Food prices remain high and likely won't go back to pre-reropening prices. There's a dance between price level and inflation rate typically anchored by gas prices....chicken eggs are a good example. The shortages made prices spike upwards to $10+ dollars a dozen in some places. Its down to ~3.50 so partisans say, "look! transitory!" Then one argues base effects from last year that allows policy makers leeway to claim inflation is slowing, to which the same group replies, "well with inflation, prices aren't realistically going to fall back to where they were..." I thought it was initially a supply chain crisis along with ports overflowing with goods. This is all fine and dandy if wages meet or exceed inflation rate, which recent numbers do support. Except you had Powell last year delivering a speech that he wanted to fight inflation and just recently signalled more hikes. We might be able to survive with 3% target rate, but 6%? A lot of revolving corporate debt is around 0-2. Paying 3 times the amount to service payments will ultimately start to show in their bottom line. I'm not even thinking of plebs with ARMs or car payments.
Food and gas (legacy energy) prices are highly dependent on local weather, local and global diseases, and geopolitical issues. They are too volatile to “control,” and it’s somewhat a fool’s goal to do so. I believe food prices will be pressured to trend upward until mass agriculture can adapt faster than climate change. Energy will eventually become much less volatile once nations transition most of their energy sources to local sources (mostly in the form of new energy), which will take a few more decades. The supply chain was undoubtedly a huge issue caused by the pandemic. We have seen fluctuations with some sectors still not meeting demand and others now experiencing excess supply due to softer demand. However, it has mostly returned to typical market conditions. No, not 6%, but 3 or even 4% on occasion seems manageable to me. Imo, I don’t have a lot of trust in the Fed getting this right. I believe they have actually already overshot. I hope to be wrong.
Commodore is referring to the prices of crypto/bitcoin, which didn't exist back in the days of stagflation, an economic phenomenon that occurred, most noticeably, during the Carter admin, some 3 yrs after Nixon was forced to resign. both Carter and Nixon admins were plagued by high inflation; but carter also had relatively higher unemployment. btw, Nixon pulled the US off the gold standard, some 3 years before he was forced to resign from the presidency care to name some
Grocery prices won't go down due to corporate greed. They have already said this. The CEO of Kroger said prices weren't high enough pre-pandemic and now that people are used to paying more the prices will not go back, even if costs do. The CEO of I believe General Mills or Kellog's said the same thing.
Worth noting that the US is highly deleveraged compared to the past, so it makes these rate hikes less painful for now: https://www.axios.com/2023/07/29/us-economy-fed-interest-rate-hike Even with high-yield corporate debt, there's not too much coming due this year or next - if rates are still high in 2025, that will become more problematic.
It doesn't matter which side of the spectrum a person believes is better. In an inflationary (all models that have always existed), those who can leverage the cheapest debt always does best. In a deflationary model (bitcoin) it will be the person who controls the most hard assets does best. In either scenario, it will be the same group of people. We need a hard money supply (like bitcoin) in an inflationary model. (IE: hard money you can't **** with). Credit will always exist. We simply need a better model that prevents the lender from passing the risk to the entire economy. MMT people fundamentally believe in privatizing the gains and socializing the losses.
I know you anti yin/yang types love a great sound bite and sticking it to institutions but: Covid supply chain issues has loosened dramatically..... shipping and transportation costs have plunged..... labor market is more in balance..... Covid related energy supplies eased..... Inflation down from ~9% to ~3% from mid 2022 to mid 2023. By no means we should start unveiling the "Mission Accomplished" banners, but now we are in a place we the lines between Covid relief and the Russian Invasion get blurred..... Or do things like the IRA and Chip Act count toward Covid? The whole "transitory" statement always meant related to the Covid relief/stimulus, not related to any subsequent events.... because the Russian Invasion was meant to target commodities.
And we've also had devastating droughts and floods at home and aboard which hurts food prices and we have a war going on in a major global breadbasket. Russia is literally torpedoing the grain deal in order to blackmail the world. In the US, we had a Covid shutdown which impacted labor an have reduced immigration due to legislation so we even have less labor to help with food and meat prices. I get it.... har har "transitory" har har..... but we've had a lot of factors all happen at once these last several from Covid, to war, and to climate change and our "fragmentated, just in time, business friendly" supply chains are breaking at the seams. On the other hand: Egg prices fall at steepest rate since 1951 Transitory egg prices?
Hot take: We won't see an end to heightened inflation rates until the housing bubble pops. When people claim inflation is "transitory" from the Fed's expected 2% core PCE rate, usually that means things will be temporary or at least inflation being down within 4% (double the 2% rate). We're not close to that, whether it's wage growth at 5.5% of the annual rate, housing prices accelerating again, and declining layoffs/unemployment....all Great News to the old 2% economy, but a very bitter pill to a Fed tasked to kill inflation and throwing up a word salad while signaling that they'll jack up rates for the remainder of this year.
Your original reply was a quip about transitory, to which I tried to get some clarity on what that exactly meant while giving my opinion. As of 6/23 only $56 billion remained unspent from Congress and some college loan repayment will resume in the next few months so it would feel like the fiscal stimulus has unwound significantly and is in the last inning. Obviously the monetary side will take much longer to unwind and what we did for Covid means we have less "monetary ammo" to deal with another major shock. Infrastructure Bill, CHIP act, and IRA..... Those did come out of Covid..... but the US has also neglected it's infrastructure and industrial policy for about 40 years so it's not purely due to Covid. Not to mention rising geopolitical tensions. How much of "transitory" is part of the housing issue? Zoning laws still leans towards less supply, we were having labor shortages before Covid, and we have this major demographic of Gen Z and Millennials becoming homeowners. On the other hand, all the fiscal and monetary stimulus exacerbated those issues and created unforeseen consequences, like WFH which hit many small to medium sized metros hard with supply issues. Airbnb takes supply off the market during this vacation boom as well. But on the other hand again, we've put a lot of apartments on the market. It goes on and on... All that to say, I never took the Fed meaning "no matter what, things will be transitory" but related to a very specific, major event. Things are very complicated with geopolitics and climate change so I don't feel like if we have a decade of higher inflation it will because the Fed was completely wrong about "transitory".
I'll still knock on the Fed for what they did do, which is lower rates and kept them beyond reopening, and purchased Trillions in assets like Mortgage Backed Securities to with the intent to stimulate home purchases. Having low rates is one thing, but mortgage origination is directly tied with those MBS purchases as it creates an incentive beyond homeowner creditworthiness. At this point, Yellen and Powell overloaded the term to the point where transitory doesn't mean much, yet the original consumer sentiment of outrage still remains, whether it's inflation or higher lending costs. Spending is still spending. Some people are pretending there's some genius balancing act between Fed rates and the government's monetary policies, but it still affects inflation and run counter to the Fed's desire for lower rates.
. yet another cut n paste job of disjointed words. u do understand that everthing that the Fed does, which directly impact the money supply in circulation, is considered monetary policy, no? these are eg of monetary policies: increasing / decreasing the discount rate open market purchases of securities to inject more liquidity open market sales of security to extract liquidity
US inflation has steadily cooled. Getting it down to the Fed’s target rate will be the toughest mile Over the past year, inflation in the United States has tumbled from 9% all the way to 3%, softening most of the price pressures that have gripped the nation for more than two years. Now comes the hard part. Squeezing out the last bit of excess inflation and reducing it to the Federal Reserve’s 2% target rate is expected to be a much harder and slower grind. economists generally expect core prices, under the Fed’s preferred measure, to still rise at a 3.5% annual pace by year’s end — far above its 2% target. The Fed’s latest forecasts show that its policymakers expect core inflation to still be 2.6% at the end of 2024.
i laud the Fed for doing so, it was the right monetary move to help to grow the economic pie. it'd appear that ur parroting a false narrative. Fed's intent was to inject more $$ into the open market, to expand the money supply in circulation. Fed's charter includes to promote maximum employment, stable prices, and moderate long-term interest rates; there is no mentioning of "stimulate home purchases"
So it's not really about transitory or what transitory meant, got it. Well I certainly don't disagree that the Fed waited too long, but on the other hand they've done a good job once they started raising rates and communicating that too the greater market. As I've argued for and you've argued against, there were inflationary headwinds prior to Covid. It's really not. Spending a trillion on infrastructure vs a trillion in Afghanistan produces different results.
You are correct about inflationary headwinds pre-COVID. Economists warned of this in August 2019 after Trump's tariffs
