The Hawk Behind The Hike | The Professor Is In
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Who is the new Fed chair Kevin Walsh and why does his hawkish stance matter?
Once we'd had Jay Powell for years, we kinda knew who he was. He's gonna walk on stage and be really boring. I love boring people. I'm an economist. We love boring. The question is who's Kevin Walsh gonna be? And if he convinced us he's going to be this h inflation hawk, if he was successful at that, that was the most important thing he got done.
The Fed just raised interest rates for the first time since 2023. That is, even though the president who picked the chair of the Fed, Kevin Walsh, had been demanding that the Fed cut rates. Kevin Walsh had a single message inflation is too high and it has been too high for too long. Justin, you just made a video about this. And so today I'm gonna bring you some questions from our audience where we get a little more in depth. I'm Augusta and I'm a producer here at Platyplus Economics.
And this is the professor who's in. Think about this as office hours. Augustus coming to my office and uh bring me your questions.
So my first question is, what does a rate raise like this mean for consumers, if anything?
I'm always tempted on these days, cause it gets literally it made the front page of New York Times and the Wall Street Journal, holy heck, the Fed raised rates to three and three quarter to four percent. And rates went up by a quarter of a percentage point. Can we just pause for a moment and say, like, that's pretty small? Um and if rates were three and three quarter versus four, the truth is most lives would be pretty similar.
What does the Fed’s first rate hike since 2023 actually mean for the economy?
Not much would change. So What we learn out of any of this is very rarely about what happened on that one day. That's why I think we really want to focus on the deeper underlying stories. So one, we usually know what the Fed's going to do by the morning of. And so um As you said, Kevin Walsh is very clear, inflation's been too high. By the way, very perceptive, Kevin, really good job. Probably could have asked most Americans. Um But it's too high and he's gonna do something about it. In the past he said he was gonna talk a lot about it. This time he did something about it. And that was actually what was kind of helpful here. Um, but I just want to remind people as we fuss about these things. The truth is whether whether interest rates are three and three quarter or four
Life's gonna be pretty simple similar either way. Roughly speaking, the most important thing in economic policy is that we're in the rain in the neighborhood of the right answer. Once we're in the neighborhood, whether we get exactly to the exact perfect thing. It helps in an economy this big, you may as well do the best you can. But the most important thing is to be in the right neighborhood. We are in the right neighborhood. We're probably in the right neighborhood if you didn't raise rates either. Um, if he cut rates to one percent, which is what the president asked him to, we would have been in the wrong neighborhood and the consequences for the American economy would have been dire. And so I often think my job, apart from being an interpreter and helping people understand what's going on, is when we're not in the right r neighborhood raising the alarm.
So no alarms are being raised. Okay, you asked how does this affect cust consumers? How does it affect you and me? Uh so the Fed actually only sets this very bizarre, not very interesting interest rate called the federal funds rate. And if I told you how uninteresting it was, you would wonder why anyone cared. Um the federal funds rate is the rate at which one set of financial institutions can borrow from another set of financial institutions for a loan of exactly twenty-four hours. Okay.
How will the quarter‑point rate increase affect everyday consumers?
August are you a bank?
No.
Okay. If you want to buy a house, would an overnight loan help you? No. Boy, I'm asking you the hard questions, aren't I? It seems like for you the federal funds rate's not very relevant. But it is. Because okay, it's it is for two reasons. One, it's only overnight loans, but one way of thinking about a long term loan. say a car loan would be five years, is that is five times three hundred and sixty-five.
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Chapters
8 chapters
1
Who is the new Fed chair Kevin Walsh and why does his hawkish stance matter?
0:00–1:27
2
What does the Fed’s first rate hike since 2023 actually mean for the economy?
1:27–3:25
3
How will the quarter‑point rate increase affect everyday consumers?
3:25–5:32
4
Why does the federal funds rate matter for mortgages, car loans and business credit?
5:32–8:41
5
How does a higher Fed rate translate into slower inflation through reduced spending?
8:41–12:00
6
What role do inflation expectations play in the Fed’s strategy?
12:00–15:41
7
Why do some people feel jobs are hard to find even when unemployment is low?
15:41–18:24
8
Should the Fed follow strict rules or use judgment when linking policy to oil, tariffs and other shocks?
18:24–18:45
Speakers
1 identifiedMore from Platypus Economics with Justin Wolfers
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