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Jerome Powell last week: “But I do think it’s more likely that what happens in the next year or so is going to amount to prices moving up but not staying up an

by jtdev 6y ago

Jerome Powell last week: “But I do think it’s more likely that what happens in the next year or so is going to amount to prices moving up but not staying up and certainly not staying up to the point where they would move inflation expectations materially above 2%.” I find this incredibly hard to believe personally... I think the 2% projection is bogus, and find it unlikely that prices will magically just come down following this anticipated inflationary event?? Have we ever experienced that outside of very subsidized markets? https://www.axios.com/federal-reserve-powell-inflation-3061f484-bb96-44de-8690-a01300aa4e4b.html https://www.axios.com/federal-reserve-powell-inflation-3061f...

dls2016 6y ago
Bogus in which direction? The Fed has had a 2% target rate for the last 15 years, I think, and has only exceeded it for a handful of quarters. Under what theory would giving people a few thousand dollars push it over 2% for any extended period of time? So Powell is saying there are no inflation fears! Edit: I've never heard of "breakeven" rates, sounds like a betting market. Forgive if I don't believe that rich investors can actually predict this stuff. Again, what track record do they have?
- dkjaudyeqooe 6y ago
  People on the right need a boogeyman whenever (poor) people get a benefit, to scare them lest they lose the will to work. So lately it's been inflation (not the deficit now that it's paying for tax cuts for the rich). Meanwhile a deflationary spiral is truly scary, but it doesn't sound scary (my money is worth more!) so these people don't focus on it.
  - dls2016 6y ago
    It’s not even “the right”! The narrative is uniform from NyTimes and onward.
jpgvm 6y ago
Actually yes, all the damn time. The deflationary forces at work in our economy greatly outweigh the inflationary forces even in the face of massive fiscal stimulus and easy money policies. In fact I predict as a result of the workplace changes enabled by forced work from home during the pandemic these deflationary forces will accelerate and put even more pressure on wage growth (which is by far the biggest influencer of consumer inflation). We are already seeing the first stages of this with an exodus of knowledge workers out of high cost of living areas. This is merely the first stage and these early movers will reap a temporary benefit of carrying their existing salary to a lower cost area but the long term impact is companies will now freely hire from lower cost areas and as a whole depress prices of labour. Not to mention the emphasis this places on digitisation of processes that results in increasing efficiencies (read less employees, especially low skill ones) and economies of scale. I think the future of inflation is headed one way, to the absolute dumps for the foreseeable future with perhaps a tiny bump to 3-4% during Covid recovery. Long term I see the Fed actually struggling to keep things hot enough to run inflation up to their target without stepping in to force wage growth and labour competition up.
- dls2016 6y ago
  A lot of people think the Fed already has problems seeing as how they barely ever hit their 2% target! Their tools don’t seem to work already!
- dkjaudyeqooe 6y ago
  That's an interesting idea, but I'm not sure that will counteract the natural competition for talent, and for less desirable skills locality doesn't seem like such an issue (ie you can find relatively mediocre talent in most places).
- imtringued 6y ago
  One problem with the current form of monetary policy is that it is "pricing out" people. Now that asset prices are higher you have to cut back spending to afford the increased prices. This is especially important for people who are saving for retirement and those who want to buy a house with a mortgage. I personally see myself falling into "traps" where I cut back on spending because it is easier to make money from investments than from actual honest work. Sometimes it is even circular. I invest more so that I can afford consumer spending in the future even though buying the thing I need is is not out of reach for me.
dkjaudyeqooe 6y ago
Prices don't need to come down, just stop going up. Given the current state of the economy there's no evidence that this level of stimulus is actually inflationary. But there are many tools that the Fed has to tame rising prices. It could suck liquidity out of the market by selling their massive collection of bonds, or just raise interest rates. It's actually very unlikely that the Fed would have to do much of either of those because just the threat would have people acting very differently in terms of lending, investment and hiring/pay rises.

by jtdev 6y ago

dls2016 6y ago

Bogus in which direction? The Fed has had a 2% target rate for the last 15 years, I think, and has only exceeded it for a handful of quarters. Under what theory would giving people a few thousand dollars push it over 2% for any extended period of time? So Powell is saying there are no inflation fears! Edit: I've never heard of "breakeven" rates, sounds like a betting market. Forgive if I don't believe that rich investors can actually predict this stuff. Again, what track record do they have?

dkjaudyeqooe 6y ago
People on the right need a boogeyman whenever (poor) people get a benefit, to scare them lest they lose the will to work. So lately it's been inflation (not the deficit now that it's paying for tax cuts for the rich). Meanwhile a deflationary spiral is truly scary, but it doesn't sound scary (my money is worth more!) so these people don't focus on it.
- dls2016 6y ago
  It’s not even “the right”! The narrative is uniform from NyTimes and onward.

jpgvm 6y ago

Actually yes, all the damn time. The deflationary forces at work in our economy greatly outweigh the inflationary forces even in the face of massive fiscal stimulus and easy money policies. In fact I predict as a result of the workplace changes enabled by forced work from home during the pandemic these deflationary forces will accelerate and put even more pressure on wage growth (which is by far the biggest influencer of consumer inflation). We are already seeing the first stages of this with an exodus of knowledge workers out of high cost of living areas. This is merely the first stage and these early movers will reap a temporary benefit of carrying their existing salary to a lower cost area but the long term impact is companies will now freely hire from lower cost areas and as a whole depress prices of labour. Not to mention the emphasis this places on digitisation of processes that results in increasing efficiencies (read less employees, especially low skill ones) and economies of scale. I think the future of inflation is headed one way, to the absolute dumps for the foreseeable future with perhaps a tiny bump to 3-4% during Covid recovery. Long term I see the Fed actually struggling to keep things hot enough to run inflation up to their target without stepping in to force wage growth and labour competition up.

dls2016 6y ago
A lot of people think the Fed already has problems seeing as how they barely ever hit their 2% target! Their tools don’t seem to work already!
dkjaudyeqooe 6y ago
That's an interesting idea, but I'm not sure that will counteract the natural competition for talent, and for less desirable skills locality doesn't seem like such an issue (ie you can find relatively mediocre talent in most places).
imtringued 6y ago
One problem with the current form of monetary policy is that it is "pricing out" people. Now that asset prices are higher you have to cut back spending to afford the increased prices. This is especially important for people who are saving for retirement and those who want to buy a house with a mortgage. I personally see myself falling into "traps" where I cut back on spending because it is easier to make money from investments than from actual honest work. Sometimes it is even circular. I invest more so that I can afford consumer spending in the future even though buying the thing I need is is not out of reach for me.

dkjaudyeqooe 6y ago

Prices don't need to come down, just stop going up. Given the current state of the economy there's no evidence that this level of stimulus is actually inflationary. But there are many tools that the Fed has to tame rising prices. It could suck liquidity out of the market by selling their massive collection of bonds, or just raise interest rates. It's actually very unlikely that the Fed would have to do much of either of those because just the threat would have people acting very differently in terms of lending, investment and hiring/pay rises.