NICK GOSNELL
Hutch Post
HUTCHINSON, Kan. — The Federal Reserve chose this past week to hold the line on short term interest rates, but Creighton University economist Ernie Goss isn't sure that will remain the case.
"The jury's still out on a rate hike in December at the Dec. 12 and 13 meeting," Goss said. "I am on the side that thinks there will be a rate hike. There's just too much federal spending out there. The Biden Administration's spending like a wartime spending in a peacetime economy. Although, you wouldn't call that peace, what's going on in Ukraine, what's going on in the Middle East spending there. Also, of course, Taiwan, the Chinese potential for moving into Taiwan, that's costing some money. All in all, the Biden administration just continues to spend, so the Fed's going to have to do something to quell the inflationary pressures."
Increasing use of debt is going to put pressure on long-term rates, according to Goss.
"The Treasury has to issue a lot of bonds, of course, to send money wherever it's going," Goss said. "She announced between $700 billion and $800 billion of bond issuance, running a deficit between $1.5 and $2 trillion for the next year. That pushes up long-term interest rates. You've got to have some buyers of those bonds. The buyers are asking for higher and higher interest rates to accomodate these inflationary pressures. The housing market's not helping out there. The housing market continues to grow."
Goss said it's been several decades at least since the government has tried to do this much both overseas and domestically at the same time.
"Look back to the Johnson Adminisration, when we were conducting the war in Vietnam, of course and then the War on Poverty in the domestic economy," Goss said. "He was spending hand over fist and that's what we're seeing right now. What happened during that and after that, interest rates really skyrocketed and so we were left with problems for the 1970s. We're slated to see even higher interest rates going forward. The investors globally and domestically are saying, well, the Fed's going to reduce interest rates. They have a hard time there, with the UAW and all the unions negotiating for higher and higher wages. That puts upward pressure on prices, as well."
Goss said that more aggregate dollars will be spent in the holiday season, but maybe not as much, when accounting for inflation.
CLICK HERE to download the Hutch Post mobile app.
CLICK HERE to sign up for the daily Hutch Post email news update.