jwhaby said:
You keep nibbling around the edges but won't address the meat of the argument. Inflation isn't the reason that US rates are higher. You know that but you don't want to admit it. Also, you can't just dismiss the central bank rates of Japan and China. They are the 5th and 2nd largest economies in the world, respectively. Take the L.
I'll bite. Interest rates in other parts of the world are irrelevant. How about Mexico, Brazil, Turkey, etc. with rates that range from 10% to 40%? Take a look here
cbrates.com at rates around the world. Many of them are higher than ours. Ours shouldn't be higher just because theirs are, nor should ours be lower because of other countries with low rates. Our rates should be based on our economic factors.
Inflation is absolutely the key reason for our current rates. Core inflation is much closer to 3.0% than the longstanding target of 2.0%. Even though Trump says there's no inflation, he's wrong. The impact of his tariffs is starting to show in inflation metrics and well-regarded economists think more is to come as tariffs move through the value chain. How much more inflation we see is anybody's guess. It could be quite sticky, or really not a big deal. It will probably be well into 2026 before we get a better sense of how it lands.
The Fed is appropriately cautious on cutting rates while inflation metrics are moving up. They have a dual mandate to maintain full employment along with price stability, so they are paying close attention to the job market. Recent softening in hiring suggests the labor market might be weakening, but the unemployment rate is still very low, so it's not like it's a train wreck either. They can afford to be patient and fine tune interest rates to balance inflation and job market concerns.
To that word "balance," it's important we maintain that. Current interest rates are not high by historical standards. They are normal. They might feel high to some people, but that's only because they were artificially suppressed by the Fed the last two decades in response to the financial crisis and pandemic. Older people like me approaching retirement want higher rates to help create a reliable income stream after I stop working, while my sons want lower rates to buy their first homes. Somewhere in between those two wants is a good balance.
I get your implication that current rates are a conspiracy against Trump. As a three-time Trump voter, I'm not buying it. Yes, the Fed's move last fall appeared like a political gift to Biden at the time and I hated it. I also despise Trump's attempts to cut current rates "by three points or more"... he's off his rocker with that.
We're better off with rates determined by a bunch of nerdy, smart people than a politician demanding something in the moment to please a segment of his voting base. Short term interest rates should be heavily influenced by market forces, not politicians. Interestingly, if Trump is successful in pushing short term rates well below the market range, you can expect long term rates to come up because investors will expect a higher term premium if they view the Fed as politically controlled and unwilling to fight inflation as needed.