3 ms·

'Still No Stag and Not Much Flation'

6 points by MilnerRoute 2y ago

thelastgallon 2y ago
https://archive.is/nIKAI https://archive.is/nIKAI
cs702 2y ago
Maybe, but I'd be cautious about singing victory too soon. Since the pandemic, so many macroeconomic forecasts have been proven wrong (from "the sky is falling!" to "everything is great!") that I've become very skeptical of current forecasts. In the past, there have been periods during which inflation has seemed to be under control, but actually wasn't! For example, during the "stagflation" of the 1970's, the inflation rate (w/o food an energy) dropped down and seemed to be under control -- twice -- only to jump back up again each time: https://fred.stlouisfed.org/graph/fredgraph.png?g=1kT7i https://fred.stlouisfed.org/graph/fredgraph.png?g=1kT7i Getting inflation under control has proven very difficult in the past. It took three long years of rising interest rates to end the inflation of the 1970's for good. Paul Volcker at the Fed had to raise interest rate to nearly 20% to accomplish it.[a] The 10-year treasury rate hit almost 16%.[b] It was very painful for a lot of people. I think the right mindset right now is to "wait and see." And make sure you have a contingency plan! --- [a] https://fred.stlouisfed.org/graph/fredgraph.png?g=1mM6j https://fred.stlouisfed.org/graph/fredgraph.png?g=1mM6j [b] https://fred.stlouisfed.org/graph/fredgraph.png?g=1mM6m https://fred.stlouisfed.org/graph/fredgraph.png?g=1mM6m
creer 2y ago
What bothers me more is that there are different underlying mechanisms for - well, different kinds of inflation. Do interest rates really address them all? No. - "supply chain chaos" is a good excuse to raise prices - artificially limited supply, will raise prices - displaced bond supply, will raise equity prices - world awash in printed money, will raise all prices - interest rates too low, growth too high, raises prices - world conflicts, sure why not And for now there is mostly just one response: raise interest rates. Even that response is somewhat countered by: - "but wait we must re-shore", floods money, will raise prices If you posit that simply interest rates were too low, then sure, all other things being equal, you might raise interest rates and wait a while. Crude but not unreasonable. But what when you have a mess of underlying causes (some of which staggeringly large). Just slightly higher interest rates for a few months doesn't resolve all these other causes. To be fair, it's not all bad: There are still a few now well established deflationary pressures and that's a good thing: - awareness of competition, willingness to compete - "low cost countries" manufacturing - continuing tech advances - willingness to substitute

6 points by MilnerRoute 2y ago

https://archive.is/nIKAI https://archive.is/nIKAI

Maybe, but I'd be cautious about singing victory too soon. Since the pandemic, so many macroeconomic forecasts have been proven wrong (from "the sky is falling!" to "everything is great!") that I've become very skeptical of current forecasts. In the past, there have been periods during which inflation has seemed to be under control, but actually wasn't! For example, during the "stagflation" of the 1970's, the inflation rate (w/o food an energy) dropped down and seemed to be under control -- twice -- only to jump back up again each time: https://fred.stlouisfed.org/graph/fredgraph.png?g=1kT7i https://fred.stlouisfed.org/graph/fredgraph.png?g=1kT7i Getting inflation under control has proven very difficult in the past. It took three long years of rising interest rates to end the inflation of the 1970's for good. Paul Volcker at the Fed had to raise interest rate to nearly 20% to accomplish it.[a] The 10-year treasury rate hit almost 16%.[b] It was very painful for a lot of people. I think the right mindset right now is to "wait and see." And make sure you have a contingency plan! --- [a] https://fred.stlouisfed.org/graph/fredgraph.png?g=1mM6j https://fred.stlouisfed.org/graph/fredgraph.png?g=1mM6j [b] https://fred.stlouisfed.org/graph/fredgraph.png?g=1mM6m https://fred.stlouisfed.org/graph/fredgraph.png?g=1mM6m

creer 2y ago

What bothers me more is that there are different underlying mechanisms for - well, different kinds of inflation. Do interest rates really address them all? No. - "supply chain chaos" is a good excuse to raise prices - artificially limited supply, will raise prices - displaced bond supply, will raise equity prices - world awash in printed money, will raise all prices - interest rates too low, growth too high, raises prices - world conflicts, sure why not And for now there is mostly just one response: raise interest rates. Even that response is somewhat countered by: - "but wait we must re-shore", floods money, will raise prices If you posit that simply interest rates were too low, then sure, all other things being equal, you might raise interest rates and wait a while. Crude but not unreasonable. But what when you have a mess of underlying causes (some of which staggeringly large). Just slightly higher interest rates for a few months doesn't resolve all these other causes. To be fair, it's not all bad: There are still a few now well established deflationary pressures and that's a good thing: - awareness of competition, willingness to compete - "low cost countries" manufacturing - continuing tech advances - willingness to substitute