June Inflation Drops to 3%
nytimes.com
nytimes.com
Fed officials are focused on cooling stubbornly high core inflation, which excludes volatile food and energy prices. Economists see core prices as a better predictor of future inflation than the overall inflation rate.
Rising car prices, strong demand for labor-intensive services and an earlier surge in housing-rental prices have contributed to core inflation.
“Where inflation is proving sticky is in services—getting haircuts, getting your car repaired, buying car insurance,” said Leo Feler, chief economist at Numerator.
Economists estimate that core prices rose 5% in June from a year earlier, compared with 5.3% in May.
From: https://www.wsj.com/articles/consumer-price-index-report-jun...
4.8% YoY. Down from 5.3% in May and lower than the 5% expected by 20 bps. So situation not solved, but far from intractable.
In charts;
The trailing 12 month rate: https://fred.stlouisfed.org/graph/fredgraph.png?g=16YXk
The monthly rate (actually 0.156% in June so 1.9% annualized): https://fred.stlouisfed.org/graph/fredgraph.png?g=16YXN
June’s one month CPI increase was 0.2%, coming on the heels of May at 0.1%. The annual rates for May and June respectively are thus 1.2% and 2.5% respectively - significantly lower than the year on year rate would suggest. If we assume the true point in time rate is between 1.2 and 2.5%, then the economy has rapidly cooled.
The strongly inverted yield curve reflects this slowdown and predicts - with some degree of confidence - that the Fed will have to drop rates soon because the slowdown is leading us towards a recession. I find it interesting that the S&P is close to its height prior to the start of last year’s bear market even though the yield curve suggests extreme caution is warranted.
A recession would imply that the interest rate policy has worked. But it would also imply reduced corporate profits and growth, both of which feed into fundamental measures of equity value. This is a nerve wracking time to be invested in stocks.
No, price levels have decelerated.
> recession would imply that the interest rate policy has worked
No, it would not. Price levels and the economy are fundamentally related, but they can and do move separately. Stagflation is one such condition. The Fed is targeting its opposite. Plunging America into a recession would be a clear policy failure.
No views on the stock market here. Just pointing out that rising wages and thus rising spending, with rising production permitting low inflation and a Fed calmly and confidently lowering rates over years while unemployment stays low is achievable.
https://www.conference-board.org/topics/us-leading-indicator...
Manufacturing is negative:
https://www.supplychaindive.com/news/manufacturing-pmi-ism-s...
Given we're attempting a novel monetary maneuver--essentially, the opposite of stagflation--I'd widen my error bars on macroeconomic heuristics.
[1] https://fred.stlouisfed.org/series/T10YFF/
[2] https://www.ismworld.org/supply-management-news-and-reports/...
[3] https://www.conference-board.org/topics/consumer-confidence
An aggregate figure which can’t ever describe inflation as experienced by individuals is only SLIGHTLY misleading?
It’s like saying we’re all 32 years old or whatever the average age is. You might resoundingly refute the idea that as a 16 year old or a 96 year old that you’re 32. You’d look aghast as someone gaslights you with “yes we all have different ages thats obvious but its the average that matters, so you’re 32 like everyone else”.
But but that’s not the point of ascribing a number to inflation i hear you cry, it’s still a useful construct because it can be compared across countries, it can be compared over time… the model itself can be adjusted to suit particular analysis - RPI, RPI-H, CPI, CPI-H, etc.
… to which i can’t help but yawn. The discipline of macro economics has more in common with astrology than science. The answer to any identified weakness is always “more macro economics”.
Micro economics is often useful though.
Micro = come up with a hypothesis, test it and see if it works.
Macro = tell bamboozling campfire stories with the purpose of claiming power and money away from others without having to fight them for it.
Yes? This [1] is an important metric if you're running a country?
> yes we all have different ages thats obvious but its the average that matters, so you’re 32 like everyone else
This isn't a parable about a bad metric. It's one about not reading a good metric wrong. The fool in your story misunderstands how averaging works; that doesn't make every average bad or misleading.
> that’s not the point of ascribing a number to inflation i hear you cry, it’s still a useful construct because it can be compared across countries
No, it's useful in its proper context. There are a number of metrics because there are, unsurprisingly, a number of questions people ask about prices. PCE is good if you're setting nationwide monetary policy. It's irrelevant to 99% of the contexts it's quoted in.
[1] https://www.statista.com/statistics/241494/median-age-of-the...
For your analogy, it's perfectly reasonable to say a population's average age is 32. But it gets muddy when you start comparing the rate of change of the rate of change, so if the age was 31 last month people start extrapolating that we'll all age 12 years in the next 12 months.
Even if you just assume that June 2022 is roughly in-line with March/April/May, that means the June 2022 1.2% falls off the moving average and is replaced with something in the 0.1%-0.4% range. So of course YoY inflation decreases from 4% to 3%. It's just a moving average. Moving averages and YoY numbers make sense to cancel out seasonality and noisy monthly numbers when things are regular. But if there's say, a massive spike in inflation due to supply chain issues, well it's going to take a full year for that spike to disappear from the yearly moving average.
Well, yes, we are always at that risk... but even basic numbers are getting much worse. Depending on who you ask, about 37% of Americans (give-or-take) cannot withstand a sudden $400 expense without using debt. This is ~5% higher than it was a year before, in 2021 when it was 32%.
https://www.federalreserve.gov/consumerscommunities/shed.htm
It goes without saying that there is a finite ceiling for how much debt a person can obtain. When 1/3 of the country risks hitting that ceiling with how debt use has increased, is unable to get more debt, and can't afford $400; you have a perfect recipe for extreme social unrest in the future if things don't turn around. It's made worse by inflation eating away at pay, and also the record-high APRs that credit cards are demanding; and high rates in general for debt of any kind.
Real wages are lower than their pandemic highs, but higher than they've been at any point [EDIT: before] late 2019 [1].
This description is self-contradictory. I think you mean “before” not “since”.
If you remove 2021, there's nothing particularly noteworthy about where we are right now.
It appears it's trending up from a local bottom last year, but it's still lower than most of the past decade before Covid. Also this number isn't on a per-capita basis.
Here is the personal savings rate [1][2]. We're low, but not abysmal and repairing.
[1] https://fred.stlouisfed.org/series/PSAVERT
[2] https://www.bea.gov/data/income-saving/personal-saving-rate
> Personal savings are half of what they used to be before COVID while personal debt has doubled.
And assume you're saying that the average person has half as much money in the bank as they did before COVID. Your data don't support that assertion--they show that people are still saving money, just at a slower rate. Wouldn't that imply that people have more money in the bank than pre-COVID?
Anyway, spending (rather than saving) money during a period of high inflation is textbook "rational consumer" behavior, and is hardly evidence of a horrible, terrible, no good, very bad economy.
One is income statement, other is balance sheet. One is verb, other is noun. One is river, other is dam. Etc.
[1] https://fred.stlouisfed.org/series/PSAVERT
[2] https://www.newyorkfed.org/newsevents/news/research/2023/202...
https://fredblog.stlouisfed.org/2023/05/despite-high-inflati...
The housing market will be a continuous mess while policy is to consider it as a major investment asset, there's no way around that, people buy houses expecting they appreciate in value so they can sell and buy their next, bigger house. That's the dream of almost anyone I know who purchases a house, politicians who implement policies which will cause houses to lose their stratospheric value (at least in major cities across the world) will commit career suicide. There's no incentive to push houses' prices down until most people are completely squeezed out of the market: people get mortgages for a house at value X, any price below X is a loss and so they will fight tooth-and-nail for keeping their assets valued above X... Yes, it's all politics but it's an issue where there's no way out of it that isn't political, some politicians will have to sacrifice themselves, those sacrifices will create a lot of pain to whomever bought an overvalued house at current prices including people going under on their mortgage, selling at a loss, and quite a few will go into financial duress because of it.
Societies need a different housing strategy and policies to support it, the current one where housing is both a major investment asset as well as basic necessity does not work.
However, structurally inflation is likely to resurge on a MoM basis later in the year. The labor market is tighter than ever before and wages are rising at 5-6% annualized. Oil looks set to rebound, as a lot of the decline was due to recession betting and US SPR releases distorting supply (which are still happening, but obviously can't go on forever).
Inflation will only go away structurally once a recession ultimately hits. Very unlikely that it stays around 2% with markets, bonds, commodities rallying alongside 6%+ wage gains. The cycle length depends on whether the Fed decides to see through nominally lower numbers. If not, will be similar to the 70s/80s false troughs and re-steepening in inflation.
We don't have to hae a recession to kill inflation. We can just have a soft-landing.
Why care about inflation at all? Well, you can reference the history of most South American countries for that
Saying "we can have a soft landing" with no context or supporting reasoning isn't really saying anything at all. History shows only really 1 instance of a "soft landing", and the economy was less overheated and policy much more proactive back then. Back then the Fed actually tried to move ahead of inflation by assessing structural tightness... not reactive based on CPI
Anyway, here is MoM.
https://econbrowser.com/archives/2023/07/inflation-at-month-...
You are correct that the decline is exaggerated by base effects; but it's also true that there has been a fairly steady decline last few quarters (disinflation)
MoM inflation on its own doesn't tell you anything about structural inflation. MoM fell many times in the 70s/80s only to rebound later due to overly optimistic policy makers assuming a downward trajectory would be sustained without further action from them. It's effectively the exact same situation we're in now... only question is whether the Fed chooses to repeat that path or not
Currently 80% long with cost basis mostly around last October/SVB lows in primarily REITs and financials/lenders. Market will likely rally over next few months (smaller caps), until the reality sets in on sticky inflation. If Fed sees through the short-term data and signals this, then market will pull back soon, otherwise will happen later in the year.
Inflation falling back to 2% and staying there with 6% wage gains and rallying markets/commodities is a fantasy. A quite obvious one to predict, yes, if you study the history of monetary policy for more than a few minutes.
There is always the possibility of a trapdoor recession though. By some measures household accumulated savings are close to depleting, student loans resuming... and consumer credit measures are looking weaker. We have a stimulus impulse thats fading competing against a structurally strong economy. Which one will win in the end?
If the signs start pointing in that direction, then it will be time to pivot to a recession trade. You just have to be there first
Predicting correctly and not telling others pays more.
so that's a weird bit of causality that you've included in your comment.
in particular, in tech many companies will face a reckoning when they're unable to raise at terms they need to survive.
Financial conditions have been easing over the last few months, not tightening. Fed hikes only impact the short end. Long end is market based
If you own a home already...
There is an insane supply problem and the fed's hand in the mortgage market doesn't make anything better. It's sensible for mortgages to all be ARMs, then rates will actually have a very real and unavoidable impact on home values.
We are now going to be stuck with this before covid and after covid homeowner situation. People who bought prior to 2022, and especially prior to 2020 will be death gripping their 2% mortgage, to the point that you could basically write off that parcel of land as even existing for the next 20-25 years.
Also, except for Miami every major city has had price decreases, so your personal anecdote is not what the stats show.
And in fact, at 10% inflation, if prices don’t rise, that means they are getting 10% cheaper in real terms. So in fact prices definitely are falling, no city has had a 10% price rise in the last 12-18 months.
Prices ran 20-30% in major markets and now getting pull backs of a few percent, mostly on the back of totally choked supply.
Raise rates all you want, if there aren't houses being put on the market, it's not going to do shit.
[1] https://www.bloomberg.com/markets/rates-bonds/government-bon...
Neither did, by its own admission, the Fed.
For example, the yield curve inversion has had quite good predictive ability so far, and it’s predicting a recession. If you buy the fed’s data driven approach, that means its predicting rate decreases.
In that case the long term bond market’s prediction is supported more strongly than the fed’s prediction.
What long term predictions from the past accurately tell you today's rates? That is do you have any back testing?
Define "long run". Because over a few centuries the trend has been down:
* https://www.bankofengland.co.uk/working-paper/2020/eight-cen...
* https://www.visualcapitalist.com/700-year-decline-of-interes...
Powell goes with what the market is pricing in, if you want to know what that is look at “fed funds rate” odds: https://m.investing.com/central-banks/fed-rate-monitor
I’ve been using that tool for over a year now and it absolutely will show what Powell will do. The odds will change as information enters the market but in general it’s spot on.
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch...
> I’ve been using that tool for over a year now and it absolutely will show what Powell will do.
>The odds will change as information enters the market but in general it’s spot on.
Sounds more like “it absolutely will show what Powell might do”. Also, Powell does not do it single handedly, there are 12 members on the Federal Open Market Committee that vote on setting the interest rate policy.
The bond market isn't always right, but it's usually closer to the truth than some random speculator on the Internet (wisdom of the crowd, and all).
A simple bit of reasoning with the Federal government being in debt $33T - means that if rates were to forever stay this high - their interest burden would be AT LEAST $1.75T per year.
Current Federal tax receipts (minus payroll taxes) is $1.93T.
Either Federal Tax rates are going to ~75%, the government stops doing anything beside servicing debt, we default on our debt, or short-term Interest Rates eventually go back to ~0%.
Gee, I wonder which one people will vote for.
But for real I agree in general - where is the money going to come from? The interest on the debt and the federal receipts don’t work! I see the ratio (linked below) hitting 0.5 this decade.
What’s crazier is that % of GDP taxed according to the FRED is at historically normal levels dating back to 1950 - we’re not even at a point of low taxation relative to output.
FRED data
-------------
Debt to GDP: https://fred.stlouisfed.org/series/GFDEGDQ188S
% GDP Taxed by Federal Gov: https://fred.stlouisfed.org/series/FYFRGDA188S
Interest Payments / Federal Receipts: https://fred.stlouisfed.org/graph/?g=sOG
Mass monetary creation and a higher tax burden are guaranteed. Spend less and hold assets? Work in healthcare?
We kinda tried that in Italy in the '70s/'80s. Spoiler: it didn't work. Globalized money markets can be assumed to be more reactive than public policy pretty much all the time now, so they will keep raising interest rates faster than governments can handle, more-than-countering expected inflation and making the debt spiral eventually unbearable.
Even Keynes expected to pay back (some) debts when the economy does well.
The yield curve has materially revised its long-term rate expectations over the last months [1]. The 30Y at 4% seems compatible with rates not "com[ing] down all that quickly."
> the Federal government being in debt $33T
It's closer to $18tn if we exclude debt held by the government itself [2]. (It still needs to be paid, but monetizing that debt is neutral from a cash flow perspective.) So about $1bn of interest payments per year to the public, which, assuming 2% inflation, is about $570bn today ten years out.
[1] https://www.bloomberg.com/markets/rates-bonds/government-bon...
[2] https://www.pewresearch.org/short-reads/2023/02/14/facts-abo...
I'm not a bond-pricing wizard, but if for N years, you expect short-term rates to be higher than long-term rates, that has to get priced into the long-term spread (putting it above the normal spread over the short-term durations).
This absolutely does not mean the market expects short-term rates of ~4% indefinitely.
250 bps is a high but precedented spread for the 30Y [1]. We're definitely in an inverted environment. Nothing in the curve suggests the market expects rates to stay high indefinitely. But they also do not portend any proximate massive cuts.
Why is it good for rates to come down: financing mortgages/cars/etc. comes down
Why is it bad for rates to come down: money market accounts/etc. won't yield ~4.75% for doing nothing
Anything I am missing? Do they weigh each other out perfectly? Is one a bigger deal/better/worse than the other?
Not necessarily, it depends on the principal cost as well. If principal costs increase in tandem with rate declines, the financed cost doesn’t necessarily change.
You’re missing the inputs into rates rather than the outputs from rates.
Rates mathematically represent the value of a dollar available today versus a dollar available in N years.
If we were to find capital intensive, large scale, low assessed risk, economically productive ventures tomorrow, we would expect rates to rise ceteris paribus as the dollars necessary for those ventures would compete with bonds for investment dollars today.
For example wide spread nuclear fusion, or some kind of rail infrastructure, etc.
In that sense secular declines in rates represent a society that has decided it has reached diminishing returns on capital, at least on a risk adjusted basis.
Similarly rates embed a consideration for default risk, or in the case of a bond denominated by the issuer currency risk. In this sense rates going up is bad.
There’s also the sheer debt and deficits governments run. Higher rates imply higher costs for both.
Which situation you want probably starts to encroach on your political leanings, subject to a few parameters.
The ZIRP policies held for ~12 years probably created a lot of malinvestment due to kicking-the-can-down-the-road financing which will need to get cleared out in the next recession, when that recession hits, the Fed will slash rates again.
Nothing really fundamental has changed in the way the Fed operates, and it still has its 2% inflation target. They just increased rates at what was a pretty breakneck pace and are talking foldly of Volker. This isn't the post-WWII Fed that let inflation get up to 10% in the 70s. Most of the effects of inflation and rates were due to shocks caused by the pandemic, which are over now. I don't see why people think that inflation or rates have fundamentally changed.
But now inflation is being considered as a metric of priority, by itself - which distorts its purpose (akin to what happened to GDP). And we're in a perfect illustration of why. Prices have dramatically increased, but now that they're continuing to increase beyond this at a rate of change is "only" 50% higher than the desired rate of change the Fed was aiming for, back when prices were lower, you have some people ready to unfurl "Mission Accomplished" banners. Clearly, the metric has become more important than the meaning, again like GDP.
Gallup maintains an active economic impressions survey here [1], and currently we're at lows matched only during the housing market crash in terms of economic confidence. And I've no doubt this is playing into it. From the perspective of people continuing to pay intolerably high prices for effectively everything, seeing economists cheer about this is going to look alot like the 'this is fine' meme to basically everybody on the outside.
[1] - https://news.gallup.com/poll/1609/consumer-views-economy.asp...
Household Debt as Percent Disposable Income doesn't seem to be at an especially noteworthy figure.
What numbers are you reading to come to your conclusion about household debt and people feeling crunched/extremely leveraged?
Sorry to everyone I pissed off that only makes 450k TC.
And, the same could be said for other "entities" or "infrastructure", that, when things are fine no kudos; or worse, complaints asking "Why do we have X?", but then whining when something is not in place. :-)
Why in organizations without rewards for big wins, the correct course of action is often to do nothing because the penalty for failure is always there.
Not exactly -- it was left to the judiciary to end the unconstitutional and inflationary student loan repayment pause. Otherwise, yes, pretty good state of affairs by the executive.
But regardless, this isn't even true on issues of fact. Federal student loans are still in forbearance, and will be until October.
In a world without these protections the interests of student loan lenders and students would be strongly aligned. And the greater restraint in lending would also likely drive down education costs, as well as help push students from poor families more towards majors that can help them become successful adults - a push those students might not otherwise get from their families or even school councilors.
As for where the now literally trillions of dollars of lending is having an impact on inflation, it'd depend on what that money was doing beforehand and what it would have done if not lent. Inflation comes down to monetary velocity, which is largely (though not inherently) driven by monetary supply. If trillions of dollars in student loans are increasing these factors then it will drive inflation, the only question being to what degree.
The complaint that lender incentives are broken with guaranteed loans is true enough, but it's not remotely a new effect. These banks have been issuing high risk loans (students almost literally can't fail to qualify) for decades without being an inflation driver. Arguing that they are now, just because it confirms your priors about a (now receding) burst of transient inflation is magical thinking.
You can see the data quite clearly here [1]. I do wish the data went further back, but it's clear enough as is. In 2006 the total debt from student loans was less than $500 billion. Today it's $1.7 trillion. That's a huge chunk of money which is going to have meaningful economic effects. On the plus side, the numbers have finally slowed but it remains to be seen if that was just an effect of COVID.
"Meaningful" seems irrefutablely vague, but certainly not "significant". The numbers you point may look big as single sums, but they come out to ~$70B of spending per year. That's noise. It's absolutely not causing "inflation".
Also the numbers fail to show the "recent multiplicative exponential effects" at all. The slope of that curve has been dropping (because of covid, obviously). We issued fewer loans in 2020-22 than we did previously!
Again, it doesn't work. Your conclusion is wrong. You need to revisit your priors about why you're so sure about inflation and student loan assistance.
"As for where the now literally trillions of dollars of lending is having an impact on inflation, it'd depend on what that money was doing beforehand and what it would have done if not lent. Inflation comes down to monetary velocity, which is largely (though not inherently) driven by monetary supply. If trillions of dollars in student loans are increasing these factors then it will drive inflation, the only question being to what degree."
What I was alluding to there is that lending tends to increase both monetary velocity, and the monetary supply. This is what makes lending so much different than normal spending.
You can clearly see it rocket upwards in 2020 due to the all the covid assistance (of which student loan forbearance was one item), and then begin to fall as the inflation stabilizes. The crest of the peak is six trillion dollars higher than the pre-pandemic starting point.
Sorry, but a mere $70B loan program just doesn't figure in that enormous signal. It doesn't. It's not doing what you think it's doing. I'm begging you to take off the political/ideological glasses and look at the real numbers here.
As one other aside, inflation doesn't drive monetary supply. It's the other way around.
Keeping a pause on them and trying to cancel a significant portion of debt while inflation was high just to buy votes? The media should have absolutely ripped into him on that. It certainly didn't help.
It's also a far smaller price tag than the regressive tax cuts of 6 years ago and far less egregious than the previous president threatening the independence of the Fed if they didn't push rates below zero.
I'm not saying your wrong, but there are a lot of people who see it differently, and I also don't think that "the smooth running of the financial system" is the most important responsibility of the government.
Who are these people? This describes a small number of people and they are not in power.
This isn't seeing things differently, it's seeing them incorrectly. Yes, there are zip codes and metropolitan areas with higher than median inflation, but that's also true for the reverse. Someone missing the forest for the trees isn't seeing things differently, they're misattributing their problems.
The first is ambiguous; I assume this is the usual inflation definition misunderstanding. TL; DR There are a number of measures of inflation because there are an infinite number of possible baskets of goods and services; they're adversarially generated by a number of agencies and private organizations.
The second is just sour grapes. Did SVB's depositors deserve a bailout? No. Was its bailout infinitely better than the '08 bailouts, which bailed out the banks themselves? Yes. Was not bailing out SVB's depositors worth a recession? No. As another comment mentioned [1], misanthropy and catastrophism isn't a productive policy preference.
Anyone old enough to live through the financial institutions collapsing, one after another, like dominoes would probably at least concede that it is an important responsibility. No one likes to see those responsible get rewarded for their actions, but it sure is important to not let the patient bleed out on the table.
Honestly, things would've been rough, but I think they would've been better if we would've let the economy and the extra waste it has bleed like a stuck pig.
The volatility can cause political blowback as people’s expectations are not met.
So your policy position is pining for catastrophe?
Upon successfully mitigating a forest fire, the conclusion that conditions are ripe for more forest fires does not equate to wishing for more forest fires.
Fair enough. Rising rates make a stable state more viable. In a very real sense, that's what rates are: patience in terms of money. We're conditioned to thinking of all markets like tech, but most businesses happily chug along growing alongside the economy while spitting out wages and profits. Amidst all of that, the carbon and material intensity of advanced economies keeps falling, alongside their birth rates. Fundamentally, I don't see what's forcing unsustainaibilty to the point of necessitating collapse.
Biden kept Powell and resisted calls to politicize the Fed. Contrast that with e.g. Latin America. It's absolutely credible to comment favorably on the American political system in this one respect.
Once we get idealogues or charlatans or just outright corrupt people in positions of power, you'll find out very quickly that politics has a lot to do with the economy as it comes crashing down all around us.
That being said, the president and Congress do have some levers to pull to effect the economy. That can be anything from bad transportation policy (like the overbearing federal highway system) which lowers entrepreneurship and increases death rates and obesity (less fit workers, fewer businesses, etc.) to seemingly good policy like the Inflation Reduction Act which is building and repairing infrastructure, etc.
While most assumed nothing would come of it, the hostage taking of the debt ceiling specifically whenever a Democrat is president is another way in which Congress can have a direct effect on the economy.
To be fair it was different parts of the government, but the comparison sure doesn’t favor the elected officials.
If so, which government was in power for the start and height of covid?
Since we don't live in the timeline where rate increases were less aggressive, we don't know exactly how the economy would have reacted. But seeing as inflation was largely attributed to lack of supply and buyers' willingness to pay higher prices (see: corporate profits rising), I think it's safe to think inflation would have come under control if rates hikes were less aggressive.
I disagree. Yes, there were inflation signs that they didn’t act on, but that’s because the exceptionally sharp and deep recession being over and securely so in unprecedented time wasn’t clear except in retrospect. Fed policy isn’t driven by a unitary mandate.
It was also irresponsible of them to have the rates near zero in the first place. It's one huge whiplash, and the low before the high is all part of it.
No, it wasn't, and protecting banks from bad gambles isn’t either side of the dual mandate.
Were they supposed to invest in stocks, options, or real estate instead? The answer is complicated, but calling bonds a "bad gamble" is weird
Protecting banks at all is not part of the Fed’s monetary policy mandate, so the “bag gambles” was surplus verbiage, ultimately.
Price stability and employment are; protecting banks from failure is a non-goal except insofar as it might instrumentally serve the actual dual mandate goals, and there are mechanisms in place to protect the economy from bank failure impacts, and if the people responsible for them (which include the Fed, but in a supporting rather than leading role, abd outside of monetary policy) are on the ball, the impact of such failures on the things that are in the monetary policy mandate are minimal.
(I know we're supposed to make a distinction between the Fed and the Gov, but I don't really)
Your point on FDIC is well taken though. That worked as intended and maintains my faith in the banking system.
If by “problems” you mean the strong rapid recovery from the sharpest recession in quite a while, yes, Fed policy (and rare strong fiscal policy response) contributed to that, but, so that’s actually a good thing.
And yeah, recovering from a recession is good, but the crazy positive stock market growth after recovering, in a country that isn't really growing it's production or population, should tell you that a comeuppance was on the horizon.
btw: That "If by X you mean Y" type of statement... It's snarky and sarcastic. I wish people could just talk without being jerks.
- wasn't the instability for banks also partly caused by the sharp changes in interest rates, and perhaps for that reason should have been predicted rather than just reacted to?
- didn't we also learn that not only were these banks not required to participate in stress-testing, but that the recent stress tests hadn't exercised the kind of scenario that the Fed has been creating?
- it seems like a substantial portion of inflation was triggered by excessively generous government programs like PPP which gave a bunch of money to businesses that weren't even impacted
- reaction to inflation was kinda late, and Powell gave repeated claims that it was transitory
So ... is cleaning up messes (or preventing the spread of messes) that government created a sign of competence in government?
FDIC/FED/Treasury perhaps did the best thing now, but it's still because of a previous mistake.
Without irony, yes. Ideally we would like governments not to create messes. But we can’t prevent that, and even if we could, messes will be created by other entities and other governments.
Case in point, you mention the PPP loans, which were signed into law by a previous administration. Today with a new administration and a new situation, it doesn’t make sense to complain too hard about that. We should point it out the next time PPP-like loans are suggested, but we shouldn’t chide the current government for cleaning up a mess of its own making, because that’s really not what happened here.
So yes, governments that are good at cleaning up messes are competent governments. Ideally they should also be good at not making messes, but the us government is an incredibly large entity, so messes are going to happen.
The CARES act passed 96-0 in the Senate, and in the House was an overwhelming voice-vote. The large majority the house members and senators which voted for it are still in office, and Biden signed the PPP extension act of 2021. To pretend that this was a choice made by people no longer in government seems misleading.
> Today with a new administration and a new situation, it doesn’t make sense to complain too hard about that. We should point it out the next time PPP-like loans are suggested ...
Because a large majority were forgiven, these were mostly effectively grants, not loans. And after a bunch of people take your money, of course it's to their benefit if we all stop talking about that fact. But I don't think this is any more appropriate here than if a mugger tells you that their misdeeds are in the past and you should just move on and focus on other things despite the fact that they still have your wallet.
> So yes, governments that are good at cleaning up messes are competent governments. Ideally they should also be good at not making messes, but the us government is an incredibly large entity, so messes are going to happen.
I don't think this is more convincing than when a large tech service has a major outage and their ops team is competent in investigating and resolving the incident -- but that fact doesn't on its own mean that the organization is especially competent.
I mean... it literally is though. You're quibbling around the margins about how there was a degree of holdover from one government to the next, which of course there always is. But it was in fact a new government, and you don't disagree.
I chose the PPP example because it's recent, not to mislead. The HN guidelines implore you to be charitable in your interpretations.
I also think avoiding the gyrations in the first place might have been a better outcome.
2018: $280
2019: $300
2021: $300
2022: $360
2023: $440
This is insane. Still seems pretty high to me every time I go to buy stuff like this.
i think everyone needs to do some reflecting. i certainly need to reconcile why i was so sure that the economy would have to crash from high interest rates in order to stop inflation
one camp seems to want to take credit for inflation falling but ignore the incompetence of it rising in the first place
the second seems to want pretend it’s not coming down when it clearly is.
imo 2 things are undeniable:
1. both transitory (pandemic) and policy errors (overzealous spending and interest rates) caused it in first place.
2. both transitory (base effects of pandemic going away) and policy successes (fed raising rates and congress stopping socialist spending) are causing it to come down
US: 25.4T
Europe (well, just EU+UK since I'm lazy): 19.7T
China: 18.0T (<-- totally not cooked numbers)
EU: 16.6T
That's not correct. Also UK is actually still in Europe. Mortal Engines is fiction, not a documentary.
(https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?location...)
(And since someone mentioned California: 3.6T.)
Fast forward to today, their whole reason to exist now seems to promote pro war democratic politicians and to lie and slander anyone who is anti war or critical of big pharma. Their hit piece on Kennedy's wife Cheryl Hines was shameful.
EDIT: my point here is that they want to make the Biden administration look as good as possible. I want to era of Walter Cronkite back.
We live in clownish times, shepherded by clownish people.
So, in other words, growth is more valuable when rates are expected to be lower.
Edit: Downvotes? Pointing out the big picture is too inconvenient a truth? We shouldn't be celebrating 3%, we should be demanding why it's not -3%.
The answer is readily available. https://en.wikipedia.org/wiki/Deflation
Deflation is bad, actually. (Inflation slower than wage growth would be nice, though.)
The goal is to keep inflation at a low enough rate that wages keep up.
https://fred.stlouisfed.org/series/LES1252881600Q
But they haven't have they? Median earnings are flat with Q4-2019 levels. Averages are higher because those of us fortunate enough to work in tech or healthcare are experiencing boom times, but for huge swaths of the country, things are looking very bleak. Take-home pay is the same, but the price of groceries and rent has continued to climb without abatement.
Obviously wages being flat isn't good when there is inflation, either - if they don't keep up you end up needing more debt because you can't afford to pay for everything out of your regular wages.
We're barely scratching the surface here, but modern economies have a lot of different cogs that really only turn properly in an inflationary environment. It just needs to be a lot less inflationary than it has been.
Computers have been deflationary since their inception (you can get a better computer for the same money if you wait a year) but people will always value the present more then the future, that's why we've been buying computers regardless. The same principle could apply in theory to other asset classes, you want a house now even though you could get a better one in the future because you value comfort today rather then tomorrow. Spending isn't driven by inflation, it's driven by knowing we have limited time to live.
And even this substantially inflated bucket cost continues to rise, quite rapidly. In other words, this news does not mean that prices are going to go down - let alone return to the normal. A slowing inflation rate is better than the opposite, but that's really all this is. We are not at the finish line or anywhere remotely near to it, yet. It will be important to see how inflation continues, especially as wages adjust. In particular, a raise of ~18% over the past 3 years (in total), would be the break-even point. Below that and you'd be seeing a real decline in wages, which I think is almost certainly the vast majority of people.
Yes, of course. Inflation is a derivative, and when the rate at which prices were increasing slows down: that is worth cheering. It's a good thing (for consumers) in and of itself.
And there is no finish line, this is an infinite game, not a finite one.
Lastly, wages are also up over the last three years (that’s a huge driver of inflation!). Obviouslyy not evenly distributed, but I don’t think you can make the case that real wages are sharply decreasing (especially once you remove the weird outlier spike that 2020 gave us): https://fred.stlouisfed.org/series/LES1252881600Q