Some economists say it’s better to go another way with interest rates
While the Fed has decided to raise interest rates again by another 0.75 points, some economists think it would be good to go the other way with interest rates, to avoid the deflation.
“I think at first glance a lot of people would hear about deflation and the initial reaction would probably be, thank goodness prices are going to slow down and come back down to earth a bit,” said Damian Dunne, vice president of Your Money Line. . , on the radio show Pete the Planner. “But that’s not the kind of deflation we’re talking about.”
Deflation can be described as a kind of destructive whiplash that results both from inflation and from what the Fed does to counter it, which raises interest rates to slow down consumer demand, and therefore price.
A world-renowned economist, Cathy Wood, as well as others with a vested interest in the economy, such as Elon Musk, have been warning and writing about the risk of deflation since last year.
The risk for you is that prices hit rock bottom, but so do job opportunities. Companies are no longer able to maintain the status quo because prices are so low. So companies that make things have to let people go.
“We’re talking about very, very disruptive deflation, where people are losing their jobs, companies are intersecting, the stock market is in turmoil,” Dunn said. “It would be a very quick boost as prices go up, up, up, then prices go down. Its good. But, there are going to be a lot of other spinoffs that go with it.
Peter Dunn, host of Pete the Planner, explained that while prices are going down and it seems like a good thing because they’re more affordable, suddenly there’s another supply problem because companies ” limit the supply of these goods, resulting in layoffs”. ”.
Both men said the Fed had been reactionary throughout the current economic woes, trying to smooth out whatever was happening. This leads to artificial government control of the economy.
The solution to deflation is to prevent it, by cutting interest rates and allowing some of the economic sting to occur, allowing it to correct itself naturally, economists say.