Interest Rates' Psychological Impacts
The Federal Reserve's interest rates influence consumer psychology and inflation, but they don't directly determine consumer spending. Their economic impacts are indirect.
People mistake the Fed's attempts to cool down or stimulate growth via rates as linked to spending, but the relationship is not close.
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The book Ahead of the Curve by Joseph Ellis discusses improving economic forecasting by using the right indicators and tracking year-over-year data instead of short-term fluctuations. It argues that recession definitions are overrated, and that slowing growth is more damaging than commonly realized. The book advocates focusing on consumer spending as the main economic driver, and provides guidance on relating indicators like incomes, interest rates and stock markets to spending. It aims to help readers make better forecasts for economies, industries and companies.
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