US Inflation Tops Forecasts, Cementing Odds of Big Fed Hike
bloomberg.com
bloomberg.com
The market seems to be coming to sudden realization that energy prices aren't the sole driver of CPI. The Fed is going to hike 75 pts again at the next meeting and they're not close to being done (and certainly not close to cutting rates).
We spent the past 30 years being very cool with housing costs appreciating out of control and out of the reach of the middle-ish deciles, pricing everyone out of the market. If we could get some wage-price inflation to pull up wages then housing wouldn't need to crash to make it affordable. And then long interest rates would then rise, acting as a brake on speculation and cheap money. Higher inflation that hit wages and not just assets would also help to reduce income/wealth inequality (we could also try substantially taxing the rich like we used to).
Instead the Fed is going to crash the economy into an iceberg in order to create unemployment, keep inflation low, and low inflation expectations on the 10y horizon will keep long rates low and stimulate future speculative bubbles.
Either way the bottom decile loses out and they're always living month-to-month, so I don't think it matters that much. Are they worse off with high cost of living and wages that aren't keeping up with prices, or without jobs due to high unemployment and an economic depression?
I notice people complaining about volatility of eating out, vacations, cars, houses, etc, but I wonder what the real data is for people who were working the $15 per hour jobs that are now $20 per hour jobs. They might very well be earning $10k+ more per year, but not paying that much more in their expenses.
For the sake of being on the same page, I'm going to frame the expenses by this article talking about spending categories by income quintile: https://www.marketwatch.com/story/why-the-poor-spend-more-on... 51% nondurables (think grocery store) 16.6% restaurants 14% Other services 10.7% durables 7.2% fuel
My most frequent places eating out are probably Chipotle, McDonalds, ChikFilA, and Costco, all in mid-to-low CoL places, so I feel pretty qualified to say that prices have gone up substantially ([0] says 8% 'from 2020' to June 2022), and service has degraded enormously over the same period.
Groceries are at least 10% higher.[1]
Fuel is a very high outlier, which I'll let you research if you don't have recent experience.
'Durables' and 'other services' are harder to nail down, but the three places I've lived since 2020 have all seen significant price increases (as assessed by talking to people, with me not having the time in place to judge), and service is reliably disappointing enough to take services from convenient to 'I don't have 3 hours to wait on hold for this thing that was screwed up because billing department doesn't have enough people working there' levels of crappy.
Finally, and most importantly, people who switch jobs for higher pay will, indeed, tend to see improvement over time. But the people who didn't switch jobs over the same time period will likely have seen 1-3% raises, if any. And the bottom decile probably isn't very full of people job hopping for upward mobility.
[0] https://www.gobankingrates.com/money/business/as-mcdonalds-p... [1] https://www.cnn.com/2022/07/13/business/grocery-inflation/in...
If you mean quartile/quintile/decile shuffling without regard for anything else, then aggressive taxation and enforcement will achieve that by some combination of wealth flight, redistribution, and suppression of upper incomes. Western societies appear to prefer a version of distribution shuffling that is accompanied by prosperity, which means moderate taxation and various targeted policies.
Sure, we got tik-tokers, and YT personalities (all 'bourgeois-capitalist schmaltz'), but if that is what we get from that "investment" I don't want to invest any more. Previously hardworking people more or less got comfortable being freeloaders --taking but not giving back.
I'd argue that the wage inflation and labor shortages we're seeing in areas like food service indicates the correct answer to that question is "Yes" and that a lot of people spent the time "leetcoding" (or whatever) and landed a significantly better job.
Regardless, I'm not sure the main point of UBI is to allow people to quit their jobs and pursue thier passions at the government's expense. It's moreso meant as a way to give people on the bottom rung a little bit of room to breath and better their circumstances, and in theory this also benefits the rest of the economy.
APF appears to have little to no impact on employment [0], instead having effect of increased number of people getting zapped out their rocker on drugs[1].
[0] http://humcap.uchicago.edu/RePEc/hka/wpaper/Jones_Marinescu_...
[1] https://direct.mit.edu/rest/article-abstract/102/4/678/96772...
It takes community and building mindset to fend off the tendency toward minimum level survival. It takes having a certain ethic to transcend that. Of course people don't want to plough in the muddy soil and tend to sick animals and harvest in the heat, if they can get away with it. If they instead could drink, get merry and play all day, many will chose that option if not inculcated otherwise.
Who knows, maybe we will go back to permanent mediocrity by most once the drive to succeed is removed.
A progressing society needs constant effort to keep it alive. It's not self-perpetuating by itself.
crime-related concerns of a universal cash transfer program may be unwarranted.
So I don't think this makes the point you want it to make.
> increased number of people getting zapped out their rocker on drugs
Which was part of your case that APF is a failed experiment and not worthwhile. But the study you cited does not suggest that UBI created an increased number of drug abusers. It did say that there was an uptick in drug incidents, but it also concluded that UBI payments were not responsible for increasing crime (when considering drug incidents and other crimes in total).
It's likely that drug use always ticks up on payday, UBI or not. Same for gambling and other bad habits that require money. I've never heard anyone suggest that the solution to drug abuse is to make people so poor that they can't afford to buy drugs, but in a roundabout way this is kindof what you're saying.
Grocery shopping and paying bills and likely tick up on payday as well.
Maybe a bit like taking the normally time-released drug of low interest rates, then crushing it and snorting it straight into the entire populace.
High interest rates and lower home prices is a much better position to be in than vice versa.
If I were an home seller not in distress (which, in this market and low unemployment rate, is still the vast majority of sellers), why would I want to lower prices for an asset I bought financing at a 2% rate?
The latest news point to inventory actually decreasing as home sellers take homes off the market, waiting for better times (i.e. lower interest rates, which might happen in a few years).
Unemployment will have to rise in order to reduce inflation. That will create more distressed sellers in a market where high interest rates and falling prices have dried up the motivated buyers.
With 2.5% interest rates, people have maxed out what they can afford for their mortgage and bought at the peak. Any disruption in peoples lives going forward is going to bring a lot of pain.
I'm thinking about all the techies who get most of their TC from RSUs. When the recession starts hitting employment and the stock market, they are going to lose that income they accounted for when the mass home buying spree of the last two years happened.
But I do not think it will happen, there are too many people with too much cash who will be able to both weather a storm without selling their house AND scoop up inventory as it comes to the market.
A lot of people with 2.5% interest rates are laughing in the face of inflation right now, they effectively got paid to borrow money and they are raising rents on their investment properties like crazy. I know because I work at a FAANG and it's literally the water cooler conversation of the year. Nobody worries about RSUs having gone down 30%, they'll just hold.
Russia hiked by 9% in a day and it helped stabilize things quickly. We need to hike to 6% and be done with it, no more of these games pretending things are fine.
They'd better fix this now before the elections real quick. Handing out candy (ala student debt forgiveness) surely will prolong our diabetes. Instead allow students to declare bankruptcy on student debt.
I'm curious what impact people think this would have. Or if there's any research on the subject. My initial reaction was that giving out more debt relief could only lead to more inflation. But on second thought I could see only a much smaller segment that is struggling with debt willing to go through bankruptcy. While I buy that that would be less regressive than the current proposed debt forgiveness plan, I don't see how this would affect inflation (or elections, for that matter) in any meaningful way.
https://en.wikipedia.org/wiki/Health_Care_and_Education_Reco...
> Ending the process of the federal government giving subsidies to private banks to give out federally insured loans. Instead loans will be administered directly by the Department of Education.[23]
Or course, the problem was and is the taxpayer funded loans with zero underwriting, so the root issue was never resolved, and hence why colleges continue to raise tuition since their customers continue to receive blank checks from the government. There should be zero taxpayer funded higher education loans.
If the people want to help students pay for education, then give them cash or give cash to the universities. The reason this is not politically popular is that it increases government expenses, rather than loans that muddy the higher education market and ultimately screw students and future taxpayers.
But excessively borrowing from the future to keep taxes down today and indebt certain portions of the population rather than providing non discriminatory assistance is par for the course.
The Fed has completely screwed up the US economy.
The fed chair Powell was using fancy words to basically say that inflation would not be persistent last year when most of the industry was saying it would be.
The worst part is he got another term even with such a big screw up.
Fortunately the US didn't go quite as dystopia as Europe, so we may find ourselves yet in a position of comfort as usurious European energy prices, inflation, and post-COVID European war expand American competitive advantages.