Speech by Chair Powell on inflation and the labor market | Hacker News Reader

Speech by Chair Powell on inflation and the labor market

federalreserve.gov

38 pointskamaraju17 comments

Summary: Inflation is is lower (ie: the prices continue to increase, but at a rate slower than expected). The 2nd derivative of prices is down with an (expected, at the time of the speech) PCE of 6.0% YoY.

Powell still thinks that inflation will take a lot of work to tame and expects interest rates to remain elevated. But these results here are _better than expected_, so the stock market / bond market responded quite favorably this past Wednesday.

Unfortunately, inflation is not lower, its been masked by utilizing the Strategic Petroleum Reserve to offset price inflation in energy on the CPI.

As that is now at 1984 levels, we should be seeing a massive surge in energy when they can no longer hold it down due to depleted capacity.

Normal inflationary/deflationary mechanics rely on a fine balance between diverse aspects of the economy. With regard to the banks who enforce changes in behavior to the general public through the loans they provide, that is levered by depository requirements when the default rate changes.

With depository requirements set permanently at 0% by the Fed, we are unlikely to be able to predict what will or won't happen. I say permanently, because if it were temporary, they would have rolled it back to the the normal percentage at the beginning of 2022, and they did not do that.

You can verify that yourself here at, https://www.federalreserve.gov/monetarypolicy/reservereq.htm .

They are still required to account for depository levels you'll see the banks won't be able to curb that back in line anytime soon (2-3x over the limit), and worse they are now so monopolized because of changes to banking law in 2008 (with almost no new banks being chartered thereafter), that we are in for a painful ride. They can't be brought back in line without potentially causing contagion events in the financial market.

So technically everything you've ever been taught about a fractional reserve banking system and its mechanics no longer applies because its no longer fractional reserve. In effect, anyone holding USD has been trapped on a runaway train, with the throttle now stuck all the way down.

It was changed silently, without fanfare, or real representation, in 2020 by the same group of people that commmit high crimes to enrich themselves personally using privileged information to trade against the open market (the public).

The way the markets work, any actual trade represents a winner and a loser, and if you have direct control or can impact the outcomes due to a trusted position, you shouldn't be able to participate, to the publics detriment.

I hope I'm wrong, but so very few people are properly educated about these things. I don't think I am wrong, and I would desperately like to be wrong, but because the subject is taught in a vacuum without a fundamental understanding of why the division of labor allowed it to work in the first place, the everything ponzi bubble is likely to end poorly.

You're in a 1970s mindset when you need to be in a 2020+ mindset.

The USA is now a net exporter in oil. We were making more crude oil in 2020 than today. Even with the Russian / Ukraine war, the oil makers in the USA were too afraid to open up the wells, because COVID19 crashed the oil market so hard, that oil prices went _NEGATIVE_ (-$40 per barrel of oil).

Oil drillers don't want to be burned again. So what's the solution?

1. USA Supplies a ton of oil this year.

2. When the US Oil reserves are empty, then we can "guarantee the purchase" of oil. Meaning we can afford to keep oil wells open next disaster (instead of forcibly closing them down like in 2020).

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Strategic oil reserves were too full. We had no place to put the oil in 2020 / as COVID19 hit us, so a ton of oil wells had to be sealed shut. Spending oil, and making sure we have enough "spare space" for our reserves, only makes sense moving forward.

Its not 1970s anymore. USA makes more than enough oil for ourselves... assuming that we can keep the markets happy. The strategic oil reserve is a good tool for that, a huge cavern able to hold hundreds-of-millions of barrels of oil.

USA has bought oil futures (encouraging the opening of new oil wells), while selling oil from our strategic oil reserves (aka: opening up more room for later). It just makes sense given our economy today.

If that were true, then why was Chevron allowed the Venezuela license. If we don't need it as you say, why are our gas prices above $6/gallon... why do it if we don't need it as you say?

We are not on good terms with them, they nationalize regularly, and our own oil refining capacity has been significantly lowered.

The negative 40 a barrel you refer to was caused by several events, one of which was market manipulation by a hedgefund illegally, and then other failures/fraud found on the part of the same ETF (USO) by the SEC.

When the Oil reserves are empty, we can guarantee only one thing, a complete breakdown of our modern civilization as we know it.

Energy is intimately linked with food security, and we won't have anything to exchange for it because we pay our bills with toilet paper hot off the presses, and everyone we might trade with knows this now, we have little credibility thanks to the Fed, and are stuck in a cycle that will only keep getting worse according to the history.

You seem to think the problem is that no ones willing to take the risk, when in fact, a large part of the problem is a monopoly problem. There are no companies left that will take the risk because the ones that did went out of business, or were leverage buyout'ed after taking such a risk, and in monopoly you just have to get certain companies, stifle entry, lever them up with hotels to charge whatever you want, and collect your money until the games over. Reducing the supply simply raises the price, just like the baby formula in Florida.

The problem starts with the banks funding this behavior, and other malfeasance which they have been allowed to craft for decades.

> If that were true, then why was Chevron allowed the Venezuela license.

This is an utterly strange way to respond to my assertions.

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=m...

USA was making 13-million barrels of oil _PER DAY_ in 2020. Today in 2022, we're only making 12-million barrels of oil.

"If it were true" ?? It is true. Its now your job to explain how your world view fits the data, not my job. As far as I can tell, your worldview is bunk with just the simple statistics associated with the USA's crude oil production.

> The negative 40 a barrel you refer to was caused by several events, one of which was market manipulation by a hedgefund illegally, and then other failures/fraud found on the part of the same ETF (USO) by the SEC.

No. The negative $40 barrel was fixed by the US Oil industry dropping from 13-million barrels of oil a day to 10-million barrels of oil a day. Look at the stats. Its pretty simple. Demand dropped like a cliff, and supply was forced to drop once our storage filled up.

Entire oil fields were resealed with concrete. Those US-based oil companies lost a LOT of money over the COVID19 slowdown. Now yes, it will take some time for those fields to open up again, and furthermore, those oil companies are still scared about that last drop. Opening up more room in the strategic oil reserve will do them the favors they need to encourage more oil production (and as you can see: domestic oil production is skyrocketing again under these policies).

I think western societies are doing themselves a disservice by training people to do just one thing as a career (college "Majors" considered harmful in my view and minors are practically useless). In Neal Stephenson's book "Anathem" all the monks had a fallback profession called an "avocation" which they could do if they failed out of their primary study. And they trained for both when they were young. We'd be much better off as a society right now if we had invested in that sort of approach for the last few decades. Mid-life career retraining is really hard and scary to even contemplate.

The problem with that is that you just get better and better at the thing you do all the time. Specialisation to the extreme is probably most optimal for society as a whole when there are enough people.

Societies' gains as an effect of this specialisation is just one (albeit an important one) aspect of the whole optimisation. Anti-fragility and redundancy typically decrease the number of (costly) disruptions in a system and thus the proposed fallback profession might actually be a net positive for efficiency rather than a loss.

While the book is thought provoking in some regards its fiction, also it doesn't really touch on the important parts of what does or doesn't make things work (largely because that wouldn't be entertaining).

You may find the Wealth of Nations (1778) an interesting read as that goes into the importance of many factors that are not paid attention to today by most people (or even policy makers if you factor their actions in).

It has some choice things to say about the indirect effects from the interference of labor relations which are historically backed.

Make no mistake, the main reason we are where we are now is because of the consistent failures to address items that fall into that area.

"But recent research by Fed economists finds that the participation gap is now mostly due to excess retirements—that is, retirements in excess of what would have been expected from population aging alone. These excess retirements might now account for more than 2 million of the 3‑1/2 million shortfall in the labor force.

What explains these excess retirements? Health issues have surely played a role, as COVID has posed a particularly large threat to the lives and health of the elderly. In addition, many older workers lost their jobs in the early stages of the pandemic, when layoffs were historically high. The cost of finding new employment may have appeared particularly large for these workers, given pandemic-related disruptions to the work environment and health concerns.

Also, gains in the stock market and rising house prices in the first two years of the pandemic contributed to an increase in wealth that likely facilitated early retirement for some people."

Kind of amusing that to certain extent the true cause of the labor shortage runs perhaps contrary to the common narrative of "entitled millennials unwilling to work hard" but perhaps the truth is more along the lines of being due to "enjoying the fruits of early retirement" boomers and FIRE practitioners?

> What explains these excess retirements

3 theories, I'm sure there are a lot more:

1. It sucks, in general, to be a worker-bee these days. /r/antiwork isn't only millennials and younger - some older folks looked at their lifestyle creep, their retirement accounts, and decided to throw in the towel.

2. Imagine you are in your 50s - not yet ready to retire. Your parents die earlier than expected (possibly due to C19). Retirement can come early!

3. Another scenario - lots of people retired early because the market boom made them think they had 40% more retirement than they did. It's hard to find work, and possibly even harder to find motivation to return to work.

Looking at the Fed table, "inflation" is just redistribution of wealth: the top 1% got a bit richer, the bottom 50% got twice richer (if this word even applies to them) and the middle 49% have lost some wealth.

https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...

Boomers are retiring and there aren't enough young people to fill their shoes, which creates an imbalance between supply and demand for labor.

>Finally, we come to core services other than housing. This spending category covers a wide range of services ... constituting more than half of the core PCE index. ... Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category. > >Comparing the current labor force with the Congressional Budget Office's pre-pandemic forecast of labor force growth reveals a current labor force shortfall of roughly 3-1/2 million people. ... excess retirements might now account for more than 2 million of the 3‑1/2 million shortfall in the labor force. > >What explains these excess retirements? ... many older workers lost their jobs in the early stages of the pandemic ... The cost of finding new employment may have appeared particularly large for these workers ... Also, gains in the stock market and rising house prices in the first two years of the pandemic contributed to an increase in wealth that likely facilitated early retirement for some people.

TLDR

Inflation hurts the poor by reducing their marginal income buying power a few percent. If we induce a recession they’ll lose their jobs and we can reduce their buying power by 100%. Meanwhile people with excess savings will get windfall interest payments.

Seems like we prefer inflation to recessions.

People who lose their jobs certainly do

Don't forget the young people who can no longer set up home and start families because of higher mortgage rates, and have to stay renting - funding landlords.

That and inducing a stop/start business cycle in the building industry which causes the firms to use subcontractors rather than employees.

The Monetarist Mortgage Tax driven via the finance industry and the housing market is how we tax the nation - now the legislatures don't want to do it explicitly.

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