Why the Fed's Rate Hike Decision Matters Less than You Think
Marissa Mayer of Sunshine, Vinod Khosla of Khosla Ventures
Don’t get me wrong: Today’s Fed decision matters. But from the conversations I’ve had in the last week, what matters less is whether they hike 25 basis points or not at all. What matters more is what Fed Chair Jay Powell says about the economy, the banks and what comes next.
Interest rates are important to us at a couple of different levels.
At the individual level, the Fed’s benchmark rate ends up influencing things like the size of our monthly mortgage or car loan payment. It also influences the amount of interest we can earn on savings accounts, certificates of deposit and government bonds. Safe to say most of us borrow more money than we lend. So when interest rates go up, it weakens our ability to spend.
That brings us to the big-picture level. Higher interest rates slow down the economy, because borrowing gets more expensive and saving gets more lucrative. When there’s less money sloshing through the economy, that tends to bring down inflation. And that’s why the Fed has been hiking rates for the past year: Runaway inflation has been screwing up the economy.
The big question now: Will the banks slow down the economy without the Fed having to do it with more rate hikes?
I’ve been trying to find out. The answer seems to be yes; the question is, how much. If the interest rates stay high and access to credit slows the economy, it seems safe to expect we’ll find ourselves in a recession. If the labor market stays tight and more banks don’t collapse, maybe it will be shallow.
Meanwhile, this week I caught up with Silicon Valley veteran Marissa Mayer after several years. After leaving Yahoo, she’s gone back to her roots in artificial intelligence with startup Sunshine. We talk about not only what she’s doing now, but also the broader AI landscape, her career journey, and what she learned from her toughest leadership decision.
Lookout CEO Jim Dolce has weathered many tough cycles — including one where he was just about to take a company public around the time of 9-11. The cyber-CEO has a track record of building the technology giants will need next, and he tells me how he does it.
And productivity upstart Smartsheet spiked on its earnings report last week. I spoke with CEO Mark Mader about what’s driving growth, why large customers are moving more aggressively, and where AI fits in.
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