The Economy & My Book-Reading Problems…

In Today’s (1st) Edition of “Element, by Arsh“ -

• What do economists even mean by “interest rate cuts“, and what it means for everyday people?

• I have finally decided to read a book… I need to change this habit, and what better to do than to start reading “The Power of Habit“

Will We Finally Get An Interest Rate Cut? And What Does It Mean For Us?

The chairman of the Federal Reserve of the United States, Jerome Powell recently said “The time has come for policy to adjust“. What policy is he talking about and why should we listen to some random 71 year old about this anyway?

Believe it or not, your life basically revolves around the decisions he makes. To understand why, let’s try to understand what the Federal Reserve of the United States is, and what the image above has to do with any of this.

The Federal Reserve (or “The Fed“) is the central bank of the United States and its primary job is to conduct the monetary policy of the country. This means that they need to ensure that a country has relatively stable prices (food, housing, clothing, energy, etc.), has a lower level of unemployment, and moderate long-term interest rates, among other things. The Fed is also responsible for the “safety“ of the US Banking and Financial system.

When the COVID-19 pandemic started companies realized that they would need to lay off some of their employees to stay afloat. So, that is exactly what they did, and millions of people who had a job a week ago were now at home with very minimal money to support themselves. So, the US government stepped in and started giving these newly unemployed people stimulus checks to help them. To give all of this money away to its citizens, the US had to print A LOT of money. This caused inflation to rise uncontrollably.

While a moderate 2-3% inflation is good for the economy, a 9.1% inflation rate in June 2022 was the highest the country has seen in decades! This caused massive panic among economists and The Fed. So, they slowly started increasing the “interest rate“ or “Federal Funds Rate“ (The image above shows how the Federal Funds Rate has been over the years). Why increase interest rates?

Well, inflation occurs when people start spending a lot of money, which happened because the government gave people stimulus checks, which they immediately spent on essentials and other discretionary items. So, to reduce inflation, all we have to do is to ensure that people spend less. And, the Federal Reserve had the perfect tool to combat this - The interest rate!

It’s a simple concept, the higher the interest rate, the lesser the economic activity. Imagine that you are in the market to buy a house and you want to take out a loan for it. Will you get a loan with a 5% interest rate or a 2% interest rate? I would assume that you would choose the 2% option. So, when the interest rate started rising, more and more people started to turn away from buying a home and a car, or companies turning away from taking out a loan to work on the “next big thing“. This was just genius and it worked! Currently, the United States inflation is 2.9%, much better than 9.1% in June 2022.

Now that raising interest rates has completed its work, the Federal Reserve and its 71 year old chairman, Jerome Powell, are planning to start reducing the interest rate slowly. This should ideally bring back the era when borrowing money (taking out a loan) was cheap, and companies should go back to hiring more people and work on the “next big thing“.

There are no certainties, so we can only wait and hope this works out and we have a soft landing

Read More Here

I am finally reading a book…

I haven’t read a book in over 3 years except the ones that I had to read as part of my college courses! Yes, you read that right, I have read exactly 0 books completely in over 36 months. This needs to change now!

I used to love reading books, especially fiction, and I remember completing the whole Harry Potter series in under 2 weeks and reading each and every book from the “Famous Five“ and “Secret Seven“ series by Enid Blyton when I was about 12-14 years old. But, the last book that I really enjoyed reading and actually completed reading was “The Psychology of Money“ in late 2021 (I think)

It’s not that I didn’t try to read a book during this time, but I am unsure why I never managed to read more than 50 pages or keep the concentration to actually follow the storyline. I heard this from someone in the passing but it stuck with me because of how true it might be, “We may be losing our ability to focus for a long time because we are now being trained to seek instant validation“. What they meant by “being trained to seek instant validation“ is probably related to the rise of short-form content and the easy availability of content around us (Could be tied to the rise of the internet, Netflix, YouTube, etc.). Unfortunately, I am also stuck in the same situation and I feel bad for not realizing this sooner.

Once I did come to my senses, I realized that I needed to change my habits, and that was the birth of this newsletter and my newfound goal (hopefully it becomes a passion) of reading books. Since I decided to change my habits, I thought why not start with a book that talks about that itself, so I picked up “The Power of Habit“ by Charles Duhigg.

While I have not read much of the book yet, one thing that I have learned is the fact that humans don’t just make up a habit, and the best way to get rid of a bad habit is to replace it with a new and better one. This sounded a little odd to me because, for most of my life, I’ve tried to get rid of my habits. The book definitely presented me with an interesting perspective, and I hope to continue to learn more as I continue to read it.

Estimated time to complete the book: 13 days

As we near the end of the first edition of our newsletter, I want to leave you with a quote from “The Power of Habit“ -

While I hope that you don’t have any habits that you want to change, the reality of the matter is that we are humans and it is normal to want to change some of your preexisting habits. In order to do that, I want you to understand how those habits work, what their cues are, and what you can replace them with which will make you feel better about yourself :)

Thank you to all 15 of you for believing in me and I hope to see all of you (and hopefully more) in the next one 🙂