the feeling that the federal reserve is here for the wealthy
In a sense, the disconnect between these two things is also the explanation. The behavior of consumers is not directly coupled to the fed rate. What you or I do with our money won't change if the rate goes up or down a percent, because we just don't have enough money for it to make a difference to our daily life.
But it often takes a loan to start a business. And when the bank is considering who to make loans to, higher fed rates mean they need to charge more interest, which means riskier business proposals don't get funded. Conversely, if the fed rate is low, then the only way for banks to make money is by making loans, so there's more money available, which tends to both increase inflation and decrease unemployment.
The fed has two jobs (keep inflation at ~2%, and unemployment no higher than 5%) and one lever to accomplish both. It's not so much that they only care about the wealthy, but rather that their only tool needs to percolate through the wealthy before it affects us.
The behavior of consumers is directly coupled in a few ways. However most of what consumers buy is things they would anyway. I'm going to buy a new house this year if I can help it - I locked in my low interest rate several years ago - but if something happens I might be forced to. Most of my spending is no going to change. I'm going to eat, and that comes from my paycheck not from a loan. So long as the cost doesn't go up by more than my raises I'll keep paying for my kid's violin lesson.
Most of the changes from high interest rates are indirect to me. Because rates are up my company is selling less product - our customers have to pay for loans and in turn that means some of them decide to keep/maintain an old product that they would replace if the cost (mostly interest rates, but we can also play with our price) was a little less. In turn this means that my cost of living raise this year was pretty bad (didn't meet inflation), so I've been forced to cut something small (or take from savings).
Now I do have friends who were laid off because of the economy and having trouble finding a job. As always things are worse for those people.
Comments
In a sense, the disconnect between these two things is also the explanation. The behavior of consumers is not directly coupled to the fed rate. What you or I do with our money won't change if the rate goes up or down a percent, because we just don't have enough money for it to make a difference to our daily life.
But it often takes a loan to start a business. And when the bank is considering who to make loans to, higher fed rates mean they need to charge more interest, which means riskier business proposals don't get funded. Conversely, if the fed rate is low, then the only way for banks to make money is by making loans, so there's more money available, which tends to both increase inflation and decrease unemployment.
The fed has two jobs (keep inflation at ~2%, and unemployment no higher than 5%) and one lever to accomplish both. It's not so much that they only care about the wealthy, but rather that their only tool needs to percolate through the wealthy before it affects us.
The behavior of consumers is directly coupled in a few ways. However most of what consumers buy is things they would anyway. I'm going to buy a new house this year if I can help it - I locked in my low interest rate several years ago - but if something happens I might be forced to. Most of my spending is no going to change. I'm going to eat, and that comes from my paycheck not from a loan. So long as the cost doesn't go up by more than my raises I'll keep paying for my kid's violin lesson.
Most of the changes from high interest rates are indirect to me. Because rates are up my company is selling less product - our customers have to pay for loans and in turn that means some of them decide to keep/maintain an old product that they would replace if the cost (mostly interest rates, but we can also play with our price) was a little less. In turn this means that my cost of living raise this year was pretty bad (didn't meet inflation), so I've been forced to cut something small (or take from savings).
Now I do have friends who were laid off because of the economy and having trouble finding a job. As always things are worse for those people.