6 ms·

Speech by Chair Powell on inflation and the labor market

38 points by kamaraju 4y ago

akomtu 4y ago
Looking at the Fed table, "inflation" is just redistribution of wealth: the top 1% got a bit richer, the bottom 50% got twice richer (if this word even applies to them) and the middle 49% have lost some wealth. https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/#quarter:131;series:Net%20worth;demographic:networth;population:all;units:shares https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...
fnordpiglet 4y ago
TLDR Inflation hurts the poor by reducing their marginal income buying power a few percent. If we induce a recession they’ll lose their jobs and we can reduce their buying power by 100%. Meanwhile people with excess savings will get windfall interest payments.
- cplusplusfellow 4y ago
  Seems like we prefer inflation to recessions.
  - fnordpiglet 4y ago
    People who lose their jobs certainly do
- neilwilson 4y ago
  Don't forget the young people who can no longer set up home and start families because of higher mortgage rates, and have to stay renting - funding landlords. That and inducing a stop/start business cycle in the building industry which causes the firms to use subcontractors rather than employees. The Monetarist Mortgage Tax driven via the finance industry and the housing market is how we tax the nation - now the legislatures don't want to do it explicitly.
trashface 4y ago
I think western societies are doing themselves a disservice by training people to do just one thing as a career (college "Majors" considered harmful in my view and minors are practically useless). In Neal Stephenson's book "Anathem" all the monks had a fallback profession called an "avocation" which they could do if they failed out of their primary study. And they trained for both when they were young. We'd be much better off as a society right now if we had invested in that sort of approach for the last few decades. Mid-life career retraining is really hard and scary to even contemplate.
- jemmyw 4y ago
  The problem with that is that you just get better and better at the thing you do all the time. Specialisation to the extreme is probably most optimal for society as a whole when there are enough people.
  - ephbit 4y ago
    Societies' gains as an effect of this specialisation is just one (albeit an important one) aspect of the whole optimisation. Anti-fragility and redundancy typically decrease the number of (costly) disruptions in a system and thus the proposed fallback profession might actually be a net positive for efficiency rather than a loss.
- than3 4y ago
  While the book is thought provoking in some regards its fiction, also it doesn't really touch on the important parts of what does or doesn't make things work (largely because that wouldn't be entertaining). You may find the Wealth of Nations (1778) an interesting read as that goes into the importance of many factors that are not paid attention to today by most people (or even policy makers if you factor their actions in). It has some choice things to say about the indirect effects from the interference of labor relations which are historically backed. Make no mistake, the main reason we are where we are now is because of the consistent failures to address items that fall into that area.
64bittechie 4y ago
somethoughts 4y ago
"But recent research by Fed economists finds that the participation gap is now mostly due to excess retirements—that is, retirements in excess of what would have been expected from population aging alone. These excess retirements might now account for more than 2 million of the 3‑1/2 million shortfall in the labor force. What explains these excess retirements? Health issues have surely played a role, as COVID has posed a particularly large threat to the lives and health of the elderly. In addition, many older workers lost their jobs in the early stages of the pandemic, when layoffs were historically high. The cost of finding new employment may have appeared particularly large for these workers, given pandemic-related disruptions to the work environment and health concerns. Also, gains in the stock market and rising house prices in the first two years of the pandemic contributed to an increase in wealth that likely facilitated early retirement for some people." Kind of amusing that to certain extent the true cause of the labor shortage runs perhaps contrary to the common narrative of "entitled millennials unwilling to work hard" but perhaps the truth is more along the lines of being due to "enjoying the fruits of early retirement" boomers and FIRE practitioners?
- edmundsauto 4y ago
  > What explains these excess retirements 3 theories, I'm sure there are a lot more: 1. It sucks, in general, to be a worker-bee these days. /r/antiwork isn't only millennials and younger - some older folks looked at their lifestyle creep, their retirement accounts, and decided to throw in the towel. 2. Imagine you are in your 50s - not yet ready to retire. Your parents die earlier than expected (possibly due to C19). Retirement can come early! 3. Another scenario - lots of people retired early because the market boom made them think they had 40% more retirement than they did. It's hard to find work, and possibly even harder to find motivation to return to work.
dragontamer 4y ago
Summary: Inflation is is lower (ie: the prices continue to increase, but at a rate slower than expected). The 2nd derivative of prices is down with an (expected, at the time of the speech) PCE of 6.0% YoY. Powell still thinks that inflation will take a lot of work to tame and expects interest rates to remain elevated. But these results here are _better than expected_, so the stock market / bond market responded quite favorably this past Wednesday.
- than3 4y ago
  Unfortunately, inflation is not lower, its been masked by utilizing the Strategic Petroleum Reserve to offset price inflation in energy on the CPI. As that is now at 1984 levels, we should be seeing a massive surge in energy when they can no longer hold it down due to depleted capacity. Normal inflationary/deflationary mechanics rely on a fine balance between diverse aspects of the economy. With regard to the banks who enforce changes in behavior to the general public through the loans they provide, that is levered by depository requirements when the default rate changes. With depository requirements set permanently at 0% by the Fed, we are unlikely to be able to predict what will or won't happen. I say permanently, because if it were temporary, they would have rolled it back to the the normal percentage at the beginning of 2022, and they did not do that. You can verify that yourself here at, https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm . They are still required to account for depository levels you'll see the banks won't be able to curb that back in line anytime soon (2-3x over the limit), and worse they are now so monopolized because of changes to banking law in 2008 (with almost no new banks being chartered thereafter), that we are in for a painful ride. They can't be brought back in line without potentially causing contagion events in the financial market. So technically everything you've ever been taught about a fractional reserve banking system and its mechanics no longer applies because its no longer fractional reserve. In effect, anyone holding USD has been trapped on a runaway train, with the throttle now stuck all the way down. It was changed silently, without fanfare, or real representation, in 2020 by the same group of people that commmit high crimes to enrich themselves personally using privileged information to trade against the open market (the public). The way the markets work, any actual trade represents a winner and a loser, and if you have direct control or can impact the outcomes due to a trusted position, you shouldn't be able to participate, to the publics detriment. I hope I'm wrong, but so very few people are properly educated about these things. I don't think I am wrong, and I would desperately like to be wrong, but because the subject is taught in a vacuum without a fundamental understanding of why the division of labor allowed it to work in the first place, the everything ponzi bubble is likely to end poorly.
aschearer 4y ago
Boomers are retiring and there aren't enough young people to fill their shoes, which creates an imbalance between supply and demand for labor. >Finally, we come to core services other than housing. This spending category covers a wide range of services ... constituting more than half of the core PCE index. ... Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category. > >Comparing the current labor force with the Congressional Budget Office's pre-pandemic forecast of labor force growth reveals a current labor force shortfall of roughly 3-1/2 million people. ... excess retirements might now account for more than 2 million of the 3‑1/2 million shortfall in the labor force. > >What explains these excess retirements? ... many older workers lost their jobs in the early stages of the pandemic ... The cost of finding new employment may have appeared particularly large for these workers ... Also, gains in the stock market and rising house prices in the first two years of the pandemic contributed to an increase in wealth that likely facilitated early retirement for some people.

38 points by kamaraju 4y ago

Looking at the Fed table, "inflation" is just redistribution of wealth: the top 1% got a bit richer, the bottom 50% got twice richer (if this word even applies to them) and the middle 49% have lost some wealth. https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/#quarter:131;series:Net%20worth;demographic:networth;population:all;units:shares https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...

fnordpiglet 4y ago

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

cplusplusfellow 4y ago
Seems like we prefer inflation to recessions.
- fnordpiglet 4y ago
  People who lose their jobs certainly do
neilwilson 4y ago
Don't forget the young people who can no longer set up home and start families because of higher mortgage rates, and have to stay renting - funding landlords. That and inducing a stop/start business cycle in the building industry which causes the firms to use subcontractors rather than employees. The Monetarist Mortgage Tax driven via the finance industry and the housing market is how we tax the nation - now the legislatures don't want to do it explicitly.

trashface 4y ago

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

jemmyw 4y ago
The problem with that is that you just get better and better at the thing you do all the time. Specialisation to the extreme is probably most optimal for society as a whole when there are enough people.
- ephbit 4y ago
  Societies' gains as an effect of this specialisation is just one (albeit an important one) aspect of the whole optimisation. Anti-fragility and redundancy typically decrease the number of (costly) disruptions in a system and thus the proposed fallback profession might actually be a net positive for efficiency rather than a loss.
than3 4y ago
While the book is thought provoking in some regards its fiction, also it doesn't really touch on the important parts of what does or doesn't make things work (largely because that wouldn't be entertaining). You may find the Wealth of Nations (1778) an interesting read as that goes into the importance of many factors that are not paid attention to today by most people (or even policy makers if you factor their actions in). It has some choice things to say about the indirect effects from the interference of labor relations which are historically backed. Make no mistake, the main reason we are where we are now is because of the consistent failures to address items that fall into that area.

64bittechie 4y ago

somethoughts 4y ago

"But recent research by Fed economists finds that the participation gap is now mostly due to excess retirements—that is, retirements in excess of what would have been expected from population aging alone. These excess retirements might now account for more than 2 million of the 3‑1/2 million shortfall in the labor force. What explains these excess retirements? Health issues have surely played a role, as COVID has posed a particularly large threat to the lives and health of the elderly. In addition, many older workers lost their jobs in the early stages of the pandemic, when layoffs were historically high. The cost of finding new employment may have appeared particularly large for these workers, given pandemic-related disruptions to the work environment and health concerns. Also, gains in the stock market and rising house prices in the first two years of the pandemic contributed to an increase in wealth that likely facilitated early retirement for some people." Kind of amusing that to certain extent the true cause of the labor shortage runs perhaps contrary to the common narrative of "entitled millennials unwilling to work hard" but perhaps the truth is more along the lines of being due to "enjoying the fruits of early retirement" boomers and FIRE practitioners?

edmundsauto 4y ago
> What explains these excess retirements 3 theories, I'm sure there are a lot more: 1. It sucks, in general, to be a worker-bee these days. /r/antiwork isn't only millennials and younger - some older folks looked at their lifestyle creep, their retirement accounts, and decided to throw in the towel. 2. Imagine you are in your 50s - not yet ready to retire. Your parents die earlier than expected (possibly due to C19). Retirement can come early! 3. Another scenario - lots of people retired early because the market boom made them think they had 40% more retirement than they did. It's hard to find work, and possibly even harder to find motivation to return to work.

dragontamer 4y ago

Summary: Inflation is is lower (ie: the prices continue to increase, but at a rate slower than expected). The 2nd derivative of prices is down with an (expected, at the time of the speech) PCE of 6.0% YoY. Powell still thinks that inflation will take a lot of work to tame and expects interest rates to remain elevated. But these results here are _better than expected_, so the stock market / bond market responded quite favorably this past Wednesday.

than3 4y ago
Unfortunately, inflation is not lower, its been masked by utilizing the Strategic Petroleum Reserve to offset price inflation in energy on the CPI. As that is now at 1984 levels, we should be seeing a massive surge in energy when they can no longer hold it down due to depleted capacity. Normal inflationary/deflationary mechanics rely on a fine balance between diverse aspects of the economy. With regard to the banks who enforce changes in behavior to the general public through the loans they provide, that is levered by depository requirements when the default rate changes. With depository requirements set permanently at 0% by the Fed, we are unlikely to be able to predict what will or won't happen. I say permanently, because if it were temporary, they would have rolled it back to the the normal percentage at the beginning of 2022, and they did not do that. You can verify that yourself here at, https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm . They are still required to account for depository levels you'll see the banks won't be able to curb that back in line anytime soon (2-3x over the limit), and worse they are now so monopolized because of changes to banking law in 2008 (with almost no new banks being chartered thereafter), that we are in for a painful ride. They can't be brought back in line without potentially causing contagion events in the financial market. So technically everything you've ever been taught about a fractional reserve banking system and its mechanics no longer applies because its no longer fractional reserve. In effect, anyone holding USD has been trapped on a runaway train, with the throttle now stuck all the way down. It was changed silently, without fanfare, or real representation, in 2020 by the same group of people that commmit high crimes to enrich themselves personally using privileged information to trade against the open market (the public). The way the markets work, any actual trade represents a winner and a loser, and if you have direct control or can impact the outcomes due to a trusted position, you shouldn't be able to participate, to the publics detriment. I hope I'm wrong, but so very few people are properly educated about these things. I don't think I am wrong, and I would desperately like to be wrong, but because the subject is taught in a vacuum without a fundamental understanding of why the division of labor allowed it to work in the first place, the everything ponzi bubble is likely to end poorly.

aschearer 4y ago

Boomers are retiring and there aren't enough young people to fill their shoes, which creates an imbalance between supply and demand for labor. >Finally, we come to core services other than housing. This spending category covers a wide range of services ... constituting more than half of the core PCE index. ... Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category. > >Comparing the current labor force with the Congressional Budget Office's pre-pandemic forecast of labor force growth reveals a current labor force shortfall of roughly 3-1/2 million people. ... excess retirements might now account for more than 2 million of the 3‑1/2 million shortfall in the labor force. > >What explains these excess retirements? ... many older workers lost their jobs in the early stages of the pandemic ... The cost of finding new employment may have appeared particularly large for these workers ... Also, gains in the stock market and rising house prices in the first two years of the pandemic contributed to an increase in wealth that likely facilitated early retirement for some people.