I'm skeptical that interest rate hikes will curb inflation. I'm even skeptical that a recession will curb inflation.
We have significant shortages of so many products and services that people rely on and the only way I see the situation improving is if supplies increase, maybe dramatically. It's too difficult to curb demand for things like food and housing if the population is growing. Those are things we just need to make more of. And I don't think raising interest rates is going to spur housing starts or investment in production capabilities.
> It's too difficult to curb demand for things like food and housing if the population is growing.
It's also difficult (impossible) to curb demand for housing if housing is far and away the best investment you can possibly make, both in the short, medium, and long-term.
Unfortunately, so many people in the west have their net worth tied up in their homes that policies directly targeting property values is political suicide.
The best case scenario at this point for our future society is interest rate hikes causing a housing crash, then while prices are in the dumpster, put in legislation that prohibits the behaviours that have contributed to this cycle of housing mania: AirBNB/individual landlords, corporate investment in housing a la BlackRock, etc.
The sad thing is that individual landlords are among the most responsive to tenant needs, while corporate landlords often are sons of Hell who should be Thanos-snapped out of existence.
> The sad thing is that individual landlords are among the most responsive to tenant needs,
This is extremely dependent on a lot of factors. When you are an upper-middle class tech worker renting a luxury condo, your landlord will absolutely be responsive and helpful. I've been in those condos and they're great.
But I wasn't always able to afford to live in nice condos. When I lived in a cheap ground-floor unit and my bathroom started spewing feces out of the toilet and bathtub because the building's main sewer line was clogged due to the individual landlord fucking up a DIY fix, my individual landlord decided to ignore my calls because I was being annoying, and then I had to fight them through my local tenancy dispute board to reclaim the money I spent on hiring a plumber over a holiday weekend.
Individual landlords may vary in how they treat you, but don't corporate also?
In my own experience: For corporate landlords, being a poor grad student or a tech worker didn't seem to make a difference; I was still treated like I didn't exist. In several instances there were serious issues with my unit that were affecting my health, and they were ignored. Individual landlords were awesome people -- fast and responsive to issues big and small, and even did things to make my stay better.
Seems that many results vary, but I suspect that when there's no human connection, you'll get a lot of bad stuff going on
You should tell my landlords that, the spoiled son and daughter who inherited a bunch of passive income from their mother (who was actually a great landlord), and who let the leak I could hear, and called them about, fester for over a year until a large chunk fell out of my ceiling.
In my experience landlords who bought the property themselves are great. The ones that inherited it are terrible. It's something every tenant should find out, and avoid the latter.
What's worse: that person, or the company that that person runs, that has 10x the units that he might have otherwise, with a protective layer between the owner and the tenant?
Yep. My rental (invitation Homes ) had a major gas leak that they covered up by keeping windows open when I did walk through. When I asked about smell they kept saying it was new carpet etc.
Turned our cap for gas was just sitting on pipe. All the gas pipes were hand done (badly) and against code.
So permanent brain and nerve injuries for while family and hundreds of thousands in hospital bills.
To be fair, most gas connections are done by hand and can be done reasonably safe when done right. The fact it was hand done probably wasn't the problem, the problem was it was done by someone unexperienced and potentially without the right tools and parts.
Unless you're saying all the plumbing was only finger tight and they never used a wrench, which is just so wrong it didn't even originally cross my mind as what you're saying as done by hand. You're gonna need a good pipe wrench to get your gas connections tight.
Housing is a good investment as long as people can afford the rent, and want to live there. If people could not, or do not want to live there, the house stays vacant and it becomes a poor investment.
When housing becomes a bad investment, very few people will spend their money and time building new ones.
The demand for housing depends on demographics, it has nothing to do with it being a good or bad investment. But whether it is a good or bad investment has a lot to do with demand for housing.
Rising housing prices are caused by the post 08 slowdown in building. The Bay Area alone is 1 million units short . We need to deregulate the housing market. Only 2% of units nationwide are owned by large scale investors. That number is going up, but for now it’s not a real problem.
Wait, so you want to prohibit individual landlords in favor of large corporations managing the country's rental stock? That sounds like a perfect recipe for monopolistic behavior. And significantly raises the barrier for new entrants into the market.
> Wait, so you want to prohibit individual landlords in favor of large corporations managing the country's rental stock?
How did you get “prohibit individual landlords in favor of large corporations managing rental stock” from the upstream criticism of the forces driving both individual and corporate investment in housing-as-appreciating asset.
The problem is that the point at which housing market will be such a dumpster fire will be a post-(economically)-apocalyptic for the U.S. -- and inadvertently the rest of the world. Don't forget what happened in 2007, and you are not even close to what can happen -- from a back in the envelope here of course.
Housing might be the topic that dooms U.S. may way way down the road. But the GDP damage and opportunity cost lost annually is substantial.
There should be a form of buy in from the government at some point -- kind of keep your house and get tax credit and we are moving on.
Or we reach the point of a literal revolution on the topic, where people ask for houses instead of bread.
> It's also difficult (impossible) to curb demand for housing if housing is far and away the best investment you can possibly make, both in the short, medium, and long-term.
With the population numbers in decline in the west (especially Europe), will there be enough demand in the medium and long-term for housing?
I did a Google search for "long-term returns from housing vs. other asset classes" (purposefully using exactly what you typed here to show how easy this is) and found a ton of references showing this is an overly-strong (and even somewhat "debated") claim but (as far as I am concerned) right enough for a discussion forum (and remember a lot of people aren't in a good mental position to own stocks but have to live somewhere anyway and so might as well own a house).
> This mix of comparable returns (Finding 1) with lower volatility (Finding 2) leads to one of the research's most puzzling, but fascinating, discoveries: over the very long run (circa the last century), housing earned a superior risk-adjusted return than equities. Sharpe ratios for the asset summarise this fact; note too that the pattern is consistent across countries.
My understanding is that it shakes out to a couple of things:
1) while not beating the S&P, historical returns on real estate are pretty good and less volatile
2) There are a number of significant tax advantages to home ownership
3) you can't live inside a stock. Building equity instead of paying rent is a good thing
4) you can rent it out, making it pay for itself while accruing value as long as you are willing to add your own labor
It's hard to put that all into a chart since (2) and (3), and (4) are personalized and partially mutually exclusive and the tax landscape is always changing.
> Building equity instead of paying rent is a good thing
That depends heavily on your goals. I hear this a lot, but it always reads to me like people think equity just magically happens when you buy a home (with a mortgage). No, you have to put money into it monthly, and a portion of that goes to pay of principal, which builds equity.
Whether or not putting that money into a large, fixed, illiquid asset (versus stocks/bonds) is a good idea... well, it depends. Personally, if I could get an interest-only mortgage with a reasonable interest rate (for my primary home), I would probably go for it. I personally don't care all that much about building equity, and I'd rather free up that cash for other investments.
Of course, many people would use the option of an interest-only mortgage in order to buy even more house than they can afford, instead of for the purposes of freeing up cash, and then end up in dire financial straits, as we saw in the 00s.
Also, re: paying rent vs. building equity: yes, I do have a larger space than when I was renting, but I am also paying more than my last rent, in property tax + mortgage interest + HOA dues. That's money that's just as equivalently "thrown away" as if I was just renting. I don't regret this decision, but let's not pretend that renting is throwing away money, and owning is perfect use of money.
Mortgage is the only type of leverage that an average Joe can get cheaply. Any attempt at getting a 'normal' loan will be met with insane interest rate.
That's the main reason why housing market is what it is.
What? You can get get cheapish credit for just about any asset as long is it secured by something whether that be a house, car, boat, rv... What do you consider a 'normal' loan? Unsecured ones?
> That depends heavily on your goals. I hear this a lot, but it always reads to me like people think equity just magically happens when you buy a home (with a mortgage). No, you have to put money into it monthly, and a portion of that goes to pay of principal, which builds equity.
I feel like you're missing that you have to put money into a place to live monthly anyway and in the past decade the equity is built up through home value appreciation. My area has been seeing 7-10% increases for quite some time. That equity increase far outstrips what principle I'm paying off.
Owner-occupied is kind of a special case, too, because you've got to live somewhere. You could be paying $X to rent, or $X+Y as a mortgage plus upkeep, so the additional "investment" you're making is just $Y. In some cases rents are so high that, especially if you stay in one place a long time, you're actually paying $X-Y to own, so there's a positive return every month in addition to the equity you're accruing. Yeah, this is a horribly broken system, but it does seem to be how things work.
There is a lot of research suggesting that housing is not the best investment compared to equities. Many people conflate leverage with real-estate investment. If you apply the same leverage to equities they will far and away outperform real-estate. Try S and P 500 calculator with dividend reinvestment to get an idea. In my opinion, if real-estate out-paces equities or other forms of investment, then we barrel towards a world where no one can afford to save for shelter any more which doesn't make sense, but that's just my opinion. Unfortunately, real-estate is still a profitable investment, and small piddly fed rate hikes won't change that any time soon.
> There is a lot of research suggesting that housing is not the best investment compared to equities.
And yet most retail investors loose money. My family managed to lose money both by investing in bonds and by investing in index fund - quite of an achievement. They never lost money in real estate.
The reason should be obvious -> most people understand what is a house and how it works, they understand the city they live in and good VS bad areas. Most people don't udnerstand the stock market.
Local to me, real estate investment really only works if you're a landlord and the rent is your income. Buying then selling or flipping homes has not historically been a profitable endeavor. If you timed things just right for COVID, maybe you made a good return, but otherwise in history prices have been rather stable and increasing only similar to inflation for decades.
Surely there are markets where flipping houses is extremely profitable, but it's not all markets.
> It's also difficult (impossible) to curb demand for housing if housing is far and away the best investment you can possibly make, both in the short, medium, and long-term.
Rapid population decline. The coronavirus helped in this regard.
no individual landlords? no corporate landlords? What kind of “landlords” then? Just don’t suggest some type of “communal/socialist” housing. Been there (ussr) - f#*%k that and everything related to it.
> Just don’t suggest some type of “communal/socialist” housing. Been there (ussr) - f#*%k that and everything related to it.
is this the ususal government=Communal=socialist=communist brain bug? They are totally different things!
UK has social housing managed by local government, it's been very succesfull and desirable.
Communal apartments are a type of buildding.
Community housing might is 'normal' housing run by an independant charity, you are not against individual people running charities, are you?
Cohousing is a community of independant houses built around a shared space, that originated in denmark.
Which one are you railing agianst here?
Also why should someone be 'investing' in newbuild Apartments they won't live in, what value does that bring to the economy? They are not contributing anything other than speculation.
So does selling the apartment to future homeowners, which can be boosted by providing mortgages to young families. If the company needs finance it can produce corporate bonds, taking out loans, the state could provide funding, etc.
What is the basis for claiming any more funding is required for their construction and aquisition? This 'investment' only drives up real estate prices, and as a result ever more money will be required for future land aquisitions. It is literally a system that easts itself.
> Unfortunately, so many people in the west have their net worth tied up in their homes that policies directly targeting property values is political suicide.
I long ago concluded that the only way to escape high housing costs is to leave high cost of living places. No reform large enough to make a real dent is politically feasible, and in some overpriced cities the sheer amount of construction that would be required to ease demand is itself problematic.
My generation (late gen-X / early gen-Y) was all about moving to cool cities and living where you want, but I don't think this works anymore. If you move to a place like New York or San Francisco without the move bringing with it a job that pays more than the real estate cost increase, you will never be able to accumulate wealth. Much of your surplus will be eaten by rent and you'll never be able to get on the ownership side where you can accumulate home equity because the rent won't let you gather a large enough down payment or buffer. (The prices are so high even a 5% down payment can be pretty sizable and you won't get a loan on decent terms for less than that.)
When these hipster urbanism trends got going the market was very different. It was right after the great urban crime wave of the early 1990s. Urban real estate was underpriced and going urban was seen as very contrarian, even bizarre and frightening. Going downtown meant affordable housing with nearby walkable stuff, cool old architecture (including those old school warehouse lofts... try getting one now!), and cool people. The underpriced real estate and semi-abandoned old buildings also provided a ton of "marginal space" for wild parties, underground performances, art, and all kinds of cool stuff.
Then the prices went absolutely crazy starting in the early 2000s and exploding after the re-inflation of the housing market post-2008. The core problem is that price signals didn't work. There should have been an urban building boom as more people urbanized, but a combination of NIMBYism and bad zoning largely prevented it. Demand went up and supply did not and grade school economics tells you the rest.
Personally I think the value proposition is gone now. Not only are the prices nuts but the cool stuff that provided a big part of the draw is all priced out. If I were 20 I would stay away from inflated real estate markets.
The only exception might be moving to one of them for a short while to build your career and then leaving. That may still make sense. But don't plan to settle there unless you land a massively high paying job. E.g. I would not stay in the SF Bay Area for less than $350k/year. If you're not in a field with high earning potential just forget about those places.
I'm seeing a quiet trend these days of artists and other creators working in areas that don't pay as handsomely as tech moving to small towns, and not even necessarily the "hot" cool ones. There are a few small towns in the Appalachian region that have become little artist havens.
A decade ago I was offered two positions: one in NY and one in Raleigh, the former paying 20% more. I choose Raleigh, as I don't frequent Broadway shows and I can make a salad bowl myself. I also figured it preferable to be first in a village than second in Rome.
The shortage of housing and population growth have been around for 20 years and the fear until a year ago was deflation not inflation. Don't think that's what is driving inflation.
Money printing is what caused the initial rise in prices. But we aren’t printing money anymore, so that would be a one off. Super tight labor market is what will create the self-fulfiling cycle of prices up => higher wages => prices up. I think the Fed is trying to create unemployment, so that it breaks the ability to demand higher wages, and stops the cycle.
It’s a ugly process that the fed should have started a year ago. The conspiracy theorist in me thinks Powell’s decision might have been influenced by the fact that his mandate was up for renewal by the Biden administration, who didn’t want to hear about inflation risk and tighter monetary policy at the time.
> Super tight labor market is what will create the self-fulfiling cycle of prices up => higher wages => prices up. I think the Fed is trying to create unemployment, so that it breaks the ability to demand higher wages, and stops the cycle.
This is the current view of most people I talk to but I’m skeptical that rising wages is the cause here given what prices we are seeing rise the fastest. If rising wages were the cause, I’d expect to see a different mix than what we are seeing. For example, costs of groceries are rising faster than going out to eat even though eating out requires lots of labor. There are lots of these examples, but to me the prices that are rising don’t seem to line up with past examples of wage fueled inflation. It seems supply is still an important issue and a lot of the supply constrained resources are going to be difficult to suppress demand for.
I’m worried about this narrative that inflation goes into some unstoppable cycle and the only way to stop it is to intentionally cause a recession. If rising wages isn’t the main cause it will take a lot of damage to successfully curb inflation, but people will justify the suffering as necessary to prevent a greater evil.
I don’t think there is great evidence that inflation leads to some unstoppable cycle. The only historical examples of hyperinflation are ones that were caused by deep underlying issues in a country’s economic viability or cases where a country owed an extraordinary amount of debt in a currency they did not control. Yet somehow it seems many are under the impression that we are doomed to the same fate despite sharing none of those same characteristics. This believe will be used to justify killing labor power, which means the burden is on the lower rungs of society yet again. A shame, especially since we haven’t seen strong labor power in quite a long time and were just starting to.
I don't think anyone is worried about hyper-inflation right now. You almost always have a out of control printing press behind hyper-inflation. The risk is more 1970s style high inflation. And I am not saying that rising wages caused the current inflation printing, just that the causes of the current inflation printings are mostly one-offs, and that it is wages that will cause this to become a cycle like it was in most previous high inflation environments.
> I'm skeptical that interest rate hikes will curb inflation. I'm even skeptical that a recession will curb inflation.
Or rates will eventually cause demand destruction to the current levels of supply - which we have seen a bit of. But you're right, this was definitely not the typical inflation event. If inflation is defined as too much money chasing too few goods, supply chain issues from covid absolutely led to an acute too few goods situation. And a war, leading to sanctions on Russia certainly didn't help the energy supply.
That could just be bullwhip effects and we'll settle out to overall price increases. I believe that's what is happening with lumber. The overall trend is up, even though the prices came back down from the big highs.
Probably just my pet peeve, but everyone conflates inflation with CPI. We've had the ridiculous inflation starting in 2008 (and doubling down in 2020), now we're seeing the CPI.
Why this matters (just my theory): previously all that new money went to banks, the stock market, VC, etc., not so much directly to consumers. So we saw the stock market explode, but not so much for the price of eggs. Now we have supply chain shortages and people itching to spend, so we're seeing CPI explode.
Raising interest rates won't help now (again, my theory), because they do nothing to discourage consumers from spending, other than maybe to slow housing or other purchases requiring loans. In fact, I can't get a better return from current interest rates (actually I can still get approximately 0) than prices continue to rise, so I'm incentivized to keep spending.
The Fed needs to convince people to start saving/investing (stop spending), otherwise nothing will change (for the better...)
> everyone conflates inflation with CPI. We've had the ridiculous inflation starting in 2008 (and doubling down in 2020)
You may be confusing money supply with inflation. Inflation measures price levels. We haven’t had “ridiculous inflation” since 2008. (In the early parts of the crisis we actually deflated.) CPI is a good measure of inflation, albeit one among many.
That stock market bull run from 2008 with crazy all-time-high P/E ratios? That's inflation. We just don't include security prices in CPI because it's not politically expedient to let the poors know they're getting priced out of having a meaningful stake in the economy.
> stock market bull run from 2008 with crazy all-time-high P/E ratios? That's inflation.
No, it isn’t. Your original comment [1] decries people misusing words. Inflation is a measure of real economy price levels. That’s what it means.
We have other words for prices of financial assets: indices. You want to talk about multiple expansion, risk premium compression and easy money in finance. That is fine! Lots of people are intelligently doing so! But they go further by discussing concepts, not muddied nomenclature.
> don't include security prices in CPI because it's not politically expedient to let the poors know they're getting priced out
Or because someone saying inflation is fine because while the price of bread doubled the stock market halved would get shot.
Asset inflation is certainly a thing. If people weren't convinced by the stock market's rise from the end of the financial crisis (~2009) through ~2019 to save and invest, what would convince them?
> I'm skeptical that interest rate hikes will curb inflation. I'm even skeptical that a recession will curb inflation.
They won't, but the Fed has to do them anyway. That's the nasty situation we're in: current inflation is mainly being caused by supply shortfalls, which can't be fixed by interest rates short of massive demand destruction with a recession, but if the Fed doesn't do anything we could transition to a regime where the inflation is expectations-driven instead. That's the really bad kind of inflation which becomes self-reinforcing and hard to stop without completely Volckering the economy.
There are no easy answers here, but doing it is better than not doing it.
I've seen some people speculating that you could see a very complex mix of inflation and deflation, where things that everybody needs to buy would inflate (food, energy), and the optional things that people can cut out of their budget (expensive cars, boats, proportional to the ability of people to do without, do less, or defer purchases) could see heavy deflation.
This wouldn't be good for the economy at all, of course.
There was a funny incident in 2011 when a Fed president claimed inflation was low because drops in the latter category canceled increases in the former, prompting heckles of "I can't eat an iPad":
Some countries implemented capital controls in the crisis. Some haircut depositors, which is akin to (but still quite distinct from) seizure. Neither happened in America.
Russia has stopped imports of many vital goods and industrial machinery, and the economy will likely seize up at one point after spare parts for machinery, etc. runs out
I think it depends. Talking with a friend in St Petersberg, last we talked about it was a few months ago so things can change, they are scrambling to bootstrap companies and industries. If they can successfully do that, it may not seize up. But here is the other side of that equation. Trying to stand up something like shops to machine parts in rapid fashion is going to end up with, yea they have parts, but they are low quality. So it may not completely grind to a halt, but it will still be crippling.
Now they could completely fail at bootstrapping those things, which yes, it will definitely grind to a halt. But any day now for the past 60-70 years Cuba was supposed to grind to a halt and well, they are still chugging a long. Maybe with lawn mower engines in their cars, but they still manage to get to point a from point b without walking.
I feel like until we catch up on covid demand, there will be short supply and inflation on the shortages. But let's not forget that the oil companies are price gouging now as punishment against growing green technology. This greatly increases the transportation cost of all goods and their components and can put upward pressure on wages to meet workers higher bills. I agree that raising interest rates will slow inflation but not curb it.
> It's too difficult to curb demand for things like food and housing if the population is growing
Currently population might look like it's growing but in fact things are going the opposite way since most countries have much fewer young people than before which yields also fewer young people in the future, according to Peter Zeihan.
If prices rise 8% yoy and then 2% the next year, the stated inflation rate is 2% even though the 8% is locked in. So there is both higher price levels yet low inflation. Weird how inflation works.
> the stated inflation rate is 2% even though the 8% is locked in
This is how numbers work? Also, the statistic is a price index. Inflation is calculated off those indices. And most contracts considering inflation link to price levels, not their deltas.
To the degree there is fuckery it’s in how the media reports inflation. One or two arcane statistics are taken as a barometer of reality in every state, for every product, across income levels.
That 8% will continue to show up on historical charts of inflation over time, and if you ask the question what is $1000 in 2015 dollars, today, the calculation will include the 8% inflation experienced over the past year.
Inflation is a measure of year-over-year price increases. How else would you measure it?
Easiest way to increase labor supply is to immediately increase the retirement age to 70. Welfare and retirement systems across the West are insolvent at current settings anyway.
Maybe not what the OP had in mind, but the more you work after a certain age (I’d say 60) the sooner you die because of that work, especially if we’re talking non-office work.
So, in a way, what the OP suggests will have a double “advantage”: people working longer, i.e. less pensions to pay, and people dieing sooner as they retire, so, again, less pensions to pay. Of course, it would suck massively for the common man, but that’s not an issue anymore, as nobody seems to care for the common man any longer.
> Easiest way to increase labor supply is to immediately increase the retirement age to 70.
Or to send kids back into coalmines.
You want a non-sadistic solution? Healthcare increases labour supply - or reduces labour supply that is sick or disabled.
Actually do we need to increase labour supply? the past couple of decades had little growth in salary becauae labour had no bargaining power. Now corporate profits are record high. A big renegotiation is about to happen and it will be good for labour
Alternatively, or perhaps in addition, we can begin lowering the Medicare enrollment age so we can free employers from the burden of overseeing health insurance plans. This would also free up workers currently wasted on interacting with insurance companies on behalf of providers. It's win-win-win-lose (the winners are everyone but the insurance companies, and I'd wager the former vastly outnumbers the latter).
Regrettably, This is what does tend to happen. But its also a failure of society because immigrants are easy targets for scoring political points, despite it being repeatedly shown how beneficial immigration has been to Western econonomies.
> how beneficial immigration has been to Western econonomies.
Western way of life is unsustainable and no amount of immigration will change that. To govern is to predict and the west needs to prepare itself for a post industrial, post energy hungry era.
Can you support that last claim? Might have been good for the S&P, but I'm not so certain the average joe off the street has seen said benefits. I could swear I recently saw a stat that locally born men in the US have only shared in like 3% of new job growth for the last decade or something like that.
Income inequality is a separate (albeit related) problem from economic growth. Immigration generates more value, the fact that most of this value is captured by elites needs to be fixed with appropriate actions (higher taxation on the extremely rich etc).
lets say an innocent baby enters the world - this immigrant is not seen as much of a threat. you dont say "babys are taking things away from real Americans". just substitute "person" for "baby" and the benefits to the economy are not hard to posit.
adding humans to the economy is good. the pie gets larger. more tax revenue. etc etc etc
The US has shattered record numbers of migrants crossing the southern boarder every month for over a year. It has had zero deflationary effects if anything it causes the supply to shrink even further as demand skyrockets. Migrants still need to be housed, feed, clothed and transported. There is no easy way out.
Second, people crossing the southern border will never be large enough to affect the US labor market. Only increasing legal immigration can have meaningful effect on the labor supply.
Millions of jobless migrants crossing the southern border has no affect on labor supply? I also do not understand how "only legal immigration" can have an effect. Immigration is Immigration doesnt really matter the legality of it.
Illegal immigrants can’t participate in vast sections of the economy precisely because of how well immigration checks work. They can only work for the informal sector/low level jobs.
> Easiest way to increase labor supply is to immediately increase the retirement age to 70.
The actual maximum benefit retirement age for Social Security is already 70.
The misleadingly named “full retirement age” is 67, but I don't think squeezing three more years out of the non-disabled elderly is going to do as much good for the industries where demand exists as you think.
EDIT: Also, proposing an immediate increase to the retirement age is probably the easiest way to lose one’s next election in most US constituencies; there's a reason why the increases adopted in 1983 had a phase in starting 17 years after they were passed.
I really doubt that. My mom has quite a few friends that are retired (she's in quite a few hiking and cycling groups) and all of them are doing at least some part-time work.
I think it's incredibly cruel that they have to work at all at their age. If my mom hadn't planned her retirement well and people tried to put her back to full-time work, I would eat the cost of taking care of her needs if the state didn't. I mean she was really struggling to do her job at the end.
Unless by that you mean that people who have already reached their retirement age and retired and are collecting benefits would have those benefits withdrawn if they are not yet 70 I don't see how that would increase the labor supply. It would just slow down number of people already in the labor supply leaving it for retirement.
If you do mean that people already retired but not yet 70 have their benefits cut off until they reach 70 there are a couple problems with that.
1. It would be political suicide.
2. It would be very hard to deal with the logistics. First, a large number of the people who it forces to un-retire will no longer be living where the jobs are. Your plan will tank the market for housing in retirement communities making it impossible for many to sell their houses to move back to where the jobs are.
Second, a large number of them won't be capable of doing the jobs they did before, due to age or due to their skills being out of date. Many will need retraining, or will have to take jobs in fields they have no experience with.
Dealing with all that would be a lot of work, with many reluctant to put in that effort when the workers that you do manage to get are just going to be temporary.
> It would just slow down number of people already in the labor supply leaving it for retirement.
If you have the same rate as before of people coming into the labor force and slow the rate of people exiting the labor force, the effect on the labor force is...what, again?
What I find tragic is that 'we' had all this time to gradually increase the retirement age but didn't do so. I can totally understand the political backlash of trying to immediately increase the retirement age, as old people vote and young people don't.
However I feel like forward looking legislators could have passed gradual increases on future generations. If we know life expectancy is gradually going upwards, why not increase the retirement age incrementally based on cohort?
> What I find tragic is that 'we' had all this time to gradually increase the retirement age but didn't do so.
‘We’ actually did exactly that, over a 20 year period that just finished in 2020, under a law passed in 1983. (‘We’ also phased in increased incentive for delayed retirement past the nominal “full retirement age” at the same time, so that the actual maximum retirement age of 70 has substantially higher benefits—+24%-+32% depending on birth year—than the nominal “full retirement age” .)
Young people arnt jazzed about raising retirement either. I would like to retire some day as well. Not looking forward to the future where I get to "retire" at 80 or 90 because the generation before me couldn't handle a budget.
The bulk of people are at an age now, that they'll retire soon or are retiring. Even though we already import tons of young people (look at the amount of young males vs females - 50% of young people here have a migration background), I can't imagine we can import enough young laborers from other countries, and Germans don't reproduce nearly enough - which is understandable considering how things are going.
Agreed. Having to work to 70 and possibly beyond because some employers haven't figured out how to make their jobs not completely shitty seems like a pretty raw deal.
But... why? As productivity levels go up and life expectancy goes up, we should be able to allow people to enjoy retirement more, not less. If we can't do that, then perhaps capitalism is just garbage and we need to find a better way.
Also I do wonder if life expectancy increases are translating directly into the possibility of more "productive years". I wouldn't be surprised if some of the life expectancy increase is due to medical procedures that extend life at the expense of quality of life. People in these situations wouldn't be working anyway.
It's almost like you are encouraging supply side economics... aka... trickle down
We need to massively cut corporate taxes, investment taxes, regulations, and all manner of things to increase supply. The government has been attacking business for so long we are in quite the hole.
This doesn't work, when we tried this most recently all it did was increase stock buybacks by large corps. It's just effectively a wealth transfer to those already at the top of the food chain.
Err quite the opposite, recently corporate profits are at highs because part of the inflation has been price gouging. and they can do that because of lax regulations around mergers among other things
I'm a huge fan of so-called "price gouging". Without the ability to increase prices the shelves would be bare. This is what happens in all countries with price controls.
You say price gouging, I say protecting society from itself.
1 is rationing too, just rationing to prioritize the wealthy. The more modern versions ration based on other things, like how to combat ticket scalping, bands release tickets through alternative means
1 is the capitalist way while 3 is the socialist way to distribute goods. The first works best under normal market condition, as it encourages economic growth, while the latter works better under special conditions where the scarcity is severe, unavoidable and caused by temporary factors (such as a war).
There isn’t a shortage of many items that have had large price increases like oreos. There is no shortage on a lot of items but the companies see opportunity to raise prices at will in the current climate simply because they can
> isn’t a shortage of many items that have had large price increases like oreos
The wheat, the trucks, the oil and the labour that make every Oreo have increased in price. (We have amply-documented wheat, energy and logistics shortages worldwide.)
Also, nobody needs Oreos. The concept of “price gouging” is economically illiterate, but the nonsensicality squares when applied to literal candy.
Look I am using Oreos as a general example but even gas prices do the same.
Input costs may rise by x cents but the companies mark up prices by 5x because they can, not because they have a shortage.
Gas prices are way higher than they should be but it’s not all the reasons the oil companies like to point to. They simply point to supply to distract from price gouging. The house is even trying to get the government to investigate that.
Taking contrived narrow minded interpretations of comments and glaringly ignore rather apparent facts and then alluding that the original comment is “nonsensical” and “illiterate” makes your comment seem that it lacks substance and just wants to resort to debate using insults rather than actual facts and context.
> companies mark up prices by 5x because they can, not because they have a shortage
These are the same thing. Fuel is a competitive market. If people are paying a premium and producers aren't undercutting each other, it's less likely a conspiracy than math.
The crack spread, i.e. "the differential between the price of crude oil and petroleum products extracted from it," has risen, but not much more than crude [1][2][3]. Given fuel, labor and shipping costs flow gap the traded price of gasoline to the price at the pump, that's not an unreasonable increase.
Pumps aren't making much money. Refineries are doing well. And primary producers are making off like bandits. To the degree intermediaries are profiting it's because people are paying a premium to ensure supply. A hallmark of a shortage.
> house is even trying to get the government to investigate that
It's an election year and people swallow tripe.
Gasoline is unusually transparent in that its primary (crude), intermediate (gas) and final (gas after transport + tax) forms are publicly priced. You can add up numbers to see who's making how much more than whom. If you find a way to take the RBOB, ship it to your town and pay the taxes while undercutting the local gas stations, I'm all ears--there is a thriving market of private petrol shipment for commercial use.
> alluding that the original comment is “nonsensical” and “illiterate”
Never my intention. Price gouging describes short-term, localized increases in prices of essentials. If Oreos prices are increasing nationally, it's not price gouging. Because it's widespread. And they're Oreos.
What it might be is profiteering. But both profiteering and price gouging are closer to philosophy than economics. They're used when we perceive prices to be unfair, with the moral definition of fairness being invoked more than an economic one.
To the degree we can define either, it's a sustained jump in profits following some calamity. (A steady-state seller, noting a jump in demand for e.g. fuel, might raise prices today, temporarily raising their margins, in anticipation of their higher input costs tomorrow.)
Anti-gouging laws are shortage-aggravating, in some cases, inducing [4]. But it leaves us with a society that feels fairer in emergencies. That psychological benefit may be worth the cost paid. But it should be recognized for what it is: paying with shortages for a notion of fairness.
If gas prices were simply a matter of the costs going up, the oil companies would not have record profits. if the actual costs are added up, it transparently does not equal the end price by definition due to the record profits.
Your comments is resorting to quibbling over whether it should be called profiteering or price gouging, the classic insincere debate tactic of derailing things into arguments over semantics rather than substance.
Why would we ever, ever need to cut corporate taxes? If a company re-invensts in equipment, it's workforce, research, or anything at all, they pay no tax. Tax is only applied when they transfer the money to shareholders.
How will enabling corporations to transfer more money to already wealthy shareholders help the economy?
> We need to massively cut corporate taxes, investment taxes, regulations, and all manner of things to increase supply.
Supply is low due to a global pandemic disrupting trade (and far too many companies relying on 'just-in-time' logistics).
"Massively [cutting] corporate taxes" won't do anything but bolster already soaring corporate profits. A significant amount of that money won't go back into the local economy. It also won't go to improving infrastructure, processes, employee salaries or anything that can improve resiliency or longevity; they've been penny-pinching for decades, and this is the result of it.
Furthermore, 'inflation' of many necessities like grocery, gas, and rent is obviously driven by blatant profiteering.
How is the "pandemic" still disrupting trade? Wouldn't it be more accurate to say "governments' response to pandemic"? I.e. Shanghai's continued inhumane lockdowns by the CCP for political reasons.
How would slashing corporate taxes fix inflation? Corporate taxation encourages companies to reinvest into their own businesses: hiring more people, increased capex, etc. Cutting taxes just causes companies to either hoard cash, or return capital to shareholders through dividends or stock buybacks. Neither of these things helps the economy, or helps the average person; it's just wealth transfer from all taxpayers, to elites.
Check out what airlines did in the last half of the last decade. Check out what kinds of companies benefited most from the COVID-related handouts, and see what they did with that money.
Or people simply disagree with it. Economics is a Social Science and largely based on opinion, not fundamental properties of the universe.
Racism is defined in many academic circles as "prejudice plus power". Are people 'wrong' if they disagree and think it ought to be defined differently?
You are getting down voted for telling the truth. Every inflation discussion starts with the supply side economics or companies raising taxes, but inflation only happens in reality because of government spending, borrowing, and deficit spending.
> but inflation only happens in reality because of government spending, borrowing, and deficit spending.
This is incorrect. Note that governments around the world are also experiencing record levels of inflation and each has their own fiscal policy.
Inflation is an aggregate economic effect driven by a variety of factors—including but by no means limited to government spending. Other things that contribute to inflation:
1. Supply shortages
2. Cost of living
3. Abundance of capital (low interest rates, high wages, etc)
4. Speculation
Basically anything that contributes to groups of people assigning a higher value to the same set of goods or services.
Supply is the most immediately noticeable cause and COVID has disrupted supply chains for some time. It is entirely unsurprising we've seen inflation as a result. Government policy has certainly played a part, but blaming everything on government spending is misleading in that ignores the larger realities of inflation beyond the borders of any nation state.
Most of your ‘refutation’ is dishonest, Keynesian, MMT nonsense. Fiat doesn’t get introduced unless printed or borrowed by the government. Full stop. Companies raising prices is not inflation and conflating that with government monetary policy is outright disinformation.
Given that we base inflation numbers on CPI, inflation exactly is companies raising prices -- well, companies that produce the goods that are included in CPI, anyway.
Yes, we still have to consider the reasoning behind why they are raising prices. Personally, I believe it is more because of supply chain shortages than COVID fiscal policy (though the latter certainly contributes), but I agree that's up for debate.
I'm not an economist and don't really understand your refutation. To help me understand your viewpoint, could you explain in simple language why government spending or policy is the only source and cause of inflation? Please correct me if that's an incorrect interpretation of your statements.
Going by what I see as an individual, there are lots of things happening around me that drive prices up that don't have any strong relationship to my government's policy (e.g. bird flu raising poultry prices). I also don't understand how this can be the case simultaneously across multiple governments around the world.
What markets exist outside of government authority? No, black and gray markets don’t count because the increased money supplies created by governments will affect the overall amount of money chasing goods in any market.
First, this article buries the lede. The first seven sentences are framing. Only sentences 8-9 are actually news. The next four are, again, context. The headline also does not actually say what happened.
Second, of the fourteen sentences here, a full six are trivially true -- "The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run." & everything from "The Committee is strongly committed to returning inflation to its 2 percent objective" through "The Committee's assessments will take into account a wide range of information". These are all obvious and don't add any actual information -- or maybe they do and it requires more cultural knowledge than I possess to read between the lines?
Third, use of jargon, e.g. "Recent indicators of spending and production have softened". WTH does 'softened' mean? From context, I'm guessing it means "show evidence of decelerating growth." Why not just say that?
Fourth, hyperlinks? references? Why not provide links to the economic data that's informing the decision?
Molly Young has a great article called "Why do cdorporations speak the way they do?" [0] that provides a compelling account of exactly that. Do we have something similar for the Fed? Or for bureaucracies in general?
"Tell me you were too young to remember Alan Greenspan without telling me that"
The Fed has always shied away from saying things too bluntly, and preferred to deal with wishy washy code words. If it ever says something bluntly you know they really mean it. Something like "softened" is a deliberately ambiguous phrase designed to acknowledge the reality that they're declining without causing panic, by being uncertain and sounding not terribly bad. You're supposed to wonder what that means and argue about it, so the markets don't bolt one way or the other.
If you look up the history of Alan Greenspan ("The Maestro") and the way that investors in 2003 watched for the changes in single words from meeting to meeting from the Fed, so that he never startled the emotionally delicate markets you'll see there's a long history of this kind of language.
Also it kind of scares the crap out of me that they're bumping rates by 75 basis points every meeting. If you understand how much Greenspan was walking on eggshells back in 2003, they're fucking screaming right now by their actions that they're going to plunge the economy into a recession in order to get wage growth and unionization under control.
Here's a good example of how the Fed language causes debate. From Paul Krugman:
> Well, we’ll have to wait and see. The good news is that policymakers appear willing to do just that. From my point of view, the most encouraging aspect of the Fed’s statement on Wednesday was the paragraph declaring that the committee setting monetary policy is prepared to be flexible, that it “will continue to monitor the implications of incoming information” and “would be prepared to adjust the stance of monetary policy as appropriate.” That’s a not-too-subtle rejection of demands from inflation hawks that the Fed commit itself now now now to a long period of extremely tight money.
My reading of that language, on the other hand, is that its pretty tepid and just what would be expected, and that the Fed not actually coming out with the most hard-line language possible is not worth much. It still suggests that they'll stick to their guns until they see a considerable amount of change in the data. I'm drawn more to the single blunt sentences which are "The Committee is highly attentive to inflation risks" and "The Committee is strongly committed to returning inflation to its 2 percent objective" which are two pretty harsh statements that they terminated paragraphs with that I think signal their overriding concerns.
Given that I think that they'll wait until they see clear changes in the data, and given that I think that the foundations of the economy are vulnerable to shocks and I'm expecting at least a commercial real estate implosion to go off once everything gets "stress tested" by higher rates, I am not anywhere near as hopeful as Krugman.
The fact that people can get such wildly different takes out of the Fed language is a feature, not a bug.
I'm over here building a nuclear fallout shelter, Krugman is in la-la land thinking its all coming up roses, we're both reading the same announcement, yet nothing in the Fed announcement is wrong or false.
Oil is down 20% from June, so it's likely we'll have somewhat tapered inflation next CPI. Current best estimate for FOMC meeting 6 weeks from now is a 50 bps raise, and then two more 25 bps raise to end the year at 3.25%. Sounds reasonable to me.
Over the course of 2 years from 2004 to 2006 the fed raised interest rates by 425bp which ultimately popped the housing bubble. In less than a year the Fed will have increased rates by 325bp in your scenario, and there's no indication by the Fed that they're going to slow down that much, and currently no indication that inflation will hit their 2% target rate. And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy (and you can't even see the last commodities boom when oil went to $100/bbl in the core-CPI readings from that time -- the rise in oil prices didn't cause the core CPI increase, so falling oil prices won't reverse it). And I think the markets are underestimating how much they'll hike rates to close out the year. If core CPI remains elevated even as oil comes off its highs then they could at least do 3 more 50bp hikes to close out the year.
> And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy
Energy, as well as being a CPI component itself, is a key production input and has outsize effects on prices across the board (though that effect is smoothed compared to immediate energy costs); if energy costs have peaked (and not just seeing a downward fluctuation over the last month or so), then that itself is going to be a huge brake on core inflation.
Raising interest rates can crash the economy resulting in higher unemployment. Higher unemployment means less bargaining power for workers, of which includes union strength.
I'm not much for conspiracy theories but it's hard to not fixate on the sequence of events here. The past year or two is the only time in my lifetime that workers have seen their market power increase significantly, and it's being quickly followed up by moves that will likely crash the economy and will certainly decrease labor's bargaining power.
The more leverage labor has, the harder union-busting is, generally, because labor rights enforcement is...decidedly spotty, but witholding labor, or even making your firm less attractive to applicants, in a tight labor market is highly effective whether or not the state is enforcing labor rights.
Interest rate hikes slow the economy and reduce labor demand and leverage.
Because they aren't writing for a general audience. They're writing for an academic, professional finance, and governmental audience. It's extremely relevant that their word choice is being scrutinized for suggestions of what their future policy will be. Similarly, their use of jargon would be well understood by their audience. Context matters in communication.
You could consider this almost ritualized. That's something very different than corporate doublespeak that seeks to obscure rather than inform.
Second, of the fourteen sentences here, a full six are trivially true
None of those things are trivially true to people who regularly post contrarian and/or conspiracy theory takes about the fed on this very web site. It makes sense for the fed to restate these "trivial" matters rather than ceding the discussion to "alternative" facts spread by contrarians.
Here's an example of what I mean. The article states "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run."
Someone on this thread stated the interests rates are actually being raised because the committee seeks to crush unions.
So if that "obvious" sentence was removed I'd only be hearing one side of the story if I read the poster's take and the attached press release.
Ah so this might be non-obvious context — the fed’s mandate is 1) maximum employment and 2) stable prices, which the Fed has, historically, defined as 2%. So saying this in the press release is basically like if i restated my company’s publicly known OKRs every time I made an announcement.
Funny that this would rocket to the front page so quickly. Shows where everyone's minds are at.
A lot of folks were banking on a pivot by the fed but they failed to understand how seriously the fed now sees inflation. Sure, the fed could/should have raised even higher, but consider they need to orchestrate a less disruptive start to our next recession. They're still doing QT as well, which will also help tame inflation.
The Fed does a very good job at setting market expectations. If it sees the market is mis-aligned with its thinking, it will use soft policy tools like interviews and public statements (outside of more formal options, like regularly scheduled official FOMC press releases) to bring the market to its expectations. Markets priced a greater than 3-in-4 chance of a 75 basis point increase, which was the decision: https://www.cmegroup.com/trading/interest-rates/countdown-to...
In the preceding weeks, especially after the latest inflation report came out, markets began pricing a ~90% chance of a 100 basis point increase. Then came out the interviews to steer markets back to 75.
> Funny that this would rocket to the front page so quickly. Shows where everyone's minds are at.
I don't find this so surprising. Inflation (and rates as a consequence) has been affecting a good number of people directly or indirectly (cost of goods/gas, stocks, layoffs, etc).
The stock market is usually the best indicator of investor sentiment - the consensus was a 75 bps increase, that's what the market got, and as a result the market sustained gains from today.
We'll see where the market settles in a few days. I wouldn't read too much into today's price action. You're seeing a lot of options action in a low volume market. We're not even done with a big earnings week(cough, AAPL, cough).
damn, inflation in my country will be crazy after this. our gas prices are already really high (the government had to subsidize it until the end of the year to have a chance of being reelected). now probably this crazy politic will be nullified since the dollar will get more expensive
The GP is living in a different country, that doesn't use USD as the currency. They already have high inflation. The change in the US interest rate would be expected to strengthen the dollar. This makes dollar-based imports (i.e. oil and gasoline) more expensive in their local market, fueling inflation further.
How would printing more foreign currency make their total dollar-measured goods/services/estate that people actually want to trade dollars for any different in terms of dollars?
A lot of what we're seeing now is bullwhip effects from the massive evaporation of demand due to the pandemic (spot prices for oil actually went negative at one point, which is one of those things that everyone seems to have entirely forgotten). That will be transitory. So will the impact of the stimulus checks.
Secularly we're seeing the impact of cracking down on immigration combined with death and disability due to Covid and the retirement of baby boomers.
There has also been a 40-year long secular trend of tax cuts for the rich and free money policies which has blown up asset bubbles and increased the Gini index of wealth disparity (give rich people money to spend and they blow up asset bubbles and create evaporating risk premiums as investment money goes looking for gains).
The covid stimulus to average workers was actually overdue and did create some wage inflation (which would offset the asset bubbles and decrease wealth disparity) but that is what is now being cracked down on by the Fed. I suspect it will be entirely successful at what it is trying to do in the short term, and unemployment will get driven much higher because we can't tolerate the lower class doing any better in this country, that's a disaster.
Then I suspect we're going to oscillate between periods of sharp recession and sharp inflation as the secular problems (inequality, lack of immigration and retirement) won't be addressed. 10 years from now Putin and Covid will be long gone, but we'll still be dealing with the secular trends.
What I don't know is how much pain that investors or homeowners will be put through either deliberately or unintentionally by policymakers. Everyone has forgotten the problem of "pushing on a string" where no matter how much money you give to investment banks it just gets hidden under the mattress and can't stimulate demand. If they break the economy hard enough we could wind up there and the trajectory of the economy could be out of their control.
To my understanding you can’t have both huge inflation and debts, absolute value of debts don’t change contrary to everything else. If everything (including salaries) does x2, then debts get divided by 2. Inflation has positives too.
I think that if we have to choose between letting hundreds of thousands of additional people die, or having a healthy economy, we utterly failed our priorities as a society long before the pandemic started.
Not sure if you're being serious with these numbers, but we've had 1,000,000 covid deaths in the U.S. So we'd need 25% unemployment to match... And people are still dying from covid.
If a society makes the choice that they'd rather be a bit wealthier, at the cost of having slightly lower life expectancy, that certainly does say something about the society in question. I don't think I would describe a society that knowingly and intentionally made that decision as having "utterly failed", though.
US society has failed the "knowingly and intentionally" side of that, and also mostly the "trade" side of that (vaccines being the exception -- we actually did succeed at trading a pretty small amount of money for much-better-than-baseline outcomes there). But the problem wasn't that we chose to trade life for money, the problem was that we failed to have and act upon coherent priorities at all.
Very good. This is going to hurt quite a bit, but is going to prevent real pain in the long run. Much like something we should have all done a year ago.
We need to realize rates are still quite low. To put it in perspective, we're finally back to 2019 levels. There's still a long way to go to get back to 2005 (5%-ish rates).
I think you're right, but I'm a little pessimistic after covid relief and the 08 crash. we have 9.1℅ inflation and the damage control from the reigning party trying to explain away an obvious recession makes quarter point increases seem like performance art. student loans are already such an untenable debt bubble that the same potus that stumped for their perpetuity is now forgiving them. auto loans are an equally prime disaster waiting to happen as their average term is now 72 months and the average monthly payment is $700
A year ago the economy was still in the grip of covid. no one expected things to recover so fast from such a huge crisis like covid. Thing went from "the world is coming to an end" to new highs just 7 months later. that's nuts.
What is being to address the price gouging by companies? Oil and gas companies are seeing record profits, how can it be just inflation that costs are going up?
The barrier is capital expenditure, not regulation/licensing/taxation.
Besides, any competitor entering the market would be expected to make just as much or more profit as the existing companies. Which means they would price their product just the same as the existing companies.
>The barrier is capital expenditure, not regulation/licensing/taxation.
I don't think you can just decide by fiat that things like regulation and licensing aren't barriers. Taxi medallions before Uber comes to mind.
>Besides, any competitor entering the market would be expected to make just as much or more profit as the existing companies
You also cannot just decide by fiat that adding more competitors mean the same amount or more profit. I don't think it is a very popular economic opinion to believe that adding more competition raises the profit. I do not understand why any rational competitor would expect their profit would be higher with more competition, unless they have some kind of edge.
How exactly can a company price-gouge in a free market? First, nobody is compelled to buy anything from them. Second, anyone else is allowed to become a supplier, and easily make a fortune by offering a cheaper price.
And the only thing that prevents the above from being true, is oppressive government policies that undermine the freemarket, which are sold to the people as "for their protection".
Cartels and predatory monopolies can exist in a free market. It’s not as simple as conjuring up companies with billions of operational supply chain investments into thin air.
As Tesla likes to point out, they are one of 2 car companies formed in the last century.
"nobody is compelled to buy anything from them"? Really? How are you going to get to work when your work only pays you enough to live 10+ miles away and there's no public transit (i.e. the vast, vast majority of people in the US)? Or should they just not have a job (and thus no shelter or food either)?
The free market is not free. It's a myth. It's a lie.
(And before you say Tesla or some other electric car, remember that they are a luxury and priced as such, not to mention that most Americans can't even charge them at home.)
Unfortunately the (usually imported) gasoline car is somehow heavily tied into the image of the American dream. While I am no fan of Tesla (mostly because of right to repair), it baffles me that a patriot would choose an imported car that uses Russian gasoline over an American-designed car that uses American-produced energy.
While it is definitively a free market, it isn't in practicality.
Most Americans are using gasoline produced from crude drilled by Americans, Canadians, workers in Saudi Arabia, and Mexicans, that has been refined by Americans, in America, and supporting jobs in those countries. Russia accounted for only 3% of total crude imports before the war. Yes, the environmental impact is negative, but lets not pretend the relatively high wages in oil and gas jobs doesn't help American workers.
There is really only one organization that price fixes oil and it's OPEC. Any individual oil and gas company has literally zero influence on the price of oil and gas.
That can't be true if the price of a gallon of gas varies even between gas stations in the same area. Sure there's local, state and national taxes and other fees, but it's clear that gas companies are adding on top of their costs otherwise they wouldn't be turning a profit. "Inflation" is also the perfect cover to raise prices, and it's true of other industries
It was about 6.5% in the 1998 recession and 5.25% in the 2007 great recession. It's unlikely we will head into a recession anytime soon. Numbers are all over the place, but I see most of it as temporary (Covid, Gas Prices) and not structural or risky behavior from investment banks in 2007. Remind me if I'm wrong, but I think inflation will drastically drop next report.
> not structural or risky behavior from investment banks in 2007
I don't see it that way at all. Over the last couple years, we've seen an explosion in private capital investments, NFT and crypto fads (questionable, but I would argue that these were large enough to be considered structural), greatly increasing home prices, supply chain disruptions, the war in ukraine (and all its knock-on effects). Things are a bit topsy-turvy, and I am hesitant to write off all of these things as "not structural".
The values of homes went up during the pandemic because people were in their homes. The extra savings of not going out to eat, vacations, etc.. enabled people to reason that paying for more of a house to fit their work from home lifestyles worth it. When you add that plus the historically low interest rate it was a tour-de-force. You might be on to something that it might be more structural now than how I originally thought. People are locked in homes that might be another housing crises, and if we start having job loss we could see something ugly like 2007. Again, I remain hopeful that salaries are up and unemployment is low.
On the positive side, the US is better off inflation-wise in the United States than in Europe.
The only structural issue I'm concerned about is years of cheap debt. As a result we've seen a lot of growth in debt across individuals, corporations, and governments, and I wonder what happens when we reach a point where debt simply stops growing significantly.
Most economists still don’t think the economy meets the formal definition of a recession, which is based on a broader set of indicators including measures of income, spending and employment. The G.D.P. data itself will also be revised several times in the months ahead.
The only thing and the only job the Fed has now is to increase the Consumer Sentiment Index (without destroying royally the economy and the Consumer Confidence Index (employment that is)).
Its power are the statements and showcasing it is doing stuff. That's it. The interest rates and treasury issuance will do nothing by themselves -- the banks have not unloaded their portfolios yet. If it wanted to affect things it would start messing with the Mortgage Backed Securities "portfolio" which would be the "nuclear fusion bomb" word.
So let's hope people get convinced that things are fine and don't start running to the banks/stores to stock up on ... toilet paper. (wink)
It seems from the statement that the fed understands that the inflation is being caused by supply chains and the war in Russia. What I don't get though is how that's considered monetary inflation as opposed to the money supply increasing. I thought that it was just price increases.
So the fed mandate is just to ensure that the prices of goods and services barely ever changes even if it means tanking all the markets?
Is 75 basis points correct? The actual press release appears to describe an increase from 2-1/4 percent to 2-1/2 percent, which is only 25 basis points. It says it "anticipates that ongoing changes in the target range will be appropriate", but that's not the same as making additional changes now.
Maybe inflation is not the boggieman it is made up to be.
We had much higher inflation in 80's, sometimes in double digits, and salaries outpaced inflation.
By contrast in 2010s inflation was nearly zero and oay has declined. There is no rule in economics that says inflation should be at near-zero like it was for the past couple decades.
Additionally, you would think that the ti.e period when we had near 0% inflation would be the time to invest in long-lofe assets like solar panels and wind turbines, that take lond time to pay back. But we didn't really take advantage.
Now we can see all stocks are down as speculating with borrowed money becomes more expensive. Meanwhile those of us without access to leverage can't afford to buy assets - it is entirely possible that inflation will benefit the common man.
anyone know of bullet-proof analyses into central banking policy out there?
after dealing with crypto projects that offer high interest rates, and do so by just inflating their token supply, fed policy seems magical to me. the fed’s offering you yield on your dollars, and that yield comes from printing new dollars (right? there’s no tax increase as part of this announcement). your share of dollars stays constant. so why is it that paying nominal interest on dollars makes people want to buy and hold onto them? how is it that inflating the supply via this one particular method strengthens the dollar? how do you model these things?
"print money" is a colloquialism for increasing the money supply, which the Fed does do. Before you argue that all banks increase the money supply: there is a limit to the maximum possible amount of money as long as the reserve ratio isn't 0. That maximum limit was raised by the Fed with bond buying.
When people complain about printing money, this is what they are complaining about. It absolutely causes asset inflation (very easy to observe with some DCF modeling or checking P/E ratios). I would also argue it is a strong contributor to increasingly binary wealth stratification. It's a legitimate complaint and pedantically pointing out that the Treasury literally prints money is either ill-informed or arguing in bad faith.
All fiat currencies are backed by the USD. All commodities that matter are priced in USD. Countries must acquire USD to buy oil. Therefore we increase interest rates, makes USD-denominated debt harder to manage, increases demand for dollars, weakens other fiat currencies, dollar is strengthened.
What USA business can do now is swoop in and buy all foreign capital assets at pennies on the dollar. Go to Sri Lanka and buy whatever factories and industrial capacity they have. Emerging market crashes are great for the USD money printing country.
This is the exact opposite of what the Fed does. They have many instruments by which to influence interest rates, but mostly what they do is target the federal funds rate. This is the rate at which banks lend to each other overnight. The Fed mostly hits the target rate in two ways. One, by directly lending at the top of band rate and borrowing at the bottom of band rate, so banks will never lend to each other outside of the band. Second, by engaging in open market operations, which is primarily the buying and selling of US Treasury notes. Buying them increases the demand, which in turn increases the price, which decreases the interest rate. Selling them increases the supply, which in turn increases the interest rate. To buy treasuries, they simply create money from nothing, thus inflating the money supply is what lowers interest rates. When they sell treasuries, they simply destroy the proceeds, thus deflating the money supply to increase interest rates.
The Fed doesn't offer anyone yield on holding dollars. You get yield from holding treasuries and interbank commercial paper. The Fed influences the yield on these instruments by buying and selling them using a theoretically infinite supply of its own dollars.
Reading my answer after posting, I think your confusion is really coming from the way bond pricing works, not anything to do with central banking. The price of a bond is determined by a pretty simple formula, P = M / (1 + i)^n, where P is the market price, M is the redemption value at maturity, i is the interest rate per period, and n is the number of periods at which interest is paid. Since interest rate is in the denominator, this means a higher interest rate bond has a lower market value and vice versa. Thus, boosting the market value of a US Treasury instrument by buying them decreases the interest rate they need to offer to sell them. But, boosting the market rate also increases the capital gains of current owners of the bonds who sell them to you. The "yield" on a bond is only fully determined by the interest rate if you actually hold it to maturity.
Some of the mechanisms at play here overlap with cryptocurrencies, but a lot of them don't. Cryptocurrencies have no maturity value or coupon payments, so the yield on holding them is entirely determined by capital gains. Nothing else. This isn't the same thing as an "interest rate" in the sense that it means with bonds. The Fed is decreasing the interest rate of new Treasury offerings, but also increasing the capital gains of current owners of Treasuries. So the interest rate decrease is a bad thing for people who want to buy new debt, but a good thing for holders of current debt.
> The Fed doesn't offer anyone yield on holding dollars. You get yield from holding treasuries and interbank commercial paper. The Fed influences the yield on these instruments by buying and selling them using a theoretically infinite supply of its own dollars.
i think my understanding of bond pricing is adequate. what i don't understand is how much of this yield (from treasuries, commercial paper) is achieved by simply increasing the money supply in the future -- regardless of which entity actually does that -- v.s. coming from an external source.
a few hypotheticals -- based on my understanding -- for the case where none of this yield comes from commercial paper:
1. after 24 years of 3% rates, the money supply's doubled.
2. after 24 years of 3% rates, the money supply's been kept constant by levying a tax equivalent to the original money supply.
in the former, nobody should care what the rate is: it's a nominal metric completely detached from anything "real". in the latter, the rate is meaningful because it's attached to something that's redistributive.
introducing commercial paper: i guess this is where rates (coupled with reserve requirements) could contract the supply. if banks generally borrow more from the fed than they lend to it, then higher rates would decrease the supply over time. if the opposite, then raising rates temporarily decreases the money in circulation but inflates the supply over time. if the goal is to tighten supply, then i don't understand why the fed would ever borrow from banks, since that liability forces an increased supply in the long run. it would make more sense to me to decrease supply simply by increasing reserve requirements. but anyway, this is a complicated enough interaction for me brain that i just wish there were guides out there that set out to show the far-reaching effects of fed rates.
Her Bitcoin take (which was at $19k at the time) is that "Scarce assets, particularly industrial commodities, are historically cheap... Alternatives like Bitcoin also offer asymmetric outcomes even with small allocations."
She's also talking about the "longish" timeframe, so it's early to judge.
This is what's called "open market operations," and it's basically the first echelon of attack on inflation. If the Fed sells government (and government agency) securities, then banks buy them, returning money to the Treasury and reducing the banks' lending liquidity. By reducing the money supply, the Fed can put a brake on inflation. The overall implication is that the Fed either wants a sharp anti-inflationary shock, or believes that longer-run secular inflation is in the cards, and is willing to cool the economy to manage that risk.
During the pandemic (and also during the response to 2008 recession) the Fed has been injecting cash into the market by buying Treasury securities and mortgage-backed securities. This is what "Quantitative Easing" is, and is a relatively new tool used by the Fed that they started leaning on when interest rates really could not go much lower. (https://en.wikipedia.org/wiki/Quantitative_easing)
Now the Fed has a really large backlog of these securities, and they are starting to unwind that by selling those securities off, effectively removing cash from the economy and slowing down economic activity (and therefore hopefully inflation).
The Federal Reserve has been working for the past few months agreeing on a plan to reduce the balance sheet. They are just saying that they are still continuing this work.
Currently, it means they will continue to let some small part of the securities the Fed hold on their balance sheet mature without immediately re-investing the proceeds.
Outright sales of these securities are another option that they seem reluctant to do at this point.
Either way this has the effect of reducing the amount of money in the system (the opposite of QE where they created money out of thin air to buy the securities in the first place).
The linked Implementation Note says $60B / month of Treasury and $17.5B / month of MBS, with the latter doubling to $35B / month in September.
The Implementation Note says it only applies as principal is paid, so this is an upper bound.
According to the maturity distribution at https://www.federalreserve.gov/releases/h41/ the Fed has effectively all of its MBS with maturity > 1 year, with the vast majority over 10 years.
AFAIK we don't have any other maturity information that "over 10 years", but I might assume it's 20 years on average because it's uniformly distributed between 10-30 years (AFAIK 30 years is typically the max mortgage time in the US). Dividing $2.7 trillion by 240 months gives $11.25 billion per month.
Which implies an increase of the cap from $17.5B to $35B is a no-op, as rollover would already be maxed a little over $11B. So why bother?
Any bond / Fed experts able to shine a light on what's wrong with my numbers?
The fed has been keeping the prices of these artificially inflated through QE. They've stopped buying (they aren't selling yet, but simply letting securities mature) and the massive reduce in demand leads to a decline in prices of the corresponding assets.
> The fed has been keeping the prices of these artificially inflated through QE
No, as the word “continue” implies, it has been, and plans to go on with, keeping the prices artificially low via Quantitative Tightening. QE ended a while back.
even worse, you have to keep your $ in the saving account for the whole year to capture the .75%. It's possible the fed may lower rates again 6 months form now if sudden recession risk.
Considering The Fed's abysmal track record, I fear the only outcome of this is more boom and bust cycles. Maybe we would be better off without Fed and Treasury intervention.
The fed and it’s macroeconomic policy is one of the biggest reasons for economic growth in the post world war 2 era. Obviously they’re not perfect, but they’re the main reason we don’t have 40 year recessions anymore like we did in the 19th century.
Can you support this? Could it be that their policy was bad but even bad policy couldn't stop the US, which spent WW2 turning into a manufacturing powerhouse while all its competition was getting leveled from the sky?
Maybe the production of useful goods and services lead to wealth, not policies formed by comittee.
The market is mostly untradeable right now. Low volume, lots of chop, possible manipulation by market makers. See how it settles in a few days, especially after we get through some more earnings releases(i.e. AAPL).
I don't get it. The price of gas I'm paying in the US, has dropped by 20% in the last month or so. That seems to indicate that prices are going back to normal. What prices is fed concerned about?
There is a labor shortage not caused by covid but due to significant portion of the population retiring. We're missing 2 million workers from 2019. Biggest issue is that raising rates actually exacerbates the issue due to increased expense in investing in automation. From a society standpoint and an economic standpoint, people shouldn't be manually picking and packing things in a warehouse when we have automation that can drastically improve this. Businesses are to blame because labor was so cheap that they never invested in automation.
Broadly speaking, if complaints oscillate between the central bank punishing savers one year and workers the other, that bank is doing something right.
Which is also why there's bipartisan consensus on giving lots more money to police and the military. After all, someone has to control the violent rabble as they are priced out of decent living!
I see what you're saying, but taking that logically a few steps further, I see this round of inflation is simply a rebalancing of prices relative to finite supply at the hands of a more empowered worker class. But I think you're right too.
> If you are pro-labor you want the fed to aggressively raise rates because that makes life harder for business.
the fed presents its goals as balancing low unemployment against low inflation. any projections for unemployment have it increasing as the fed tightens. i haven’t seen anyone say who these newly unemployed are, nor where they end up. but if the tradeoff were “low unemployment, but those at the bottom of the wrung have to move to cheaper housing (and commute further, etc)” vs “higher unemployment: those at the bottom of the wrung are SOL and end up on the streets”… well, i certainly hope that’s not the tradeoff we’re actively choosing here.
"Wages are running high, the highest they’ve run in quite some time. And they are one good example of—or good illustration, really—of how tight the labor market really is, the fact that wages are running at the highest level in many decades. And that’s because of an imbalance between supply and demand and the labor market.
So we think, through our policies, through further healing in the labor market, higher rates, for example, of vacancy filling and things like that, and more people coming back in, we like to think that supply and demand will come back into balance and that, therefore, wage inflation will moderate to still high levels of wage increases, but ones that are more consistent with 2 percent inflation. That’s our expectation."
"So in principle, it seems as though, by moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially."
Implicit in all this is the idea that wages are currently too high, and need to be suppressed.
The price for a package of oreos is about $5 now. Diesel is still way up over a year ago. Prices for food will not go back down, this is the new normal at the grocery store.
Gas is highly volatile on a good day and we're coming off of an exceptionally high spike. 20% off of a high that's ~2x what it was a year ago and ~3x what it was a year before that. Gas prices will likely continue on a generally downward arc. The shape/timeline of the arc nobody knows and how low it will go nobody knows. I doubt it will hit the 2s nationally.
Energy in the general sense underpins the entire economy but there is so much more on top of that making inflation more complex.
I am not an economic expert, so you may take with a grain of salt. Gases, prices, a complex topic. From my understanding there are/were two things causing increases in price. First is just inflation across the board that affects all items. The second is the oil specific problem of, there is plenty of crude oil, but not enough was being refined, leading to a lack of supply for actual gasoline. Some measures have been taken to curb the later problem of not enough refining. The prices dropping could be a product of that. To my knowledge the cause of that was exposing some of the crude supply to the wider world so places that had the capacity to refine more could take it and refine it. The US and several other nations were already running at capacity. Building more capacity is a long term solution, but needs year to build new refineries. The short term solution is to let whoever had slack capacity to take it, refine it, and put back out into the global market.
So the price decrease we see is probably more from the later, but there is still impact from the former. As a reminder, this goes more specifically for gas prices and not necessarily all prices on all items in general.
> The CPI figures in the latest report were grim. Food prices rose 1.0% in June and are 10.4% above year-ago levels. Food at home costs 12.2% more than a year ago. Energy prices overall rose 7.5% in June and stand 41.6% above where they were in June of 2021. Gasoline prices rose 11.2% in June and are a whopping 60% higher than a year ago. The so-called “core” inflation measure of goods and services other than food and energy rose 0.7% in June and are 5.9% above year-ago levels.
Now if we can only get states (like California) to stop giving out stimulus payments (they literally calling it inflation stimulus; learn economics 101) and drop student debt forgiveness nonsense. The fed is trying to curb inflation, while politicians are trying to get re-elected at any cost, fighting the fed.
> Now if we can only get states (like California) to stop giving out stimulus payments (they literally calling it inflation stimulus;
I agree with you on this. They're ostensibly to help people afford to buy more gasoline. We should let the high gas prices change behavior instead.
> drop student debt forgiveness nonsense.
Not sure I agree with you on this. While I don't think it would be a great idea to forgive all student debt, I think a targeted forgiveness (under certain income/net worth threshold) of some student debt makes sense.
Why means test for student loan forgiveness? It adds complexity/loopholes to be more trouble than it's worth, and it's likely not necessary: wealthy families don't need student loans, so those with a large familial net worth with student loans should be a rounding error. In addition, those from wealthy families are more likely to take unpaid internships, thereby qualifying for 'low income' in that way.
Not just a budget surplus (revenue above planned spending), but revenue that exceeds a State Constitutional cap on what the State government is allowed to spend (unless it is directed to very specific spending categories which are unlimited), and thus has triggered an obligation to return funds via some rebate mechanism.
> California doesn’t have a central bank, so it’s not like it can print money out of thin air like the Federal Reserve.
The whole point of an independent central bank is that the fiscal authority (Congress) cannot print money out of thin air to monetize spending, either; monetary policy is based on macroeconomic conditions, not fiscal demands.
OTOH, the federal government inherently has a much lower cost of borrowing than the states, and California, like many (almost all, I think, though the details vary) has a State Constitutional requirement for a balanced operating budget and effectively relies on federal deficit spending for countercyclical spending.
> If they’re giving out stimulus, they must be getting it from tax payers, right?
Yes, the inflation relief tax rebate is paid out of current tax revenue (in fact, it is a plan to fulfill a constitutional mandate to return surplus tax revenue beyond a certain spending limit if not spent on education and infrastructure) and is not characterized as “stimulus”, contrary to the upthread misrepresentation. It's redistribution which probably has a very slight stimulative (and thus inflationary) effect because it goes to people with a higher propensity to spend in the domestic economy, per marginal dollar, than those it comes from, in order to relieve more of the impacts of inflation at the lower end of the income distribution.
That's unlikely to reduce demand though. If the inflation is trigger by a lack of supply for things poor people want, taxing the rich won't change anything
> Now if we can only get states (like California) to stop giving out stimulus payments (they literally calling it inflation stimulus; learn economics 101
California is not giving out anything called stimulus payments. You seem to be referring to the inflation relief tax rebate which is the system that has been adopted to return tax revenue that exceeds the Constitutional cap on state spending (FY 1978-1979 spending adjusted for population and inflation), because of the enormous revenue windfall the state has received in the post-COVID boom (and that cap takes into account inflation, so this is even with the high inflation.)
You realize the reason California in particular has a budget surplus is because of federal stimulus in addition to their outrageously high tax policies. That aside, why give money straight into people's pocket who will go out and spend it (foolishly) and thus increase inflation? How about, invest in the states infrastructure, address homelessness, work on crime, invest in education, work on wildfires. If after all that, there is still a surplus, give it back in the form of tax cuts. Don't just give everybody free money, most of those people pay little to no tax at all. If you don't pay taxes (or pay very little), you shouldn't get tax surplus money back.
> You realize the reason California in particular has a budget surplus is because of federal stimulus in addition to their outrageously high tax policies.
California neither increased taxes nor got favoritism in federal stimulus, so that's not why it is doing outstandingly well in fiscal terms. It just manages it's economy better and so has GDP growth that consistently outstrips the national average (usually, it also gets hit harder in the brief GDP drops, but that wasn't the case with COVID—perhaps because California’s GDP is more reliant on remote-compatible work.) See, e.g. https://united-states.reaproject.org/analysis/comparative-tr...
It did cut spending during the COVID downturn, which might have affected surplus numbers, but wouldn't have any impact on revenue overshooting the Gann Limit.
> That aside, why give money straight into people's pocket who will go out and spend it (foolishly) and thus increase inflation?
Because the very slight effect of the redistribution on expected overall inflation is much less than the expected effect it has in mitigating the impact of inflation on lower-to-high-middle income earners, especially lower income.
This is not economics 101 and it's more nuanced than that. Stimulus checks can make inflation go up, but they can also do nothing. And it's important what type of inflation it causes, because California is only giving it to lower income citizens. If you quadruple the price of sports cars by giving every low income person a check, you still helped out the most vulnerable people.
This happens in reverse during recessions too, where governments will cut spending and do "austerity" when stimulation is what's called for. That's why the Fed is nominally independent - so it can implement unpopular policies.
CA isn’t printing money. If they don’t use it for this it will be used for something else. Now perhaps specifically this use of money is especially bad but it’s not obvious that’s the case.
In effect they are. When you gain the stimulus money from progressive taxes but return the money in a relatively flat (less progressive) way (like $X dollars for everyone meeting a fairly common threshold) then the velocity of the money changes. When goods/service/estate remains equal, change in velocity and change in money printed both have the inflationary/deflationary response.
The crisis is in part because of high uni prices. Giving everyone federally guaranteed loans killed price discovery for higher education. Forgive the loans without adding the possibility of bankruptcy to future loans (and forcing unis to cosign a significant fraction) and you'll just see prices skyrocket further.
We have significant shortages of so many products and services that people rely on and the only way I see the situation improving is if supplies increase, maybe dramatically. It's too difficult to curb demand for things like food and housing if the population is growing. Those are things we just need to make more of. And I don't think raising interest rates is going to spur housing starts or investment in production capabilities.