shelton argues that such investments are creating more jobs and putting pressure on prices, contrary to reducing demand.

The difficulty for restrictive monetary policy to get ahead of fiscal policy's impact is emphasized.

The Fed's method of raising interest rates is explained, focusing on the impact on commercial banks.

High interest rates make banks less likely to lend money to their customers, affecting small companies.

The potential negative consequences for small businesses and employment due to higher borrowing costs are discussed.

Shelton describes the deliberate nature of the Fed's actions to slow down economic activity.

The transcript raises the question of whether the Fed should focus on spurring private investment rather than public spending.

The current economic strategy is criticized for being almost opposite to the intended goal of reducing demand.

Casual Browsing

This Pastor Says Jesus Is The One Closing Down American Churches...

2024-04-10 01:10:00

Stocks could be hostage to the Fed and inflation, says Jim Cramer

2024-05-17 11:50:03

Are Modi's economic policies benefitting all Indians? | Counting the Cost

2024-04-11 19:30:01

Character Ai Down For Maintenance ? Fix Today ✅ Why Character Ai Is Down ?

2024-03-30 11:40:01

Is it worth going "Pro"? Trying out the 🇫🇷 Dagoma Sigma Pro 500Z!

2024-03-30 20:30:01

Is Chat GPT Down? Chat GPT Solution

2024-03-28 15:50:01