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Yes, that’s right. Elizabeth Warren and other Economics gurus are demanding a 75 basis point cut in the Federal Funds rate.
Democratic Senators Call on Fed to Cut Rates by 75 Basis Points
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They’re calling for a larger rate cut because it will enable more government spending. Inflation is a regressive tax on the poor, and it compounds. The only people who benefit from inflation are governments who are in debt.
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“The only people who benefit from inflation are governments who are in debt.”
Actually, anyone who is in debt. Homeowners who are leveraged to the hilt, if they can control their profligate impulses. Inflation will bail them out.
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“The only people who benefit from inflation are governments who are in debt.” Actually, anyone who is in debt. Homeowners who are leveraged to the hilt, if they can control their profligate impulses. Inflation will bail them out.
Assuming their interest rate is fixed and not adjustable, right?
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In theory, it benefits people with significant debt. However, that’s assuming that their debt isn’t impacting their lives. So for example, someone who has to choose between having a car, paying a mortgage, or eating this month, isn’t being helped by paying back the debt in inflated dollars. This also assumes wages are keeping up with inflation, a dodgy proposition over the last four years.
The government, on the other hand, has the fed, can print money, and can issue bonds. Hence, the only ones who clearly benefits are politicians.
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You are right, Mick. Borrowers with fixed rate mortgages will benefit from inflation. But the vast majority of mortgages (over 90%) are fixed. Certainly, inflation causes all sorts of financial hardship in other areas of peoples’ lives, but the benefit to fixed rate mortgage borrowers is unambiguous.
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As semi-expected, the Fed leapfrogged a 0.25% rate cut and enacted a full .50% cut in the benchmark Federal Funds rate.
The Dow and S&P are up about 1/2% at this writing, NASDAQ is up nearly a full 1%. We’ll see if this sticks. What will be most interesting is what happens at the next Fed meeting. Will it be another 1/2% rate cut, or will they cut a mere 0.25%?
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