If Powell pulls this off, as in we’re below 5% CPI YoY by Halloweeen, without jobless numbers spiking, I’d be inclined to believe we actually know something about monetary policy. (We’re currently seeing 2.5% over 5 [1] and 10 [2] years.)
I don't have enough information to give my opinion either way, but if indeed inflation is going back down, this wasn't luck, this was what they many were banking on.
The SF Fed looked at this:
* https://www.frbsf.org/economic-research/publications/economi...
About one-third seems to be demand-driven:
* https://www.reuters.com/markets/us/demand-issues-account-one...
if inflation were 1/3 of its current level, would that be considered an unusual or concerning level?
It doesn't seem like it, I think that would be an acceptable level, but hey, not an economist (not that it's a hard science field or anything).
For "money printing" to have an effect on inflation, the money has to actually be circulating in the system. Most of the money printing people talk about, with the exception of the big fiscal policy responses(stimulus, ppp) is just number shuffling between balance sheets. It doesn't really mean much to the real world.
Weren't the high gas prices specifically fallout from the Ukraine-war? Is this an indication that the sanctions against Russia aren't working (e.g. they've had enough time to adjust to exporting to China/India, and their previous customers have had time to start importing more from the places China/India stopped importing from).
Is inflation falling in other areas?
There were many thousands of existing leases not being developed[1], and now a record number of permits--both in percentage terms and as raw numbers--have been issued under Biden.
Turn off the political info and look at the reality: this is not, and has not been, a domestic leasing issue. The Russian invasion of Ukraine has really been as catastrophic for oil prices as people have been saying, which is why this is a worldwide problem, not just a US problem.
0. https://news.yahoo.com/us-oil-and-gas-permitting-has-increas...
1. https://news.yahoo.com/fact-checking-biden-claim-9-170008791...
> Like I said, this signaling is more powerful than the actual policy because it prevents investment as the ROI is too risky.
What 'new oil production' was stopped?
There is no slowing of inflation in measured data, aside from leading indicators, like commodities, but speculation and US reserve releases have been a big driver in the downward move in oil prices. Structural oil price equilibrium is likely to be over $100/barrel once US reserve releases stop on November 1st
All market moves have just been anticipation at this point. Wage trends imply that core inflation is likely to average 4%+ as a steady state, even if headline CPI has peaked. If this bears out, the 10y treasury could easily run to 4-5%
There is almost certainly a coming whiplash effect from consumers reaching max tapping out of credit, that's the only thing that could realistically solve inflation at this point, aside from stronger Fed action.
https://fred.stlouisfed.org/series/CCLACBW027SBOG
Keep in mind markets greatly overestimated forward inflation through the 80s-90s, it's equally likely they may perpetually underestimate inflation in the 2020's. Market forward measures are not a strong source of accuracy if you reference history. Just look at what the market expectations of inflation were for most of 2021 (far below realized inflation in 2022)
That said, I cannot see any circumstance that exists that would result in bringing inflation to our target rates without a recession and much higher rates. From what I have read on fintwit, we have never brought inflation down without raising our interbank lending rate above the inflation rate.
What is worst is that wages are increasing too - "wage-price spiral". Except due to war, the only way we have broken a wage price spiral before is via a deep recession.
So in our future, we have either a large increase in the interbank lending that would result in zombie companies going out of business, and investment liquidity drying up leading to a recession - or we accept high inflation and the wage->price spiral which will naturally (at extremes) lead to a recession.
Look, I'm asking for your insight here - I can't see a soft landing because its historically not happened. I can't see a path without recession due to the choices we have to make. How is a soft landing here possible?
Hitting the Fed's target would require deflation. We would need to average -0.5% month over month inflation for every month from now until the end of the year. (N.b., that's for the Fed's target, not the 5% mark in the comment you are responding to. 5% would be significantly easier, at the obvious cost of it being 5% YoY inflation.)
> What is worst is that wages are increasing too
My understanding from what I have read is that this is largely on the lower end. E.g., Amazon offering $15/h is driving those earning minimum wage up … but this is just pushing real minimum wage closer to its historic highs — which it is well beneath, so I don't think this should necessarily drive inflation. Price would go up not so much because labor costs, but because corporate greed wouldn't want labor capturing their fair share of the profit.
Tech in particular has been article after article about layoffs, or how the VC money is stopping. (And this matches my experience as an "normal" IC eng: I've lost >10% of my salary since the start of the pandemic.)
Even should inflation recover, then there is the problem of the higher interest rates for anyone in my age bracket who might like a mortgage some day. Housing market when.
From my perspective the root cause of inflation is a lack of housing (near where people need / really want it). Compared to my parents it is a herculean task for someone younger than 40-50 to get a starter house, near a stable job, that actually has a career path where settling down makes sense. Particularly where I grew up / currently live (near Seattle, WA).
Maybe houses are cheap in some places in the country, but those places are not where I am or need to be.
We need an overhaul on building policies. I'd like to see tougher building CODE (better built houses) and much simpler zoning with less red tape. Sustainable, tax base vs maintenance expenditure positive, already environmentally impact ready interface packages on the shelf for areas that can be built to provide the features an area needs. More like simulated city planner games.
As a deflationary measure, tax the rich for real. Instead of handing out more stimulus that will be priced into the inflation of goods; a hidden tax on the non land-owning middle class; increase buying power and quality of live for all by decreasing the wealthy's advantage and increasing the commons and public works.
A soft-landing was possible post-WW2 US economy, where the US both inflated away large debts and maintained high GDP growth rates. We'll see how things shake out.
https://fred.stlouisfed.org/graph/?g=SCT4 - Across the same time period there are less people with multiple jobs (as reported to the FED)
You can see more specific data breakdowns here: https://fred.stlouisfed.org/release/tables?rid=50&eid=2698#s...
I think your point is "many poor people still need two jobs to make a living" and while that's probably true, we have many people who are now back to work, and many of them are not working two jobs. Is it because their second job went out of business? Unclear.
it could affect the job hires rate, of course, but, the measure hasn't changed, people are just looking for reasons to nitpick it
I know that, I didn't say otherwise, but having to have two jobs in order to make ends meet makes stats like the employment rate almost orthogonal to the economical and social "welfare" of the population.
Of course having no jobs at all it's worse, but hiding behind the mantra of "people are employed" without looking at how good or bad their socio-economic condition really is kind of misses the point.
Core CPI is also running over 5% and wages are increasing at over 5%. The only way to really change the labor market is by destroying jobs and making people who lose their jobs desperate enough to take whatever they can find. That'll only happen through increasing unemployment via a recession.
The Fed is going to have its eyes focused on Core CPI which won't change until employment numbers change. We haven't seen wage inflation like this before, but this time there actually are some important differences. Boomers are retiring, immigration was reduced by Trump and those low levels maintained by Biden, COVID killed and disabled quite a lot of people, and a good chunk of people are just fed up with the way employees get treated and unionization is rising. That isn't gong to go away because oil prices drop.
And oil is dropping due to fears of a recession and demand destruction, so the markets are displaying "backwardation" where the further you go out the more the futures prices drop.
The 5-year and 10-year inflation expecations are likely pricing in a recession which will cause the demand destruction to cap inflation (and note that the effect of these policies to cap inflation also lower long term interest rates).
It is interesting how many Millennials are about to get an economics lesson. Surprisingly there's more to economics than just the "money printer go brrrr...." meme.
The US is becoming the equivalent of the startup meme of losing money on every sale and making it up with volume
SoftBank, Tiger, crypto. Bad Capital allocations. Likely unfeasible in a high cost-of-capital world. (On the other hand: Uber, SpaceX and TSMC.)
Maybe the people with a vested interest in making things look bad are driving the dialog.
if you've been to a grocery store you don't need anybody trying to make things look bad, you can look at your receipt. Record levels of credit card debt and the rate of auto loan defaults tells you all you need to know
The thing about the Fed and both parties is their only tool for tackling inflation is to suppress worker wages by spiking unemployment. That's what monetary policy is designed to do. But it's not the only way to tackle demand.
But you can do the same thing with taxation (eg Spain's windfall tax [1]). Why is it no one in US politics talking about that? The answer should be obvious: both parties exist to protect the capital-owning class and won't do anything that migh thurt profits.
[1]: https://www.euractiv.com/section/energy-environment/news/spa...
This is nonsense. Unemployment is down.
Raising rates reduces aggregate demand in fairly direct ways, e.g. through home construction and renovation. To the degree workers are getting screwed it’s by real incomes being squeezed by inflation.
Anyway, full time jobs are dropping out of the economy, but it's being offset by people taking more than one job to make ends meet. I don't know about you, but this hardly seems like a healthy situation.
Unemployment is at a 50-year low.
What am I missing?
Full-time employment is at a record high [1]. Multiple job holders are about 1mm over the pre-pandemic peak, but below trend and not cannibalising FTE [2].
Thanks much for filling in the gaps in the explanation.
IIRC, so are real wages:
America's inflation problem gets worse (https://www.axios.com/2022/07/13/inflation-cpi-biden-prices):
> High inflation is causing the sharpest decline in real wages in decades. Even in a robust jobs market, the typical worker ends up financially worse off with every month that passes.
With Surge in July, U.S. Recovers the Jobs Lost in the Pandemic (https://www.nytimes.com/2022/08/05/business/economy/july-job...):
> The Fed has raised interest rates four times in its battle to curb the steepest inflation in four decades, and policymakers have signaled that more increases are in store. That strategy is likely to lead to a slowdown in hiring later in the year as companies cut payrolls to match expected lower demand.
> Already, surveys of restaurateurs, home builders and manufacturers have reflected concern that current spending will not continue. Initial claims for unemployment insurance have been creeping up, and job openings have fallen for three consecutive months.
In an Unequal Economy, the Poor Face Inflation Now and Job Loss Later (https://www.nytimes.com/2022/08/08/business/economy/inflatio...)
> In that case, poorer families will almost certainly bear the brunt again, because low-wage workers are often the first to lose hours and jobs. The bifurcated economy, and the policy decisions that stem from it, could become a double whammy for them, inflicting higher costs today and unemployment tomorrow....
> America’s poor have spent part of the savings they amassed during coronavirus lockdowns, and their wages are increasingly struggling to keep up with — or falling behind — price increases. Because such a big chunk of their budgets is devoted to food and housing, lower-income families have less room to cut back before they have to stop buying necessities. Some are taking on credit card debt, cutting back on shopping and restaurant meals, putting off replacing their cars or even buying fewer groceries.
Listen to Powell [1] himself (emphasis added):
> So in principle, it seems as though, by moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially. So there’s a path to that.
Back to you:
> Raising rates reduces aggregate demand in fairly direct ways, e.g. through home construction and renovation
Because if there's one thing we need it's less home construction.
[1]: https://www.wsj.com/articles/transcript-fed-chief-powells-po...
Higher capital yields mean a higher income share for capital. That means companies have less money to spend on wages and as far as I know, employers prefer firing entire humans over reducing pay or working hours over the entire staff, hence the unemployment problem and the need for inflation to quietly negotiate wages downward to avoid excessive unemployment that deflation would cause.