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In the same article: "Wages affect prices and prices affect wages," Powell said, associating current earnings growth to the current ultra-low unemployment rate

by octobus2021 3y ago

In the same article: "Wages affect prices and prices affect wages," Powell said, associating current earnings growth to the current ultra-low unemployment rate of 3.4%, and suggesting the labor market may need to weaken at least somewhat for inflation to fall. meaning that in his opinion inflation is driven by high employment, aka people spending money like crazy because they have more money that they know what to do with, and the solution is to make sure more people are out of work and with less funds to spend. Perfectly logical solution to producer-driven inflation I guess.

toomuchtodo 3y ago
https://www.cnbc.com/2023/04/21/why-economists-are-no-longer-so-worried-about-a-wage-price-spiral.html https://www.cnbc.com/2023/04/21/why-economists-are-no-longer... > The experts were worried about a so-called wage-price spiral. This occurs when workers expect inflation to keep rising, so demand — and achieve — higher salaries to keep up with price rises. Businesses then raise the prices of goods and services to cover higher labor costs, at the same time as workers have more disposable income to increase demand. This creates an inflationary loop, or in the language of economists, “second-round effects.” > But while concerns this time around aren’t totally gone, what’s being discussed more frequently now is the fact that a wage-price spiral has not occurred in the 18 months or so that inflation has been running red-hot in much of the world. > “What we’ve seen in the last year is prices rising very rapidly, but wages have not increased nearly as much, and that’s why we have a cost of living crisis,” Gourinchas said, after noting that core inflation remained high in many countries and in some cases was increasing. > “We should expect wages to catch up eventually and people’s real income to recover,” he said. Real income refers to wages adjusted for inflation, reflecting changes in purchasing power. > But the increase doesn’t present a risk because “the corporate sector has been sitting on pretty comfortable margins,” Gourinchas continued. Businesses’ revenues “have risen faster than costs, and so margins have room to absorb rising labor costs.” Tangentially, Powell cannot destroy aggregate demand via the benchmark rate in a way that materially impacts the unemployment rate due to structural demographics. ~2 million people over the age of 55 die every year in the US. ~3 million Baby Boomers retire every year. 55+ workers clinging to the participation rate is holding a lot of this together. https://www.barrons.com/articles/the-labor-market-bends-toward-scarcity-the-fed-cant-change-that-51670019273 https://www.barrons.com/articles/the-labor-market-bends-towa... https://seekingalpha.com/article/4531829-older-workers-propping-up-us-economy https://seekingalpha.com/article/4531829-older-workers-propp...
- octobus2021 3y ago
  > “What we’ve seen in the last year is prices rising very rapidly, but wages have not increased nearly as much, and that’s why we have a cost of living crisis,” Gourinchas said, after noting that core inflation remained high in many countries and in some cases was increasing. EXACTLY. Wages driving inflation my behind. If anything, businesses increasing prices cause other businesses (that purchase their goods) to increase their own prices. While most businesses manage to keep wages low (and increasingly laying off more and more staff). How is increasing unemployment rate supposed to tame the inflation in this scenario????????
WalterBright 3y ago
> "Wages affect prices and prices affect wages," Powell said Ah, the old wage-price spiral theory of inflation, which is total bunk because it doesn't explain the increase in the money supply. Inflation follows the increase in the money supply due to money creation by the Fed. It's in Powell's best interest to deny this.
- erur 3y ago
  Agree that the spiral as a core reason is total BS but for both the US and Europe it goes beyond just increasing the money supply. Reducing the supply of goods/materials will have the same effect - even at a constant money supply. In Europe the ECB/EU gov is hiding behind the War in Ukraine and global supply chain issues to hide what is mostly their own pandemic purchasing program and overspending driving massive inflation. Then there's also their there's also sanctions, trade wars and over-regulation adding fuel to the fire. Of course none of these are a "natural effect from market dynamics" - as much as they'd love to make it sound like that.

toomuchtodo 3y ago

https://www.cnbc.com/2023/04/21/why-economists-are-no-longer-so-worried-about-a-wage-price-spiral.html https://www.cnbc.com/2023/04/21/why-economists-are-no-longer... > The experts were worried about a so-called wage-price spiral. This occurs when workers expect inflation to keep rising, so demand — and achieve — higher salaries to keep up with price rises. Businesses then raise the prices of goods and services to cover higher labor costs, at the same time as workers have more disposable income to increase demand. This creates an inflationary loop, or in the language of economists, “second-round effects.” > But while concerns this time around aren’t totally gone, what’s being discussed more frequently now is the fact that a wage-price spiral has not occurred in the 18 months or so that inflation has been running red-hot in much of the world. > “What we’ve seen in the last year is prices rising very rapidly, but wages have not increased nearly as much, and that’s why we have a cost of living crisis,” Gourinchas said, after noting that core inflation remained high in many countries and in some cases was increasing. > “We should expect wages to catch up eventually and people’s real income to recover,” he said. Real income refers to wages adjusted for inflation, reflecting changes in purchasing power. > But the increase doesn’t present a risk because “the corporate sector has been sitting on pretty comfortable margins,” Gourinchas continued. Businesses’ revenues “have risen faster than costs, and so margins have room to absorb rising labor costs.” Tangentially, Powell cannot destroy aggregate demand via the benchmark rate in a way that materially impacts the unemployment rate due to structural demographics. ~2 million people over the age of 55 die every year in the US. ~3 million Baby Boomers retire every year. 55+ workers clinging to the participation rate is holding a lot of this together. https://www.barrons.com/articles/the-labor-market-bends-toward-scarcity-the-fed-cant-change-that-51670019273 https://www.barrons.com/articles/the-labor-market-bends-towa... https://seekingalpha.com/article/4531829-older-workers-propping-up-us-economy https://seekingalpha.com/article/4531829-older-workers-propp...

octobus2021 3y ago
> “What we’ve seen in the last year is prices rising very rapidly, but wages have not increased nearly as much, and that’s why we have a cost of living crisis,” Gourinchas said, after noting that core inflation remained high in many countries and in some cases was increasing. EXACTLY. Wages driving inflation my behind. If anything, businesses increasing prices cause other businesses (that purchase their goods) to increase their own prices. While most businesses manage to keep wages low (and increasingly laying off more and more staff). How is increasing unemployment rate supposed to tame the inflation in this scenario????????

WalterBright 3y ago

> "Wages affect prices and prices affect wages," Powell said Ah, the old wage-price spiral theory of inflation, which is total bunk because it doesn't explain the increase in the money supply. Inflation follows the increase in the money supply due to money creation by the Fed. It's in Powell's best interest to deny this.

erur 3y ago
Agree that the spiral as a core reason is total BS but for both the US and Europe it goes beyond just increasing the money supply. Reducing the supply of goods/materials will have the same effect - even at a constant money supply. In Europe the ECB/EU gov is hiding behind the War in Ukraine and global supply chain issues to hide what is mostly their own pandemic purchasing program and overspending driving massive inflation. Then there's also their there's also sanctions, trade wars and over-regulation adding fuel to the fire. Of course none of these are a "natural effect from market dynamics" - as much as they'd love to make it sound like that.