The Fed plans to sharply boost unemployment | Hacker News Reader

The Fed plans to sharply boost unemployment

cbsnews.com

106 pointspaulpauper218 comments

Zero direct evidence for the title's claim was provided in the article.

All the Fed is doing is to normalize interest rates. Deeply negative real yields (5% or more) are aberrations that history has shown to ultimately lead to catastrophe.

Yet talking head and Dem Senator alike are treating rate normalization as financial Armageddon.

Somebody tell me how at the very least a 0% real yield on cash is going to kill the economy. Now explain what's normal about that.

I can’t see how killing off a bunch of zombie companies surviving on cheap debt is bad for the economy in even the medium term.

Killing off the zombie companies will drive unemployment rate higher. Good in the longer term, but it won't come without a cost. That's the price we pay for such an extended period of cheap credit.

Zombie company to me sounds like a shell company with one or two people - that is not going to spike unemployment. Unless I don't understand what a zombie company is

Zombie company usually means a company that should close down but continues to exist because capital is soooooo cheap.

Imagine things like unprofitable companies that are riding venture capital, etc. Uber could be one, perhaps.

That, and unprofitable companies taking on larger and larger piles of debt to continue their operations. IIRC some 15-20% of listed companies fall in that category.

Based on context, I’m guessing they mean companies that are “Alive” when they should be “Dead”

For example, many public company SPACs, many highly funded VC startups, and a vast variety of other companies that employee hundreds / thousands of people without ever having made a profit (and worse, many of them with negative gross margins - meaning even if they trimmed operations to barebones they still wouldn’t be profitable)

These sort of companies proliferate when VCs and investors run out of high quality companies to put their cash into. Which tends to happen when money is “cheap” (which is another way of saying “when interest rates are extremely low”)

That's not what they're talking about. They're talking about companies that are inherently unprofitable or barely profitable but hire huge sales or marketing teams to drive revenue growth, which enables them to seek cheap debt and venture capital to keep the music playing. These companies employ hundreds, thousands, maybe tens of thousands of sales people, marketers, and all the HR/security/facilities/IT staff that support them.

Killing zombie companies will be devastating to all these people.

Investors have become addicted to easy money, so that outlook is embedded in the whole economy. Perhaps higher yields can produce better investments, since there will be a cost to these loans.

> the central bank projected its benchmark rate hitting 4.4% by the end of the year

> "There will very likely be some softening of labor market conditions," Powell said

> The Fed forecasts the unemployment rate to rise to 4.4% next year, from 3.7% today

The fed changed its rate, forecast a change in unemployment due to that and said there was a "softening of labor market conditions". I guess that counts as "zero direct evidence" in your book for fed intentions. What does Powell need to do for you, walk up to factory gates and do a Donald Trump "you're fired"? I guess when Volcker jacked the rate up in the 1980s and unemployment shot up as well, there was no cause and effect there either.

Some commenter here have a positive or negative view of the rate hike, but either way, it is quite clear to most people, including CBS News, what the fed is intending.

>> The Fed forecasts the unemployment rate to rise to 4.4% next year, from 3.7% today

> The fed changed its rate, forecast a change in unemployment due to that and said there was a "softening of labor market conditions". I guess that counts as "zero direct evidence" in your book for fed intentions.

The headline says “sharply boost”.

It’s going to kill the economy because the Fed is basically setting up perfect conditions for stagflation. Congress and the Fed caused the M1 money supply to 5X in just a period of two years. Of course there is going to be inflation in such a scenario. And yes, while the money supply isn’t the only factor that determines inflation, it certainly is a part and such a drastic change in the money supply almost certainly is a major cause of inflation.

But at least labor is strong. People are working and yes, they’re being squeezed by inflation, but they at least have some opportunity to change jobs for a raise or form a union to demand a higher share of profits. And that’s what we’re seeing in the economy. Now the Fed is saying that they want to pull some of the money back in, but the only way to do that is to hurt employment. People won’t get raises. People will be afraid to unionize. And Powell himself has said he has no idea if raising rates will even work to tame inflation. And despite this uncertainty, Powell has his pedal to the metal. He’s raising rates so fast he’s not even stopping to assess impact. So we’re basically trading a bird in hand (low unemployment) for two in the bush. People should be very afraid.

> Congress and the Fed caused the M1 money supply to 5X in just a period of two years.

Oft-repeated, but incorrect. The way M1 is calculated was changed in 2020, and the apples to apples comparison is actually a little bit less than 2X.

https://fred.stlouisfed.org/series/M1SL

Thank you for the correction.

fucking lol. 2X!!!!!! That's still unfathomable. We're lucky everything didn't double in price.

Not really inflation happens where the cash flows. And very little of that cash flowed into normal markets.

On the other hand you can point you can look at the stock market still increasing/staying level in COVID, to figure out where inflation hit first. (Markets up in a lockdown, sounds impossible).

Right now inflation is hitting low end markets through that cash finally hitting normal markets with the wealthy trying to hedge with land/properties, and wage increases.

A lot of money did end up in normal markets. There is a lot of data for this. For instance, the Fed offers something called a reverse repo facility that allows institutions to deposit money overnight at the Fed. This is typically leveraged by money market funds. Over the course of the pandemic, the amount of reverse repo operations grew from 0 to over $2T.

A lot of the expansion was done via Covid stimulus, which put money directly into the hands of businesses and individuals. Unsurprisingly, people spent this money on all types of stuff, including equities and real estate.

A non-negative real yield on cash means its purchasing power never decreases. Is there an objective reason that the purchasing power of cash should never decrease? Negative yields encourage economic activity and discourage hoarding (use it or lose it).

Why would you want economic activity for the sake of it. Sounds wasteful.

That’s the economic orthodoxy. The semiconductor industry has been deflationary since its inception and there’s been plenty of economic activity.

Your statement is false. The Fed has told us why it’s raising rates. It’s NOT to normalize historically low rates. It’s to fight inflation. There is nothing to debate here. The Fed has said it explicitly.

The second part, whether the Fed is hoping to do this by increasing unemployment isn’t as trivial to show. However, we can be almost certain this is true because: (1) since inflation is not due to monetary weakness (the USD is historically strong and has been for the past few years) the only other way the Fed can cause inflation to reduce is by making the economy weaker, which will traditionally lead to lost jobs and increasing unemployment, and (2) the Fed keeps saying that it thinks it can achieve a soft landing, ie, without putting us into a recession and leading to massive job losses, which indicates that they are also aware that they may cause a recession/unemployment growth, and are only kind of hoping they can avoid it.

The goal of Fed monetary policy is to contain inflation back down to the 2% target rate.

The knob they have to turn is raising interest rates. There's a lot of steps in between that and inflation coming down.

Inflation right now has a strong component of rising Labor costs because of low unemployment and workers having strong ability to bargain for higher salaries.

To achieve low inflation in the current environment, there must be more "slack in the labor market" which comes about through higher unemployment and less ability for workers to bargain for their salaries.

The mechanism that this happens through is by making bad investments that have been funded by loans taken out at very low short rates to fail via higher interest rates and for those effects to ripple through the economy, ultimately destroying jobs.

The only problem with the title of the article is that it should have been written "The Fed's plans will sharply boost unemployment".

They plan to lower inflation by rising interest rates, but unemployment has to rise for them to hit their targets.

I also would bet that soon, as is typical in all recessions (and it never, ever true that "this time it is different") that there will be a financial collapse when the tide goes out and we see who has been swimming naked.

Iamontocg, this would have been a sufficient explanation in a market with no interdependencies. Yet, the cause of the problem is not workers aiming for a living wage when the income inequality is at its all-time high.

Inflation causes vary: 1) Covid business loans 2) Cost of logistics post covid 3) Corporate profits recently hit all time high 4) FX rate with EUR and GBP

I agree that the vanilla solution seems to be the most effective - the knob as you called it. But that doesn't mean that it's going to be painless when credit expansion and overleveraged businesses and people are hit with the new higher rates.

I don't know what made you think I suggested that this would be painless

FX rates are also the result of twisting the knob, not the cause.

And there's a lot of other factors in inflation, but the wage inflation is the one that has the Fed worried. The Fed knows everything else is cyclical and they weren't worried in the commodities boom and high oil prices in 2010-2014. The reason why they're so worried now is wage inflation. We haven't had wage inflation this high in 30 years and the Fed hasn't thrown on the brakes this hard since I can remember. This isn't the 25bp tightening every meeting of the Greenspan Fed.

But there is no wage inflation overall. In real terms, wages are declining except for maybe the lowest earners [0]. For some reason that's unacceptable.

[0] https://www.americanprogress.org/article/wages-and-employmen...

> In real terms

Nominally they are increasing, that is a component of inflation. Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way.

> For some reason that's unacceptable.

I'm not the Fed, I don't support what they're doing, I'm just explaining it.

EDIT: research from the Fed:

https://www.frbsf.org/economic-research/publications/economi...

Wage growth is over 6%. The fact that inflation overall has been running higher than that so real wage growth has been negative doesn't mean there's been no wage inflation.

Inflation is just the rise in prices. You're thinking about the overall effect on society, but that is second/third/fourth order effects.

Nominal wages rising 6%, even though real wages are rising 0% still means an environment with 6% overall inflation, which exceeds the Fed's target of 2%.

> Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way

Actually you can not just analyze but neutralize it that way. If everyone agrees to a wage that is indexed to inflation, and then starts numerating prices in that inflation-indexed currency... suddenly you don't have inflation anymore.

https://en.wikipedia.org/wiki/Plano_Real

Maybe the US is starting to get to the "inertial inflation" situation, with workers demanding wages accounting for expected future increases and companies starting to structure costs along those expectations as well.

Yeah, just because wages are a component of inflation doesn't mean we can't talk about them in real terms. Same for housing, also a component of inflation: if house prices rise/inflate 2% while inflation is 10%, it's fair to say that housing declined 8% in real terms.

You can talk about wages in real terms in order to see what their impact is on the actual buying power of the average worker.

But if you're trying specifically to discuss and talk about the wage component of inflation it is nonsense to talk about that in real terms. Adjusting to eliminate the effect of inflation on wages is not the way to measure wage inflation. It should be intuitively obvious that is nonsense.

I guess I'm not thinking like an economist then. It's still not clear to me why "wage inflation is the one that has the Fed worried".

We've seen absurd asset inflation (equities, housing, crypto!) due to easy money, and the Fed just sat on their hands. So now, wages are going up and workers are finally getting a raise? No, because their wage increases aren't keeping up with their higher expenses. But wages are going up, in nominal terms, so now the Fed jumps up and rings the alarm?

In Canada, Ontario was forecasting a $30 billion dollar deficit for the current fiscal year. When the final numbers were in, they reported a $2 billion dollar surplus - even with higher expenses. The nominal revenue growth was 11.9% - inflation boosts the coffers.

For your item 1, those loans became gifts.

And point 5 could be ever-increasing federal spending beyond federal taxation.

HN, please take a look at where the bottlenecks are. E.g. if it's rents get involved with your local YIMBY group. If it's gasoline prices get involved with micro mobility, public transit, and other anti-car stuff.

Supply bottlenecks are what technology is supposed to solve. If they impovish people every time our shoddy infrastructure isn't up to the task, what is the point of being an engineer?

It does not matter how we got here. Who's fault it was, or wasn't. It does not matter if the inflation is driven by supply or demand.

The Fed has a job to do, by law. It has the dual mandate of keeping inflation low, and also unemployment law. Now inflation is higher than it was in 3 decades, and unemployment is record low. They are good by one measure (unemployment), but incredibly bad by another one.

Their job is to take inflation down. At some point the two mandates will pull in opposite directions, but right now the inflation is high, and unemployment low. Sure, fighting inflation will increase a bit the unemployment, but few things come for free in life.

Wage growth has not been keeping up with inflation, and may even be damping it. The steady chorus of claims that wages are too high strikes me as consent-manufacturing by capital.

https://www.epi.org/blog/wage-growth-has-been-dampening-infl...

https://insurancenewsnet.com/oarticle/inflation-continues-to...

Everybody wants to control inflation until it's time to suppress wage growth.

The Bank of Canada even came right and out said that employers should definitely not raise wages quickly.

https://www.theglobeandmail.com/business/article-wage-negoti...

Weird how government agencies that fall to regulatory capture all keep advocating for things beneficial to the industries they oversee.

Sufficient tax increases for the well-off would have the same effect as punishing the working class, but that's never an option for some reason.

Not exactly — wealthy people don’t spend most of their money on goods & services, they leave it parked in investments. Reducing a wealthy person’s net worth don’t really affect how much they spend on consumer goods.

A poor or working-class person spends (nearly) all of their money on consumer goods. Give them 10% more money and they try to buy 10% more things.

Restricting money on the wealthy doesn’t reduce demand for GPUs for example, but restricting money on low-middle income people does. That lower demand for consumer goods is how you can slow inflation.

Then tax the wealthy and put that money into the hands of people who actually need it.

Well that causes inflation, was my point, because that money wasn’t (isn’t) being used to compete for consumer goods.

But by redistributing it to lower and middle class, it’s now being spent on consumer goods, increasing demand for the goods, causing inflation.

> Sufficient tax increases for the well-off would have the same effect as punishing the working class

Would they?

From an economic perspective (not a social/fairness one), isn't it well studied that consumption (as percentage of income) is inversely proportional to higher/lower total income?

So raising tax on the well-off would be more akin to raising the prime rate (i.e. decreasing the amount of well-off capital that's reinvested elsewhere) with the added effect of increasing consumption by increasing federal government spending.

Note: I'm not opining on the justness of this, simply the mechanism.

replying to californical:

"Sufficient" is the operative word here. There's a tremendous amount of non-productive rent-seeking, such as literal rents. These are a massive drag on our economy, because they shift investments towards non-productive use. More targeted tax increases to discourage the worst rent-seeking would help a lot, in addition to generating revenue and easing price pressures.

imo, this is actually a fairly salient point. Wealthy people do put most of their cash in investments but not all investments are equal to the health of the economy or as detrimental if toyed with.

Bank of Canada's position is very nuanced, but all the nuance is ignored by their critics. They never asked employers not to raise wages this year. They asked them not to bake in e.g. 8% per year wage increase for the next 10 years if they are negotiating a long term contract with a union. The rationale is that while 8% raise this year is reasonable given the inflation rate, the inflation rate will not remain high for the next decade, so it will be too high further in the future. If many bind themselves with high wage increases long term, we will have high inflation for a long time due to the effect of the cost of labour on prices.

> “Don’t build that into longer term contracts. Don’t build that into wage contracts. It is going to take some time, but you can be confident that inflation will come down.”

Thank you for pointing this out. As much as I like to criticise the government (in many cases, well-deserved), it's important to keep a nuanced perspective and reserve criticism for cases that indeed warrant it. Not basing long term contracts on short term economic fluctuations seems like a reasonable policy.

If you're going to account for inflation in a contract, I believe indexing is the preferred method anyway. Many government pensions - and some salaries - are indexed to inflation.

Since wage hikes historically have not matched inflation, I don't see anything wrong with hikes that surpass inflation rates.

We have a lot of catching up to do, and incumbents designed this system so that healing the gap hurts the bottom line of voters, so there is simply no painless way out of it. We've all been paying towards a debt that is about to be realized.

Not sure that's much better? Tiff also said "inflation is transitory", but hey, here we are.

And if I'm a union guy negotiating my next 3 year contract and I listen to Tiff and only get 8% this year, then 3% the next two years, is Tiff going to pay the difference when inflation isn't under control?

No the wise ones realize the very framing of "inflation" is bad. One has to look at which specific prices are rising, and production input output graphs.

https://www.nytimes.com/1997/02/27/business/job-insecurity-o...

Agreed. They were more frank about it back in the day.

If everyone has enough money the masses can create/buy assets to capitalize on rather than merely be worker bees.

Wages are too high, because our entire economy is built on the backs of available race to the bottom international labor.

Demographics and the security situation is changing this, and the establishment (for better and worse) is absolutely freaking out.

The world as we have lived it the past 30 years cannot exist if people doing labor can command a decent wage by USA standards, we’re going to have to recalibrate for a while

That's why you import labour en mass, pay them less and kick them out when you're done with them. At least that seems to be my country's solution? Literally a permanent underclass of temporary foreign workers propping up parts of the economy.

If by your country you mean, Singapore, then yes. It works because foreign exchange is likely in Singapore's favor. People who come can be indentured servants and help out a lot of people back home. At some point though, the tide begins to turn and you have to find new sources of cheap labor. But, what happens when the sources run dry?

Qatar would be the prime example?

Definitely - some of the Arab countries - Qatar, Kuwait, the UAE.

The world is big and never seems to be running of countries going bankrupt or going into chaos. You'll always find new people. Also, Africa just opened the gates for tons of new labor.

Calling it a "race to the bottom" is a bit ironic, when these jobs have been going to the world's poorest people and those in most need of a job.

Race to the bottom, as in the price of labor was racing to the minimum. Not really ironic, people with little other opportunity will be the happiest to work for the least.

I’m not prescribing right or wrong to the situation, just what is

You pass off your dirty work to the most desperate players, and the frugal companies even resort to using political prisoners and children as laborers. These companies aren't saviors, they're accutely aware of the living conditions and actively exploit it.

These jobs allow something like 60-100M households escape poverty every year. That's a good thing for everyone (except the Earth).

At the price of perpetuating bottom dollar exploitive business models that could only exist in the abscensce of strong labor protections, qnd the export of negative externalities to the greater fool.

The wotld as a whole does not benefit from this arrangement.

Economic activity is not inimical to humanity. Not in and of itself. That's a terrible way to think of your fellow man and our relationship to nature.

Believe me, I'd love it if people cared for nature. But, people tend to choose having kids and keeping those kids out of poverty before they choose nature. And, having kids requires economic activity, unfortunately.

I didn't create the system. Someone started this ball rolling 10k years ago.

Well, having kids is kind of important. Essential even.

Or we could just automate more and innovate, instead of spending most of our time & energy & capital on leveraged speculation that the Fed will continue to endlessly pump up asset prices...

The gains would just go to the wealthy without efforts to secure more of the gains for the broad working class. This is as true for the Waltons and old money as it is for your run of the mill unicorn founder.

I’m really excited to see the organizing efforts taking place in the US; without them, these workers won’t be able to secure better wages, better quality of life, and a seat at the table with the business. The CEO would just go buy yet another yacht (the CEO of Starbucks is worth $4B and owns a $120M mega yacht, for example).

As an anti-capitalist, I would love a society where everyone benefited from unpleasant jobs being automated away. However, under capitalism, only the owners will benefit. That's because automation turns labor into property. That means the owners of property, capitalists, benefit.

If the value of automation were distributed differently it'd be great. If workers owned a company such as in a worker-cooperative structure, then the workers would be happy to focus less on stuff they don't like and focus on different things. Or a strong state could impose taxes on highly automated industries to fund a kind of universal basic income. But under our status quo, automation benefits the capitalists much more than the general population.

> That's because automation turns labor into property. That means the owners of property, capitalists, benefit.

I think customers also benefit. If a janitor costs $100/day and that’s automated away to a robot with $20/day costs that $80 will be passed on to the customer (just like every other technology innovation).

Potentially; another possible outcome is that $60 is passed to ownership and $20 passed to consumers. Companies these days are pretty aware of how price conscious their customers are - they aren't going to lower pricing based on cost unless there is strong reason to (competition is the only one I can think of... but it looks to me like companies compete less these days due to a variety of factors, including brand loyalty and monopolistic behaviors).

That’s possible but due to the great invisible hands that created an opportunity for competition to come in with a lower price. There are many factors so it really depends.

But automation has really benefitted customers through lower prices and higher quality so it’s hard to expect that these robots would result in owners pocketing the savings over previous robots.

Automation has made cars higher quality, but I'm not sure it has made clothing better, or food. What it does do is create the cheapest options possible, edging away on quality to have a cost reduction. Whether consumers benefit from favoring quantity over quality is not clear, but "consumers" are also "workers" and are harmed in that way by automation too.

It's complicated.

We have a 5000+ year history of automation creating jobs, not destroying them.

Any jobs displaced will result in a multiple of new jobs created with the new opportunities it unlocks.

Surely this doesn’t last forever, no? Even if it does, if the rate of job automation is so quick that there’s no way for new workers to be trained before the job becomes obsolete, then it’s effectively unscalable?

I’m not saying we’re in a post-scarcity situation yet, by any means, but it seems inevitable that if humanity continues in the same general direction, it’s only a matter of time before it happens. At which point, such a discussion is unavoidable.

Some of those on /r/antiwork seem to expect to build careers from McJobs and Starbucks. Instead of seeing these as part time jobs for high school and college students, their expectations are that these jobs can support an apartment rent in a big city without roommates. These types of complaints seem irrational or misguided.

Many of their complaints do seem grounded in truth, however. America's low hanging fruit blue collar jobs have moved to developing nations. The automotive industry doesn't have as many jobs paying what it used to.

There doesn't seem to be a lot of talk for the trade skill pipeline, which has me curious: why not?

Both plumbing and electrical work pay decently and offer a high degree of autonomy, yet these aren't hyped. Nursing can be learned at night school. Not everything requires a college degree or "book smarts".

There has to be something more at play, because the middle class is hollowing out. Maybe not enough of these jobs to go around? Or maybe that middle class can never be as big as it once was during the post war boom years that saw American manufacturing leading the world. Maybe every country gets fifty years tops before that crown moves on.

They're also not wrong in complaining about asset appreciation. Unaffordable housing and rent. These are real pressures. "Cheap housing" doesn't seem like a bone we can throw.

What do we do for these folks that can't get white collar work?

> There doesn't seem to be a lot of talk for the trade skill pipeline, which has me curious: why not?

I think it’s because these jobs are “hard” in that they require more than a day of training and you can’t use your phone at work. There’s a weird habit with people I know that since they can get $15/hour working at a McJob that doesn’t challenge them physically or mentally that it’s “good enough.”

Long term planning is required to learn to weld and make $45/hour.

Blue collar shortage in a non-US area. Here, you're not getting the big bucks until you have quite a few years underneath your belt. Additionally, you'll have to be self-employed.

That's what people are complaining about. The hurdles are higher and more frequent than before. It's still there, but having your first home at 35 is vastly different from having it at 25. My friend group is filled with people privileged enough to work lucrative white collar jobs, and it's still a massive challenge despite earning more than 90% of all households.

Now imagine what happens when blue collars get saturated again. They can't beat white collar work during or after 25-35 without going off the beaten path, while white collar is struggling.

Cherry on top: households are getting less while doing more work per household.

What's the fix for this?

America won't be regaining its 1940's unilateral industrial superpower status again.

Do we just say that the Silent and Boomer generations were a fluke?

Do politicians that promise to redistribute wealth get elected?

Does automation really save us? Or lead to greater inequality?

> Do we just say that the Silent and Boomer generations were a fluke?

Yes we do, because yes, they were a fluke. The question is, can we re-create conditions approximately that good (without bombing the rest of the planet back to the stone age)? I must admit that I don't see a way to do so.

> Now imagine what happens when blue collars get saturated again.

The downward pressure on their compensation will see the cost to build new homes come down and thus the market will trend towards affordable again? After all, like all things, the cost of a used home is a function of the cost of a new home.

Well, in HCOL areas, the land costs more than the labor charges.

In total, but you're building denser so the per-resident cost ends in a similar ballpark.

> their expectations are that these jobs can support an apartment rent in a big city without roommates

Why shouldn't they? Somehow, with all of our progress, life gets more difficult.

Didn't it used to be possible for cashiers to support themselves?

Raising wages to a "decent wage by USA standards" is meaningless if you also spark more inflation.

>The steady chorus of claims that wages are too high strikes me as consent-manufacturing by capital.

It's the opposite actually. The Fed is raising interest rates to contract the money supply, which will temper inflation. They acknowledge the negative impacts it will have to unemployment and wages, but if you read their press releases, you can tell it's clearly not their intent. Meanwhile, the MSM is spinning it as them wanting to stop wage growth to spark populist outrage and get more clicks.

It's a shame that everyone is intent on badmouthing one of the only somewhat competent parts of the government. The Fed is an easy target because they don't play petty politics. First Trump pressures the Fed to reverse quantitative tightening. Then, during the pandemic, the Republicans badmouth the Fed again for "printing money." Now, the left is criticizing them for "planning to sharply boost unemployment".

It's easy to scapegoat the Fed for the ongoing recession and inevitable layoffs.

What recession? Measured with what metrics?

Two consecutive quarters of negative growth is the standard definition used around the world. Except in the US today.

Current economic metrics are all over the place following the worst global pandemic in a century. It's true that the metric(s) typically used to define/measure growth are down as you describe, there are lots (and lots) of related metrics that say something quite different. I think overall it's most accurate to suggest that we're in a strange time indeed, not just a repeat of the last 3 or 5 recessions.

Yes, and that the strange time we are in includes a recession.

The NBER has never failed to call a recession on 2 quarters of negative growth in the past, including during the very same pandemic we are now exiting, which was also a pretty strange time. Past recessions have involved other circumstances, too.

It's literally called a recession because it is a time when the economy is receding. If I had said "depression" or "financial crisis" you could argue that we don't have one of those.

Unfortunate (for your case) that you cited the NBER. Their definition of a recession begins as follows:

> Q: What is a recession? What is an expansion?

A: The NBER's traditional definition of a recession is that it is a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The committee's view is that while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.

https://www.nber.org/research/business-cycle-dating/business...

By that definition, even Forbes agrees that we are not yet in a recession.

https://www.forbes.com/advisor/investing/are-we-in-a-recessi...

That is the NBER's definition, which is inside the US. I said originally that the definition *outside of the US* (and outside of the current time - since the NBER has de facto followed the global definition until 2 months ago) is two consecutive quarters of negative growth.

The only reason the definition of "recession" is such a hot button issue in the US is that it looks bad for a political party to preside over a recession. They happen. At least 4 of the last 6 presidents presided over one. Most of them aren't that bad. It's fine to admit that the US economy has receded over the last 6 months, which it demonstrably has.

EDIT: The NBER, by the way, uses many metrics to declare recessions, and they particularly overweight employment and payroll metrics. The US is currently doing very well by those measures, despite the obvious weakness in the economy. I am assuming the NBER also undervalues the effects of inflation because they don't know what to do about it. That is why most of the world uses an objective definition based on GDP growth.

You literally said:

> The NBER has never failed to call a recession on 2 quarters of negative growth in the past,

However, thus far, despite two quarters of GDP decline, they have not (and from their own definition, it is clear why they have not).

Business Insider believes the state of the job market to be the primary reason why.

https://markets.businessinsider.com/news/stocks/economy-nber...

> The NBER, by the way, uses many metrics to declare recessions, and they particularly overweight employment and payroll metrics

You may consider it overweighted, my point was merely that the use of a single metric is mostly a feature of pundits and not civic institutions like NBER, who you mentioned as arbiters of being-in-receession.

You could make a decent argument that they have actually caused this recession. 75 bps rate hikes immediately after a crisis where they slam rates to 0 and do a ton of QE does not sound like a particularly responsible form of monetary policy.

Both of those moves are sensible given the circumstances.

What was not responsible was dropping rates 75bps in 2019, the “mid-cycle adjustment” period referenced here. The economy was already roaring and it was widely acknowledged even at the time that this was unnecessary and a concession to political pressure.

https://www.forbes.com/advisor/investing/fed-funds-rate-hist...

Those politically-motivated cuts left the fed with no maneuvering room when (inevitably) a crisis did strike. And we’re still feeling the ramifications of that today, because now we get to do those rate increases during what’s already a recession, instead of during a booming 2019 economy.

This whole situation is a textbook lesson on “why you don’t lower rates while the economy is already roaring just to pump the president’s numbers a little further going into an election year”.

> Both of those moves are sensible given the circumstances.

Dunno but maybe raising rates like a year ago to slow the chock now would have been appropriate? Like, I guess they knew all the QE would end up somewhere eventually flooding the market with cash?

Another overlooked irresponsible move by the Fed in recent times was when Yellen's Fed was very slow to raise rates coming out of the 2008 recession (the Federal reserve held rates near 0 until 2016), which gave certain segments of the market a lot longer to grow with free money than they should have had. That move, in turn, also gave the fed a lot less flexibility during Trump's trade war and the following crisis.

Both of those moves look to me like overreactions inspired/emboldened by Bernanke's actions in 2007-8. Powell saw that slamming rates to 0 had helped to prevent a complete collapse of the financial system in 2008 and went with it. He didn't notice that Bernanke did a whole bunch of other stuff too, and that Bernanke was one of the world's foremost experts on the economics of the Great Depression, which certainly helped in 2008.

Yep, I agree. There definitely seems to be a subtext here of "the fed is super antsy about being up against the zero interest rate 'bound' and now that it has a chance it's going to push as far away from it as it can get before the next big thing hits". Controlling inflation is obviously front and center but the Fed needs to get back to a little more historically normal interest rates too.

Is it entirely the fault of the 2019 rate cuts? No, but, we'd have been starting the 2020 games from a position of at least 2.25% interest (perhaps more like 3% if rate increases had continued) instead of 1.5%, that's 50-100% more room for the Fed to maneuver. What's more, it was a blatantly political and obviously stupid move even at the time, and widely acknowledged as such even at the time. There was no need for stimulus in 2019 when the economy was already roaring and it was "pro-cyclical", ie the opposite of the usual "anti-cyclical" policy.

(Also there's technically no reason that zero has to be a bound... the fed can pay you to take money, if it comes down to it. But all kinds of weird things start happening near zero and I think nobody really wants to fuck around and find out there.)

Anyway, we can also blame congress... the Fed has been begging for a decade for more active fiscal policy from Congress rather than forcing everything to be done via monetary policy. And that means more spending when times are tough, and less spending when times are good. When you're in the situation we were in 2008, it's irresponsible not to spend and leads to overexertion of monetary policy to compensate. But absolutely everything was stonewalled during the 2008-2016 period besides military spending. If Congress had engaged in more sustained stimulus and infrastructure spending during that period, the rates probably could have been pulled up a lot sooner (which is of course the balance to the spending).

And in contrast right now is probably not the ideal time for tons of spending either... but I think we are going to get the wonderful experience of "stagflation", inflation during a recession, so addressing one problem worsens the other. And there's really not any obvious tools to deal with that combination, besides just slowing the economy and letting inflation burn out.

You make a great point about fiscal policy. Around 2010 we saw the beginning of the end of the Fed and Congress being able to work together on monetary and fiscal policy, and that clearly made Yellen (a labor economist with some Keynesian leanings) a lot less confident about raising rates. Powell seemed to substitute this with an uncomfortably close relationship to the Trump white house, which wasn't actually a real replacement for good fiscal policy. I was actually hoping/guessing that Biden in 2020 would replace Powell with someone his party preferred (even if it was Lael Brainard, who is a little too left-leaning for my taste - Raphael Bostic would have been great), but I guess Joe Manchin got in the way of that.

From your first link:

"Nominal wage growth has been fast over the past year relative to the past few decades, but it has lagged far behind inflation, meaning that labor costs are dampening—not amplifying—price pressures"

This is not necessarily true since it doesn't take into account labor productivity. From the BLS:

"Unit labor costs in the nonfarm business sector increased 10.2 percent in the second quarter of 2022, reflecting a 5.7-percent increase in hourly compensation and a 4.1-percent decrease in productivity. Unit labor costs increased 9.3 percent over the last four quarters. This is the largest four-quarter increase in this measure since a 10.6-percent increase in the first quarter of 1982. BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs and increases in productivity tend to reduce them."

From your second link:

"At the state level, we can do more and, frankly, we should have done it a long time ago. The 'Inflation Relief and Consumer Assistance Plan' (A.8481), which was introduced by Leader Barclay, would slash state sales tax for two years on everything from gas to groceries to utility bills. This would provide immediate and meaningful relief. The windfall in state sales tax revenue could easily be covered by surplus money from the federal government."

So during a period of inflation and rising interest rates, they are advocating fiscal stimulus financed by government debt. You think that is a good idea?

An economic system that demands people must work to obtain food and housing, but also demands a certain percentage of the population needs to be unemployed is barbaric.

First capitalism takes our brain, then the state our flesh. It is therefore no surprise just how incredibly unintelligent it makes everyone.

> Fed Chair Jerome Powell made that amply clear this week when the central bank projected its benchmark rate hitting 4.4% ...

... In plain English, that means unemployment. The Fed forecasts the unemployment rate to rise to 4.4% next year

What? The fed is setting benchmark unemployment rates now? That seems unlikely.

Seems like a clueless reporter assuming that "benchmark rate" was referring to unemployment rather than interest. The linked article shortly after that quote confirms this, by explicitly saying that the 4.4% rate was referring to the federal funds rate.

Actually it is just a coincidence, both numbers happen to be the same. Fed does not “set” unemployment rates but they are predicting the effect of the policy will be 4.4% unemployment by the end of 2023. Separately, the median forecast for fed funds rate by the end of 2022 is 4.4%. From Fortune:

“Officials expect the benchmark rate to rise to 4.4% by year end and 4.6% during 2023, according to the median estimate in updated quarterly projections published alongside the statement. … The updated forecasts also showed unemployment rising to 4.4% by the end of next year and the same at the end of 2024 — up from 3.9% and 4.1%, respectively, in the June projections.”

https://www.google.com/amp/s/fortune.com/2022/09/21/fed-rais...

I think the 4.4% unemployment projection is from Table 1 of this document:

“Federal Open Market Committee Summary of Economic Projections“ Sept 21, 2022

> Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

https://www.federalreserve.gov/monetarypolicy/files/fomcproj...

In economics, the Phillips curve is well known. The Phillips curve specifies that there is a short-run tradeoff between unemployment and inflation. Thus, trying to tamp down inflation in the short-run would inevitably increase some unemployment.

Evidence that the Phillips Curve has never been true, even in the 1970s:

https://paulkrugman.substack.com/p/stagflation-revisited

Let's break this down. . .the most significant contributor to inflation over the past year has been fuel prices and availability. This leads to reverberations through the economy, such as:

- Increased freight and transport costs, everything that moves from source to destination becomes expensive.

- Most importantly, food and raw material powering all the products we buy as daily expenditures have a significant fuel cost.

The Fed has only one weapon, the flow of funds into the economy. It controls this through the Fed rate as well as instruments under its gambit which give it immense power to purchase assets.

In short, this is not the job of the fed. We have a molecules crisis thanks to war and supply chain issues combined with stupid energy security decisions.

“Whereas my father made your yoke heavy, I will add to your yoke. Whereas my father scourged you with whips, I will scourge you with scorpions.”

Inflation is high because demand exceeds supply. You have to reduce demand to match the available supply. Interest rates are the main tool to do that.

This is true even if the ultimate cause is supply chain issues.

Why not help with supply issues too?

Another name for supply chain issue is China's zero Covid policy. How do you think US government can help with it?

It’s not only china zero covid policy. For example , there’s a huge worker shortage in industries like airlines and hospitality. That’s a supply shortage too.

We should do everything we can to fix supply issues. The sooner we do, the better.

But in the meantime , demand has to adjust. Either we do it via monetary policy and any other levers, or inflation will do the job for us.

There isn't a simple, first-order relation between the monetary and the real economies. The only thing that exists is an absurdly complex web of small second or higher order interactions.

It’s pretty tightly linked. Lots of loans don’t happen when interest rates go up. On the consumer side , car loans, mortgages , etc. on the biz side, capital loans and lines of credit. All of this significantly reduces purchases and money in our pockets, thus putting downward pressure on gdp and demand.

> Inflation is high because demand exceeds supply.

That's the part that is wrong.

It's wrong by definition, because demand and supply are the same thing. It's also wrong because inflation is an unrelated phenomenon.

Raising interest rates does normally (not always) reduce the economic output. Nobody is disagreeing on this.

Marginal demand > marginal supply, so price is bid up. This is not even 101 stuff.

Inflation is high because corporations have increased consumer prices well above their own increases in costs.

There's just as much evidence for this claim as "inflation is demand > supply" or "inflation is M2".

The "corporations are just greedy" thing makes zero sense. If it's just greed, then why have they just recently started? It's not like they all got together and decided to raise prices.

If you are unwilling to let your stock price fall, but your company is unable to increase revenue due to supply chain constraints, then what else is left?

Maybe I’m missing something, but it seems to me that the stock market hasn’t been catastrophic, only because of rising prices. The people who will suffer most are those who can’t get on that raft. So it might ultimately be raising the bar on the middle class.

I answered this elsewhere in these comments: https://news.ycombinator.com/item?id=32973663

Right so a few years's previous it was more about expanding market-share with lower prices. Then they saw employee's not getting their lives ruined when they got fired, like not getting the phone calls from that employee begging for his job back at half the wage, meaning they got told "I quit" way more, in great part because of Trump's unique $1500 check. That was what did it. Allowed a cascade of savings that freed many people. So then they could buy bulk their needs, then they could buy the toy their child truly desired as an iconic gift of their childhood and that wasn't that expensive but made them much more pleasant and resilient (this happened to me with Magic The Gathering), or like a much-needed fix for the car that was always breaking down. That shit. Bosses hate that shit. Fucking hate it, why else would they tell you it's good and not pay any raises ever if they actually wanted you to buy it? Tell you to drink tap water instead of water from bottles, when for every quart of tap water you need to drink a gallon of bottled water. Need. Not an "impulse", not a "craving", need, drinking brine makes you thirsty, it's brine, salty peanuts at the bar so you buy a "refreshing" drink. That's a confession. Advertisements say "Coca-Cola is refreshing". Confession of guilt right on the fucking billboard. Nothing can be more refreshing than pure water, or I'm sorry purified water, like Coca-Cola uses, "purified". Tap water could be purified. It never is. Bottled water is always purified, all of it, 100%. Or nobody will buy it twice! Even the bottled water that is said to come from tap water is in fact--it's true--tap water, but literally always gets filtered for fluorine, that they don't tell you. And it makes sense, refreshing, fresh, tap water, not fresh. Bottles and cans, fresh. Fresh water. Salt water. Brine. It's not relevant the percentage nobody cares, it's different all the time and if you measure it and try to tell anybody they accuse you of accusing them of conspiracy. Question is, is it salty yes or no? Yes. Is Coca-Cola refreshing? How could it be? What could you add to water to make it more refreshing than mountain streams? Literally nothing (well dextrose like I just served up, most refreshing drink bar none, but nobody sells that anywhere). You can't add anything to water to make it refreshing, you must remove something, and if there is nothing to remove, you have no business. That means you're fired. So you gotta eliminate the competition, the ultimate competition for like 20% of America's spending, some crazy amount, so put something salty in the tap water.

Saving up for the future, smart spending, man. Bosses hate that fucking shit. Prefer employees in terrible debt, behind on rent, rape extortion literally. That's the engine of the American economy, the ultimate power. Fedex's president complained about this, said when the checks went out suddenly people couldn't do backbreaking labor. Literally backbreaking now and then--Amazon was accused of this too, the reason for unionization was despite the money being good they broke backs in a week, they were squandering crazy amounts of wealth, $5000000 in treatment that doesn't even work, all to save $5 of labor costs. Bezos, the negative quadrillionaire.

So when they saw employee's not bending their backbone satisfyingly (and there's bosses who actually look out for you, not the previous two but there are, there are) they realized they would get asked for a raise. So as soon as inflation (raises) was predicted, they wanted to outdo and preempt it with higher prices. Like it was an opportunity. And in addition, as collusion, to cause the Fed to raise interest rates meaning debt becomes crazily more expensive, and really also the raising interest rates means "you can get away with anything in the workplace", it's a signal to the whole system.

Real “precious bodily fluids” vibes [0].

In all seriousness though you may want to see a therapist or psychiatrist, or just like talk to someone you trust.

[0] https://youtu.be/N1KvgtEnABY

I do see a psychiatrist.

So that movie is also paid for by Coca-Cola, make the objector to fluorine look like a crazy monster, in order to undermine objectors in general. It's a straw man. It's an inb4. It's yet another confession.

Corporations raise prices until demand starts to reduce. If you had a store that was constantly selling out of goods, you’d raise the prices until you stopped constantly selling out, no matter what your input costs are.

This is what the Fed is attempting: demand destruction.

This is not a law of nature. It's a function of the idea that you should always seek the highest price you think you can get. That's a very specific political and moral idea, and some people, in some circumstances, would call that "price gouging". Nobody is demanding that a store raises prices in response to being out of stock - the store does it because it believes people will pay more, and if their costs are constant, they will make more money by charging more. There are other conceptions of how this could/should work that do not bestow god-like status on "the highest price that doesn't shrink demand is the right price".

Demand can't exceed supply, they're both functions of price and quantity. They always meet, but nobody ever says "demand meets supply." They meet through black markets if need be, with prison labor if need be, with crime torture murder lobotomy (heh) you name it but they meet.

> Inflation is high

Current inflation has been about 0 in the last two monthly reports.

The headline 12-month trailing figure is still high because “12-month trailing”.

The CPI number is high because rents are high. Every other measure of CPI has dropped. But housing prices and rents just won't budge.

This is a battle between the fed and sticky rent-seeking homeowners. Everyone else is a pawn. Our healthcare, livelihoods and families are mere collateral damage.

Please clarify what you mean by "dropped". If you are talking over a 12 month window, that is most certainly not the case:

https://www.bls.gov/cpi/

Ignoring CPI, inflation is rampant in many other areas such as agriculture (basically everything is up) and manufacturing of good (again, everything seems up, metal, paint, fasteners, etc.)

In the final CPI number, "Services less energy services" has the highest weightage. https://www.bls.gov/charts/consumer-price-index/consumer-pri...

"Services less energy services" contains Shelter, transportation and medical services, of which, shelter has the highest weightage: https://www.pewresearch.org/fact-tank/2022/01/24/as-inflatio...

which is still increasing month over month as much as other things but increases CPI measure disproportionately higher: https://www.bls.gov/news.release/cpi.nr0.htm

"With an additional million or two people out of work, the newly unemployed and their families would sharply cut back on spending, while for most people who are still working, wage growth would flatline. When companies assume their labor costs are unlikely to rise, the theory goes, they will stop hiking prices. That, in turn, slows the growth in prices."

That seems like a pretty whacky theory to me because it assumes that companies only increase prices when forced to do so, and not just because they can.

It also doesn’t take into account 300k Boomers retiring per month. The Fed can’t print oil or housing, but it’s going to keep raising the benchmark rate while there’s a labor supply shortage. I am skeptical they can destroy jobs faster than workers take themselves out of the labor pool (through retirement and death), although driving down artificially high asset prices is a welcome result.

Look at a population pyramid for the US, it’s plain as day.

In a free market with healthy competition, a company can't just raise prices and increase its profit margins, because its competitors will keep their prices low and get all the business.

Thus, indeed, companies can only afford to raise prices when all other companies in their space are forced to do the same, for instance due to rising labor costs.

What portion of markets lack healthy competition?

If companies cannot raise prices due to higher unemployment then it may be an effective, albeit cruel, strategy.

> That seems like a pretty whacky theory to me because it assumes that companies only increase prices when forced to do so, and not just because they can.

It comes across especially wacky to me as price hikes have outstripped wage hikes. Considering wages and purchasing power has flatlined for workers, but productivity has greatly increased, seems like there's a lot of people getting fleeced.

Their ability to raise prices is depending upon consumers having the money to spend.

>That seems like a pretty whacky theory to me because it assumes that companies only increase prices when forced to do so, and not just because they can.

I see people post things like this, and I'm forced to conclude that you don't understand supply and demand.

Edit: Sure, monopoly pricing is real. But blaming monopoly pricing for inflation is dubious. You'd need an account of 1) how the goods in the CPI basket are monopoly priced and 2) why all these monopolies decided to raise prices now instead of 3 or 10 years ago. The standard account is much more plausible: Supply side crunch due to covid policies and geopolitical problems and sanctions. Increased demand due to the Fed dropping money out of helicopters for over a decade + (more acutely) covid handouts.

Supply and demand works on a idealized economy, but it's hardly true in the real world where there are cartels, monopolies, and other incentives to keep prices high even if there's supply.

Supply and demand works great in Econ 101 though.

Correct, because Econ 101 is based on an idealized economy that doesn't match the real world.

That's why you take Econ 102, which is an intro microeconomics course. It covers the different market types, like competitive, monopolistically competitive, duopolistic, and monopolistic, and it covers the concepts of positive and negative externalities, market failures, etc.

A lot of people here are acting like these are foreign concepts to an econ curriculum, when they're completely rudimentary. It's just ignorance.

It sounds like we're in agreement. From the GP's comment, which I was attempting to support, "[Supply and demand are] hardly true in the real world where there are cartels, monopolies, and other incentives to keep prices high even if there's supply."

Supply and demand are why companies can raise their prices. Suggesting companies only raise prices when they must is mistaken.

Further, increasing the number of workers in the economy increases supply and demand for some things, while the supply of other stuff is like video games is unlimited.

You're forgetting that there's a market at the other end too. Every business has a cost of capital, and if its returns are not in line with other similarly placed businesses, they will have to spend a lot more money to acquire capital.

That’s assuming they need to raise capital. However, most companies are flush with cash and will only become more profitable with increasing demand.

So much wrong with this line of thinking. 1) They're also facing increased costs. 2) Most companies are by no means "flush with cash". 3) Cash is fleeting but the need for capital is always hanging over your head. Even if you pride yourself on bootstrapping your business and not needing much in loans or additional investment, one or two bad quarters can quickly leave you with no choice but to get loans or sell equity.

Based on what evidence do you think companies aren’t flush with cash? Every indicator shows US companies have cash reserves vastly above historic levels.

This isn’t about year to year changes. Start looking back to say the 1990’s and the difference is huge.

Economy is still a social science at large. Upping the prices to their theoretical limits might cause immense backlash whereas steady increases, either fixed yearly increases or a big increase due to "extraordinary forces", may have very different social effects.

Blindly mentioning 'supply and demand' is the same as saying 'calories in and out'. It's true, but it misses nuance.

Do you think that Robert Reich also doesn't understand supply and demand?

https://www.theguardian.com/commentisfree/2022/sep/25/inflat...

Robert Reich is a politico with a political agenda, and that article is in a US politics opinion section. Inflation is a major US electoral issue, and the Biden admin has tried to shift blame to greedy companies (not that it's necessarily fair to put the blame on the Biden admin, that's another issue altogether). And even if he were an economist (which he's not, despite the PPE degree), economists can be political hacks just like anyone else (Paul Krugman comes to mind).

I didn't ask what he was. I asked if he understood supply and demand.

As for what he actually is: a professor of public policy at UC Berkeley and a former 1-term secretary of labor. He was appointed to the latter position, not elected. Almost anyone with an interest in the world has their own "political agenda".

I'll spell it out more clearly for you, since you didn't seem to understand the implicit point: I sure hope a fellow like him understands supply and demand. I assume he does. But I think that understanding takes second seat to trying to convince people that greedy companies, not incompetent governments, are to blame for inflation. And he writes that (putting aside whether he also thinks it's true) in order to advanced a political agenda. That's why it's in a US politics op-ed section of a left-wing newspaper.

I don't care what his political agenda is, I care what the actual source of inflation is. I see a lot more evidence that a lot more of it is due to price gouging by corporations than the money supply or supply chain issues. I don't care where he writes it either. It's not as if the WSJ is going to publish an argument like this.

So maybe we can get away from "I hope <X> understands supply and demand" and actually tackle the evidence that has been presented by many economists and economic pundits regarding the relative contributors to the current inflation.

> 1) how the goods in the CPI basket are monopoly priced

This actually is not as far-fetched as you're implying. for many types of commodity goods (baby formula, chicken, etc) there really are only 2-3 major suppliers left in operation. Agribusiness has taken over and consolidated many types of produce as well.

As we recently saw with baby food - disruptions localized to a single supplier can severely affect the entire product segment - this outcome can only occur in a highly-consolidated market. It wasn't like there was some problem at the baby farm and nobody could make babyfood, this was one supplier that took some lines offline and it caused national shortages.

And it's not just babyfood, it's meat production, meat processing, and many other food products besides. Smithfield controls a majority of the meat market for several types of products too.

"monopoly power" as regulated in the US has never required a literal monopoly situation and that would be incredibly unrealistic in a market economy. In practice, oligopoly pricing is sufficient to be very commanding if the participants decide to collude or to otherwise exert their power.

> 2) why all these monopolies decided to raise prices now instead of 3 or 10 years ago.

because consumers are generally primed to accept it right now, and there are legitimate supply-chain disruptions and increases to allow to you to handwave your increases away (price increases are far outpacing cost increases). If everyone else is increasing prices 20%, and your competitors probably are too... why not increase your prices too, even if you only needed 5-10%?

Never let a good crisis go to waste, and all that.

Supply-Demand pricing is probably one of the most well studies aspects of modern economics.

There is a range of prices between the underlying costs+overhead to the price point where demand drops off.

In that range, several factors influence where a company sets its price.

In a case where a company produces a unique product on the market, then it will price in the higher end of the range where demand drops off.

On the other hand if multiple companies produce the identical product (a commodity market), then the competition all try to undercut the prices of one another and prices are more determined by the underlying input costs (such as labor and raw materials).

Few companies product something COMPLETELY unique and irreplaceable for long until other companies copy them, but most try to differentiate themselves somehow to enable higher pricing without competition. They obviously also try to reduce overhead and negotiate lower input prices to gain a pricing advantage and capture more market share.

Many companies exist in mature markets where commodity pricing dominates. In such cases, and in OPs case, the LACK of rising labor costs allow prices to remain low.

Only on social media do people think that companies price things from a purely ethical/greed based model. Efficient pricing is just one aspect of running a successful company.

Shrinkflation is very real and illustrates that companies still have some agency based on profit/greed in determining prices.

The alternative to shrinkflation is just raising the price (or raising it more). Yes, it's toying with sticky demand psychology, such that a plain price increase would produce a less favorable equilibrium for the seller, but I'd be surprised if it was a significant driver of inflation.

It sounds wacky because they're framing it in the worst possible light to generate populist outrage and get more clicks.

The goal of raising interest rates is to contract the money supply because it would disincentivizing lending. Increasing unemployment is an unfortunate side effect, but clearly not their intention.

Companies are increasing prices now. If they could have profitably increased them before, why did they wait until now?

Because genuine supply chain problem-induced price increases gave them cover to increase prices on things without supply chain problems.

And also because in late 2020/early 2021, it appeared that labor was about to get a bit uppity and wee bit more powerful than it had been, so price increases were a nice preemptive move to deal with upcoming compensation issues.

> Because genuine supply chain problem-induced price increases gave them cover to increase prices on things without supply chain problems.

Or maybe the supply chain problems bubbled out to affect more and more things? Or maybe there was an actual general devaluing of the currency? Might want to employ a razor here.

> And also because in late 2020/early 2021, it appeared that labor was about to get a bit uppity and wee bit more powerful than it had been, so price increases were a nice preemptive move to deal with upcoming compensation issues.

This reads as "the cabal of big capital got together and decided to raise prices across the board because they were worried about labor power". You realize this makes you sound like a conspiracy theorist right?

There's never any need for conspiracies or cabals when the interests of a given group are naturally aligned, and they are not large in numbers. Corporations can behave in their "own interest" and most times, they will find themselves acting in concert, without coordination.

> Or maybe the supply chain problems bubbled out to affect more and more things?

Shrinkflation is not explained by supply chain problems. My razor is that corporations will generally do whatever they believe they can get away with; "supply chain problems" gave them something approaching carte blanche to reprice anything they wanted.

They should start by firing themselves. In a managed economy it’s the managers who are at fault for the situation we are in. But naturally it’s the common man who will suffer. They’re just a statistic after all.

I don't think you realize how hard it was to get this right. Between covid, reopenings, and the war in Ukraine, there were massive supply and demand shifts in the last 3 years.

Maybe everyone saying that lowering rates well over a year ago was ridiculous at the time were right?

Yea it’s hard but that’s the job.

For basically my entire adult life, at the macro level capital investments have basically been free for corporations.

While I have an idea of will happen based on historical data, it will certainly be ‘interesting’ to experience it first hand. :/

It's healthy in that it causes unproductive firms to go bankrupt.

It's painful in that unproductive firms are no longer handing out free money to employees and customers.

Looking at the market of companies today, especially in the tech space, IMHO ten years or so of fiscal prudence would be really healthy.

The only downside is that Apple, Amazon, Google, and Microsoft would weather it and come out more relatively dominant.

I agree, that’s probably what will happen. It’s the natural progression of things and the boom/bust credit cycle speeds the process- a new field of technology, full of hungry competitors, eventually winnows down to a small number of large firms, who then usually proceed to fix prices to ensure permanent profits. Then you have to get government involved to make sure they don’t abuse their monopoly power, and the whole thing ends up being a government/private industry hybrid operation. At that point it’s a power struggle between popular power/democracy and private power/capital, which lately capital has been dominating, but that may reverse.

Libertarian supporters of capitalism look backward to the earlier phase of a lot of competing small firms innovating rapidly, in which government is more an impediment than anything else, and while that’s a great time to be in, it’s just a phase, and eventually the board clears and you end up with a small number or just one large firm that controls a whole industry, and popular movements or government is really the only check on their power.

Looking backwards (90s/early 00s), it's curious we didn't see hyperscale cloud concentration earlier. The tech was there, at least relative to state of the art of the day.

I guess it was a demand problem.

There needed to be one huge customer to dictate a single set of needs, and that didn't exist until Amazon bootstrapped via its own demand and internal interoperability mandates.

It'll be curious if Google bows out. You'd think Android would have taught them that sometimes throwing money on a bonfire is a good investment in aggregate.

No disagreements there: I was just lamenting the short term negative impacts it will have.

Further concentration of capital’s power in the tech space is a significant issue, IMO, and painful in its own right to back out of. It will be interesting to see how we deal with this problem in the future… if we address it at all.

Reducing power of workers in favor of capital is deeply disappointing to me. The idea that we'd want to increase unemployment rather than have everyone working is frustrating.

"But wages are too high!" Shouldn't the folks who believe in markets as a force for good want wages to be set by markets? The most profitable businesses can pay the wages for workers, and the least profitable ones can't hire?

Why do we need someone taking away power from labor when labor starts to gain even a small amount of leverage?

Labor isn’t gaining power now, or else you’d see wages gains greater than inflation. Labor is losing to inflation.

It's gained some ground with movements like the $15 now movement in Seattle.

It can be the case it has gained but gained unevenly.

In aggregate, wage gains are behind inflation. In a country of 330 million, it will always be uneven. Everything is uneven at scale.

- Full employment

- Low inflation

- High wages

Pick two.

Wages aren't the only input to inflation. It's not axiomatic that these three cannot be met simultaneously.

It also doesn't account for wage disparities. Even if I accept the premise that wages cannot increase without increasing either unemployment or inflation, it still doesn't follow that increasing the minimum wage imposes the same requirement. Under that model, employment/inflation could also be kept constant by increasing wages to workers while decreasing wages to management, or by increasing wages to both workers and management while decreasing rent extraction (e.g. stock buybacks, dividends).

Of course it does. You have a naive view of wages. You do not increase minimum wages and not have wage compression elsewhere in the workforce.

Increasing the minimum wage has the most dramatic impact on increasing the demand for goods because it impacts so many people. Increasing the maximum wage has little if any impact on broader demand for goods because it impacts so few. Unless your supply chain can keep up with the demand surge through raised wages, you will see inflation, which is our situation today.

You might naively assume the solution is to introduce price controls but the general outcome of that is the economy shifting transactions to barter-based, black markets, and non-denominated currency exchange, which causes more economic upheaval as GPD and tax revenues drop. There are many examples of this in the last 100 years, Venezuela being a recent one.

Thank you for the additional details, and that helps my understanding. That the key quantity to keep constant is the total demand, not merely the total distribution. Therefore, when working to reduce wealth disparities, an increase in the minimum wage must be coupled with a greater-than-proportional decrease in the maximum wage in order to avoid negative side effects.

The only justification for this is preventing a self-perpetuating inflationary feedback cycle. Wage increases increase COGS, which increases prices, which leads to demands for wage increases.

Once that gets going (encoded in labor contracts and expectations), it's very hard and even more painful to break.

Whether that's what we're seeing now... or it's temporary supply side impacts... economists for more data than I can argue over.

But labor cost increases is a small part of COGS. So this means this feedback cycle you mention is steeply negative and will stop quite soon.

This entirely depends on the industry. In many industries, labor is a major input cost.

Price increases could be offset by a number of adjustments to other inputs to COGS. Reducing CEO pay, nationalizing health care (so it's no longer an employer cost), price controls on material inputs, reducing profit margins, increasing production efficiency, etc.

Yes, wages are a cost. But raising wages aren't a guarantee of price increases.

You must be underestimating the negative effect high long-term inflation has on a society. Labor doesn’t gain leverage, it loses a lot of buying power.

Not at all. I'm saying we have many levers to control inflation, worker power is only one.

What levers would you use?

In the article Powell says:

>"I wish there were a painless way to do that," Powell said. "There isn't."

Maybe you should email him your idea.

Also, I don't think it is accurate to say that the Fed sees worker power as a "lever" to control inflation. Their "lever" is interest rates. The problem is that hiking rates has the unintended side effect of increasing unemployment, in addition to fighting inflation. And this unemployment increase is due to a generalized economic slowdown, which hurts both labor and capital -- that's why the stock market is falling.

Despite your patronizing post, I'm going to give this a response.

We could attack the issue from the supply side - invest in production where there are bottlenecks (increasing supply of desirable goods), removing the profit motive by nationalizing some industries (for instance we could nationalize portions of the energy sector or transportation sector.)

Alternatively, we could use tight price controls on industrial inputs. This, in turn, would result in a slightly less efficient market, but a reduced inflation.

In fact, some have suggested that this inflation is not particularly demand side driven. Read this: https://www.frbsf.org/economic-research/publications/economi...

You'll also note that they 3 are obvious supply side problems associated with the current inflation - the war in Ukraine, COVID, to name some big ones.

Maybe you'd like a resource that looks longer term. Wage growth has not been a significant driver of the current inflation: https://www.epi.org/blog/wage-growth-has-been-dampening-infl...

Don't assume that someone who disagrees with your position is uneducated or less knowledgeable than you. I might not agree with you on economic policy (I'm sure you'll tell me nationalization is crazy talk) but just because we value different things is no reason to be patronizing.

> Shouldn't the folks who believe in markets as a force for good want wages to be set by markets?

They do, but what's that have to do with the Fed? The Federal Reserve is arguably one of the largest central planner entities in existence in the US (which as a mixed economy, not a free market one, has many).

It's an indirect impact of Fed policy. Low rates means low unemployment means higher wages. The reverse is true too, raise rates, wages go down.

>The idea that we'd want to increase unemployment rather than have everyone working is frustrating.

Keeping unemployment low is part of the Fed's mandate -- along with keeping inflation low. But sometimes you can't get everything you want.

The mandate is for "stable prices". When a person's body weight is stable it may fluctuate a little but basically stays the same year-over-year. This says "stable prices", https://www.federalreserve.gov/aboutthefed/section2a.htm

Federal Reserve actually targets 2% per year and regularly exceeds that. Try that with your body weight and look at the scale in a decade when you can't see your toes. Nobody cares to hold Federal Reserve to the law of stable prices.

Notice how they word-smith "stable prices" into "stable inflation".

"... low and stable inflation at the rate of 2 percent per year ..." https://www.federalreserve.gov/monetarypolicy/monetary-polic...

The fed funds rate was above 10% on avg between 1979 and 1984. If rates that high for that long were necessary to contain inflation, could we afford that at this point? Wouldn't the rates paid on the federal debt have to go way up as well?

Treasuries have maturities up to 10 years, so some bonds that will mature in 2030 (and new bonds need to be reissues at current rates) were issued at rates from 2020.

Thus, a relatively large portion of the federal debt may be isolated from a relatively short (3-5 year) jump in rates.

Treasuries go up to 30 year maturities. In fact, the 30 year Treasury used to be the leading indicator for the bond market. Most use the 10 year now though.

You are correct, I was thinking the distinction between t-bills, treasury notes and treasury bonds, which denote different maturity length.

This is deleterious beyond just economics. Put people out of a job and they go sick, die more frequently and have a general unpleasant time.

None of these folks are willing to look at how profits are at record high... take money out of the richest hands and redistribute. The cards are stacked against the common people and asking the non-wealthy to take the brunt of the hit here is a cash grab by the elite who aren't doing their part.

> This is deleterious beyond just economics. Put people out of a job and they go sick, die more frequently and have a general unpleasant time.

This "people are going die" justification has been behind so much catastrophically unwise policy, because there is no argument against it that matches the visceral alarms-blaring rhetoric. It's a blunt weapon and there's not a matching response, since the honest & sincere response is abstract arguments about the fallibility of human judgement & how every decision has costs and benefits, intended and unintended, associated with estimated probabilities.

The problem is that this inflation is so obviously tied to the moral hazard of 2008, bailing out corporations (a result of progressive policy arguing to protect people) and then, the very much similar in spirit, policy enacted during the pandemic. Even 9/11 & the whole apparatus of the 2000s is similar in spirit. All these things were enacted under the pretense of emergency & collectivism. Totalitarian rhetoric and orwellian redefinitions of language were used to silence & stigmatize opposition. Money was printed recklessly in order to finance even more precarious and unsustainable economic dynamics & govt projects.

Guess what? It's all crashing down now. This isn't austerity & libertarianism. Those people have practically no power, only a handful of politicians qualify for that label. We're ruled by big government. The New Deal won over American government, and by any reasonable analysis has reigned supreme ever since and these are the results. Constant crises spilling over into each other, eking out a couple years of relief before the dam gets ready to burst again even more spectacularly.

It should be possible to bail out the people without bailing out the companies, and it should be doable without generic QE. What if the government builds its own farms and grocery stores and housing complexes? Would that be bad because of how much control it would give the government or would it be good because of how much control it wrests away from private industry?

It's bad because the ultimate truth that's been proven over the entirety of human history is that a small group of people simply do not possess the knowledge required to operate economies & plan peoples' lives.

That knowledge is often only available to individuals themselves (their preferences!).

Unemployment is still near record low levels.

The Fed isn't firing people - they are correctly raising interest rates to keep up with inflation.

There's not much wiggle room for them.

If we all want this problem to go away, we should be focusing on improving our own energy independence and energy transportation quickly and ending the war in Ukraine which is disrupting markets and causing economic havoc in Europe.

> If we all want this problem to go away, we should be focusing on ending the war in Ukraine which is disrupting energy markets and causing economic havoc in Europe.

If you have contacts in the Kremlin feel free, but otherwise that's an empty idea. There are two ways to do that - Ukraine gives up, which it won't, or Russia does, which it won't. Putin cannot afford to show how weak he is or he might be gone, and Ukraine will no longer compromise on it's territorial integrity now that it has the upper hand in the fighting, and moral justification (they were invaded by a brutal genocidal regime that has murder thousands of their civilians, why would they compromise with them, especially now that they're beating them?).

There is a lot of hopium on social media about this right now because we mostly only see the Ukrainian side of this conflict.

The likely outcome to this war is Ukraine losing territory. There is no reasonably likely outcome where Ukraine will liberate ALL of the occupied territories.

Putin will indeed use tactical nukes, or at least demonstrate them, should Ukraine push much further into the occupied land.

...but you are right that little of that is in our hands. Domestically, we need to ramp up energy production. Both in the US and EU.

> There is no reasonably likely outcome where Ukraine will liberate ALL of the occupied territories.

Of course there is. The Russian army is a disaster reminding of their WWI performances, so it being defeated until they're out of Ukraine isn't unreasonable.

> Putin will indeed use tactical nukes, or at least demonstrate them, should Ukraine push much further into the occupied land.

Nobody should pretend to understand what Putin will do. He has subverted expectations many times. I hope Macron, Truss and Biden have explicitly made it clear to him that any sort of nukes are the red line that must not be crossed. That's the message i heard, i hope he has too and is not desperate enough to start a nuclear war to save his ass.

> Putin will indeed use tactical nukes, or at least demonstrate them, should Ukraine push much further into the occupied land.

Any use of nukes will lead to an overwhelming (likely conventional) response from Ukraines allies, unless Russia wants to lose the war faster they should really stay away from silly stunts like using nukes.

Democrats are going to get annihilated in the midterms because of this.

They make it sound like 4.4% unemployment is high. For most of the last 70 years that would have been considered a low rate.

Is the term "boost" in regards to unemployment a phrase that the Fed uses, or is it editorializing?

Before we do that, can we estimate the economic surplus of replacing 1) the Fed with a Brownian bridge 2) government budgeting with a formal tax limitation system

Fat cats need more wage slaves. Period.

yea, this doesn't just affect the US, the Fed is basically a world-monarch at this point

> In plain English, that means unemployment. The Fed forecasts the unemployment rate to rise to 4.4% next year, from 3.7% today — a number that implies an additional 1.2 million people losing their jobs.

> "I wish there were a painless way to do that," Powell said. "There isn't."

A reminder to us that psychopaths are running the world economy.

> A reminder to us that psychopaths are running the world economy.

Labeling Powell/the Fed as a psychopath simply because they're turning one of the very few if not only inflation control knobs they have seems extreme.

A psychopath would have done this randomly or at an illogical time (say by raising rates at the outset of the Great Recession). Just because you don't like the outcome of a decision doesn't make the decision maker a psychopath, more so when they agree that they wish there was a better way.

They are psychopaths because they have no concern for the misery they cause. If it were themselves or their families who would have their lives ruined, rather than 1.2 million innocent Americans, they wouldn't be so quick to enact this policy. A policy only supported by very dubious research, mind you. They are no better than the generals that dropped the atomic bombs on Japan, Vladimir Putin, or any other psychopaths to full of shit to give a damn about the well-being of others.

They do this knowing taking no action will be far far worse for everyone. We saw what a decade of stagflation looked like and it’s much worse than limited job losses. Even those who lose jobs will be better off with a short recession rather than costs inflating away their earnings.

The actions taken in 2007 and 2008 were largely because of how terrified decision makers were of the Great Depression (Bernanke in particular was a deep student of that era and saw lots of similarities).

The Fed’s mandate has always been to control inflation and promote employment. The goals sometimes oppose each other. There’s no evidence they have stepped aside from this mandate. Employment was so prioritized by the Fed for so long that their actions promoting it probably fueled some of this inflation, and led to them to not fighting the inflation sooner. Hardly the actions of Vladimir Putin.

No, they don't know anything. The idea that unemployment and inflation is related comes from a theoretical model called NAIRU and promoted by neoliberal economists. The model has zero empirical evidence. In other words, these psychopaths could as well torture hamsters or dance rain dances and it would have the same impact on inflation as what they are doing now. People blindly believing them, as you do, are no different from Russians who believe that the war in Ukraine is necessary to protect "the Motherland". But when it is your livelihood on the line, you will change your tune, just like Russians who rather not themselves be drafted.

China bad apparently

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