A $17 Trillion Cash Infusion Awaits
By Jim Bauer
@porwest (85053)
United States
July 10, 2024 6:58am CST
Many people don't necessarily fully grasp the purpose for the Fed adjusting rates. Most people understand that when the Fed raises rates, it's to slow down economic growth, and when they lower them it's to spur on more economic growth. But it's a balancing act because too much growth can lead to inflation and too little can lead to deflation.
The Fed's goal is to keep inflation levels right around 2%. That's, by all measures, and by most country's standards, the "sweet spot."
But the key is not really spending. It's borrowing. When you raise the rate, borrowing slows. When you lower the rate borrowing increases. Rising rates recently, for a while, weren't slowing borrowing to the extent the Fed would have preferred, thus it was making it difficult to get inflation down faster.
Granted, while spending is not the key, of course when you can borrow more, and do it cheaply, it's going to significantly increase spending because it affords people more spending power. They'll be more likely to buy houses and cars, or borrow for a vacation.
But now it's beginning to show signs of slowing with a recent report out that mortgage refinancing has been in a steady decline and now has declined even further. That's leaving $17 trillion worth of equity on the table.
The Fed has to be careful to lower rates down the line considering if rates are lower, more people may be inclined to tap into things like equity. And if you do too much too soon, that could potentially infuse trillions of dollars into the economy, reversing the course and sending inflation back up.
Just a little tidbit of information for you to digest this morning while you are sipping your coffee.
9 people like this
6 responses
@porwest (85053)
• United States
10 Jul
Understanding WHY they are up, and what influences determine whether things steady out, are also very important things to consider. Because what the government does, and who does it, and the decisions they make all dictate how it impacts our lives.
The more we understand how things work, the better equipped we are to make important decisions about whether or not we are going in the right direction or the wrong one.
When I evaluate Powell's job performance, I can better do that when I can relate to why he makes one decision or another—thus I can be fairer in my judgement and analysis and take into consideration things he may also be taking into consideration.
Understanding the dynamics of things also allows me, as an individual, to make better decisions for myself as well as it provides a roadmap of sorts that can guide me and give me some indication of where we are headed.
Just food for thought. ![](/Content/images/emotes/happy.gif)
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1 person likes this
@just4him (317038)
• Green Bay, Wisconsin
10 Jul
@porwest It's good to have a good understanding of all things money.
I'm not sure what subject I was taking in high school, but the subject was the stock market and how people made money on it. Guess what? I didn't understand it and didn't do well with the topic.
1 person likes this
@moffittjc (120850)
• Gainesville, Florida
10 Jul
I'm hoping that for right now the Fed leaves rates where they're at, or maybe even raise them a little. But certainly now is not the time to lower rates.
1 person likes this
@moffittjc (120850)
• Gainesville, Florida
12 Jul
@porwest Which way are they leaning right now?
1 person likes this
@porwest (85053)
• United States
14 Jul
@moffittjc It seems like they are wanting to just stay the course right now.
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@porwest (85053)
• United States
10 Jul
I think they were VERY slow to start and made some bad decisions in the beginning. But I think they are "holding their own" right now. I personally do not want Powell to touch rates yet. Just leave them where they are for the moment. I MIGHT even support another 25 basis points UP. But certainly don't bring them down.
1 person likes this
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@porwest (85053)
• United States
10 Jul
I think little tidbits like this, at least understood on very basic levels, are important for people to understand so that they can better evaluate what the Fed is doing and why they are doing it, or what things may happen if they go one direction or another.
When you at least know a LITTLE BIT about what's going on, it helps you to better decide whether what they are doing is right or wrong, enough, or too little.
@LindaOHio (170715)
• United States
11 Jul
Thanks for the info. Have a great day.
1 person likes this
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