INTERESTING. YEAH. LET’S TALK ABOUT THAT AS I WERE ABOUT 25 SECONDS AWAY.
RECORD INFLATION AND NOW A
FEDERAL INTEREST RATE HIKE OF
LIKE ANY THE COUNTRY HAS SEEN
IN DECADES
>> WE’RE GOING TO TALK ABOUT
WHAT THAT MEANS FOR YOU IN
TODAY’S KSAT Q AND A, WE’RE
HAPPY TO WELCOME DOCTOR DAVID
MACPHERSON PRESSER, PROFESSOR
OF ECONOMICS AT TRINITY
UNIVERSITY. THANKS SO MUCH FOR
BEING HERE WITH US TO EXPLAIN
WHAT WE NEED TO TAKE AWAY FROM
THIS 3 QUARTERS OF A PERCENT
INTEREST RATE INCREASE TODAY
FROM THE FED. FIRST OF ALL,
WHAT’S THE GOAL AND THE FEDERAL
RESERVE DOING THIS?
>> THE GOAL IS TO REDUCE AND
IT’S UP TO US FROM REDUCE IT BY
REDUCING PEOPLE SPENDING.
AND TRYING TO REDUCE THE DEMAND
FOR GOODS AND THEREFORE LOWER
THE INFLATION RATE. THAT’S THE
ULTIMATE GOAL.
IT WE WOULD WE WEAR. HOW DID WE
GET TO THIS PLACE WITH
INFLATION? I MEAN, IN IN THE
WORD, HOW DID WE GET TO THE
PLACE WHERE
>> WE’RE SEEING RISING PRICES,
THAT THINGS SEEM TO BE.
OUT OF CONTROL IN THE FEDERAL
RESERVE IS TRYING TO CONTROL
THINGS A LITTLE BIT MORE.
I MEAN, IT YOU MIGHT MY TURNING
THAT THE RIGHT WAY.
>> YES, I THINK IT’S A COUPLE
OF CAUSES. ONE IS STARTING OFF
WITH THE 2 BIGGEST STIMULUS
SPENDING FINANCED BY THE
FEDERAL RESERVE. THE BAILOUT
PACKAGE WE HAVE IN 2021.
WAS TOO BIG FOR WHAT WAS REALLY
NEEDED FOR THE ECONOMY. IT WAS
PAID FOR BY. THIS IS PRETTY
MONEY. AND ALSO ITS SUPPLY
CHAIN ISSUES. SO YOU HAVE TOO
MONEY CHASING TOO FEW GOODS
AND THEN YOU’VE GOT TO GET
INFLATION.
>> AND IS IT IS IT CORRECT TO
TO CATEGORIZE THIS AS A FIRST
FOR THE U.S. IN TERMS OF THIS
SORT OF INFLATION, THE IMPACT
THAT WE’RE ALL FEELING RIGHT
NOW IS THE FIRST TIME WE’VE
BEEN HERE.
>> NO, I BET. YOU KNOW, WE ALSO
HAVE A THAT SPANNED INFLATION
OF THE 1970’S AND EARLY 80’S
WHERE WE ACTUALLY DIDN’T EVEN
HIGHER INFLATION DOUBLE DIGITS,
LOW DOUBLE DIGITS ANY ANY
LESSONS LEARNED FROM MAP THAT
YOU COULD SEE BEING APPLIED
TODAY?
>> YES, IT TOOK WHAT HAPPENS.
PEOPLE HAVE HIGH EXPECTATIONS
OF INFLATION. AND SO THAT
REALLY GOT BUILT INTO THE
ECONOMY. SO THE FEDERAL RESERVE
TO RAISE INTEREST RATES TO
20%.
>> WHICH CAUSED A SEVERE
RECESSION TO RING THAT
INFLATION OUT OF THE ECONOMY.
>> WHEN YOU LOOK AT STOCKS
RIGHT NOW, A LOT OF PEOPLE HAVE
4, 1, K’S. A LOT OF PEOPLE
WORRIED ABOUT THEIR RETIREMENT
IS IS THE STOCK MARKET REACTING
TO WHAT THE FED IS DOING AND
INFLATION? IS THAT WHAT WE’RE
SEEING REFLECTED IN THE STOCK
MARKET OR IS THERE MORE AT PLAY
THERE?
WELL, TODAY WAS CLEARLY THING.
SO I WENT OUT AND THE REASON
WHY IS THAT?
>> GOING UP 3 QUARTERS OF A
PERCENTAGE POINTS IN A HALF
INDICATING THAT THE FED WAS
SERIOUS ABOUT INFANT FIGHTING
INFLATION. SO THAT INVESTORS
HAVE MORE CONFIDENCE IN THE
FED. THE INFLATION RATE WOULD
CALM DOWN THE FUTURE. I THINK
THAT’S REALLY THE MAIN STORY
BEHIND THAT. BUT GENERALLY
HIGHER INTEREST RATES ARE BAD
FOR STOCKS BECAUSE IT MAKES
OTHER INVESTMENTS MORE
ATTRACTIVE WHEN BUTTS.
WHETHER VIEWERS AT HOME
WATCHING THIS ARE FAMILIAR WITH
THE STOCK MARKET OR NOT.
NONE OF THIS SOUNDS LIKE GOOD
NEWS.
>> SO WHAT IS THE IMPACT GOING
TO BE TO THE AVERAGE PERSON
WITH THIS INTEREST RATE
INCREASE? AND WHEN CAN WE START
TO FIRST SEE THAT?
>> WELL, YOU’RE GOING TO START
SEEING SOME EFFECTS PRETTY
QUICKLY BECAUSE SOME RATES ARE
TIED THE FEDERAL FUNDS RATE,
WHICH IS THE RATE THE FED
CONTROLS.
SO IT’S GOING TO RIPPLE THROUGH
THE ECONOMY, BUT IT’S GOING TO
TAKE TIME TO FULLY GET THEIR
COULD TAKE A YEAR AND A HALF TO
HAVE THE FULL IMPACT OF
THIS CHANGE. BUT ALL-STAR
PRODUCTIVELY QUICKLY.
>> WHEN WE TALK RECESSION AND
THEN I SAID WE HEARD A NEW WORD
TODAY THAT WAS INTRODUCED, NOT
NEW, BUT A NEW TERM THAT WE
HAVEN’T HEARD IN AWHILE CALLED
STAGFLATION. ARE YOU?
CONFIDENCE THAT WHAT IS GOING
TO HAPPEN IS GOING TO NOT
AFFECT PEOPLE OR WE GO OR IS A
RECESSION INEVITABLE? IS
STAGFLATION SOMETHING WE SHOULD
BE WORRIED ABOUT AND WHAT ARE
YOU SEEING FOR THE AVERAGE
AMERICAN OUT THERE WHEN IT
COMES TO PRICES WHEN IT COMES
TO RETIREMENT AND STOCKS.
>> YEAH. IN TERMS ONE OF THE
RECESSION, I THINK THAT’S A GOT
A HIGHER PROBABILITY NOW THAN
IN THE PAST BECAUSE ON THE
FEDERAL RESERVE IS GOING TO
HAVE TO REALLY INCREASE
INTEREST RATES TO GET THIS
INFLATION UNDER CONTROL AND
THEIR TRACK RECORD LOW BOILING
RECESSION WHERE ECONOMISTS CALL
SOFT LANDING HAS NOT BEEN GOOD.
SO THE ODDS OF A RECESSION, A
PRETTY HIGH
OBVIOUSLY, WE HAVE LOST OVER
20% IN THE STOCK MARKET ALREADY
THIS YEAR. WE’RE IN A BEAR
MARKET. AND SO THAT’S GOING TO
HURT PEOPLE WHO ARE RETIRING IN
THE NEAR FUTURE. EXPECTING THAT
WINNING PREVIOUS RECESSIONS,
THE ORDER OF THE TIMES LIKE
THIS TO SHOW THAT PEOPLE TEND
TO WORK LONGER OR CLOSE TO
RETIREMENT AS A RESULT OF THESE
DECLINES BECAUSE THEIR VALUE OF
THEIR PENSION FUND THIS FALL.
>> CAN YOU EXPLAIN A BEAR
MARKET FOR US?
WELL, SORRY, GOOD QUESTION.
BEAR MARKET IS THE STOCK PRICES
OF FALLEN POLICE, 20% RELATIVE
TO THEIR PREVIOUS PEAK. AND
THAT’S WHAT WE’RE IN RIGHT NOW.
>> AND HE SAID IN THE IN THE
PAST, HOW LONG HAS IT TAKEN
TO REBOUND FROM A RECESSION?
>> THE LONGEST ONES 2007 TO
2009 IS ONE OF THE LONGEST ONES
IN RECENT POST WAR HISTORY.
AND THAT WAS DECEMBER 2007 TO
JUNE OR NOT. THIS IS FUNNY AND
A HALF. OF COURSE, YOU HAVE A
GREAT DEPRESSION WHICH ALMOST
A DECADE.
SINCE WORLD WAR, 2 A YEAR AND
A HALF WOULD BE PROGRAM.
TYPICALLY OTHER RECESSIONS TEND
TO BE SHORTER.
>> I’M IF YOU HAVE ANY
INDICATION ON THE FLIP SIDE OF
THAT FROM WHERE WE ARE NOW
UNTIL OFFICIALLY ENTERING A
RECESSION, WHAT’S THE TIMETABLE
LOOK LIKE GIVEN THE OUR CURRENT
CONDITIONS?
>> WELL, I’M SURPRISED IN THE
NEXT YEAR WE
RECESSION THEIR SESSIONS
DEFINED AS 2 QUARTERS OF
FALLING OUTPUT IN THE ECONOMY.
AND YOU KNOW, THIS FEDERAL
RESERVE HIKES IN INTEREST RATES
ARE GOING TO START TO CUT
BORROWING AND THEREFORE
SPENDING.
>> AND THEN THAT WILL BRING
INFLATION DOWN, WHICH THEY WANT
TO. BUT LIKE YOU SAID, THERE’S
I COULD BE AS IF INTO
RECESSION. THAT’S NOT A SOFT
LANDING. DAVID MACPHERSON.
THAT’S RIGHT. YEAH. DAVID
MACPHERSON IN CARS AND IT’S A
VERY HARD LANDING. DAVID