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Is Inflation Slowing Down From Higher Interest Rates?

Many people are wondering if the higher interest rates set by the Federal Reserve are slowing inflation. For nine months … Read more



Many people are wondering if the higher interest rates set by the Federal Reserve are slowing inflation. For nine months straight, the annual inflation rate has been decreasing. However, the Consumer Price Index’s (CPI) data will sometimes show specific sectors experiencing price increases despite a general trend of decreasing inflation. 

This article will look at what effect the increase in interest rates has had on inflation and what possible negative consequences could be.

Key Takeaways

  • The Federal Reserve uses higher interest rates to combat high inflation.
  • High inflation has been partly due to the pandemic, government spending, and the Russia-Ukraine conflict.
  • Experts often worry that raising interest rates will harm the economy more than help it, but many also argue it’s a necessary step to managing unsustainable growth. 

Why Did Interest Rates Rise So Much?

Interest rates dramatically rose in 2022 because of record-high inflation numbers. Inflation spiked due to various factors, including government spending during the pandemic, supply chain issues, historically low interest rates, high energy prices, and the Russia-Ukraine conflict.

Inflation is the devaluation of a country’s currency, usually caused by a mismatch of supply and demand. For example, during the COVID-19 pandemic, the United States government gave out stimulus checks to encourage discretionary spending and reinvigorate the economy. Some experts feared that the checks were boosting demand at a time supply chains were disrupted, pushing companies to raise prices. 

If a company faces low demand for a good, it’ll often lower prices to incentivize consumers to buy its product. Conversely, if demand for a product is too high, a company will often raise prices to keep its supply from being overwhelmed.  

When inflation began to rise, the Federal Reserve believed the increases were temporary and would come down as quickly as they grew. However, this was not the case, as inflation is still high after many months.

In June 2022, the Consumer Price Index, which measures inflation, peaked at 9.1%. In July, the rate was 8.5%, and in August, it was 8.3%. While the overall number had begun declining, the data within the reports didn’t indicate inflation was cooling off for everyone.

Oil prices dropped throughout 2022, which helped to lower the annual inflation rate, but food and rent costs didn’t initially see the same month-to-month decrease. 

Recent Numbers

Recent data from the Bureau of Labor Statistics shows the shelter index – including money spent on rented and owned houses – increased 8.2% in March 2023. This was arguably the most significant contributor to the annual inflation rate in March 2023, even as other economic sectors cooled off.

With OPEC+ recently announcing further reductions to its oil production, analysts are warning of higher energy prices in the coming months.

To combat rising inflation, the Federal Reserve uses the primary tool it has—interest rates. Between March 2022 and March 2023, the Fed raised the federal funds rate from near 0% to its current 4.75-5.00%. The Fed’s next meeting will take place between May 2nd and 3rd. We’ll have to wait to see what happens, but many experts anticipate another rate hike of 25 basis points up to 5.00-5.25%. 

How Do Higher Interest Rates Slow Inflation?

Higher interest rates slow inflation in several ways. First, higher interest rates make it more expensive to borrow money. The federal funds rate indirectly influences the rate at which banks lend each other money. 

Banks have to meet specific reserve requirements related to how much money they keep on hand, so when the fed funds rate increases, the money circulation decreases, and short-term interest rates increase. For consumers, this shows up as higher interest rates on mortgages, auto loans, and credit card debt. When it costs more to borrow money, people will spend less overall. 

On the business front, higher interest rates mean businesses will be less likely to borrow money to expand. By slowing down business growth, the economy also slows down.

Another impact of higher interest rates is on savings. The interest rates on savings accounts, certificates of deposit, and bonds will rise, encouraging individuals and investors to save and invest more of their money. The more money they save and invest, the less money they have to spend, decreasing demand.

Combining these two ideas, we can say less consumer demand will ease demand and increase supply. Over time, this should lead to inflation returning to normal levels and the rise of prices stopping. The Federal Reserve aims for an annual inflation rate of only 2%. Even with the annual rate dropping to 5.0% in March 2023, that’s still above the optimal rate. 

The caveat to this is time. While increasing interest rates happen in real-time, their effects play out over many months. The potential problem is that even though the Fed has aggressively raised rates, not enough time has passed to see their full impact. The result that some economists fear is a hard landing where rising interest rates push demand so low the economy enters a recession.

What Is The Difference Between A Recession And A Depression? 

A recession is a normal part of the economic cycle and tends to last for a shorter time and have less of a negative impact on most consumers. That doesn’t mean it’s not painful, though, as recessions often lead to increased unemployment, decreased consumer spending, and general anxiety about the economy. 

The U.S. has experienced 14 recessions since the Great Depression of the early 1930s. This makes them much more common than a depression, which has only happened once in U.S. economic history. 

Experts generally define a depression as a severe drop in GDP lasting more than a year. Most experts date the Great Depression as lasting between 1929 and 1941. 

Do Higher Interest Rates Work to Slow Inflation?

Many people, including legislators, are skeptical of whether increasing interest rates can slow inflation. For example, we can look at an exchange that happened in June 2022 during the Semiannual Monetary Policy Report to Congress.

Senator Elizabeth Warren (D-Massachusetts): “Chair Powell, will gas prices go down as a result of your interest rate increase?” 

Chairman Powell “I would not think so, no.”

Senator Warren: “Chair Powell, will the Fed’s interest rate increases bring food prices down for families?” 

Chairman Powell “I wouldn’t say so, no.”

Senator Warren: “The reason I raise this and the reason I’m so concerned about this is rate increases make it more likely that companies will fire people and slash hours to shrink wage costs. Rate increases also make it more expensive for families to do things like borrow money for a house. And so far this year, the cost of a mortgage has already doubled.

“Inflation is like an illness. And the medicine needs to be tailored to the specific problem. Otherwise, you could make things a lot worse. And right now, the Fed has no control over the main drivers of rising prices, but the Fed can slow demand by getting a lot of people fired and making families poorer.”

Food And Shelter Prices

It’s very reasonable to ask why things like food and shelter prices shouldn’t decrease from higher interest rates. If higher interest rates increase saving and reduce demand, shouldn’t that lower the cost of everything? 

Experts believe that rising interest rates don’t always have as much impact on these sectors because their prices are affected by more than one factor.  

For example, one leading cause of higher food costs in 2022 was supply chain issues. The food supply needed to increase to combat this, and agricultural commodities have since seen a price drop. Also, if businesses stop hiring or cut workers’ hours, they won’t be able to produce as much, decreasing the supply further.

The main idea with higher interest rates is to slow demand, but demand for food can only decrease so much. It’s a basic necessity and isn’t always impacted by reduced discretionary spending.

There is also no clear correlation between interest rates and shelter prices. Though rental prices should ideally decrease when rates are high as demand has dropped, they may increase as the cost of borrowing money for landlords and property developers increases.

Government Spending

If we look at the government, the money it spends also significantly impacts inflation. If the government chooses not to reduce spending, the increase in interest rates will have minimal effect.

Leonardo Melosi of the Chicago Fed and Francesco Bianchi of Johns Hopkins University say, “The recent fiscal interventions in response to the COVID-19 pandemic have altered the private sector’s beliefs about the fiscal framework, accelerating the recovery but also determining an increase in fiscal inflation. This increase in inflation could not have been averted by simply tightening monetary policy.”

The Bottom Line

The Federal Reserve’s primary tool to fight inflation is increasing interest rates. While higher rates impact prices, inflation doesn’t disappear overnight. This can spell trouble for the U.S. economy since raising rates too quickly can lead to a recession.

Additionally, without the government reducing spending, the increase in interest rates might have minimal effect on inflation. The upcoming months will give us more insight into whether higher interest rates are or aren’t working.

With oil prices likely heading higher, the monthly inflation report won’t be able to rely on lower oil prices offsetting increased costs elsewhere. If everything rises and inflation doesn’t continue to cool off, the Fed will likely resume raising interest rates.

The post Is Inflation Slowing Down From Higher Interest Rates? appeared first on Due.

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United Airlines adds new flights to faraway destinations

The airline said that it has been working hard to "find hidden gem destinations."



Since countries started opening up after the pandemic in 2021 and 2022, airlines have been seeing demand soar not just for major global cities and popular routes but also for farther-away destinations.

Numerous reports, including a recent TripAdvisor survey of trending destinations, showed that there has been a rise in U.S. traveler interest in Asian countries such as Japan, South Korea and Vietnam as well as growing tourism traction in off-the-beaten-path European countries such as Slovenia, Estonia and Montenegro.

Related: 'No more flying for you': Travel agency sounds alarm over risk of 'carbon passports'

As a result, airlines have been looking at their networks to include more faraway destinations as well as smaller cities that are growing increasingly popular with tourists and may not be served by their competitors.

The Philippines has been popular among tourists in recent years.


United brings back more routes, says it is committed to 'finding hidden gems'

This week, United Airlines  (UAL)  announced that it will be launching a new route from Newark Liberty International Airport (EWR) to Morocco's Marrakesh. While it is only the country's fourth-largest city, Marrakesh is a particularly popular place for tourists to seek out the sights and experiences that many associate with the country — colorful souks, gardens with ornate architecture and mosques from the Moorish period.

More Travel:

"We have consistently been ahead of the curve in finding hidden gem destinations for our customers to explore and remain committed to providing the most unique slate of travel options for their adventures abroad," United's SVP of Global Network Planning Patrick Quayle, said in a press statement.

The new route will launch on Oct. 24 and take place three times a week on a Boeing 767-300ER  (BA)  plane that is equipped with 46 Polaris business class and 22 Premium Plus seats. The plane choice was a way to reach a luxury customer customer looking to start their holiday in Marrakesh in the plane.

Along with the new Morocco route, United is also launching a flight between Houston (IAH) and Colombia's Medellín on Oct. 27 as well as a route between Tokyo and Cebu in the Philippines on July 31 — the latter is known as a "fifth freedom" flight in which the airline flies to the larger hub from the mainland U.S. and then goes on to smaller Asian city popular with tourists after some travelers get off (and others get on) in Tokyo.

United's network expansion includes new 'fifth freedom' flight

In the fall of 2023, United became the first U.S. airline to fly to the Philippines with a new Manila-San Francisco flight. It has expanded its service to Asia from different U.S. cities earlier last year. Cebu has been on its radar amid growing tourist interest in the region known for marine parks, rainforests and Spanish-style architecture.

With the summer coming up, United also announced that it plans to run its current flights to Hong Kong, Seoul, and Portugal's Porto more frequently at different points of the week and reach four weekly flights between Los Angeles and Shanghai by August 29.

"This is your normal, exciting network planning team back in action," Quayle told travel website The Points Guy of the airline's plans for the new routes.

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Walmart launches clever answer to Target’s new membership program

The retail superstore is adding a new feature to its Walmart+ plan — and customers will be happy.



It's just been a few days since Target  (TGT)  launched its new Target Circle 360 paid membership plan. 

The plan offers free and fast shipping on many products to customers, initially for $49 a year and then $99 after the initial promotional signup period. It promises to be a success, since many Target customers are loyal to the brand and will go out of their way to shop at one instead of at its two larger peers, Walmart and Amazon.

Related: Walmart makes a major price cut that will delight customers

And stop us if this sounds familiar: Target will rely on its more than 2,000 stores to act as fulfillment hubs. 

This model is a proven winner; Walmart also uses its more than 4,600 stores as fulfillment and shipping locations to get orders to customers as soon as possible.

Sometimes, this means shipping goods from the nearest warehouse. But if a desired product is in-store and closer to a customer, it reduces miles on the road and delivery time. It's a kind of logistical magic that makes any efficiency lover's (or retail nerd's) heart go pitter patter. 

Walmart rolls out answer to Target's new membership tier

Walmart has certainly had more time than Target to develop and work out the kinks in Walmart+. It first launched the paid membership in 2020 during the height of the pandemic, when many shoppers sheltered at home but still required many staples they might ordinarily pick up at a Walmart, like cleaning supplies, personal-care products, pantry goods and, of course, toilet paper. 

It also undercut Amazon  (AMZN)  Prime, which costs customers $139 a year for free and fast shipping (plus several other benefits including access to its streaming service, Amazon Prime Video). 

Walmart+ costs $98 a year, which also gets you free and speedy delivery, plus access to a Paramount+ streaming subscription, fuel savings, and more. 

An employee at a Merida, Mexico, Walmart. (Photo by Jeffrey Greenberg/Universal Images Group via Getty Images)

Jeff Greenberg/Getty Images

If that's not enough to tempt you, however, Walmart+ just added a new benefit to its membership program, ostensibly to compete directly with something Target now has: ultrafast delivery. 

Target Circle 360 particularly attracts customers with free same-day delivery for select orders over $35 and as little as one-hour delivery on select items. Target executes this through its Shipt subsidiary.

We've seen this lightning-fast delivery speed only in snippets from Amazon, the king of delivery efficiency. Who better to take on Target, though, than Walmart, which is using a similar store-as-fulfillment-center model? 

"Walmart is stepping up to save our customers even more time with our latest delivery offering: Express On-Demand Early Morning Delivery," Walmart said in a statement, just a day after Target Circle 360 launched. "Starting at 6 a.m., earlier than ever before, customers can enjoy the convenience of On-Demand delivery."

Walmart  (WMT)  clearly sees consumers' desire for near-instant delivery, which obviously saves time and trips to the store. Rather than waiting a day for your order to show up, it might be on your doorstep when you wake up. 

Consumers also tend to spend more money when they shop online, and they remain stickier as paying annual members. So, to a growing number of retail giants, almost instant gratification like this seems like something worth striving for.

Related: Veteran fund manager picks favorite stocks for 2024

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President Biden Delivers The “Darkest, Most Un-American Speech Given By A President”

President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through…



President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through the State of The Union, President Biden can go back to his crypt now.

Whatever 'they' gave Biden, every American man, woman, and the other should be allowed to take it - though it seems the cocktail brings out 'dark Brandon'?

Tl;dw: Biden's Speech tonight ...

  • Fund Ukraine.

  • Trump is threat to democracy and America itself.

  • Abortion is good.

  • American Economy is stronger than ever.

  • Inflation wasn't Biden's fault.

  • Illegals are Americans too.

  • Republicans are responsible for the border crisis.

  • Trump is bad.

  • Biden stands with trans-children.

  • J6 was the worst insurrection since the Civil War.

(h/t @TCDMS99)

Tucker Carlson's response sums it all up perfectly:

"that was possibly the darkest, most un-American speech given by an American president. It wasn't a speech, it was a rant..."

Carlson continued: "The true measure of a nation's greatness lies within its capacity to control borders, yet Bid refuses to do it."

"In a fair election, Joe Biden cannot win"

And concluded:

“There was not a meaningful word for the entire duration about the things that actually matter to people who live here.”

Victor Davis Hanson added some excellent color, but this was probably the best line on Biden:

"he doesn't care... he lives in an alternative reality."

*  *  *

Watch SOTU Live here...

*   *   *

Mises' Connor O'Keeffe, warns: "Be on the Lookout for These Lies in Biden's State of the Union Address." 

On Thursday evening, President Joe Biden is set to give his third State of the Union address. The political press has been buzzing with speculation over what the president will say. That speculation, however, is focused more on how Biden will perform, and which issues he will prioritize. Much of the speech is expected to be familiar.

The story Biden will tell about what he has done as president and where the country finds itself as a result will be the same dishonest story he's been telling since at least the summer.

He'll cite government statistics to say the economy is growing, unemployment is low, and inflation is down.

Something that has been frustrating Biden, his team, and his allies in the media is that the American people do not feel as economically well off as the official data says they are. Despite what the White House and establishment-friendly journalists say, the problem lies with the data, not the American people's ability to perceive their own well-being.

As I wrote back in January, the reason for the discrepancy is the lack of distinction made between private economic activity and government spending in the most frequently cited economic indicators. There is an important difference between the two:

  • Government, unlike any other entity in the economy, can simply take money and resources from others to spend on things and hire people. Whether or not the spending brings people value is irrelevant

  • It's the private sector that's responsible for producing goods and services that actually meet people's needs and wants. So, the private components of the economy have the most significant effect on people's economic well-being.

Recently, government spending and hiring has accounted for a larger than normal share of both economic activity and employment. This means the government is propping up these traditional measures, making the economy appear better than it actually is. Also, many of the jobs Biden and his allies take credit for creating will quickly go away once it becomes clear that consumers don't actually want whatever the government encouraged these companies to produce.

On top of all that, the administration is dealing with the consequences of their chosen inflation rhetoric.

Since its peak in the summer of 2022, the president's team has talked about inflation "coming back down," which can easily give the impression that it's prices that will eventually come back down.

But that's not what that phrase means. It would be more honest to say that price increases are slowing down.

Americans are finally waking up to the fact that the cost of living will not return to prepandemic levels, and they're not happy about it.

The president has made some clumsy attempts at damage control, such as a Super Bowl Sunday video attacking food companies for "shrinkflation"—selling smaller portions at the same price instead of simply raising prices.

In his speech Thursday, Biden is expected to play up his desire to crack down on the "corporate greed" he's blaming for high prices.

In the name of "bringing down costs for Americans," the administration wants to implement targeted price ceilings - something anyone who has taken even a single economics class could tell you does more harm than good. Biden would never place the blame for the dramatic price increases we've experienced during his term where it actually belongs—on all the government spending that he and President Donald Trump oversaw during the pandemic, funded by the creation of $6 trillion out of thin air - because that kind of spending is precisely what he hopes to kick back up in a second term.

If reelected, the president wants to "revive" parts of his so-called Build Back Better agenda, which he tried and failed to pass in his first year. That would bring a significant expansion of domestic spending. And Biden remains committed to the idea that Americans must be forced to continue funding the war in Ukraine. That's another topic Biden is expected to highlight in the State of the Union, likely accompanied by the lie that Ukraine spending is good for the American economy. It isn't.

It's not possible to predict all the ways President Biden will exaggerate, mislead, and outright lie in his speech on Thursday. But we can be sure of two things. The "state of the Union" is not as strong as Biden will say it is. And his policy ambitions risk making it much worse.

*  *  *

The American people will be tuning in on their smartphones, laptops, and televisions on Thursday evening to see if 'sloppy joe' 81-year-old President Joe Biden can coherently put together more than two sentences (even with a teleprompter) as he gives his third State of the Union in front of a divided Congress. 

President Biden will speak on various topics to convince voters why he shouldn't be sent to a retirement home.

According to CNN sources, here are some of the topics Biden will discuss tonight:

  • Economic issues: Biden and his team have been drafting a speech heavy on economic populism, aides said, with calls for higher taxes on corporations and the wealthy – an attempt to draw a sharp contrast with Republicans and their likely presidential nominee, Donald Trump.

  • Health care expenses: Biden will also push for lowering health care costs and discuss his efforts to go after drug manufacturers to lower the cost of prescription medications — all issues his advisers believe can help buoy what have been sagging economic approval ratings.

  • Israel's war with Hamas: Also looming large over Biden's primetime address is the ongoing Israel-Hamas war, which has consumed much of the president's time and attention over the past few months. The president's top national security advisers have been working around the clock to try to finalize a ceasefire-hostages release deal by Ramadan, the Muslim holy month that begins next week.

  • An argument for reelection: Aides view Thursday's speech as a critical opportunity for the president to tout his accomplishments in office and lay out his plans for another four years in the nation's top job. Even though viewership has declined over the years, the yearly speech reliably draws tens of millions of households.

Sources provided more color on Biden's SOTU address: 

The speech is expected to be heavy on economic populism. The president will talk about raising taxes on corporations and the wealthy. He'll highlight efforts to cut costs for the American people, including pushing Congress to help make prescription drugs more affordable.

Biden will talk about the need to preserve democracy and freedom, a cornerstone of his re-election bid. That includes protecting and bolstering reproductive rights, an issue Democrats believe will energize voters in November. Biden is also expected to promote his unity agenda, a key feature of each of his addresses to Congress while in office.

Biden is also expected to give remarks on border security while the invasion of illegals has become one of the most heated topics among American voters. A majority of voters are frustrated with radical progressives in the White House facilitating the illegal migrant invasion. 

It is probable that the president will attribute the failure of the Senate border bill to the Republicans, a claim many voters view as unfounded. This is because the White House has the option to issue an executive order to restore border security, yet opts not to do so

Maybe this is why? 

While Biden addresses the nation, the Biden administration will be armed with a social media team to pump propaganda to at least 100 million Americans. 

"The White House hosted about 70 creators, digital publishers, and influencers across three separate events" on Wednesday and Thursday, a White House official told CNN. 

Not a very capable social media team... 

The administration's move to ramp up social media operations comes as users on X are mostly free from government censorship with Elon Musk at the helm. This infuriates Democrats, who can no longer censor their political enemies on X. 

Meanwhile, Democratic lawmakers tell Axios that the president's SOTU performance will be critical as he tries to dispel voter concerns about his elderly age. The address reached as many as 27 million people in 2023. 

"We are all nervous," said one House Democrat, citing concerns about the president's "ability to speak without blowing things."

The SOTU address comes as Biden's polling data is in the dumps

BetOnline has created several money-making opportunities for gamblers tonight, such as betting on what word Biden mentions the most. 

As well as...

We will update you when Tucker Carlson's live feed of SOTU is published. 

Tyler Durden Fri, 03/08/2024 - 07:44

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