The Fed hiked the rate by a quarter point this month. It’s the second jump this year. Traditionally, the Fed boosts rates to cool inflation but economists seem to agree that inflation isn’t a problem right now, so why the hike? I have an informed, well-considered hypothesis – in short, a wild guess – but if I was to put a single word to the why, that word would be “anticipation”.
While everybody is fixated on the latest antics of our national embarrassment, Congress critters are doing their thing, which means serving the specialized interests of the privileged elite. Hey, another round of tax cuts for the wealthy! Maybe it will work this time! (Spoilers: it works EVERY time, assuming one’s goal is to make a few rich people richer at the expense of everyone else…)
The American Health Care Act is moving forward. (It’s perfectly named, too. “Health care?!? Screw you, we’re Americans!”) No, I haven’t read it. Apparently, neither has anybody else. The Republicans aren’t letting anyone near it. But the speculation based on what’s floating around out there right now is that it cuts 24 million Americans (or more) off from health insurance in order to give a few rich people a tax cut. And THAT’S before they get to work on “tax reform” so they can give a few rich people a tax cut!
“Crazy Paul’s Tax Cut Emporium” (Nee: Congress) is hard at work cutting, cutting, cutting. “C’mon down to Crazy Paul’s Tax Cut Emporium where our slogan is: ‘No tax rate is too low if you’ve got the dough!” I get it. The evidence is in and it’s pretty clear – indisputable, even. The more the taxes are cut for the wealthy, the more money the rich people hoard. The more money the rich people hoard, the less money there is flowing through the economy. The less money there is flowing through the economy, the harder day-to-day living is for everybody who ISN’T rich…so why wouldn’t one cut taxes?
It’s like that kids game ‘Duck, Duck, Goose!’ except this is ‘Cut, Cut, Crash!’ Cut. Rich people don’t spend because they’ve long-since acquired everything they might possibly want/need. Cut. Poor people don’t spend because, well, they’re poor and they don’t have anything TO spend. Cut. The middle class? Well, the middle class has been gutted to the point where they’re not economically strong enough to carry the weight of the nation any longer but THEY stop spending because they fear for their positions. Businesses stop spending because everybody else stopped spending. CRASH! …and it’s pandemonium!
That’s when the Fed steps in. One of the tools in the Fed bag of tricks is to lower interest rates in an effort to stimulate the economy. But the Fed has been lending at or near zero interest for a long time, now – all in response to the weakened economy brought about by previous games of Cut, Cut, Crash! So where do you go when you’re already AT zero? (Yes, they CAN drop to “negative interest” but that literally means paying people to borrow and it’s not solid economic policy…)
So rates are rising. Slowly, to be sure, but pretty much as quickly as the Fed thinks they can do so without harming the economy themselves. And what was that word? Oh, that’s right: “anticipation”, as in, the Fed is anticipating a crash in the near future and working to position itself to respond.
I’ll tell you this: if the Fed sees it coming and is moving to protect its position, you might want to take a cue and do the same…