"Econ 102" with Noah Smith and Erik Torenberg How the Fed Works, Currency Crises, and TikTok ban [Listener Mailbag]
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May 1, 2024 Dive into the fascinating world of the Federal Reserve as the hosts dissect its role in shaping inflation and interest rates. Explore the emerging concept of 'greedflation' and its ties to corporate behavior. Comparisons between Canada's housing market and the U.S. shed light on gentrification and urban challenges. The podcast also tackles the complexities of American voting patterns and their disconnect from economic interests. Finally, a look at Japan's currency crisis and the impact of TikTok rounds out this engaging listener mailbag.
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Conventional Fed Policy
- The conventional view of the Fed raising interest rates is that inflation will decrease while the economy suffers.
- Conversely, lowering rates helps the economy but risks higher inflation.
Unexpected Interest Rate Cuts
- Lower interest rates stimulate the economy only when unexpected, and their effect wears off over time.
- Continuously lowering rates to maintain stimulus can lead to hyperinflation.
Greedflation vs. Demand Shock
- Recent inflation analysis reveals no correlation between rising prices and rising markups, challenging the "greedflation" theory.
- However, companies with large markups might maintain them by raising prices, potentially indicating monopoly power influence.